Banco Bilbao Vizcaya Argentaria International Business Strategy - Essay Example

International Business & Strategy s: Task From the analysis, macroeconomic Denmark is present the best business environment for the Banco Bilbao Vizcaya Argentaria (BBVA’s) retail banking’s future international standards (Appendix 1). Task 2 Introduction The purpose of this study is to examine the best country for operating an international business. The study involves a macroeconomic analysis of five different countries namely Denmark, Panama, Pakistan, South Africa and Ecuador. After conducting political, economic, social, technological, environmental and legal conditions Denmark emerged as the overall best country to open a business. Environmental factors were not considered relevant for this study because the banking industry has an insignificant impact on the environment (Rugman & Collinson, 2012). This section presents various factors qualifying Denmark as the best country in establishing the business. When starting a banking business, the investor should consider various factors related to the environment where the business is to be established. Factors such as political, economic, social, technological and legal aspects of a country have direct and indirect effects on the performance of the business. PESTEL Analysis Political environment Denmark is the smallest Scandinavian country in the Northern Europe (The Local DK, 2014). It has a pollution of about 5,613,706 million people, and 93% of the populace are Danes while immigrants account for 7% (Pakarinen, 2012). There is no bureaucracy and bribery in Denmark hence this offers a stable business environment. It has good ethical framework and inflation policies (The Local DK, 2014). The country is politically stable (Pakarinen, 2012). Therefore, because government initiatives and fast growing economy it becomes apparent that opening a business provides the best chance for companies such as BBVA retail banking to enjoy government support. Economic environment Small and medium enterprises SMEs) are the main forms of business characteristics in Denmark. It is active in foreign trade and supports liberal trade policy. It has a mixed economy. It has a relatively high-income rate, Gross National Income (GNI) per capita stands at $61,110 and has a budget surplus (The Local, DK, 2014). Therefore, such stable nation with a fast-growing economy has a high potential for running a business. The Danish economy is one of the most prosperous and stable across the entire world with studies suggesting that by 2017 it will be worth $353.1 billion with a Compound Annual Growth Rate (CAGR) of 1.9%. The Foreign direct investments account for about 2.5% of the GDP (The Local, DK, 2014). The government policies protect financial institutions such as ensuring careful lending, minimizing the aftermath of financial crisis through increasing government spending, tax cut, infrastructure development and providing government support to the banks (Peng, 2011). It has largest and highly developed security market in the world. Therefore, the efficient economic environment provides a good environment for establishing a business. Social environment Denmark has the most friendly and sociable people in the world hence offering a conducive environment for businesses. European Union, organizations for Economic Co-operation and Development (OCED), World Trade Organizations (WTO), Nordic Council and International Monetary Fund (IMF) (Pakarinen, 2012). These organizations provide a health environment business growth through fostering peace and financial support. Has open and information communication style and organizations are decentralized. There is high flexicurity of labour force that offers a flow of skilled workforce (The Local, DK, 2014). The culture results to fewer restrictions and creates an efficient environment for running a business. Technological environment Denmark is technologically advanced and well-developed infrastructures. It has high-quality research and development in areas of wireless and mobile technology, biotech, acoustics and software development (Pakarinen, 2012). Workers are technologically skilled, innovative, motivate consumers, etc. therefore, the workforce is efficient and can result in good business performance. The small cost of rental offices, employees’ social contribution cost, corporate tax and competitive labour cost results to cost-efficient in operating a business in Denmark. Legal environment It has membership in various international organizations such as NATO, United Nations, has transparent legal framework, tax efficient policies (25% for the companies) and the predictable legal structure promotes efficiency and transparency of operating businesses (Pakarinen, 2012). Task 3 BBVA is a multinational business with operations in more than 31 countries and serves over 51 million clients across the globe. The banking model is based on four pillars that form it corporate mission (Banco Bilbao Vizcaya Argentaria, S.A. 2015). These pillars provide regular incomes in an environment and differential organisational power as its two its two sources of competitiveness. Firstly, the bank aims at creating value for its investors through transparency and integrity based governance model (Banco Bilbao Vizcaya Argentaria, S.A. 2015). Secondly, the business aims at becoming a leader in efficiency, highly innovative and technologically advanced through the customer-centric model. Thirdly, it upholds prudence and integrity that determines its management model. Finally, it operates under balanced and diversified portfolio model in terms of business, geographies and clients. The BBVA’s vision is “working for a better future people” (Banco Bilbao Vizcaya Argentaria, S.A. 2015). Therefore, according to their vision they focus on establishing a long-term relationship with their clients and create value for all stakeholders and community at large by offering education, culture, research and social entrepreneurship. . Opportunities and Threats of Opening a Banking Business in Denmark Opportunities The business registration process is very efficient and can take hours to register a new company in Denmark (Pakarinen, 2012). The country is technologically advanced thus registration of business can be done online. Therefore, BBVA will have an opportunity to register the company efficiently. The corporate tax of 25% is very low compared to other nations (Pakarinen, 2012). The government’s regulations favour the establishment of companies to absolve more graduates and keep the level of unemployment low. Therefore, BBVA will enjoy low tax rate hence improve its performance. Furthermore, the lower capital requirements in EU market provide the bank an opportunity to retain more capital (Pakarinen, 2012). Efficient and innovative labour force with high technology, advanced internet use offers a conducive environment for operating a business in the banking industry (Crawford & Fletcher, 2013). Threats The new market is saturated with banks hence BBVA is likely to face stiff competition from the well-established banks in the industry. This offers limited opportunities for venturing into the stock market (Crawford & Fletcher, 2013). The government may change regulations thus limiting the efficiency of service delivery. Furthermore, the global financial crisis can have adverse effects in the banking industry. Customers may not be willing to accept their services because of the perception that it is a foreign thing. BBVA is likely to incur high cost of compliance with the standards requirements on corporate social responsibility (CSR), accounting standards requirements as EU adopts International Financial Reporting Standards (IFRS), requirements for capital base II and Danish financial businesses Act (Crawford & Fletcher, 2013). Internal Environment The internal environment determines by the company’s competitive edge. The competence of workforce, technological level of the company, mission and vision, financial capital, diverse products and services for various market niches, etc. are some of the factors affecting market penetration of a company (The Local DK, 2014). BBVA has some competitiveness as well as some weakness. Strengths The Danish market has a robust focus on information technology that coincides with BBVA’s corporate mission. The IT infrastructures are well developed, and the country is ranked the in terms of technological advancement. On the other hand, BBVA is a technologically oriented company. It has a particular focus on information technology, Research and development. Therefore, the company can utilize the IT infrastructures to establish itself in the new market. BBVA focuses of SMEs and is determined to offer innovative products to its consumers across the globe. They offer all financial products for SMEs such as loans, loan advances, renting, leasing, confirming, factoring, floatation and contingent liabilities. Also, they deal with a financial customer services such as management of cash-flow, foreign trade, a collection of payments, social security, cash surplus placement, giros and transfers. With a sharp focus on SMEs, this can make the company competitive in the Denmark market where the government has an interest in supporting SMEs to provide employment opportunities and facilitate faster economic growth. Having various financial products tailored for SMEs it is easy for the bank to gain easy market penetration in Denmark. BBVA has operations in various countries around the world. Having been in operation in other countries for a long time offers the firm diverse knowledge and management skills to coordinate businesses in the foreign market. In Denmark, the market is very receptive to international companies hence this favours BBVA because they are less likely to experience resistance (FAO, N.d). This will also enable them to utilise the diverse knowledge to achieve a competitive edge. BBVA has the competent workforce they can utilise to manage the firms operations in Denmark. In Denmark, one of the greatest challenges facing businesses is a shortage of skilled workforce. Since the country’s environment favours the establishment of foreign firms, BBVA can recruit qualified workers from other countries to achieve performance in the Denmark (FAO, N.d). Therefore, they can use their vast knowledge in managing culture diversity in the new market to influence clientele. Weaknesses The inadequate labour force is a significant challenge to the BBVA because it can result in the high cost of labour. The banking industry is highly dependent on labour hence the high cost of wages and shortage of workforce can undermine efficient operations of BBVA retail banking sector (FAO, N.d). BBVA offers a combination of financial products in the market. However, the stock market is stagnating in Denmark hence BBVA may not have adequate influence in the market. It may be difficult for the company to venture into the stock market because it is saturated. BBVA is likely to experience pressure from the cost leadership bank in the market such as Danske Bank. The market leaders enjoy advantages of enjoying large economies of scale or outright cost advantage. The other firms in the same industry must follow the cost leaders (Grundy, 2006). Porters Five Forces This involves analysis of firm’s strength and weaknesses based on its market situation. This enables the managers to capitalize on the internal power and avoid taking risky decisions. Supplier power: The banking industry is characterised by the lower bargaining power of the vendor because they depend on government regulations. Furthermore, the entry of mobile banking services and other financial institutions makes individual suppliers less powerful in the market (Porter, 2008). Buyer power: The Danish market is characterized by the high bargaining power of the customer, and this can reduce the efficiency of the company (Porter, 2008). The culture is tightly night hence this can affect the client behaviour towards the products of a foreign company. Competitive Rivalry: Banking industry is highly competitive in Denmark. There are well-established banks that offer similar products (Porter, 2008). This will pose stiff competition to the BBVA compelling them to adopt various strategies to gain entry into the new market. The Threat of Entry: The Denmark market is volatile and due to government policies it favours the establishment of financial institutions. Therefore, there is the high threat of new entrants in the same industry (Porter, 2008). The Threat of Substitution: Banking sector is not unique in the modern environment. There is the high threat of substitute as banking services goes online. The mobile money transfer services are offering most of the bank services hence in the near future mobile industry may take over the banking the industry (Porter, 2008). Therefore, from porters five analysis it is apparent that BBVA has to be extremely careful on how they carry out their activities because the market is quite risky. VRIO Value: BBVA offers technology-based products and services. It can exploit the available opportunity in the market and come at parity with other competitors (Peng, 2011). Rarity: The products and services offered by BBVA require a close contact between the clients and providers. Therefore, these products are shared among many and not in control of a few (Peng, 2011). Imitability: BBVAs products are easy to imitate hence they should come up with strategies to protect their technology (Peng, 2011). Organization: BBVA is well organised with products for various clients including SMEs (Peng, 2011). Task 4: Strategy for Entry into New Market This section of the study explores various approaches that BBVA can use to gain entry into the selected international market (Denmark). The purpose of the study is to establish the best entry strategy the firm can apply to gain a competitive advantage in the market. Some of the objectives will include gaining the understanding of various purposes for international market entry strategies, explore various entry strategies and recommend the best strategy applicable to BBVA (Grant & Jordan, 2012). Firstly, foreign firms seek to achieve economies of scale by expanding their operations to a wider international market (Duane, Harrison, Hitt & Hoskisson, 2012, p.296). Armed with superior products firms can use social capital to achieve competitive entry strategies into the international market. Social capital involves establishing networks and alliances with key stakeholders (Peng, 2011). Also, firms will join an international market to take advantage of available resources such as low labour cost and specialized knowledge. A competitive firm can seek to expand its market by competing with other businesses in the global business. The overall motives may be to increase sales revenue (Duane et. al., 2012, p.297). When planning to venture into a new market they take into consideration of two main issues. That is tailoring their products and services to satisfy particular demand in the international market and gain global efficiencies (Rajagopal, 2009). Firms achieve global efficiency by increasing sales of their existing products and services to multiple international markets. They can enjoy economies of scale, low cost of operating the business or other advantages hence making the firm more efficient (Rajagopal, 2009). Therefore, the firm has to consider various factors such as resources available, benefits of precise location, control requirements and administrative advantage. The different modes of entry into the international market are discussed below. i. International Strategic Alliances and Joint Ventures This involves cooperative arrangement between the firms in home and host countries work operates closely (Trade Start, Nd.). In strategic alliances, a foreign company collaborates with host companies in different areas such as research and development, marketing agreements, shared manufacturing and distributions agreements. The companies operate independently of each other, but they enjoy the synergies of working together in joint activities (Hill, & Jones, 2008). In a joint venture, the relationship results in the creation of a new firm that pursues the common interests of the two firms (Trade Start, Nd.). This enables a foreign company to gain access to a new market, especially in the technologically sophisticated market. Due to the local partnership they do not pay tariffs. Hence, they are more profitable (Grant & Jordan, 2012). Management Buyout A management buyout is where the managers of an existing company acquire significant part or the whole company (Lasserre, 2012). They may purchase the shares from the private owners or the parent firm. Although the management buyout follow the same procedure of any form of acquisition the in this particular case the managers have complete information about the company and any decision they make is dependent on perceived position of the enterprise and the due diligence may be limited (Porter, 2008). Licensing Licensing is a contractual arrangement that involves leasing the right to use intellectual property of a firm (licensor) to another firm (licensee) located in the target international market (Duane et. al., 2012, p.301). This is very useful for electronic firms that license their games to global hardware producers such as Nintendo, Microsoft and Sony. The licensee pays some fees to gain the right to use the intellectual property of the licensors. This is a low-risk strategy but has limited opportunity to increase profit. ii. Franchising According to Crawford and Fletcher (2013, p. 271), franchising is an agreement that involves licensing of business model, goods or services to a partner in exchange for some specialized fees such as some percentage of the franchisee’s revenue. The franchisor offers operating systems, familiar products, trademarks and support services such as specialized training, advertising and quality-assurance platforms. iii. Joint Venture Joint venture strategy involves establishing an agreement between parties intending to contribute funds for purchasing assets for a predetermined time. They take full control of the business and participate in sharing assets, revenues and expenses (Johnson, Scholes & Whittington, 2010). The joint venture could either be limited by guarantee of shares of the owner. Depending on countries the joint venture may be recognized as temporary partnership or a limited company iv. Subsidiary A subsidiary company refer to a state where a parent corporation operates a sister company or a branch. The sister firm is under full control of the parent company (Daniels, Radebaugh & Sullivan, 2009). This can be in the form of company, Limited Liability Company or Corporation. Legally subsidiaries are recognized as separate entities from the parent companies. v. Acquisitions Business an acquisition is recognized as a form of business ownership whereby one company acquires or absolves fully another company establishes itself as the new proprietor of the business (Yip, 2003). Therefore, the acquired company continues to exist separately but under new proprietorship. The two companies may realign their financial and management structures for strategic value creation. However, in most cases acquisitions do not achieve their intended goals. Recommendation BBVA is in a retail banking industry that requires close contact with customers. It has highly customized products for different clients especially the SMEs and is technologically based firm (FAO, N.d). I would recommend BBVA to use the joint venture as a strategy to gain access to Denmark market. The company will enjoy low tax and tariff barriers since the country’s policies favour international businesses. Also, the firm can have a better understanding of the market and tailor its products and services to improve customer satisfaction (Barney, 2007). Through joint venture ownership, BBVA will spread its expertise and share the revenue and assets of the new company with the local partners. Furthermore, the existence of the new company is not tied to the parent companies. Conclusion When a firm like BBVA is planning to start its operations in a foreign market they should conduct thorough analysis of different markets they intend to venture into to understand the external environment (challenges and opportunities) of various markets. Also, the firm should assess the internal environment (its strength and weaknesses). After understanding the external and internal environment and having decided on the market to join the firm should also select the best approach to enter the target market. In the case, BBVA the study involved PESTEL analysis of five optional markets namely Denmark, South Africa, Ecuador, Panama and Pakistan. The study established that Denmark offers the best international market for BBVA retail banking industry. The government policies, collaborative culture, highly developed IT infrastructures, political stability, fast growing economy and low inflation rate are some of the attractive forces in this market. Although the country has some shortage of skilled professionals, the firm can overcome these to achieve competencies. For instance, they can use the joint venture as its approach to gain entry into the market. In this case, they can hire or transfer competent workers and managers to carry out the business operations in the established market to achieve desired performance. The internal and external economic factors have significant effects on national performance of any nation and in Denmark it has affected almost all industries. The global financial crisis had adverse effects on Denmark because of increased inflation and cost of labour. Considering banking sector thrives on transactions made by the clients through deposits and borrowings Denmark has a better opportunity for growth of banking industry. Therefore, as the economy continues to recover, and the GDP continue to growth, the economy presents excellent investment opportunities for growth of financial services. List of References Banco Bilbao Vizcaya Argentaria, S.A. 2015, Corporate Mission, Available at http://www.bbva.com/TLBB/tlbb/ing/informacion- corporativa/conozcanos/posicionamiento/index.jsp Barney, J. 2007, Gaining and Sustaining Competitive Advantage (3rd Ed.). Pearson Education, Inc., Upper Saddle River, New Jersey. Crawford, H. & Fletcher, R. 2013, International Marketing: An Asia-Pacific Perspective. Pearson Higher Education AU. Pp. 270-296. Daniels, J.D., Radebaugh, L.H, & Sullivan, D.P. 2009, International Business: Environments and Operations (12th Ed.). Pearson Education, Inc., Upper Saddle River, New Jersey. Duane I., Harrison, J., Hitt, M. R. & Hoskisson, R. 2012, Competing for Advantage, 3rd Ed., Cengage Learning. Pp. 296-306. FAO, N.d., Chapter 7: Market Entry Strategies. Available at http://www.fao.org/docrep/w5973e/w5973e0b.htm Grant, R.M. & Jordan, J. 2012, Foundations of Strategy. John Wiley and Sons. 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Pp. 151.Available at http://www.theseus.fi/bitstream/handle/10024/46569/Pakarinen_Tea.pdf?sequence=1 Peng, M. 2011, Global Strategic Management (International Edition, 3rd Ed.). Cengage. • Porter, M.E. 1998, The Competitive Advantage of Nations. Basingstoke: Macmillan Business. Porter, M. 2008, The five competitive forces that shape strategy. Harvard Business Review (January), 25-40. Rajagopal, 2009, International Marketing, International Edition, Vikas Publishing House Pvt Ltd. Pp. 483-496. Rugman, A.M. & Collinson, S. 2012, International Business (6th Ed.). Pearson. The Local, dk, 2014, Denmark best in Europe for doing business, Available at http://www.thelocal.dk/20141029/denmark-best-in-europe-for-doing-business Trade Start, Nd., Market Entry Strategies. Available at http://www.tradestart.ca/market-entry- strategies Yip, G.S. 2003, Total Global Strategy (2nd Ed). Pearson Education Inc., Upper Saddle River, New Jersey Appendix 1 Macro-environmental Factors (PESTEL) Comparative Analysis Country Political Stability Economic Stability& Growth Social-Cultural Factors Technological Factors Environmental Factors Legal Factors Ranking (The Most Attractive Country) Denmark Stable Y Rapid Growth, Low-level inflation & unemployment, Mixed economy, large budget &internal surpluses Y Average population 6 million, ethnicity 89% Danish &10% immigrants, Low population growth 0.238% , Literacy 99% Y Excellent infrastructures, IT, Mobile, Internet & Broadband penetration Y Not Applicable (N/A) in banking Treats foreigners fairly, Good protects intellectual property Y Very attractive 6/5 Ecuador Unstable N High state interference, low-interest rate, Steady Growth rate, Non-performing loan N Population 14 million, Ethnically Diverse, Skewed wealth distribution, increasing illiteracy and unemployment N Good IT infrastructures and Sustainable Growth Y N/A in banking Good legal structures Y Fairly attractive with some risks 3/6 Pakistan Unstable N Highly corrupt, slow economic growth, high inflation, High Currency devaluation, increasing unemployment rate, High Disposable Income N Low government allocation on health and education, Y Good pool of IT professionals, good IT infrastructure Y N/A in banking Low tax rate, intellectual property and rights law, Fair Competition Act Y Attractive with risk 4/6 Panama Unstable N Panama Canal makes it strategic, High economic growth, Upper-middle income economy, 24% poverty rate Y Population 3.5 Million, Diverse culture, more than half of population lives in Panama City Colon, most urbanized over 70% lives in town Y Developed infrastructure and IT, competent professionals Y N/A in banking Inefficient judiciary, Authoritarian rule of law N Attractive with risk 4/6 South Africa Stable, Y Positive GDP, High unemployment rate, low disposable income, Low inflation rate, Fairly stable currency Low-interest rates mainly don’t encourage savings, Tax rate 30% Corruption is high, Dependent on European market for export N About 50 million people, high Literacy Level, Diverse culture and religion (Majority are Christians), Y Well-developed technological infrastructures, Shortage of professionals due to migration, dependent on natural resources & resource based industries Y N/A in banking Attractive policies, attractive tax incentives, Consumer protection act to regulate contracts, effective Judiciary and property rights Y Attractive 5/6 Read More