What Are the Key Elements of Mashreq Banks Market Positioning as the Time Frame Is Concerned - Case Study Example

Strategic Management – Mashreq Bank Name Class Unit 1. What are the key elements of Mashreq Bank’s market positioning as of the case time frame is concerned? Initially, Mashreq Bank had been open to all markets and income levels of the customers. The positioning used led to lending of secure and non-secure lending. The positioning made non secure lending to take the great share of business and revenue. Most of the bank clients thus acquired large number of credit cards and loans which was beyond their means leading to lot of defaulters, scarcity of credit and downturn in profitability. The new market positioning involves tightening the lending conditions and increasing the provisions for bad and doubtful debts. The new positioning strategy is on secure financing rather than aggressive marketing strategies and being more customers oriented. The bank has to enter into new markets which will enable it to improve its market share and secure it. The bank has increased efforts to retain customers through personalised reward system. 2. How do you evaluate this strategy success (or failure)? The new strategy adopted by the bank is a major success. This is a strategy that will enable the bank to be more profitable and less venerable to financial crisis which may occur in future. The strategy will enable the bank to withdraw its investment from unsecure market to secure market segments. The move to secure financing will help the bank a lot in eliminating chances for defaulters and credit scarcity. Aggressive marketing strategy involving careless lending which was used by many banks prior to financial crisis was a major cause for bank’s problems during the crisis. Customers used to access credit cards and loans which were beyond their means. As evidenced from the bank CEO, the new strategy has been a success. He says that the bank has adequate liquidity, clean balance sheets and low expose to risky assets. The new strategy has identified the bank weakness that led to problems during financial crisis and fixed them. 3. Which of the five competitive strategies best fits what Mashreq Bank is doing to build a competitive advantage? A competitive advantage can only exist if a firm is able to attract customers and defend it from competing forces. Mashreq Bank is using focused differentiation strategy and best cost provider strategy to gain a competitive advantage. Using the focused differentiation strategy, the bank focuses on a narrow segment of the total market that can afford secured loans unlike in past where they used large market and offered unsecured loans. The niche selected is well served to outdo rivals by offering personalised services. The new products offering make the bank lending to be viable only to the market that can offer security. The bank have specialised in retail banking unlike other banks making it more conservative with little amount of revenue in the property market. The bank is also committed to giving the consumers value for their money through the best cost provider strategy. 4. What grade would you give Mashreq Bank management for the job they have done so far? Be prepared to support your answer based on how well (or not so well) they have performed the five tasks of strategic Management discussed in Chapter 2. Mashreq Bank management have done a good job in coming up with long term strategy of new market positioning. The bank has come up with measures that will enable it to change its strategy from aggressive marketing to finance retail products in UAE to secure lending. The bank has done strategic management on risk, credit and business portfolio. The bank has used the strategy to enhance their liquidity, make their balance sheets cleaner and avoid exposure to risky assets. The five tasks of strategic management have been satisfied by the bank management. The strategy has been well crafted through determining the competitive advantage to pursue and ensuring that the bank moves away from unsecure loans to secure loans. The bank has also set its objectives and there is continuous monitoring as seen at the beginning of the case. The crafted strategy has also been implemented through taking care of what it entails. 5. What is your assessment of the bank’s external environment during the case time period? The bank external environment during the case included both broad environment and task environment. Broad environment includes global economic forces, legal forces and political forces. The task environment included competitive forces, customers and stakeholders. Financial crisis is a global economic force that hit the bank. The crisis led to banks worldwide to suffer in their revenues. This also led to banks to change their strategies as in the case of Mashreq Bank. Legal and economic forces also affected the bank during the case period. The central bank which has government control came up with new bank regulations on exposure. The bank strategy was shaped by the competitive forces in the UAE banking sector. Bank customers were keen on bank performance and changes made in strategy and positioning was aimed at making them satisfied. Stakeholders included the mortgages. The bank external environment was a major force that helped in crafting the long term strategy of new market positioning. 6. What is your assessment of the bank’s internal environment during the case time period? The bank has a strong internal environment which is made up of the management and a specific corporate culture. The bank organisation culture has helped it to differentiate themselves from the competitors and have shaped the bank new direction. The bank internal environment is said to have a positive outlook. The bank management and organisation structure are able to portray their value. The management have several committees which include risk, audit, compliance, asset and liability and information technology committees which have played a major part in coming up with the strategies and in strategic decision making. Heads of departments have been able to propose the new market positioning and forwarded to the management committees for discussion under the CEO advice. This shows an internal environment which is collaborative and well organised. 7. What are the key policies, practices, business principles, and procedures that underlie how Mashreq Bank Management have implemented and executed the chosen strategy? After the financial crisis, the bank committed itself to careful lending and negligible exposure to risky assets. The Central Bank policy to Capp the personal loan limit led to banks tightening their lending norms and also looking for new markets. Central bank tightened regulation policies helped a lot to improve the banking sector. The practice of minimum exposure to mortgage backed lending by the Mashreq Bank lead to the bank being able to significantly absorb shocks of financial crisis. To execute the new strategy, the bank management had to address risk management, credit administration and personal banking. The bank personalised reward scheme was a major contributor in customer retention and establishing relationship with the existing customers. Previously, the bank business practice involved lending both secured and unsecured loans which had to change as it concentrated on secure lending. 8. What issues confront the bank during the case time frame? What should Mashreq Bank’s management be worried about? The bank suffers from bad debts and non performing loans due to its aggressive marketing in the retail products in UAE. The bank had been involved in financing riskier and unsecured markets which had led to its problems. The central bank policy will lead to a decline in retail banking revenue which is the main segment for Mashreq bank. The reduced profits, loan defaults and lack of credit are major problems that the bank management faces. The management top priority is to come up with a strategy that will enable the bank to deviate away from unsecured market to more secure markets. The major issue that the bank management should be worried about is the low profitability in the banking sector and exposure to potential problematic assets. The management is faced with a task of coming up with a long term strategy that will change the bank positioning in order to overcome the current problems brought by financial crisis. 9. What “values” does this bank have? How well do they connect to the strategy and to the manner in which the bank conducts its business? Mashreq bank values as evidenced in the case study are; commitment to quality service, innovativeness, teamwork, cooperation and convenience. The bank is customer focused, transparent and responsible. Being customer focused has helped the bank to come up with a new approach to customer service through provision of end to end service. The bank operations are transparent and make all its records transparent to the customers. To come up with the new strategy, the bank has relied on its teamwork and cooperation among the employees and management. Proposals on the new market positioning were drafted through teamwork by the management committees, heads of department and the CEO. The cooperative environment makes it easy for the bank to make changes to its strategy. The bank values also enable it to serve the customer better. 10. How do you evaluate the given strategic recommendations? What recommendations would you make to the bank’s management to sustain the bank’s growth and support continued financial performance in the years ahead? The given strategic recommendations are very vital as they will help the bank make a long term strategy through new market positioning. The bank will be able to avoid being venerable to future financial crisis by implementing the recommendations. There is need for the bank to venture into secure market segments and also new markets such as SMEs and corporate customers. The broad market that was targeted by the bank previously led to bad debts, non performing loans and scarcity of credit. This implies that the bank have to segment the market and focus more on the secure market segment. To avoid unsecured lending, the bank has to monitor closely the personal banking of the customer before lending. For Mashreq bank, it would also be vital to ensure that they fully implement the new market positioning in order to gain a competitive edge and access a wider market. References Ahmad, A., Saleh A. & Najib, A., Mashreq Bank’s long term strategy of “New Market Positioning” Case study. Read More