Gold Industry Trends - Dissertation Example

?Literature Review Table of Contents Table of Contents 2 Literature Review 3 Gold Industry Trends 3 Gold Industry Investment 4 Gold as Financial Product and Instrument 4 New Product Development in Financial Services Industry 5 Research and Development for Financial Products 6 Ansoff Matrix for Financial Products 7 Market Segmentation for Financial Products 8 Audit for Financial Products 9 Conclusion 10 10 References 11 Bibliography 14 Literature Review Gold Industry Trends Gold is a precious and rare material in the world which is largely used as the basic component for manufacturing ornaments. However, in the current day context it is also used as one of the popular instruments for investment. As revealed from the report published by World Gold Council (2011), the international market for gold is quite strong with rapidly growing prices for gold products although customer demand in this market context can be witnessed to be highly fluctuating. For instance, in the second quarter of 2011, the international demand for gold was almost 919.8 tonnes, 17% less compared to previous year. The value of gold has increased by 5% ‘year-on-year’ and the total demand of gold with respect to value is 44.5 billion USD (World Gold Council, 2011). Furthermore, in the second quarter of 2011, the demand of gold attained a record increase by concentrating on the emerging markets of India and China. These two nations occupy almost 52% of gold piece and currency investment as well as 55% of aggregated international jewels’ demand. It is worth mentioning that demand for gold in India is accounted as 38% and China is 25% with respect to worldwide gold growth rate i.e. 7% in 2011 (World Gold Council, 2011). Gold Industry Investment The financial market of gold permits market contestants to use gold as a medium of capital, investment and a basis of security. Gold is practically imperishable and can exist in several forms. Thus, gold can be used for jewelry, investment, official assets, security etc. The investment in gold currently accounts as the second largest usage of the material. According to the report of World Gold Council (2011), in the year 2010, the total amount of gold investment was almost 31,400 tonnes i.e. 18.7% of total gold usage in the world. In the year 2010, several assessments proposed that around 168,300 tonnes of gold have been extracted worldwide which can have an impact on the demand of gold (World Gold Council, 2010). Gold as Financial Product and Instrument For various investors, gold has emerged to be a financial instrument and an ideal investment choice which is fundamentally associated with lesser risks compared to other financial investment instruments. Investment in gold is beneficial when the financial market condition is unstable. In present day context, there are several products which originate their worth from the price of gold and those products are used as investment instruments such as ‘gold futures’, ‘gold exchange traded funds’ and ‘licensed gold coins’ among others. In this irregular value of currencies, driven by economic condition and massive uncertainties regarding accurate price of other financial instruments, gold can be a smart option to invest (The Hong Kong and Shanghai Banking Corporation Limited, 2011). New Product Development in Financial Services Industry Financial organizations need to carry out new product development strategies on a regular basis to stay competitive in the market. Discovering the potentials of developing new financial products to influence the current customer demand in the market is an exceptionally stimulating procedure followed by financial institutions (Strategy Corporate Finance, 2010). In the financial industry, new product developments are often witnessed to fail because of quick market variations along with the challenges of altering internal structures to preserve new offerings. The challenges of new product development for financial products can be approached from three perspectives which are: Introducing a single financial product Recognizing the requirement for fundamental procedure to empower effective product launches Improving organizational structure to support quick and customizable product launches Because of high risk in developing financial product, financial organizations should monitor product concepts to plan market share performance and protect against cannibalizing current financial products (EMC Corporation, 2008). New product development can ensure long-term survival of a firm. In recent times, a massive growth in the number of financial products in the financial industry has been witnessed. From the perception of banking organizations, it is quite easy to develop an early idea of the new financial product and describe the probable advantages to the customers. The new product development in financial product comprises of six stages which are: Recognizing probable customers Gathering responses from probable customers regarding the idea of a new product Retrieving a comprehensive ample customer base Gaining response from customers Classifying appropriate customers Reacting to customer requirements in timely manner (Naude & et. al., 1998) Research and Development for Financial Products For every financial organization, innovation has emerged to be one of the vital aspects for better performance. Unlike other industries, innovation is more complicated in financial services industry because of economic forces. Organizations spend huge amount for research and development of new innovative products and stay competitive in the market. There are several barriers for research and development of financial products such as: Insufficient cooperation between industry and educational establishments to support significant innovative research Financial risk linked with extensive investment in creating research and development services with no definite returns Unsatisfactory government inducements to support research and development solutions for financial sector Globalization and prompt technological expansion in the industry have offered a serious challenge for research and development in relation to financial products. It is due to the reason that in this intense competitive environment, success of financial products is decided by rapidity of development and use of new technology, prompt enactment of technologies and availability of qualified employees. Including these aspects in the operations of financial services organization emerges to be quite challenging which in turn barricades innovation in the industry to an extent (Riordan, 2008). Ansoff Matrix for Financial Products Ansoff matrix is a marketing tool that assists organizations to decide the products and strategies for the attainment of growth in the market (Spec, 2008). According to Ansoff matrix organization can follow four strategies which are: Market Penetration: For financial product, market penetration means selling the existing financial products in the old market. Unlike other products, the financial product is concerned with comparatively less penetration (Indian School of Business, 2010). Notably, in the market of USA, the financial product penetration is comparatively higher than European and Asian market. For example, in the year 2010, the penetration of HSBC was 71% in USA, 35% in European and 43% in Asian markets (Greenwich Associates, 2011). Market Development: Market development is a growth strategy where organizations sell their existing products in new markets. In present days, the development of thriving markets for financial products such as mortgage loans and credit have adopted significant pace that play a vital role in organizing, saving, and allotting the products to dynamic investments (Rato, 2007). Product Development: Product development is another growth strategy where organizations intend to launch new products in existing markets. In the financial market several new products were introduced in the existing markets in recent days. The introduction of new financial products was largely motivated by deregulation policies, new advanced technologies, and development of investors’ preferences. One of the fastest rising financial products in the existing global market is Collateralized Debt Obligation (CDO). According to the report of International Monetary Fund (IMF), the global market of CDO was 3 trillion USD in 2006 which was half compared to market of mortgage products. However, the success or failure of new financial product depends on economic conditions of the market (Korea Institute of Finance & Fiscal Policy Research Institute, n.d.). Diversification: Diversification arises when organizations sell new product in completely new markets. Through this approach, organizations diversify their operations to get private paybacks, rather than accomplishing a decrease in distinctive risks (Chang & Elyasiani, 2008). The financial product diversifications can be in the form of specific loan products, tailored credit product which can satisfy a particular market’s financial requirements (Dellien & et. al., 2005). Market Segmentation for Financial Products Market segmentation assigns the financial products which will be merchandized in financial markets. Market segmentation does not concern whether financial products are acknowledged to structured market or operated on ‘Multilateral Trading System’. Financial products are used as a standard for the distribution in the diverse market segments. The segmentation criteria for financial products are generally determined by: Market (Structured or Multilateral) Nature of financial products Quality and disclosure necessities Liquidity Transaction method For financial products, the market can be segmented on the basis of the variety of financial instruments available to the potential customers in terms of ‘equity market’, ‘derivative market’, ‘bond market’, ‘investment market’, ‘structured products’, etc. (Wiener Borse AG, 2011). Audit for Financial Products Auditing, in this context, is the calculation of the final product and its appropriateness against its objectives so as to ensure the success of the financial product in the market by identifying and measuring the risks. The audit of financial product is conducted to ensure that it satisfies the requirements of customers as well as of the organizations. The audit for financial products can be performed in two ways i.e. internal audit and external audit. The internal audit is intended for evaluating the rules and processes by the organization itself to effectively manage the operational risks of a particular financial product. On the other hand, external audit is executed by an external auditor and mostly by regulatory bodies to evaluate the reliability and quality of financial products served by the organization (Isern & et. al., 2008). Conclusion Financial market is the basis of strong monetary development. Financial market allows investors to perform businesses by buying and selling financial products such as securities, bonds, shares and commodities. It is in this context that gold has emerged to be one of the most preferred investment products in the recent days. Gold acts as an alternative option for investment if the returns on other financial products are uncertain (Financial Technologies Knowledge Management Company Limited, 2011). With reference to the findings obtained from the literature review it can be stated that the international demand for gold is strong and is also increasing. There are several ways to invest in gold such as ‘gold bars’, ‘gold coins’, ‘gold futures’, ‘gold exchange traded funds’, etc. Unlike other products such as electronic or consumer goods, the financial products have different characteristics. The market segmentation, new product development, research and development of financial products are also quite challenging to be implemented in the financial services industry as the success or failure of financial products depends largely on several economic factors. With respect to emerging markets for financial products, the Asian regions provide great prospects for financial organizations. To prosper in the emerging as well as existing market, organizations need to have rich publicity in the financial market and understanding about ranges of innovations and mechanisms that have developed in primary financial markets (Financial Technologies Knowledge Management Company Limited, 2011). References Chang, M. S. & Elyasiani, E., 2008. Product Diversification and Performance in the Financial Industry: FHCs’ Expansion into Insurance Activities. Department of Finance. [Online] Available at: http://portal.business.colostate.edu/projects/ARIA/Shared%20Documents/2e_Chang_Product%20Diversification%20%20Performance%20in%20the%20Financial%20Industry.pdf [Accessed October 20, 2011]. Dellien, H. & et. al., 2005. Product Diversification in Microfinance: Introducing Individual Lending. Women's World Banking. [Online] Available at: http://www.swwb.org/publications/product-diversification-microfinance-introducing-individual-lending [Accessed October 20, 2011]. EMC Corporation, 2008. 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