Global Dubai Strategy in Islamic Finance - Coursework Example

Business Number: Paper: Table of Contents Table of Contents 2 Introduction 3 Importance of study 3Porter’s Five Force 3 CPM 5 Integration strategies 6 Intensive strategies 7 SWOT Matrix 7 BCG Matrix: Global Dubai strategy in Islamic finance 8 Conclusion 8 References 9 Introduction In 1975, contemporary Islamic Finance was developed with establishment of Dubai Islamic Bank. Currently, almost all the states in Gulf Cooperation Council (GCC) follow Islamic finance. The GCC states includes Qatar and Dubai who have adopted Islamic Finance way back in 1900s. The essay elaborates on the difference between Dubai Islamic Finance and Qatar Islamic finance by highlighting their SWOT and competitive position in the global banking industry. The Islamic Banks has shown variation in product development and has offered attractive ranges of services. This services and products are, however, dissimilar in different parts of GCC. The difference is brought forth by comparing the Islamic finance of two states, Qatar and Dubai. Importance of study The study depicts the difference between operation of two banks – Qatar Islamic Bank and Dubai Islamic Bank. Both the banks have adopted Islamic finance, which is the main focus of the study. The primary aim of the study is to evaluate relevance of Islamic finance in the two banks by giving emphasis on different strategies adopted by the banks: integration and intensive. This study is very important as it draws a comparison between operations of the two banks, thereby foregrounding the Islamic finance (Sambridge, 2013). Porter’s Five Force Porter’s five forces is incorporated for examining the difference as it is important to understand the dissimilarities in characteristics of banking industry in both Qatar and Dubai. The following paragraphs elaborate differences between the two banking industries: Threat of new entrants: In Qatar and Dubai, conventional banks are famous for their products and services. However, Islamic banks have made their way into the industry by providing wide variety of choices to customers. In Dubai, Islamic finance has received a huge welcome; whereas in Qatar, many opposed to the products and services. For the new entrants in banking industry in Qatar, a lump sum capital is required, which is hard to afford by an individual entrepreneur. It is also very difficult to obtain licenses from the government as the Central Bank has stopped giving licenses to several emerging banks. This factor in particular has reduced the threat of new entrants in the Qatar Islamic banking industry. In Dubai, international and national Islamic banking is favored to a great extent and this industry has earned almost $ 2 billion foreign capital. The number of Islamic banks has been increasing in Dubai every year. The threat of new entrants related to this industry in Dubai is also quite high as distribution cost and legal expenses are very high. Rivalry among the existing competitors: The existing competitors in Dubai and Qatar are the conventional banks. The conventional banks have dominated the industry for a long-term in the past until the Islamic bank came into prominence. Currently, conventional banks are running parallel to Islamic banks in GCC states, thereby exerting pressure on existence of Islamic banks. There is a decent growth of Islamic banks in Dubai, whereas Islamic banks are not very highly favored in Qatar. The conventional banks are more dominant in Qatar compared to Islamic Banks. This has reduced the level of competition in Qatar. On the contrary, Dubai Islamic Bank has encountered challenges from conventional banks (Hamdan, 2014). Bargaining Power of Buyers: The main customers of the Islamic banks in Qatar and Dubai are general public and the companies. The general public can be classified into urban people and rural people. The Islamic banks are usually established in big cities (Tahir & Umar, 2008). The customers in big cities have the ability to open accounts and make investment in high amounts. Individuals in the rural areas do not have the ability to open big accounts. They desire for higher rates of interest on their fixed deposits and demand for special schemes, which will secure their little savings. It is observed that in Dubai, customers who are using Islamic banking are new to the concept as they are more acquainted with conventional banking, which is entirely interest based banking. The Islamic banking customers are religiously attached to Shriah principle and thus, they do not bargain with the facilities provided. It is the same case with Qatar Islamic bank, where the only difference is that customers are more conscious about profit (Kahf, 2002). Bargaining power of suppliers: The main suppliers of Islamic finance are Shriah scholars, employees, IT companies providing software and hardware to banks and the shareholders. They play an important role in successful operation of the banks. Hence, in both Qatar and Dubai, bargaining power of the suppliers is high as without them, banks cannot operate (Wilson, 2009). Threat of substitutes: Different asset management companies have become dominant all over the world, taking the place of financial institutions and have attracted customers to a great extent. They have threatened the existence of conventional and Islamic banks in Dubai and Qatar. Even so, Dubai Islamic finance has motivated the customers to invest in their schemes and get higher returns that are not available from asset management companies, especially the mutual fund houses. CPM Corporate Performance Management (CPM) of Islamic banks is very important. The CPM of Dubai Islamic banks and Qatar Islamic banks use Business intelligence software for displaying organizational performance. The software includes budgeting and planning functions, dashboards for planning future growth as well as identifying present growth. This software helps the banks to develop their corporate information. The Dubai and Qatar Islamic finance use the same software, but there is a big difference between the two. The Business Intelligence system (BI) used by banks in Qatar is not adequately developed in order to retain all data that are being recorded over the years. Nonetheless, the BI used by Dubai Islamic banks is well-developed system, which supports appropriately structured and formatted data system that can reflect data recorded for decades (Global Islamic Finance, 2014). Integration strategies Qatar Islamic finance has extended its territory by acquiring many companies. Recently, the bank had a talk with Bank Asya regarding acquisition and has planned to enter the market of Turkey. Qatar Islamic bank has also entered into partnership with Duluth based NCR for acquiring software and hardware easily. The company has also announced to enter into partnership with Shanghai Anmao Information Technology so as to easily acquire software. Dubai Islamic banks have endeavored for expanding their business internationally and in Emirates so as to become the world’s leading banking service provider. The bank has decided to expand aggressively in highly eligible markets like, Sudan, Turkey, Saudi Arabia and Pakistan. One of the biggest strength of the bank is the corporate banking division, which has penetrated the market in Dubai to a great extent. They provide superior and innovative services to customers. Intensive strategies Dubai Islamic banks have greatly penetrated the GCC markets and have concentrated upon attracting more customers by way of innovating new products and extending to more markets. The intensive strategies used by Dubai Islamic banks are market penetration, product development and market development. The bank has aimed to extend its market outside the territory of Dubai and penetrate all markets in GCC in order to become the leading Islamic banking provider. Qatar Islamic banks have developed many products, which are helpful for customers and have helped them to receive higher return than conventional banks. The bank has, however, extended its territory to Turkey through acquisition so as to penetrate more markets. The main difference between the two banks is that Qatar Islamic banks are so particular about developing its software and hardware system, that they have overlooked aspects of upgrading them by innovating new ones. On the other hand, Dubai has extensively used upgraded system to support their data back up and formulate new information. SWOT Matrix Strengths Weakness Qatar Islamic Finance Dubai Islamic Finance Qatar Islamic Finance Dubai Islamic Finance Good customer service and motivate customer regarding the religious part of banking Strong and well developed corporate banking system The software and hardware are not upgraded Excessive competition in the market due to development of Islamic that have threatened its existence Opportunity Threats Qatar Dubai Qatar Dubai Wider market apart Qatar for penetrating Wider market apart from Dubai to penetrate Old system that is losing information regarding customers. Competition among conventional and Islamic banks. BCG Matrix: Global Dubai strategy in Islamic finance Since establishment of Dubai Islamic bank in 1975, it has set new standards in the industry for developing Islamic finance. This has paved way for progress in the sector. The concept of Islamic finance has gained prominence globally. The bank is recognized by its rich heritage and had received several accolades for advancements and innovation in the particular arena. It has, thus, provided a modern face to the industry for the past 40 years. Conclusion It can be concluded that as the originator of Islamic finance, Dubai Islamic finance has gained more prominence globally by expanding their services. Even so, Qatar Islamic banks have built a good reputation by attracting customers of conventional banks and concentrating upon the Shriah principle. References Global Islamic Finance. (2014). World Islamic Banking Competitiveness Report 2013–14. Retrieved from http://www.mifc.com/index.php?ch=28&pg=72&ac=58&bb=uploadpdf Hamdan, S. (2014). Dubai Seeks to Become Islamic Economic Hub. Retrieved from http://www.nytimes.com/2014/04/14/world/middleeast/dubai-seeks-to-become-islamic-economic-hub.html?_r=0 Kahf, M. (2002). Strategic Trends in the Islamic Banking and Finance Movement. Retrieved from http://www.iefpedia.com/english/wp-content/uploads/2009/11/Strategic-Trends-in-the-Islamic-Banking-and-Finance-Movement.pdf Sambridge, A. (2013). Dubai Creates New Centre To Drive Islamic Finance Ambitions. Retrieved from http://www.arabianbusiness.com/dubai-creates-new-centre-drive-islamic-finance-ambitions--531536.html Tahir, M. & Umar, M. (2008). Marketing Strategy for Islamic Banking Sector in Pakistan. Retrieved from http://btu.se/fou/cuppsats.nsf/all/ca69eb7e5dcfd5b8c12574800082dade/$file/Islamic%20Banking.pdf Wilson, R. (2009). The development of Islamic finance in the GCC. Retrieved from http://eprints.lse.ac.uk/55281/1/Wilson-2009.pdf Read More