Evaluation of Barclays strategy - Essay Example

Q1 Evaluate Barclays strategy over the period of the case and prior to the ABN bid, paying particular attention to the global industry drivers and the group's performance from 2002-2006 Barclays strategy can be adequately summarized as to earn and to grow. The bank has set the objective of earning and growth side by side, with the long term goal of becoming the largest banking group in the world. Its strategy includes using the profits in such a manner that gives top return to its shareholders, but also at the same time the bank's actions have also depicted the fact that the bank strategy also includes the growth factor. This is seen by the observing the history of the bank which includes many acquisitions in relatively short period of time. When we see the Barclays' acquisitions of Wells Fargo Nikko Investment Advisers in 1995, to be integrated with BZW Investment Management to form Barclays Global Investors; acquisition of Banco Zaragozano in 2003, one of Spain's largest private sector banking groups; acquisition of Juniper Financial Corporation, a US leading full-service credit card issuer in 2004; acquisition of major stake of Absa Group Limited in 2005, South Africa's largest retail bank; and acquisition of Gerrard Management Services Limited in 2006, a leading UK private client wealth manager; we can say that Barclays has prefered a route of investment in capital purchase of other financial institutions, as a direct measure of expanding its global base, as well ass to establish its base more firmly in other countries, and to use the established customer base of other financial institutions for its advantage. This sort of strategy gives the additional management challenges to barclays of managaing an ever expanding customer and market base, not to mention the growing number of cemployees and branches and integrate its acquisitions into its own processes and culture. As far as its performance measurement goes with reapect to the global drivers and its financial performance, we can see from the company financial data that its strategy of growing has worked well for the company. The time for its new acquisitions to become an effective contributor has been quite small and has been able to show profits very early. The bank has shown repeated profits aver the entire time while acquiring new enterorises, which shows that the bank has performed admirably in keeping the acquisitions hampering its profits. As far as the global industry drivers go, the new wave in banking has been the retail banking and the emergence of global players. The banking laws have become stricter, while some parts of the financial world, i.e. some big players have started to become monopolies, while all along the time there has been a massive flow of new products for the customers. In all this, banks like barclays have a strategic advantage caused by their huge presence and its modern outlook. It is in a position that it can capture huge amount of new customers and its massive base is able enough to satisfy the growing customers requirements. Also the diversion of barclays into different sectors of financial world, other than typical banking, such as credit, invetsment, insurance etc gives it an edge over its competitiors, while at the same time does not couse too much burden on its original operations. Also its base is valuable for establishment in emerging markets. Thus barclays can be assumed to be in a key position to dominate the financial world. Q2 Compare and contrast the intended acquisition of ABN with that of the earlier acquisition of Banco Zaragozano , paying particular attention to the merger rationale and the motives in each case and the likely synergy gains resulting from the integration of ABN. The intended acquisition of ABN is similar in many points with the previous acquisition of Banco Zaragozano, with the key similarities in the dimensions of rationale, motives and gained synergies. In terms of motives, the intended acquisition of ABN is similar to that of Banco Zaragozano in such a way that both were intended to expand the barclays base in the financial world of reatil banking. Both ABN and Banco Zaragozano had stong roots in retail banking and were known to offer much consumer products. The second and the most important motive for barclays to acquire ABN and Banco Zaragozano was due to their strong roots in European countries. Banco Zaragozano was the 11th largest private sector bank in Spain, while barclays was 10th. The acquisition resulted in barclays becoming the 6th largest bank in the country. Similarly the intended acquisition of ABN was regarded with the motive of expanding the barclays base more in European countries. Even though ABN covers the Netherlands, Europe, North America, Latin America and Asia, it considers itself an 'international bank with European roots' having a clear focus on consumer and commercial clients in its local markets. This made ABN even more valuable to barclays than Banco Zaragozano, as it had only one country as it's base, while acquiring ABN would led barclays to become one of the largest banks in the entire Europe. Also ABN's base in other regions would come in handy too. Thus the rationale behind acquiring Banco Zaragozano and ABN were similar, as both would gibe it more stremngth in European contries, as well as give it a better base in retail banking, as it will acquire their retail operations as well as the colossal number of its already established customers. Also the acquired banks would enjoy barclays global products and its high earning approach. Also the combination of thew two would provide many cost cutting opportunities and would thus invariably help in raising profits for both the group and its shareholders. The synergies expected from the acquisitions were many. One of them being cost synergies, as the combination of barclays and ABN would result in merger of similar operations which would lower the costs of doing them separately, at the same time servising an even larger number of customers. Another synargey would be the revenue synargy, which will be induced by cross selling of products, like for ntance barclays credit lending products could be cross sold to ABN, and vice versa. This kind of seling could be done with alomost all kinds of retail banking products, such as credit products, deposit and loan products, mutual fund, investment and insurance products. Also ABN's longer existence has led it to acquire the more affulent European customers, which will now be there for Barclays to service, this would also give those customers an opening to barclays global products. Also by the imtegration of two large banks would result in effeciencies of scale in the banking products market, as more cost cutting would lead to cheaper products, which would make the group more competitive and attractive to its customers. Q3 Identify what you believe to the key success factors necessary to sustain competitive advantage in the global financial services industry and briefly discuss the implications for the firms competencies , structure , and ehical/corporate governance. There could be a vast argument on this topic, as there as many factors critical in the financial world that can lead to success, and from time to time we have seen that many banks have dominated the financial world aith one factor or another. But when we abserve the regime of many banks on the global financial industry and their different tales of success, they all agree on ane aspect: they were aware where the world was heading and they were able to capitalize on that. If we see the world of today, we see a global village, with international markets emerging. Consumers are now more cophisticated and conscious and they want the best in the most economical prices. In such a world, a bank needs to be in touch with all the banking products that are there in the market and must be able to provide them efficiently to its cosumers only fot its survival. If a bank wants to remain competitive, it needs to provide either some new or better products than its competitors or it should provide the same products at lower prices. In todays innovative world, we see many similar products being offered by competing banks, as a measure to attract customers they lowers their prices down so much at a certain stage they are in the fear to become even unprofitable. In such a world, they only way to lead the market is to have a capital advantage over its cometitiors. If a bank has a larger base, than it can lower its prices and even than make good profits. Thus I believe that in order to sustain competitive advantage in the financial sevices industry a bank must have a large enough base to provide service to large number of customers, thus it can remain profitable even at such low prices which would othrwise drive the competitors out of business. Having a large base is very difficult, in the sense of manaing it and keeping it efficient. Ths implications on the firms' competensies, structure and ethical/corporate governance are enormous. The firm should be able to carry out all its opertions in a efficient manner even with such a large base. The basic competencies of the bank that initially got it in its current large position should not be compromosed in the flow of growth. Proceses should be structured in such a manner that they can now be carried efficeintly at a larger base. This could be done through decentralization or any innovatibe method. The structure should still be in the manner that all the processes come under the top management for overview and major changes, while at the same time the lower and middle management should be given more independency to carry out hteir operations efficiently. The corporate and ethical governanve should be strictly followed, keeping both international and local considerations in mind. Care should be taken to maintin the standard of the financial institution, which becomes more difficult with growth. Thus only then can one instutuion reign over the entire global financial industry. References BBC News (2007). Europe backs Barclays bid for ABN. Available: http://news.bbc.co.uk/2/hi/business/6932647.stm. Last accessed 07 August 2009. Costello, Miles; Jordan, Dearbail. (2007). Barclays concedes defeat in ABN Amro fight. Available: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2594093.ece. Last accessed 07 Aufgust 2009. Hosking, Patrick. (2007). Dutch court throws Barclays bid for ABN into chaos. Available: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article1744558.ece. Last accessed 07 August 2009. Independent.ie. (2007). Barclays to offer cash in bid for ABN. Available: http://www.independent.ie/business/european/barclays-to-offer-cash-in-bid-for-abn-701419.html. Last accessed 07 August 2009. Kanter, James. (2007). Barclays' bid for ABN clears hurdle on LaSalle sale. Available: http://www.nytimes.com/2007/07/13/business/worldbusiness/13iht-abn.4.6652238.html_r=1. Last accessed 07 August 2009. Levy, Judith. (2007). Atticus Capital: We Can Block Barclays' Bid for ABN. Available: http://seekingalpha.com/article/38581-atticus-capital-we-can-block-barclays-bid-for-abn. Last accessed 07 August 2009. Timmons, Heather. (2003). Barclays Agrees to Buy Spanish Bank In Cash Deal - New York Times. Available: http://www.nytimes.com/2003/05/09/business/barclays-agrees-to-buy-spanish-bank-in-cash-deal.html. Last accessed 07 August 2009. Read More