India and its Political Institutions - Essay Example

?Executive Summary India is one of the leading emerging economies in the world with large population and growing economy. Increasing income level of the consumers as well as better technology infrastructure therefore offers India a unique advantage to have relatively more modern banking facilities in place. Considering these factors foreign banks in the country have largely focused on the high net worth clients however, some banks like Barclays have deliberately chosen the strategy of catering to the low income level segment of the country.. It is also critical to understand that India’s banking sector is still heavily regulated as throughout its history, India’s banking system remained closed for the foreign banks. However, with de-regulation of the sector in place, Indian banking sector is emerging fast as one of the leading sectors of the economy. Introduction Barclays Bank is one of the leading banks in the world with presence in different countries across the globe. Though predominately it is focused on the UK market however, through its various business units and activities it has been able to maintain its presence in various other countries also. Recent moves of the bank include entering into emerging markets such as India owing to high growth economic growth rates recorded by emerging economies. Entry into the Indian market however, can be one of the significant strategic challenges for Barclays given the overall complexity of the external environment and the competitive landscape of the country. (Kumar, Malathy, & Ganesh, 2010). The overall complexity of the external environment therefore can create significant strategic challenges for Barclays to not only maintain its strategic presence in the region but also ensure that its long term future is sustained. Section 1 of this report will essentially discuss the current strategy of Barclays and its strategic fit with the environment of India, followed by the assessment of the overall distinctive elements of the strategy adapted. Final section will discuss and explore as to whether this strategy will actually be sustainable or not for Barclays within Indian market. Part-I Analysis of the Environment Political Factors India is the largest democracy in the world with stable Political institutions in place. Though overall rate of corruption in government institutions is relatively high however, political stability in the country provides a relatively unique opportunity for the businesses to actually engage themselves into business. (Economist, 2011). Though the banking industry is highly regulated however, the recent de-regulation process adapted by the government has allowed many international institutions to open their businesses in the country. Economic Analysis India’s economy has expanded by an average rate of 8.4% with highest growth rate of 10.10% achieved during 2006. 1Such high growth rates of economy therefore indicate that the overall standards of living in India are improving. Such improvement in the living standards could certainly result into the higher demand for better and more innovative banking services. (Hiscock, 2007) Social Factors Demography of India is another important variable which provides it relative edge over other countries in the region. (Rao, 2008). Most of the banks including Barclays have taken advantage of this factor by introducing different facilities targeted at different segments of the society. India is also a hub of heterogeneous population belonging to different religious and social classes. (CHANDRASEKHAR, 2006). Such heterogenity of population therefore offers firms a diversified range of business opportunities to tap into the large market potential existing in both rural as well as urban India. ( Murthy, & Deb, 2008) Technological factors It is also important to note that India is a technology hub of the world and due to availability of high quality but heap manpower; India can also prove as an important avenue in terms of getting access to the technology. (Safeena,, Date,., & Kammani, 2011). The use of mobile phones is increasing in India and such high ratio of mobile phones in use therefore can offer another important technological breakthrough wherein the banks can actually capitalize on the thriving technology market to offer more innovative services. (Infosys, 2011) Barclay’s Competitive Stance in India India offers very promising and growing opportunities to not only diversify but also further penetrate into the existing market. The overall composition of the market is such that Barclays can tap into different main as well as sub segments of the market. Such diversity in the banking sector therefore also indicates that the overall competitiveness of the industry is increasing. Though local banks are increasing in number and their penetration is increasing in the market however, foreign banks are also penetrating into previously untapped segments of the market. This therefore can make the overall competition in industry more intense for both the local as well as foreign banks. The overall bargaining power of the depositors i.e. the buyers is relatively low as the market in rural areas of India is not especially mature enough. Depositors can also serve as the suppliers i.e. suppliers of depositors, however; the overall rates offered on the deposit accounts are relatively low. Such low deposit rates offered therefore can make banks more dictating in terms of offering competitive deposit rates. (Ghosh, 2008). The overall cost of entry into the market is high which is effectively deterring new entrants to make an entry into the market. Since the industry is heavily regulated therefore it is not possible to obtain the banking license. (Thorat, 2010). These barriers are not only regulatory in nature but are also in terms of the capital cost involved to enter the market. With the introduction of the higher capital and liquidity requirements under Basel accords, banks are not able to maintain the required capital base thus making it extremely difficult for new entrants to make an entry into the market. The overall threat of substitute products however is high due to the generic nature of the products and availability of same technology to each firm. Since banking products are almost similar in nature therefore each firm in the industry attempt to follow others and launch more or less similar products with similar benefits and features. This analysis therefore suggests that the overall competitiveness in the industry is still low and the banks can dominate the market due to their sheer size and bargaining power. Though industry is becoming fragmented due to entry of new banks however, it still lacks the required level of competitiveness in order to become more efficient. Scale and Scope Barclay India has range of different products and services aimed at different segments of the market. The retail segment of the business includes personal loans, credit cards and other related products. The commercial banking segment of the bank is targeted at the commercial businesses whereas retail banking products such as credit cards and personal loans are offered to the retail consumers. Different segments of the business therefore allow Barclay to generate and sustain the required level of competitive advantage in the market besides achieving economies of scale by serving large base of retail consumers. Analysis of the Strategy Barclays is a services oriented organization therefore its value chain analysis would indicate that its primary activities are mostly focused on the sourcing of the suppliers. The inbound logistics of the firm would suggest that it comprises of the suppliers who actually fund the activities of Barclays. This therefore includes the shareholders and investors who actually invest into the firm. Since Barclays is a foreign firm in India therefore it has to constantly inform its investors and shareholders regarding the potential risks involved in investing in India. Operations of the bank include retail as well as commercial banking activities under which Barclays serve different segments of the market. Barclay’s retail segment in India is serving low and medium income customers whereas commercial banking segment of the business is targeted at business customers. Outbound logistic activities of the firm include reaching out to the customers through its different products and branch network. Barclays offer credit cards, personal loans as well as other deposit based products. Barclays has also tried to reach its customers through its internet banking facilities. Firm infrastructure of Barclays includes an extensive network of branches across the country as well as the heavy investments made in the information technology set up. HR activities are also coordinated according to the global policies of Barclays and are contributing towards the growth of the firm by attracting skilled and qualified local staff. The above analysis suggests that the overall strategy of Barclays is appropriate considering the overall market situation. It is also important to note that the innovative retail and consumer banking strategy executed by Barclays may be time limited and Barclays may have to change the strategy when this segment of the market matures or new trend emerge. Since using mobile phone services is still a costly affair in India therefore accessing services like mobile banking may increase the overall transaction cost for the customers. (Parsad, 2010) The overall fit between the Indian market and Barclay’s strategy therefore is quite significant and can offer the bank a solid opportunity to increase its presence in the market. However, the strategy may not remain unique in next five years as domestic banks may also start to develop their core competencies in this segment of the market. Considering above, it is critical that Barclays has adapted a flexible strategy in order to ensure that it can respond to different external situations in smooth and on pro-active basis. Evaluation of Sustainability The overall strategy adapted by Barclays is valuable in the sense that it has allowed it to generate and maintain its competitive advantage within the market. However, the overall strategy and resources deployed may not be inimitable due to the range of options available to other players in the market. Due to generic nature of the products, the inimitability of the resources and strategy boils down to generating significant cost advantage to become more competitive in the market. The overall strategy may be relatively distinctive as compared to other foreign banks because other foreign banks have limited themselves mostly to the urban customers whereas Barclays has focused on rural and low income level customers also. The strategy and the resources deployed however, may not be completely unsubstituable because other banks can also follow the same strategy if overall profit growth prospects become higher in rural segment of the market The current strategy however, can be sustainable due to the fact that Barclays is a global brand and has readily available brand recognition. It can further penetrate into the existing markets while at the same time allowing it to tap into the untapped segments of the market. Barclays has adapted the strategy of serving the low and middle income groups of customers in the urban as well as the rural areas. This strategy is not only backed up by the local knowledge but is also supported through efficient technology. Combination of both the elements therefore can offer it the required sustainable advantage in the market and grow organically. The overall strategic orientation of Barclays in India is based upon the differentiation strategy where it has focused on the catering of the needs of the low income groups of customers. This strategy may prove sustainable for longer period of time because India’s economic situation is improving and more and more individuals will start to fall in this bracket of customers as their disposable income start to increase. It is therefore important for Barclays to ensure that it leverage the market opportunities arising in future with its overall focused and flexible strategy. If it changes its strategy and re-adjust focus on different segments of the market, it may not be able to enjoy the relative degree of success which can be enjoyed by betting on large unbankable segment of the market. It is also however, important to understand that local banks are increasing in their strength also. Considering their traditional presence in the rural and urban areas, it may be quite possible for them to start imitating the strategies of foreign banks.( Deolalkar, 2011). Such moves however, can prove detrimental for firms like Barclays in long run because local banks will start to catch up and may further drive down the spreads. Though the current banking spreads are on higher side however, as the competition increases and local banks become more sophisticated, it is quite possible that the foreign firms can face significant competition from large as well as small local banks. However, considering the brand power of Barclays this may not be easy for local banks. The overall transition to maturity however can occur when firms start to offer universal banking services and increase their overall scope of the activities. This transition however, may be subject to extensive de-regulation of the sector under which banks are to be allowed to conduct universal banking services under one roof. Bibliography 1. CHANDRASEKHAR, C. (2006, Jan 01). Does demography advantage India? Retrieved April 08, 2011, from Front Line: http://www.flonnet.com/fl2301/stories/20060127004010500.htm 2. Deolalkar, G. H. (2011). The Indian Banking Sector : On the Road to Progress. Retrieved April 08, 2011, from http://aric.adb.org: http://aric.adb.org/pdf/external/financial_market/India/india_bnk.pdf 3. Economist. (2011, March 24). India's corrupt politics. Retrieved April 27, 2011, from The Economist: http://www.economist.com/node/18446966 4. Ghosh, S. (2008). Regulatory Pressure, Market Discipline, and Bank Spreads in India: An Empirical Exploration. Global Economic Review , 37 (2), 227-247. 5. Hiscock, e. (2007, October 28). India's challenge: Raising living standards for the masses. 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