Just ten years ago when the privatisation wave was running across the world, the Berlin wall was tumbling down and new post-communist countries were being born, it seemed that new national stock exchanges were opening almost daily, from the the Baku Stock Exchange in Azerbaijan to the re-opening of the Warsaw Stock Exchange in Poland in For a time it seemed that national stock exchanges were regarded like national airlines, a country needed to have one to prove its autonomy.
Some of those exchanges have prospered, but a surprising number have foundered. As major companies have listed on the LSE or NYSE, liquidity in many emerging markets has been hollowed out. This is not just a feature of the newest and smallest exchanges, established perhaps more as a result of aspiration than demand. Annual turnover of the Borsa Comercio de Santiago This chart shows the annual turnover since the mid s of what was one of the oldest and most advanced stock exchanges in Latin America, the Santiago Borsa.
Remember that in developed markets the trend was different with the period between to being boom years not just for equity prices but volumes too. This trend of liquidity collecting in the most liquid markets and draining from the less liquid has been helped by deregulation as restrictive practices are removed. At one time, the Nasdaq looked like becoming a franchise with the initial, but not lasting success of the Jasdaq, Kosdaq and Easdaq.
But there are two other, perhaps more reliable, forces driving consolidation of exchanges that will be there whether the political will for further deregulation is strong or not: Local exchanges first arose through local informational advantages trading the shares of local companies or national companies of interest to local investors. The local dealers on the Pittsburgh exchange were once the best informed about what was happening to companies in Pittsburgh. As a result potential buyers and sellers of these stocks flocked there providing good liquidity.
Local investors, cut off from more immediate price information, would also trade national stocks amongst themselves. A single market is commonly described as "frontier-free". In addition separate national markets still exist for financial services , energy and transport. Laws concerning the recognition of professional qualifications also may not be fully harmonized. Complete economic integration can be seen within many countries, whether in a single unitary state with a single set of economic rules, or among the members of a strong national federation.
For example, the sovereign states of the United States do to some degree have different local economic regulations e. Movement of people and goods among the states is unrestricted and without tariffs. Benefits and costs[ edit ] A single market has many benefits: Such a firm may eventually get some orders from abroad, which are seen either as an irritation for small orders, there may be a great deal of effort and cost involved in obtaining relatively modest revenue or as "icing on the cake.
In the international stage, as certain country markets begin to appear especially attractive with more foreign orders originating there, the firm may go into countries on an ad hoc basis—that is, each country may be entered sequentially, but with relatively little learning and marketing efforts being shared across countries. In the multi-national stage, some efficiencies are pursued by standardizing across a region e. An example of a truly global company is Coca Cola.
Note that these stages represent points on a continuum from a purely domestic orientation to a truly global one; companies may fall in between these discrete stages, and different parts of the firm may have characteristics of various stages—for example, the pickup truck division of an auto-manufacturer may be largely domestically focused, while the passenger car division is globally focused.
Although a global focus is generally appropriate for most large firms, note that it may not be ideal for all companies to pursue the global stage. For example, manufacturers of ice cubes may do well as domestic, or even locally centered, firms.