Barclays Retail Banking in India - Essay Example

?Barclays Retail Banking in India Executive Summary The key findings obtained with the virtue of the research, suggested that Barclays adopted a well-structured systematic approach to strengthen its position in the Indian market. It was also recognised to be quite successful in the highly competitive market of India despite strict regulations and political interventions. To be precise, the research findings depict that the strategic decision to expand its business in the Indian market was largely advantageous for Barclays, although, during its entry to the market, environment was highly volatile and challenging. Table of Contents Executive Summary 2 Introduction 4 Section 1 5 1.0. Analysis of Environment 5 1.1. PEST Analysis 5 8 1.2. Industry Life Cycle 8 2.0. Competitive stance of Barclays in India 9 2.1. Porter’s Five Forces 9 Section 2 13 2.1. Scale and Scope 13 2.2. Analysis of Strategy 14 2.3. Evaluation of Sustainability 15 References 17 Bibliography 21 Introduction After realising the potential of the emerging markets, many internationally operating business institutions have shifted their focus from developed economies to developing economies, such as China, Russia, and India (Raman, 2009). Following the trend, Barclays Bank Plc, which is by its origin an England-based financial institution, decided to expand its business in India in the year 2006. Conversely, the organisation had already entered the market almost 30 years before the commencement of retail banking in the economy (Barclays, 2011). The paper focuses on the business environment of Barclays Bank Plc in India and services rendered by the company in the economy. With this concern, the paper discusses the macro-economic factors existing in the Indian Banking Sector through PEST analysis. It also intends to identify the strategic alliances adopted by the company with the assistance of Porter’s Six Forces analysis and evaluate its appropriateness in overcoming the challenges existing in the economy. With the objective to analyse appropriateness of the strategies adopted by the company, the discussion of the paper presents a comprehensive outlook of the current status of the industry in the economic region. It also represents the various facts regarding the strategic behaviour of the company. Section 1 1.0. Analysis of Environment 1.1. PEST Analysis Political Factors The Indian political system has a great influence on the commercial sector of the economy. The current scenario of the political environment in India possesses few advantages and disadvantages which in turn can affect the banking sector to a large extent. For instance, the economy possesses a well-structured regulatory framework to control commercial banking and on the contrary a high inflationary rate which is most likely to have an effect on the growth of the banking industry (The Times of India, 2010). Moreover, in the current fiscal year the government of India have subscribed to recapitalise the public sector banks in order to assist them in achieving a target of 15% in terms of outstanding loans (Scribd, 2011). One major reason which can be identified in this context is the growing concern of the political leaders in the economy to improve the financial market trends with an objective of stimulated economic growth. This reformation will certainly make the competition fiercer in the market and thus affect the operations of Barclays in India. Economical Factors The GDP rate of the economy is recorded to continuously increase and currently figures around 5.75% (as was recorded in March 17th 2011). According to the economists, the economic growth rate shall persist to increase in the next few years (Ganesh, 2011). The interest rate of the economy is forecasted to continue on a high percentage (i.e. 5.75%). However, the inflationary rates of the economy are also recorded at an increase with 9.30%. Interest Rates of the economy currently figures to 5.75% and thus reflects a challenging business environment (Ganesh, 2011; Trading Economics, 2011). The economic situation of India in the current period can be recognised to provide a few great opportunities to the retail banking sector with increasing income per capita and its subsequent growth structure. Moreover, with an increasing interest rate structure, the sector will be able to gain higher customer loyalty (Trading Economics, 2011). Social Factors The Indian social environment comprises of multiple ethnic groups and is fundamentally based on the agricultural sector. Rising food inflation and poverty on the similar context is one of the major challenges of the Indian social environment but is expected to fall by 24% until 2015 (Dhar, 2010). On the similar context, the literacy rate and the employment rates are also recorded to increase with a healthy pace. For instance, the unemployment rate currently is recorded to be 8% with an increasing per capita income rate, (i.e. around 36,000) along with an increase in its population to about 1.18 billion by March of 2011 (The Economic Times, 2011). This depicts the fact that sustainability issues shall be quite beneficial for the Barclays to enter the market as it strongly influences the demand. Technological Factors Technological interventions assist the industry in developing its security systems, customer service systems and accounting systems. The inclusion of ATMs is also quite remarkable in the industry today (Tater & Et. Al., 2011). The banks’ key initiatives have also been recorded to be focused on the technological development of the economy at large with due consideration to the aspects of Application Portfolio Optimization, Alternate Delivery Channels, Green IT, Enterprise Risk Management, Outsourcing, Cloud Computing and Service Oriented Architecture (KPMG, 2010). The fact apparently depicts that the technology industry in India is also at its booming stage which is providing noteworthy assistance to the Indian Banking Industry. The banking industry is also tending to gain the complete assistance of the technology industry which can be stated as highly beneficial for Barclays in India. 1.2. Industry Life Cycle With reference to the above context, few major factors of the Indian Banking Industry can be identified, such as, the growing rate of demand, constant interest rates, increasing rate of credit deposit ratio, liberal regulatory framework and others. Altogether these facts contribute to the thought that the industry is currently growing at a rapid pace. It is again forecasted by economists that the industry will continue growing for the next few years which resembles its booming phase. This also depicts that the Indian Banking Industry is likely to enter in its maturity period after a few years with lowering growth and increasing competition. Few of the driving forces can be recognised as growing demand, liberalised form of banking regulations in the economy and high interest rates. Altogether these factors contribute to the threat of new entrants in the banking industry along with a higher bargaining power of the buyers with increase in population and available options. Therefore, Barclays should adopt few strategies in order to differentiate and diversify its operations in the economy in order to face the challenges of a matured market, i.e. increasing competition along with lowering demand. 2.0. Competitive stance of Barclays in India 2.1. Porter’s Five Forces Bargaining Power of Suppliers The Indian Banking industry currently possesses a tight liquidity situation which can increase the bargaining power of the industry suppliers such as the Reserve Bank of India and other individual depositors. The trade unions are also observed to be anti-reforms, refusing the liberated policies of the economy. Moreover, a slight decrease in the interest rates can evidently force the customers to switch to the substitutes of the industry, depicting a high supplier switching cost. However, according to the analysts, the tight liquidity situations prevailing in the Indian market is for short-term period with limited harm to the banking industry (The Economic Times, 2010). This depicts that the bargaining power of the suppliers of the industry is quite high in the industry, although, it is expected to prevail only for a short-term period. In other words, Barclays’ operations are likely to be effected by the bargaining power of suppliers in the industry. Threat of Substitutes The major substitutes of the banking industry are the other financial institutions. The Indian financial market comprises of three different financial institutions other than banks, i.e. insurance companies and specialised financial institutions (e.g. NABARD and SIDBI) (Economy Watch, n.d.). To be precise, there exist a considerable number of service providers which serve similar kind of products to the financial industry buyers, such as private sector banks, public sector banks, foreign banks and the above mentioned financial institutions (Price Water House Coopers, 2010). Therefore, a higher threat of substitutes exists in the Indian financial market to be faced by Barclays. Bargaining Power of Buyers The buyers of the banking industry can be identified as the ultimate consumers, the business organisations, and others with the demand for the products rendered by the industry. This strongly relates to the social and economical environment of the economy which determines the customers’ demand and the buyers switching costs as well. According to the recent research reports, the Indian Banking System is currently facing difficulties in managing the rapid increase in customer demand and reduced loyalty due to lower switching costs for buyers (Price Water House Coopers, 2010). This depicts that the bargaining power of the buyers in the industry is substantially high which can in turn affect the well-being of Barclays in a short-term perspective. It is due to the economical interferences which are relatively higher than the social aspects. Threat of New Entrants The banking industry of India, presently offers various opportunities to the participants in terms of liberal regulatory forms, growing demands, and economic stability. Moreover, the economic regimes presented in the current fiscal year budget prescribe constant interest rates and lowered tax rates. It is due to this reason that increasing numbers of foreign investors are tending to enter the Indian banking industry (Bhattacharya, 2011). Thus, it is quite apparent that the industry possesses a high amount of risk in terms of new entrants. One of the major reasons in this context can be identified as the stable economic environment currently offered by the economy. Degree of Rivalry Presently, there are 27 public banks, 22 private banks and 32 foreign banks participating in the Indian Banking industry. All the key players are also recorded to be highly competitive, undertaking differentiating strategies and other growth strategies which can increase the competency of the market (Price Water house Coopers, 2010). To be specific, the degree of rivalry in the Indian banking industry is high which in turn can hamper the interests of Barclays. Therefore, the success and survival factors gain a considerable significance such as sustainability, digitalisation and adaptability. Section 2 2.1. Scale and Scope When Barclays entered the Indian banking industry in the year 2007, it was initially concentrated on providing various banking services to its customers in the market. But over the next three years from its entry in the Indian financial market the company achieved its recognition as the ‘fastest growing foreign banks in India’ through expansion and differentiation strategies. For instance, the company just after its initiation launched five different stores in the major cities of the economy and also launched few of its unique products in the market. It also acquired StanChart, a multinational bank in India with three years of its incorporation in the industry which provided it with greater competency (Sakaria & Paliwal, 2010). Therefore, it can be stated that Barclays’ strategies in India concentrated both on scope and scale of the business providing it a rapid and sustainable growth in India. The company also focused on synergy strategies to strengthen its base in the Indian market (Sakaria & Paliwal, 2010). 2.2. Analysis of Strategy The strategies which were adopted by Barclays in the Indian market were primarily concentrated on the market expansion and product differentiation. For instance, the bank launched its premium products, such as branch banking, internet banking, credit facilities and others in its introductory phase to the market. This helped the company to differentiate its products from that of its rivals in the market and rewarded it a leadership position. Later it concentrated on developing its technological dimensions and started rendering competitive banking services which were provided by its rivals but at a lower effectiveness. The prime aim of adopting this strategy was to gain efficiency in its internal core-competencies, (i.e. prime focus to the safety of the customers’ wealth and technologically supported product line) and develop its competency level. For instance, it improved its doorstep banking services through mobiles and other online facilities which instantly attracted a huge population of the economy and increased its market share in the industry (Sakaria & Paliwal, 2010). To relate the strategies with the current status of Indian banking sector, it can be stated that that the company aimed at utilising almost every opportunity provided by the economy. Its market segmentation was focussed on the urban population targeting the middle and higher income group of the society. Therefore, it can be stated that as the income level of the customers in this sector is increasing considerably, the segment can be stated as quite attractive and promising for expansion. It is also recorded that India comprises of a vast population of banks and financial institutions. In this situation, it becomes essential to adopt advantageous and less risky competitive strategies, such as diversification and differentiation of the services provided by the bank. The strategic resources of the company can be identified as the technological assistance gained in the industry along with its financial strengths and product ranges. In this regard, the growth strategies adopted by Barclays were quite effective in the Indian context. In a nutshell, the bank adopted the above mentioned differentiation and competitive strategies with the purpose to increase its competency level in the Indian context. This would certainly reward it with increased profit maximisation and sustainable growth rate. 2.3. Evaluation of Sustainability Valuable It has can be witnessed that Barclays in India executed there strategies focussed on its unique services which in turn influenced other major players of the industry to serve the customer base with similar services, such as mobile banking facilities. This also facilitated the modernisation of the industry and development of the economy on the whole. Inimitable Over the years, the company has also been recorded to expand its operations in the country in terms of corporate and community services. In this regard the company’s performances were focused on its sustainable growth strategies with due concern to the aspect of social, technological, legal, and environmental factors. Rare Barclays also considers the rarity of its sustainable performances. This can be apparently observed with reference to its innovative strategies to improve its services in a customer-oriented manner. UnSubstitutable Providing banking facilities to the people in the rural areas also contribute to the sustainable growth of the company. It has proved to be beneficial for Barclays in India where a majority of the population belongs to the rural sector. It can also be observed as an unsubstitutable sustainable strategy, as there are only a handful number of foreign banks that have adopted a similar strategy (Barclays, n.d.). References Barclays, 2011. Barclays in India. Barclays Bank PLC. [Online] Available at: http://group.barclays.com/Country/1231781209929.html [Accessed March 24, 2011] Barclays, No Date. Barclays in India. About Us. [Online] Available at: http://www.barclays.in/about/about_us.htm [Accessed March 25, 2011] Barclays, No Date. Broadening Our Reach. Sustainable Bank. 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Banking Sector Liberalization in India: Evaluation of Reforms and Comparative Perspectives on China. Springer. Read More