Wizards of Oz: Why ‘Down Under’ Doesn’t Mean ‘Down-and-Out’

“Australia suffers from the ‘tyranny of distance’,” says Steve Woodyatt, managing director of Object Trading, a provider of direct market access trading technology that is now based in London, but started in Australia. “It’s one of the furthest places you can be from North America and the western hemisphere, so lots of Australian entrepreneurs feel that to be successful, you’ve got to be… able to compete despite that hurdle.” However, Woodyatt says Australia has always had an innovative approach to data, such as remote sensor data, and handling large datasets.

In addition, the Australian market has traditionally been an early adopter of financial instruments and practices that take longer to become generally accepted elsewhere, says Kevin Milne, chief executive of benchmark pricing data provider Rate Validation Services, citing Australia’s early use of exchange-traded funds. In RVS’s own case, innovation and expansion were born from necessity, since domestic firms found themselves marking their—and clients’—trading books with prices that were in effect a day old and did not include trading that took place after local market close in Europe and the US. And after finding a base among Australian firms, the vendor found a barrier to further expansion among global firms, which often performed their pricing function in-house in London, so set up a large UK presence around 15 months ago to address this.

“We always realized that to go mainstream, we would have to move beyond Australia. To this day, less than 0.5 percent of our revenues come from Australia. Our first contracts were signed in London. We’ve always predicated our business case on an international play,” Woodyatt says.

But this isn’t the case for everyone, according to Keiren Harris, Hong Kong-based partner at market data consultancy DataContent. “Australia is a very domestic market—I would guess that 90 percent of the Australian market is held domestically,” Harris says. “When Australian companies go offshore… it can be expensive to set up operations, and whenever you go into any new market, you’re likely to be competing with Thomson Reuters and Bloomberg, who have good international and over-the-counter content, whereas local vendors tend to be good with local equities data, but less so with OTC and international data,” he says.

This is partly true for RVS, which has spent its time in London globalizing its pricing offering, but in the meantime has moved its headquarters to Singapore, placing the vendor slightly closer to the London timezone, while positioning it closer to key Asian markets to sell to Hong Kong and Tokyo. “So we’re Australia-incubated, and Singapore-headquartered, with our main base in London… [and] the US is the next logical step for us. But to enjoy success in the US, you need a significant presence in the US. It’s on our radar of what we want to do, and customers are pushing us to do it,” Milne says, adding that the vendor has not yet decided whether to enlist local representatives or set up its own direct presence.

When trading technology and data display provider Iress Market Technology decided to expand into Canada in 2004, it initially formed a joint venture with ITG Canada to leverage the broker’s local expertise, and acquired a local trading business from Reuters, before migrating those clients to Iress products and growing the existing base organically from there. “It wasn’t making tens of millions of dollars, but it gave us some bragging rights. The idea is that you come into a market, start with one product, then use that to leverage other products. We started in trading, brought in market data… and are now expanding to other services that Iress has in Australia,” says Jim Davies, president and CEO of Iress Canada.

“At Iress, we had useful capabilities built for the Australian market that we were able to port to other markets,” says Kevin Lowther, who worked for Iress as its New Zealand business manager between 1997 and 2001, and now runs Mentem Partners, which provides market data consulting and represents companies trying to grow their local presence. “It takes a long time to understand the requirements of each local market. It’s not just a question of getting local exchange feeds and plugging them into the product,” he says, adding that advances in technology mean that entering new markets is easier than it used to be, and companies can now achieve many of their aims without a local technology presence or proprietary datacenter, thanks to third-party datacenter providers.

Others say a direct presence is still needed to win over wary firms. “The importance of establishing in London first—which started as a representative office, and ultimately became our headquarters—was that the majority of customers want to be able to sit down with you regularly,” Woodyatt says. “There is discomfort over whether you can support clients from thousands of miles away. Global top-tier firms need the comfort of having people 24/7 that they can talk to.”

For the Australian Securities Exchange, the marketplace can be thousands of miles from traders, so making it easy for potential clients to connect to its market and consume its data via a range of choices is key, says Paul Stonham, senior manager of market development and sales at ASX. “Our futures market is 24-hour, and around 30 percent of our volume takes place outside local hours,” he says, adding that latency (Woodyatt’s “tyranny of distance”) is not a major issue because Australia’s market—especially its futures market—still employs significant levels of point-and-click trading, making accurate models more important than sheer speed.

With the Australian economy offering higher interest rates than others worldwide, investors are actively seeking access to ASX’s markets, Stonham says. Harris notes that Australia’s economy is heavily driven by commodities, and says that one of the trends of how Australian companies expand—aside from targeting the main financial centers—is to target familiar markets, such as Canada, which is also heavily focused on commodities.

“The reason Iress originally picked Canada was that the countries speak the same language, and the markets are very similar. But there are always differences—even in the way people look at data displays. So you make little changes for each domestic market, and you try to be a domestic vendor,” Davies says, adding that these differences can sometimes play to a new entrant’s advantage, if it can also meet local requirements. “When any company enters a country from somewhere else, it will invariably bring new ways of doing things that people in that country haven’t seen before.”

And after a company has successfully managed its entry to one new market, it becomes easier to move into others, opening vendors up to potential customers in new regions. “The move from being an Australian-based service to a global, London-based service was the biggest leap—I don’t think moves to other regions will be such a big leap,” Milne says.