Financial Integration - Term Paper Example

RBC – the business environment Executive Summary RBC Financial Group is Canada’s largest bank in terms of market capitalization and assets and a leading diversified financial services company. It has 70,000 full and part-time employees serving 15 million clients through offices in North America and 34 countries through out the world. Their range of financial products include personal and commercial banking, wealth management services, insurance, corporate and investment banking and transaction processing services on a global basis. RBC is very advanced technology and has integrated IT in all its functions. It has penetrated into emerging economies in joint ventures and offers wide range of services. To meet the external pressure RBC needs to formulate business continuity management. RBC also needs to be cognizant of the numerous opportunities that are available especially in India. They must have a cross-functional team and address diversity of culture. They have demonstrated their corporate social responsibility by adopting the “Equator Principle” and they too are required to adhere to the policies as they have over 20 million square feet of office space globally. RBC must adhere to the regional governmental regulations and the statutory framework. They have to follow the local labor laws and consider offshore outsourcing to leverage the economies of scale. This would result in time and cost benefits, which would help to meet competition. Table of contents 1. Business environment at RBC Introduction 4 Cross-functional Teams 4 Cultural Diversity 5 Investments in IT 5 Consolidation 6 Environment and social responsibility 6 2. Response to external pressure Corporate Governance 6 Emerging economies 7 Risk and Business Continuity Management (BCM) 7 Offshore outsourcing 8 3. Conclusion 9 References 10 1. Business environment at RBC Introduction Globalization and internationalization have brought about tremendous changes in the way the firms operate. In fact, liberal trade policies, incentives, growing foreign direct investment (FDI), advancement in information technology and communication have all stimulated the process of globalization (Lee & Tai, 2006). Financial integration has taken place through international trade in assets, foreign direct investment, international outsourcing of services and international movement of people. This rapidly changing business environment poses newer challenges to the managers. The organizations must posses the ability to adapt to sudden changes and must be able to suitably respond to the challenges. There can be no set rules and managers must be able to understand and respond to each situation depending upon the issue. The managers have now to pay special emphasis on the business relations with the government, social issues, business ethics and values, legal and regulatory matters, the natural environment, employee and customer rights and adaptation to change in culture. The business environment at RBC Financial Group Canada needs to be effectively managed as it has 70,000 full and part-time employees serving 15 million clients through offices in North America and 34 countries through out the world (RBC, 2007). RBC Financial Group is Canada’s largest bank in terms of market capitalization and assets and a leading diversified financial services company. Their range of financial products include personal and commercial banking, wealth management services, insurance, corporate and investment banking and transaction processing services on a global basis. Cross-functional teams Anticipating change, innovation in technology and applying it to its global strategy is important and demands an organization-wide commitment (Cravens, Piercy & Low, 2002). Integrating functions between departments is crucial to the success of any product launch. Information has to be obtained and diagnosed from all relevant sources. Managers face the challenge to develop cross-functional teams that work together to develop an understanding of the markets, suggest Cravens et al.. Managers need to have a vision about the future trends and discontinuities. Meeting innovative challenges thus requires creating effective processes to understand the markets. Thus, since RBC has offices across 34 countries, teams would comprise members from different nations. This would help to understand the needs of each market and how to cater to those demands. Cultural diversity Despite organizations becoming global in their outlook barriers are becoming insignificant as information technology reduces the physical distance. Under these circumstances, national culture has a significant role to play in determining the practices and operations that should be applied. Societies have developed common set of beliefs and developed a set pattern of behavior which allows them to live harmoniously. These are handed from one generation to another. Hofstede believes that the culture in which an individual is immersed since birth is likely to have a much stronger effect on him than the organizational culture (Hope & Mühlemann, 2001) Thus, national cultures would have no impact upon the way organization operate across boundaries but according to Amin Rajan, globalization brings in different categories of customers to the market place which gives rise to apprehensions whether the organizations have the workforce required to meet the needs of such customers (Powell, 2006). Corporate restructuring has also led companies to create more vibrant cultures. RBC should adopt diversity initiatives which are market-driven as it is essential to have an innovative workforce. To instill a culture of diversity managers at RBC must have an inclusive management style. Diversity initiatives are important but change in management or leadership can wane the interest or determination. Hence, RBC has to consider this before any change is undertaken at the managerial level. Investments in IT Canadian companies are more politically and socially conscious than those in the UK, USA and Australia. They are more family oriented and want their own people to get involved in business. The banking industry like many other sectors, in Canada is highly regulated and they face little competitive pressure (Scott, Ticol & Murti, 2006). In order to distribute social benefits, the Canadian economy has to be globally competitive. The government has to renew the agility and knowledge of the workforce to ensure they are competent in the global market. Research studies at McKinsey and MIT have shown that when IT investment is combined with effective business practices, it leads to productivity growth. The lower prices and higher incomes lead to improvement in the standards of living and enables further investments in education, health and infrastructure. The Canadian companies’ investment in IT is substantially lower than the US. This significantly affects the labor productivity. RBC however has remained ahead of other organizations in Canada as far as integrating technology is concerned. The financial industry as a whole is a leader in deriving value from technology and RBC has proved it. RBC offers online and mobile banking services. Consolidation The financial services industry has a vital role in the Canadian economy. Nevertheless, the average asset size of the top ten banks in the world is between three and four times the size of the largest Canadian Bank (Kolber, 2003). This implies that Canadian banks are not large by international standards, which poses a bigger challenge to sustain in the global economy. The Canadian economy needs world-class Canadian-headquartered banks. Unless the Canadian banks are able to grow and serve globally, they will not be able to serve even the local corporations and within a decade will become irrelevant. The Canadian banks must be able to fend off foreign competition so as to have control of the sector. Merger of large banks is one such solution to combat competition. Banks should be allowed to become exporters of financial services with their head office in Canada. Mergers would be in the larger interest of the nation as it would help to build strong, competitive and viable businesses with the ability to make necessary investments. Small Canadian banks will reach the maximum risk exposure levels more quickly relative to their capital bases. Environment and social responsibility RBC became the first Canadian bank to adopt the “Equator Principles” which is a voluntary set of guidelines to manage social and environmental issues related to large-scale project financing in developing countries (Rodeck, 2003). In adopting these principles, RBC undertakes to finance those projects whose sponsors can demonstrate to the satisfaction of RBC that they have addressed key social and environmental issues in accordance with the policies and procedures. 2. Respond to sources of external pressure Corporate Governance The external environment consists of the regulatory framework or the rule-making activity by the governments and other courts. This comprises of various economic, social and administrative regulations that RBC has to follow. They also have to follow the labor market regulations and the environment and health and safety regulations. Canada has a mature and well-functioning regulatory system in place. Regulations in Canada limit foreign investments which constrain the ability of firms in Canada to access foreign based knowledge and technology (Rao & Sharma, 2006). This narrows the scope of innovative achievements in Canada. Canada’s regulatory regime is more friendly for Canadian firms than foreign firms. Canada has the highest levels of FDI restrictions amongst the OECD countries especially in the finance and the telecommunications sector. Corporate governance and maintaining client’s trust is part of the external environment of which the RBC has to take care. This would enable to enhance the shareholder value. This means RBC has to comply with all the rules and regulations in every country that they operate. To maintain ethics of business, they would also have to demonstrate honesty and integrity in all their dealings. There should be clear disclosure of financial dealings and they should keep away from corruption like terrorism and money laundering. The labor market issues would have to be addresses as per country norms. Reconciling with the local government is an important factor for any firm to enter the international market. Emerging economies There are plenty of opportunities to enter the developing markets but the competition is also tough. For instance, RBC can explore the possibilities of investing in infrastructure in India as India anticipates a requirement of $475 billion over the next five years in infrastructure projects such as power, telecommunications, roads, airports and seaports. The other contenders looking for such opportunities are Duetsche Bank, Macquarie Bank, Citibank and Sumitomo Mitshui Banking Corporation (Mishra, 2007). RBC can respond to competition by utilizing its strength as it has a very strong base in Canada. The Indian banks have so far not tapped the potential of raising funds from Canada and since the Indian banks are approaching Canada, RBC can assist them, thereby expanding its own customer base. RBC should consider joint ventures as it helps gain access to the domestic market while still maintaining control over its activities. Under joint ventures, foreign investors gain from the reasonably well educated low cost labor available in emerging economies (Gross, 1995). While they have adopted the “Equator Principles” RBC is also required to adhere to environmental policies as they occupy over 20 million square feet of office space worldwide (Rodeck, 2003). In emerging economies they should also carry out philanthropic activities like educational activities, elementary schools, environmental protection, sponsoring sports or other national/regional events. Risk and Business Continuity Management (BCM) To enter the rapidly expanding Chinese asset management market, RBC has joined forces with China Minsheng Banking Corp. (60%) and with Three Gorges Finance Co. (10%), the balance being RBC’s stake (CBC News, 2006). They intend to create and sell mutual funds to investors in China. RBC already has 240 branches and banking outlets in China. This just demonstrates how RBC in penetrating the emerging economies and at this stage it has become very vital to manage risks. Risk management and business continuity is an external pressure that RBC would have to deal with. Business Continuity Management (BCM) has evolved over the years from what was earlier known as Disaster Recovery or Risk Management. The success of a company lies in its ability to continue business despite the catastrophes. The BCM gives the company a competitive advantage and is in fact being included as a standard term in contracts. BCM cannot eliminate the causes of the events but can control the effects of the events and assures recovery from disaster (ICFAI, 2006). According to the research firm Gartner, 40% of the firms struck by disaster would go out of business within 5 years. Hence, BCM is absolutely necessary and its importance can be understood only when the disaster strikes. Business continuity deals not merely with recovery but the ability to manage the situation and restore normalcy. Disaster recovery has become proactive, which prepares the company and its people to avoid any interruptions and continue functioning normally. RBC should adopt the seven P’s – program, people, processes, premises, providers, profile, and performance – specified by the Business Continuity Institute (2006). Since RBC deals with corporate and personal finances and confidential dealings, they should adopt the five-stage process which includes understanding the business (assessing probable risks), formulating BCM strategies, developing and implementing a BCM response (response to challenges), establishing a BCM culture (continuity culture in the organization), and maintaining and auditing BCM (ensuring the plans are regularly updated conforming to the changes taking place in the organization). The risk managers at RBC should reassess the business continuity risk strategies both at the operational and the credit risk level. The banks have always played a leadership role in continuity planning by providing emergency financial assistance including funds to disaster areas (RMJ Journal, 2002). They shared the best practices in developing the Y2K plans. They demonstrated the elasticity of the industry in the aftermath of September 11. Despite these, banks are under pressure to re-evaluate their continuity plans due to recent global events, new business and service delivery models. Besides, companies are increasingly opting for service providers and vendors. Offshore outsourcing Canada lags behind in the use of offshore knowledge resources (Scott, Ticol & Murti). Sixty-eight percent of the ICT firms use offshore employees but this is applicable only to the big Canadian firms. This helps them to improve their own costs, innovation capacity and time to market. . The Canadian businessmen are confused about the implications of offshoring on their business, on the national economy and its workforce. A report by PriceWaterHouseCoopers suggests that Canadas 2.4 million knowledge workers and 3.3 million manufacturing workers are particularly vulnerable to global job competition (Olsen, 2006). Moving jobs to cheaper locations would improve productivity. Another analyst states that Canadian companies fall behind in the ability to capitalize on low cost sources of ICT related global knowledge work. RBC has been offshore outsourcing on as-needed basis but they have a large IT budget and if they offshore outsource jobs like project approval, it would result in costs and time savings. This would be a big step towards having a competitive edge in the international market. RBC can insulate itself from the global competitive pressures that come from low cost offshoring, which will definitely protect the firm and the workers in the short run. In 1989 high tariffs had insulated Canada and retarded growth (Trifler, 2005). Foreign countries may even deny Canada market access if it insulates itself. Alternatively, domestic framework could promote competitiveness which could lead to enhanced investments and productivity. Workers have to adjust to a new level of global competition. Offshoring is not just about cost savings. It frees the domestic resources for higher priority tasks, access to global markets, access to new ideas, and become the source of innovation. As competition increases, the interest of shareholders and customers become important in corporate decision-making. This new form of corporate governance has to be accepted otherwise they run the risk of losing finance and customers to competitors (Savitsky & Burky, 2004). RBC has been acquiring banks and financial institutions in some countries and this invariably leads to resistance. Acquisition of existing facilities is accompanied by payroll cuts. While M&A helps salvage the exiting facilities which otherwise would not have survived liberalization or other competitive pressures, local resistance is stiff. RBC needs to take precautionary measures and follow labor laws of the region concerned. 3. Conclusion Thus, the business environment at RBC can be effectively managed to face the challenges of globalization through managing cultural diversity, cross-functional teams, environmental and social awareness. RBC needs to be cognizant of the regional labor policies and the statutory framework within which it can operate. Opportunities abound in the emerging economies and it is up to RBC to leverage the scale of economies by considering offshore outsourcing. While RBC it quite advanced in integrating IT technology in their operations and risk management, they need to give importance to business continuity and risk management. Consolidation in the financial sector is taking place due to worldwide crunch in the credit market. To survive amidst the crisis, RCB needs to be prepared for unscheduled changes and challenges which require on-going training programs for the managers. Ethics and values hold importance in any business but become more pronounced in the case of the financial sector and banks. Hence, RBC must ensure fair dealings while maintaining legal and regulatory affairs. References: Business Continuity Institute (2006), Business Continuity, UK Resilience, < http://www.ukresilience.info/preparedness/businesscontinuity/index.shtm> 27 December 2007 CBC News (2006), RBC gets into mutual fund business in China, 29 Dec 2007 Cravens, D. W., Piercy, N. F. P., & Low, G. S., (2002), The innovation challenges of proactive Cannibalization and discontinuous technology, European Business Review, Vol. 14 No. 4 pp. 257-267 Gross A (1995), China Market Entry Strategies, 29 Dec 2007 Hope, C. A. & Mühlemann, A. O. (2001), The impact of culture on best practice production/operations management, International Journal of Management Reviews, Vol. 3 No. 3 pp. 199-217 ICFAI (2006), Business Continuity Planning - Concepts and Cases, ICFAI University Press, < http://www.icfaipress.org/books/Busi_Cont_Planning_ConceptsCases.asp> 27 December 2007 Kolber, E. L., (2003), A Case for bank mergers: keeping Canada competitive in a global financial services industry, Policy Options, 28 Dec 2007 Lee J-W & Tai S (2006), International Journal of Emerging Markets, Volume 1 Number 3 2006 pp. 212-224 Mishra, G., (2007), Canadas Royal Bank seeks RBI nod for India entry, 29 Dec 2007 Powell, S., (2006), Amin Rajan: promotion of workforce diversity, HUMAN RESOURCE MANAGEMENT INTERNATIONAL DIGEST, VOL. 14 NO. 3 2006, pp. 22-25 Rao, S., & Sharma, P., (2006), International Competitiveness and Regulatory Framework: A Canadian Perspective, Minister of Public Works and Government Services, 28 Dec 2007 RBC (2007), Company Profile, 28 Dec 2007 RMJ Journal, The (2002), Business Continuity Planning: A risk managers agenda for operational and credit risk management, 27 December 2007 Rodeck, B., (2003), RBC FINANCIAL GROUP ADOPTS EQUATOR PRINCIPLES, 29 Dec 2007 Savitsky J J & Burki S J (2004), Globalization and the Multinational Corporation, www.iadb.org/int/jpn/English/support_files/GLB%203%20Glob.and%20Multina tional%20Corporation.p> 29 Dec 2007 Scott, R., Ticol, D., & Murti, M., (2006), A Fine Balance, The Buying and Selling of Canada, PriceWaterHouseCoopers, 28 Dec 2007 Trefler, D., (2005), Policy Responses to the New Offshoring: Think Globally, Invest Locally, 29 Dec 2007 Read More