International Business and Strategy - Example

International Business and Strategy Table of Contents Introduction 3 Task PESTEL TABLE 3 Task 2: Critical Analysis of the Macro-environmental factors 6 Task 3: 5-Forces Analysis and Vrio for Denmark Market 10 Task 4: Mode of Entry in Denmark Market 13 Conclusion 14 Recommendation 14 Appendix 17 Introduction Due to the global financial crisis that took place in 2008 the retail banking business has become an important source of stability in the international market (Kluth and Lynggaard, 2013). However the banks have been successful in dealing with the financial crisis by taking new strategies that would be beneficial for the customers in the international market. The banks started offering loans at low interest rates to the entrepreneurs who wish to set up their business and thus encourage more individuals and companies to take loans from the banks (Yang, 2014). The paper discusses that the retail business has been flourishing in five countries namely Denmark, South Africa, Panama, Ecuador and Pakistan and the strategies undertaken by the retail banking sector in order to increase the business possibilities. The report aims at understanding the retail sector and the challenges it faces and the studying about the macro-environmental factors affecting the BBVA retail banking sector. Task 1 PESTEL TABLE Political The Danish banking sector is affected and regulated by the financial system and the corporation tax has declined over the years between 1995 and 2008. The financial sector in Denmark is supervised by ‘Financial Supervisory Authority’ and it ensures stability in the financial system (Rughoo and Sarantis, 2014) South Africa is highly susceptible to the political risk factor. However the study suggests that the country is politically stabilized and supports the banking sector to a greater extent. The political system in Panama has a lack of independence in recent cases where the business decisions have to be as per the law and orders of the court. Hence it often creates problem to the banking sector related to its expansion within the country (World Bank, 2015b). There was an uncertainty during the global economic crisis which led to political instability and rise in oil prices in the international market. The high inflation and other political shocks affected the banking sector in Ecuador. Most of the financial system in Pakistan suffered from political interference in the decision making process of the banks related to the lending and also in appointing the managers and the middle class was not given enough attention by the banking sector. The study also suggested that most of the banks in Pakistan were under the control of government (World Bank, 2015b). Economical The study says that the banking sector in Denmark is affected by the economic climate that the years preceding the financial crisis there was an economic boom which led to the rise in GDP. The first drop in GDP was observed in the year after the global financial crisis (Howarth and Quaglia, 2013). The growth of industries in South Africa has been largely affected by the economic conditions of the consumers and a stable economic environment allows the consumers to spend more on the goods and services. It also affects the banking sector as the customers would be willing to take loans from the banks (World Bank, 2015b). According to the IMF study the economy in Panama continued to grow strongly and there was a rise in GDP growth and there was low wholesale funding and increase in capital as well as the liquidity ratios leading to an enhanced retail sector within the economy. The uneven income distribution in Ecuador is one of the main reasons for the low financial condition of the country that results in a non-existent economic growth and the economy enters into a vicious cycle. Mergers and acquisition in the Pakistan’s banking sector plays a key role that in turn contributes to the economic growth. The study suggests that Pakistan’s economic policy is such that it has opened doors to the foreign banks to be a part of the country’s financial policy (World Bank, 2015b). Social The banks within Denmark have maintained a social environment by determining the participants in the business process. Further the financial companies are undertaking social investing services that allow the customers to carry out their trade (Howarth and Quaglia, 2013). The level of trust that is imposed by the customers in the Banking sector of South Africa is highly influenced by the social entities within the country that is the customers are influenced by the family, neighbours and friends. The banks in turn undertake a customer relationship management in order to expand the customer base in the financial market. The social behaviour of the customers in Panama is the main reason for setting up a successful banking sector within the country in order to meet the growing demands for money by the customers to start their own business (Howarth and Quaglia, 2013). The financial stability within the nation has brought about a faster growth in the society with reduction of poverty and the retail banking sector has flourished to a great deal in financial market of Ecuador. The banks of Pakistan take care of the customer satisfaction within the economy by taking care of the needs of the customers and also in order to enhance the customer relationship management process in the economy (Howarth and Quaglia, 2013). Technological The banking system in Denmark aims to offer customer friendly PC service and some other banks carry on with the telephone as well as the internet banking service (Howarth and Quaglia, 2013). Since the mobile phones have become an important mode of communication so the banks in South Africa has started the mobile phone banking. The banks in Panama has adopted statistical as well as economic models leading to a broader access to the bank credit and also adopted security and risk management measures (Howarth and Quaglia, 2013). The banks in Ecuador have adopted digital technologies in order to enhance the experience of the customers in retail banking. The e-banking facility that has been initiated by the banking system in Pakistan has proved to be useful to the customers to carry out the transactions faster (Howarth and Quaglia, 2013). Environmental The banking sector in Denmark is considered to be a fast growing sector creating an environment for the customers who find it convenient to carry on with their banking transactions. The banks of South Africa undertake relationship banking with the customers so as to enhance the customer loyalty along with the value proposition as well as the service and quality of the employees working in the bank (Howarth and Quaglia, 2013). The banking environment in Panama has been highly competitive due to the high profit that the banking sector earns and the increased bank concentration ratio. The consumer banking sector in Ecuador has been successful in penetrating in the high and middle-income sectors by providing retail products to the customers and improving the environmental conditions of the economy related to the retail sector. As the study suggests that the environment of Pakistan is deregulated hence there is aggressive competition in the banking sector and the due to the privatization of the banks the competition has further increased (Howarth and Quaglia, 2013). Legal The banks in Denmark are regulated by the Danish Companies Act and it is also expected that the Danish banks have to fulfil the financial business act. The Registrar of Banks and the Ministry of Finance in South Africa are responsible for the mergers and the acquisitions that take place in the financial sector of South Africa (World Bank, 2015a). The study says that Panama has no legal restrictions imposed in the transfer of funds abroad and on the capital to be invested in the economy. Hence the banking transactions can run smoothly (World Bank, 2015a). In case if Ecuador prefers to do its business with the foreign banks there are legal restrictions imposed on the banking operations as well as the entry requirements. The banking sector in Pakistan operates under strict legal agreement that has to be followed by the customers in order to carry out a smooth transaction process (World Bank, 2015a). Task 2: Critical Analysis of the Macro-environmental factors Political The study suggests that the banking sector in Denmark is highly affected by the European political system. The financial sector within the economy is also increasingly regulated by the European Union and there was a new agreement on the capital requirements for the banks (World Bank, 2015a). On the contrary South Africa is said to face financial risk factors as the banks are not well established to meet the growing demand for loans within the economy. The other three countries that are considered in this research are Ecuador, Panama and Pakistan which suffered from uncertainty after the global financial crisis of 2008 which led to inefficient decision making process by the retail banking sector. Hence the political situation of Denmark is much stable for BBVA to conduct its retail banking business. Economical The study says that there was a positive growth within the economy of Denmark and the public debt to GDP ratio decreased from 45.4% in 2013 to 42.4% in 2014 and the GDP growth rate is expected to rise further in 2015 (World Bank, 2015b). The unemployment rate has also decreased from 5% in 2014 to 4.8% in the first quarter of 2015 (World Bank, 2015b). The retail sector has shown a significant growth in the first quarter of 2015 which indicates that the business would be successful in the Denmark Market. However there was significant growth in South Africa, Ecuador and Panama but the retail banking sector is expected to flourish in the Denmark Market as the government aims to increase the GDP by end of 2015. Social The social factors that affect the setting up of banking sector within the economy are the demographic changes which in turn changes the techniques to run a business. However the banking sector in Denmark has observed a change in the lifestyle of the individuals due to the reduction in poverty and the rise in the employment level within the economy (Garrett, 2013). The retail sector has flourished in Denmark with the opening up of a large number of bank branches as compared to that of South Africa, Panama, Ecuador and Pakistan (Garrett, 2013). Further the rise in longevity of the individuals over the years has increased the possibility of demand for pension Figure 1: Population ages 65 and above (% of total) (Source: World Bank, 2015a) According to the graph Denmark is the country with highest life expectancy as compared to other countries and it is expected to increase by 2015. Technological The banking sector in Denmark has undertaken intensive technological innovation that involves the customers to carry out their transaction processes electronically. The transactions that are undertaken by the customers mainly involve electronic payment methods that replace the cash payment that was used traditionally (Fonseca, 2014). The Danish Bank has recently estimated the societal cost that is incurred due to the use of cash and it was around 7.8 billion in 2013 (Flatraaker, 2013). However technological innovations like e-banking and the statistical models to increase the access to bank credit has been adopted by countries like South Africa, Panama, Ecuador and Pakistan but the retail sector has increasingly developed in Denmark Market. Figure 2: Commercial bank branches (per 100,000 adults) (Source: World Bank, 2015b) Environmental The banks have tried to maintain the customer relationship management process in order to increase their customer base within the economy (Narteh and Kuada, 2014). The financial institutions conduct the corporate social responsibilities in order to reduce the level of energy that they consume. However the banks of Denmark are highly aware of the environmental issues and also face a huge competition with the financial sectors established in other countries. Legal The Denmark Market is controlled with strong legislative policies that are applicable to the financial institutions as well. The banks are expected to fulfill the requirements set by the Financial Business Act which involves issues related to the administrative body, level of equity required and auditing and management responsibilities (McNeill, 2013). The act also involves the authorization to establish the financial institution within the country. However there are several restrictions imposed on setting up of financial institutions in other countries like Pakistan, South Africa and Ecuador but despite the legal issues there has been setting up of large number of bank branches in Denmark Market (Kleimeier, Sander and Heuchemer, 2013). Therefore PESTEL Analysis indicates that Denmark is the most suitable market for the establishment of financial institutions. Task 3: 5-Forces Analysis and Vrio for Denmark Market Porter’s 5-forces analysis related to the BBVAs retail banking in Denmark The porter’s five forces analysis comprises of different factors that affect the running of a business in the international market. The forces involve the bargaining power of the business partners in the international market and the power of the suppliers who control the supply of products (Narteh, 2013). Further it also involves the threat from the competitors that involves new entrants in the market and the substitute product and the competitive rivalry that the company faces in the global market. Bargaining Power of the Business partners This involves the ability of the business partners to make the situation favourable to them so that they can run their retail business successfully. Both the companies and the customers are considered as business partners. The economy in Denmark was hit by the global financial crisis and it lost around 0.4% of the real GDP in 2013 but Denmark was able to overcome the situation and a large share of the market is captured by SMEs that is around 99.8% in 2014 that connects to the retail sector (Fiordelisi, Soana and Schwizer, 2014). This shows a strong bargaining power in the Denmark market. Threat of New Entrants Denmark market is suitable for BBVA to expand its retail business but it faces threats from the rivals regarding the entry in the Denmark market. Hence there is a solution for BBVA to reduce the threat by carrying out mergers and acquisition that would help the company to run the business successfully (Hanafizadeh, Keating and Khedmatgozar, 2014). BBVA considers this as a much suitable strategy in order to reduce the possibility of the loss of customers. Bargaining Power of the Suppliers The banking sector does not have large number suppliers within the economy. The banks set up interest rates and the customers’ deposit their money and borrow loans from the banks. However there is large number of bank branches opened in Denmark that serves the customers and the government supplies capital to the Danish banks in order to carry out the day to day transactions. Extent of competitive rivalry Mergers and acquisitions among the financial sector would reduce the possibility of competitive rivalry in the Danish Financial sector. As different banks undergo technological innovation they attract a lot of customers towards their banking business. Further the banking sector is such that the interest rates are fixed by the banks depending on the decisions taken by other banks which encourage further rivalry (Kluth and Lynggaard, 2013). Market for substitute products BBVA is expected to face a lot of competition in the Danish banking sector as there are possibilities that the customers may switch to a different company to avail the financial services. The study suggests that there are lot of banks that have set up the business in the Danish economy and hence the customers can have a lot of substitute products to choose from. Vrio Analysis of the retail banking sector in Denmark The Vrio Analysis in the Denmark market shows the efficiency of the retail banking sector within the economy in terms of technological innovation, customer services, convenience and TCR communication. This analysis is related to the opportunity the BBVA would have in Denmark market. Capability Valuable Rare DIFFICULT TO IMITATE EXPLOITED BY ORGANIZATION COMPETITIVE IMPLICATION IF EXPLOITED Technology/ Innovation Strong Competitive Advantage Customer Services Strong Competitive Advantage Simplicity/ Convenience Strong Competitive Advantage TCR Communication Strong Competitive Advantage The Vrio Analysis of BBVA Banking Company indicates that it has a strong competitive advantage in Denmark Market. Task 4: Mode of Entry in Denmark Market There are two modes of entry that BBVA can adopt in order to enter into the Danish market that is either by undertaking Greenfield Investment or by participating in merger and acquisition (Soderberg, 2013; Fiordelisi, Soana and Schwizer, 2014). The study says that there is a high competition in case if the new entrant enters the financial market through Greenfield Investment Adopting this kind of investment reduces domestic bank’s interest rates and the customers would find it more profitable to borrow from domestic banks and the new entrants would experience a loss in the global market (Soderberg, 2013). Porter’s five forces analysis states that there is a threat of competitive rivalry that BBVA may experience in the Danish market because there are around 100 domestic banks in Denmark as per 2014 data (Fiordelisi, Soana and Schwizer, 2014). Hence it would be beneficial for BBVA to undertake a merger with some domestic bank of Denmark in order to reduce the possibility to experiencing competition in the financial market (Guo and Yang, 2013). The process would increase the profitability and efficiency of the merged entity. Further Joint venture would be another profitable strategy that BBVA can adopt in order to increase the customer base and the supply and distribution facilities because according to Porter’s five forces analysis suppliers play a key role in market expansion (Lopez-Duarte and Vidal-Suarez, 2013). Conclusion The study has been carried on the macroeconomic factors affecting market expansion in five countries. However the analysis reveals that the best market that BBVA can consider as suitable for expansion of its retail banking sector is the Denmark market as it appears to be highly competitive according to the PESTEL Analysis. There are already large numbers of banks existing in Denmark Market and so the BBVA can adopt various market entry modes. However the best mode is participating in a joint venture that would increase the profitability and the customer base of the newly formed entity. Recommendation As the research suggests that the joint venture among the banking companies would be profitable for BBVA to enter into the Denmark market it is highly recommended that BBVA can undertake a joint venture with Danske Bank. Danske Bank is one among the top banks of Denmark that has earned around 5313 DKK millions in the first quarter of 2015 (BBVA, 2015). By undertaking a joint venture BBVA would have an opportunity to expand its business successfully in the Denmark market. Reference List BBVA, 2015. BBVA Group highlights. [online] Available at: [Accessed 24 June 2015]. Fiordelisi, F., Soana, M. G. and Schwizer, P., 2014. Reputational losses and operational risk in banking. The European Journal of Finance, 20(2), pp. 105-124. Flatraaker, D. I., 2013. Mobile payments changing the landscape of retail banking: Hype or reality?. Journal of Payments Strategy & Systems, 7(2), pp. 150-158. Fonseca, J. R., 2014. e-banking culture: A comparison of EU 27 countries and Portuguese case in the EU 27 retail banking context. Journal of Retailing and Consumer Services, 21(5), pp. 708-716. Garrett, K. A., 2013. Agricultural impacts: Big data insights into pest spread. Nature Climate Change, 3(11), pp. 955-957. Guo, W. C. and Yang, C. C., 2013. Are bank mergers procyclical or countercyclical? Theory and evidence from Taiwan. Applied Financial Economics, 23(1), pp. 1-14. Hanafizadeh, P., Keating, B. W. and Khedmatgozar, H. R., 2014. A systematic review of Internet banking adoption. Telematics and informatics, 31(3), pp. 492-510. Howarth, D. and Quaglia, L., 2013. Banking Union as Holy Grail: Rebuilding the Single Market in Financial Services, Stabilizing Europes Banks and ‘Completing’Economic and Monetary Union. JCMS: Journal of Common Market Studies, 51(S1), pp.103-123. Kleimeier, S., Sander, H. and Heuchemer, S. pp. 2013. Financial crises and cross-border banking: New evidence. Journal of International Money and Finance, 32, pp. 884-915. Kluth, M. and Lynggaard, K., 2013. Explaining Policy Responses to Danish and Irish Banking Failures during the Financial Crisis. West European Politics, 36(4), pp. 771-788. Kluth, M. and Lynggaard, K., 2013. Explaining Policy Responses to Danish and Irish Banking Failures during the Financial Crisis. West European Politics, 36(4), pp. 771-788. Lopez-Duarte, C. and Vidal-Suarez, M. M., 2013. Cultural distance and the choice between wholly owned subsidiaries and joint ventures. Journal of Business Research, 66(11), pp. 2252-2261. McNeill, D., 2013. A Framework for Applying Analytics in Healthcare: What Can be Learned from the Best Practices in Retail, Banking, Politics, and Sports. United Kingdom: FT Press. Narteh, B. and Kuada, J., 2014. Customer Satisfaction with Retail Banking Services in Ghana. Thunderbird International Business Review, 56(4), pp. 353-371. Narteh, B., 2013. Key determinant factors for retail bank switching in Ghana.International Journal of Emerging Markets, 8(4), pp. 409-427. Rughoo, A. and Sarantis, N., 2014. The global financial crisis and integration in European retail banking. Journal of Banking & Finance, 40, pp. 28-41. Soderberg, A. M., 2013. Facilitating mergers through management and organization of communication: An analysis of strategic communication in a cross-border merger. Handbook of research on mergers and acquisitions, pp. 233-258. World Bank, 2015a. Population ages 65 and above (% of total). [online] Available at: [Accessed 24 June 2015]. World Bank, 2015b. Commercial bank branches (per 100,000 adults). [online] Available at: [Accessed 24 June 2015]. Yang, Y., 2014. Understanding household switching behavior in the retail electricity market. Energy Policy, 69, pp. 406-414. Appendix PESTEL TABLE Countries Political Economical Social Technological Environmental Legal Denmark Strong political issues Economic boom Healthy social environment Customer friendly PC service by banks. Fast growing sector Danish Companies Act South Africa Political risk factor Growth in the economy Increase in level of trust among customers Transactions through mobile phones. Strong customer relationship Registrar of Banks and the Ministry of Finance in South Africa Panama Lack of Independence Low GDP growth Enhanced customer relationship management Statistical and economic models. Highly competitive environment no legal restrictions Ecuador Politically unstable Uneven income distribution Reduction in poverty Digital technology. Consumer banking Restrictions on entry of foreign banks. Pakistan Politically unstable Mergers in order to enhance economic growth Customer satisfaction E-banking facility provided by banks. Privatization of banks Strict legal agreement (Source: Howarth and Quaglia, 2013) Read More