Barclays Bank Retail Banking Strategy - Essay Example

? Barclays Bank in India Management Report of the of the Barclays Bank in India I. Introduction No modern business todaycan exist in a vacuum. It has to face the internal and external forces that abound in the business environment. Some of these are helpful for every firm in the industry and are called opportunities, while others bring bad news for everyone and are regarded as threats. Besides these forces in the external environment, a particular firm may have internal strengths such as the skill and experience of its staff, or weaknesses such as frequent labor disputes because of lack of clearly defined polices for staff and workers. In sum the fortunes of the firm are dependent on how well its management deals with business opportunities and threats, while using the strengths of the firm to take advantage of the opportunities and minimize the effect of the threats through clever planning and strategic implementation of its vision for the company. This is what is called strategic management- or the planning and implementation to achieve its desired plans in the marketplace in the face of these internal and external forces. The legal, political, sociological, economic and other environments may pose a number of challenges that must be overcome by the business if it is to survive and prosper in the marketplace. Barclays Bank PLC is one of the key players in the worldwide banking industry as well as in India and this paper will discuss how successfully it has managed to meet the challenges faced by the banking sector in India. II. Overview of the Banking Sector in India The major Indian banks can be classified under three categories in terms of ownership:(1) Public sector banks such as State Bank of India, the Bank of Baroda, Bank of India, Punjab National Bank and Canara Bank; (2) Private sector banks such as ICICI Bank and HDFC Bank; and (3) Foreign Banks such as Citibank, Barclays Bank of India and Standard Chartered Bank. By December 2008, there were 28 public sector banks, 29 private sector banks and 30 foreign banks, in addition to other regional and cooperative entities. The banking sector in India is one that is full of intense competition. Lately the banking sector, which had been hit by the worldwide 2007-2008 economic recession, has been in recovery mode and efforts are still being made to put the sector back on track. The recessionary trend saw a decrease in the percentage of consumer lending from 29.9 percent in 2007 to just 17.1 percent in 2008. The major contractions were seen in the autos, housing, personal loans and consumer durables sectors. III. Supervision and Control As in most nations of the world, the outlook on monetary policy and regulation of the financial system lies with the Central Bank. In India, this is the Reserve Bank of India (RBI). In keeping with the special functions of a central banking institution, it is also the issuer of local currency as well as the manager of foreign currency reserves and regulations in India. In the same fashion, the Securities and Exchange Board of India is the regulatory body that monitors stock market transactions and compliance with the rules. India also has an Insurance Regulatory & Development Authority like the FDIC in the USA that is responsible for protecting the interests of the policyholders.   IV. The State of the Retail Banking Sector in India Retail banking has been the major hub of activity in recent years. The banks have classified their customers into three major groups- consumer, small business and corporate. It has been acknowledged that the progress of retail banking would most likely rest of four pillars: innovative offerings, distribution optimization, quality of management and shared system/back-office. Barclays has adopted an innovative strategy upon its entry into India in 2008. Banking today can be characterized by the different products that are being dealt with, such as investment banking, asset management or debt management, or by the type of customer dealing, such as Wealth Management for high net worth clients and Retail Banking for all types of customers (Harrison, 1994). There are also a number of channels for service delivery, like online banking and ATM transactions, cash deposits and withdrawals, wire transfers etc. But never mind what classification you choose, it all deals with saving, lending, spending, deposits and investments and withdrawals. These are the primary functions of banking which we cannot deny (Lee, 2002). One of the major reasons international businesses want to come to India is that the population demographics are quite favorable. It is expected that by 2020, India would have a surplus of 47 million people in the age bracket 15 to 59 years. The World Retail Banking Report 2008 predicted that the share of India in retail banking would increase from ?26 billion in 2006 to ?57 billion by 2017. An increase of 60 million new households should also be added to India’s banking customer base in the same period (World Retail Banking Report, 2008). The Indian population is considerably young and with India becoming the Asian hub of the software engineering and call center outsourcing industry, income levels are rising for the youth. This has led to higher retail banking activities in ATM transactions and credit card lending for example. With more and more international banks entering the picture, it is clear that battles both for local customers as well as overseas NRI’s will be intense, with the latter forming a source of much appreciated foreign remittances (Estelami, 2005). Earnings from interest are another major source of income, comprising between 65 to 75 percent of overall bank earnings in India. V. Analysis of the Bank’s Strategy The strategy of Barclays has been to Expand, Invest and Grow. This is the direction pointed out by its Global Retail and Commercial Banking Unit (GRCB). Indeed, the focus of Barclays’ entry strategy in India had been to concentrate on the retail sector. But its efforts had been thwarted by intense competition from local banks, several restrictions on foreign banks and the global economic downturn. The RBI had recorded that deposits among the 30 foreign banks had shrunk by 12 percent per January 2008-2009 year on year comparisons, and credit growth also recorded a decrease from 30.7 percent to 16.9 percent over the same period. Indeed, analysis showed that the gap was filled in by increased business by local banks. The foreign banks also had no option but to wait for relaxation in licensing restrictions etc. expected in early 2009. VI. Value Chain Analysis The concept of the value chain was first developed by Michael Porter in his book ‘Competitive Strategy: Creating and Sustaining Superior Performance’. Porter looks at the term ‘value added’ in terms of some activity increasing the value of the overall product or service provided by the firm. Porter maintains that all companies can develop and maintain their competitive advantage in the industry by linking activities that form the success points of the firm, to compete effectively in the 21st century (Porter, 1985). Performing a value chain analysis of an organization is a key step to be undertaken by managers in determining which activities form the value chain for the organization, and thereby have the potential for providing a source of competitive advantage for the firm. Porter has mentioned that these consist of two types of activities- primary activities and support activities. The primary activities consist of inbound logistics, operations, outbound logistics, marketing and sales, and service. The support activities consist of procurement, human resource management, technology development and the firm’s infrastructure (Porter, 1985, p 41). We will now proceed to determine the value chain activities of Barclays Bank in India. Let us take the activities one by and see how the bank fares in each aspect. Inbound Logistics: For Barclays, this would include the people and firms who provide its asset base through which it funds its investment and lending activities. Of course this would include depositors in India, as well as NRIs who have heard that Barclays had opened up its branches in India. The worldwide reputation of Barclays would help it get deposits from both overseas and local clients. The interest rates offered would also be a determining factor in gathering deposits, and capital investment by its principals would be a definite advantage (Easingwood & Storey, 1993). Operations: As we can see from Appendix IV in the case readings, the products offered by Barclays in India would entail corresponding front and back office operations and activities. These include savings accounts and deposits, personal loans, business loans, loans against property, home loans, credit card, NRI banking services, mobile banking and online banking services in the consumer banking arena, and trade finance, business banking, treasury and cash management solutions, with loans and deposits forming part of the commercial banking arena. The list is quite comprehensive and there is no reason why Barclays will not be successful once there is lifting of licensing restrictions and liberalization of banking industry as expected in 2009. Outbound Logistics: This is the way that Barclays plans to reach out to the customers and you can be sure that it includes a lot of advertising and promotion activities. Barclays has a reputation for targeting and engaging with different consumer segments in different ways and most likely it could even mobilize the resources of people who refrain from traditional banking activities (Doole et al, 2004; Machauer & Morgner, 2001). Marketing and Sales: This is another area in which Barclays could dominate once it understood the demographics, psychographic and lifestyle needs of the various consumer groups present in India. For example, Barclays mobile and e-banking solutions have been appreciated in India as they are based on superior technology (Devlin, 2000). Service: Barclays’ standard of service is well renowned and can be observed right from the time you walk into any one of their branches worldwide. You will be assisted within minutes by any one of their able service officers, or at the very least asked to have a cup of tea or cold beverage as you wait to be serviced. The level of product expertise and customer service shown by their staff is exemplary and worthy of emulation by any other bank in the world (Papasolomou & Vronitis, 2006) Procurement: Barclays can afford to invest a lot in procurement and usually does so. It also tries to cut down on unnecessary costs where needed or there is observable waste (barclays.in/about/about_us.htm). . Human Resource Development: In India, Barclays is in the process of reviewing its initial compensation strategy according to local standards. It usually pays above average salaries to recruit the best people and trains them as well. Barclays considers its staff as one of its prime assets (Kelley, 1989). Technology Development: Barclays has always been known worldwide for its focus on innovation and investment in technology. The bank was the first in the UK to offer credit cards and debit cards to its customers in the 1950s, and was the first in the world to use ATM facilities (Avlontis et al, 2000). Amazingly, the functions of computerization, information management and technological innovation have been devolved to the functional level and there is no CIO for the bank. Firm’s Infrastructure: Barclays strategy of earn, invest and grow is the reason why it enters markets and is able to capture a lot of market share in a short span of time. It is prepared to wait till it becomes profitable if it is sure that it is in the right market and is offering solutions of value to the customers(Tyler & Stanley,2007). The bank invests heavily in infrastructure and wants to reap returns in the long run (Grayson et al, 2008). Critical Appraisal of the Strategy While the strategy of Barclays was well planned and appears to be solid, the bank unfortunately picked a wrong time to enter the emerging markets of India. However no one could have anticipated the economic slowdown as a result of the sub mortgage crisis in the USA and its repercussions all across the world. It is just a matter of wrong timing. In these times all banks are conscious about controlling costs and getting the maximum from every penny spent (Hollenson, 2007). The competition is intense too and at the moment local banks are at an advantage over foreign ones due to less licensing and other requirements. However it is hoped that with the expected liberalization of the banking sector and the lifting of licensing and other restrictions, Barclays’ original strategy will be vindicated and it will manage to create a name for itself in India. Conclusion We have looked at Barclays Bank in India and conducted an analysis of its value chain activities, as well as the general economic, sociological and technological conditions that foreign banks have to face in India. We conclude that Barclays Bank India will be able to ride out the storm and face the difficulties and challenges posed by both the internal and external environment. Through strategic planning and direction, it will manage to retain its position as one of the biggest banks both worldwide and in India in terms of revenues and profitability. References Avlonitis, G J. & Papastathopoulou, P. ( 2000). “Marketing communications and product performance: innovative vs. non-innovative new retail financial products,” International Journal of Bank Marketing, Vol. 18, Issue 1, pp27-41. Barclays in India. Accessed online on 08 April 2011 at http://barclays.in/about/about_us.htm Devlin, J F. (2000). “Adding value to retail financial services,” International Journal of Bank Marketing, Vol. 18, Issue 5, pp222-232 Doole, I., Lancaster, P. & Lowe, R. (2004). Understanding and Managing Customers. Prentice Hall. Easingwood, C J & Storey C D. (1993). “Marketplace success factors for new financial services”. Journal of Services Marketing, Vol. 7, Issue 1, pp41-54 Estelami, H. (2005). “A cross-category examination of consumer price awareness in financial and non-financial services,” Journal of Financial Services Marketing, Vol. 10, Issue 2, pp125-139 Grayson, K., Johnson D. & Chen D R. (2008). “Is firm trust essential in a trusted environment? How trust in the business context influences customers.” Journal of Marketing Research, Vol. 45, April, pp241-256. Harrison, T S. (1994). “Mapping customer segments for personal financial services”. International Journal of Bank Marketing, Vol.12, Issue 8, pp17-25. Hollensen, S. (2007). Global Marketing: A Decision-Oriented Approach, 4th ed. Pearson International. Kelley, S W. (1989). “Efficiency in Service Delivery: Technological or Humanistic Approaches?” Journal of Services Marketing, Vol. 3, Issue 3, pp43-50 Lee, J. (2002). “A key to marketing financial services: the right mix of products, services, channels and customers,” Journal of Services Marketing, Vol. 16, Issue 3, pp238-258 Machauer, A. & Morgner, S. (2001). “Segmentation of bank customers by expected benefits and attitudes.” International Journal of Bank Marketing, Vol.19, Issue 1, pp6-18 Papasolomou, I. & Vronitis, D (2006). “Building corporate branding through internal marketing: the case of the UK retail banking industry”, Journal of Product & Brand Management, Vol.15, No. 1, pp37-47. Porter, M.E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press. Thornton, J. & White, L. “Customer orientations and usage of financial distribution channels”, Journal of Services Marketing, Vol.15, Issue 3, pp168-185 Tyler, K. & Stanley, E. (2007). “The role of trust in financial services business relationships,” Journal of Services Marketing, Vol. 21, Issue 5, pp334-344 Watters, R.G. (1995). “International Business Development – what are the considerations?” Journal of Business & Industrial Marketing, Vol. 10, Issue 3, pp61-73 World Retail Banking Report (2008). Accessed online on 08 April 2011 at http://at.capgemini.com/m/at/ti/World_Retail_Banking_Report.pdf. Read More