Evaluation of the Barclays Popular UK-Based Multinational Bank for Its Indian Market - Essay Example

?Barclays bank report Table of Contents Introduction 3 2.Analysis of environment 4 2 PESTLE 4 2.2.Industry Life Cycle 6 3.Barclay’s competitive stance in India 7 3.1.Porter’s Five Forces 7 3.2.Value Chain and Organizational Structure 8 4.Scale and scope 9 4.1.Industry survival and success factors 9 5.Analysis of strategy 11 5.1.Ansoff Matrix 11 5.2.Porter’s Generic Strategy 12 6.Evaluation of sustainability 13 Reference 16 1. Introduction The complexity in the global market has been intensified with increasing volume of the international trade and business. However, due to these major changes in the nature of the global business, the global economies have been significantly benefited. Free trade policies and international business alliances have further encouraged the process of internationalization (Howes and Tah, 2003, p.35). Large scale and medium scale companies have started to expand their market boundaries in the overseas markets. With expansion of the business activities in the world market, the importance of the financial services on the global platform has become a necessary requirement. Moreover, the developing economic condition of target consumers has multiplied the business opportunities. Madura has described that business organizations who have successfully identified the new opportunities in the global market, are “capitalizing on global economic condition” (Madura, 2006 p.83). This paper will attempt to present an evaluation of the Barclays bank, a popular UK-based multinational bank for its Indian market. The primary focus of this paper is to analyze that how good the strategies of Barclays fits with the India business environmental and Indian banking. In order to cater these objectives, an extensive situational analysis and strategies analysis will be conducted for the Barclays in India using multiple relevant strategic models and tools. 2. Analysis of environment 2.1. PESTLE In order to identify the external environment i.e. macro-economic factors, PESTLE model is an effective tool. It analyses six major factors relating to macro economic factors i.e. political, economic, socio-culture, technological, legal and environmental (Capon, 2009, p.40). For catering the stated objectives it is necessary to understand the macro-environment conditions of Indian market which has been explained below. The stable and favorable political system of Indian economy is one of the most important factors which attract many MNCs for making FDIs in this country. The government took very necessary initiatives to bring necessary reforms in its banking sectors. After the allowing the privatizing the banks, the number of private banks between 1969 and 1980 grow rapidly (Banerjee, Cole and Duflo, 2006). Such initiatives have caused to increase the competition by maturing the banking sectors. The appreciating economic condition of Indian economy is another major factor for better opportunities and competitions. Some of the major economic indicators of Indian economy are given below. Table 1: Key Economic Indicators (Source: CIA, 2011) As per the above figure, the Indian economy is rising at higher rate in spite of the global down turn of 2008. India has become a favorite market for many players and hence, many international banks like HSBC, RBS, and Bank of America etc have already entered. Moreover, McKinsey&Company ha reported that Indians’ disposable income is expected to rise by 25% from 22% by 2025 which will enhance the overall saving indicating better opportunities for the banks in India (Narayanswamy and Zainulbhai, 2007). Social structure of the India is also reshaping as consumers awareness among Indian is raising. India’s 1.17 billion populations is said to have higher availability of customers and clients (U.S. Department of State, 2010). The Reserve Bank of India is the chief regulatory body responsible for regulating the banking sectors. The use of information technology in Indian banking sectors have been raised significantly and the Banks in India is constantly increasing their IT expenditures. The following diagram represents this. Figure 1: Annual IT Spend as percent of Annual Revenue (Source: KPMG, 2010) 2.2. Industry Life Cycle Due to constant developments in Indian banking sectors, it is in its growth stage. Every other day, the banks are trying to develop new services, new technology, and new products etc which lead to restructure the entire banking industry. The following figure depicts the industry life cycle and position of banking sectors. Figure 2: Industry Life Cycle (Source: Gupta, Gollakota and Srinivasan, 2007, p.67) 3. Barclay’s competitive stance in India 3.1. Porter’s Five Forces Porter’s five forces model is helpful in measuring the industry competitiveness which includes bargain power of suppliers & buyers, threat from substitute and potential entrants, and existing rivalry (Hill and Jones, 2007, p.45). The five forces analysis for Indian Banking sectors are given below. The account holders and banking IT service providers are major suppliers in banking industry as the formers is a source of fund for loan offering and later is source of technology for better services. Account holders have multiple investments options other than banks, and hence their bargaining power is high but in case of IT service providers it is quite low. Currently Indian clients are enjoying other source of fund availability hence their barging power is also quite higher. The threat from substitute is lower as banks are authorized to offer wide ranges of service. Growth economic condition of India attracts a large numbers of foreign banks are trying to enter in Indian market through direct FDI or through mergers and acquisition strategies. The industry rivalry is very intense in Indian banking sector. In India, three types of commercial banks are there i.e. public, private and foreign. The Indian public banks are dominating the sector with greater market share. The following table shows the position of these types of banks in India. Table 2: Financial Intermediaries in India (Source: RBI, 2008) 3.2. Value Chain and Organizational Structure The banking operational processes are very different from the other manufacturing and service firms as bank deals with financial services. Barclays has to deal a number of activities like marketing, sales, transactions, risk managements for offering three main types f products i.e. funding, investments and services. The following model shows a typical value chain model for banks. Figure 3: Banking Value Chain (Source: Lammers, 2004) Barclays has entered in Indain bankling indutry nearly thre decades ago, prior to the major banking reforms in India. Being a world’s one of the leading banker, Barclays is percieved as high brand in banking sector. It has succeflyy have identified its spcific target consumers which includes mainly the NRIs, and high premium consumers. Itis succesfful dealing with its 400,000 indian clients, and in November 2006 is has also started to serve the commercial clients (Barclays India-a, 2011). The primary objective of this bank is to world class customer by creating their value. The company has vast experience and expertise in offering banking solution which is it’s the most important strength (Barclays India-b, 2011). 4. Scale and scope 4.1. Industry survival and success factors The key success factors for Indian banking sector are given below. Retail banking in India has been performing better and it is expected to grow more in coming years as per the figure given below. Figure 4: Retail Banking Revenues in 2006 and 2017F (€bn) (Source: Capgemini, 2008) Better availability of technology for banking services in India helps to provide better consumer services. Better availability of infrastructure and IT professionals, the Indian banking industry are using sophisticated information and communication technologies and RBI is also supporting in this regard (IDRBT, 2004). Enhancing economic prospectus of Indian economy has enabled to present a better banking performance and consumers’ households saving are also rising in India (McKiesey&Company, 2007). 5. Analysis of strategy The Barclays has been operating Indian banking sectors since last 30 years and initially, it started its operation with consumer banking. With time, it has extended its services and it primarily focused into NRI banking, Barclays Premier services, Credits cards and other retail offers. During 2006, it entered into commercial banking services. However, the management has identified the higher degree of completion in Indian banking sectors which is faced from the domestic banks and other foreign banks. Most of the domestic banks have targeted the local people with middle income. Barclays has targeted the NRI clients and higher income group of client including the high net-worth individuals. As this bank is present in most of the global market, it has competitive advantage in serving the NRIs and HNI clients (Barclays India-c, 2011). Its core strategies are analyzed below using strategic models. 5.1. Ansoff Matrix Ansoff matrix is model which presents four strategic windows in relative to the product and market. The following figure represents the Ansoff matrix. Figure 5: Ansoff Matrix (Source: Beamish and Ashford, 2006, p.60) As per the above diagram, the Barclays follows two main strategies in Indian market i.e. market penetration and product developments. Barclays’ market in India is 30 years old it is operating with old services like deposits and loans. Moreover, it has recently entered into commercial banking service and it often offers new products. Therefore for its existing products the bank aims to penetrate the market and for gaining higher market share it developed new products as wider ranges of products are helpful in enhancing the market share. 5.2. Porter’s Generic Strategy Porter’s generic strategies are the most popular model for identifying the core strategy for sustainability in the market. As per these generic strategies, a company must follow one of its strategic i.e. cost leadership, differentiation, focus differentiation and cost fused. The figure describes these strategies in matrix format. Figure 6: Porter’s Generic Strategies (Source: Williams, 2008, p.133) Since its first operation in Indian banking sectors, Barclays has been following the differentiation focus strategies. The company has mainly target the high income group of clients and non residential Indians. It has differentiated its services for its HNI clients and this specific service is known as ‘Barclays Premier’. Barclays provided multiple privileges and differentiated service like financial planning etc (Barclays India-d, 2011). 6. Evaluation of sustainability Barclays’ sustainability in Indian banking sectors is mainly determined by its effective set of prevailing strategies which combat the fierce completion level in Indian market. As per the above environmental analysis, the Indian economy growing at higher rate and other factors like regulations, economic conditions of target consumers, political factors etc are favorable for banking sectors growth. However, after the banking reformations and rise of major private banks and foreign banks have intensified the degree of competition. Recently, The Goldman Sachs Group, Inc is trying to enter in the market which may lead to heighten competition level. On the other Barclays is already facing fierce competition as Barclays’ Hancock commented that “we see the likes of ICICI Bank, Axis Bank and HDFC Bank getting rapidly geared up to become fierce competitors” (Alexander and David, 2011). These key competitors are trying to offer wide ranges of services including the NRI and HNI clients. Therefore, at present scenario, Barclays prevailing strategy in India is no more a unique one. Differentiated focused strategies of Barclays like premier services and services for NRIs are already imitated by the leading private and foreign banks like RBS, HSBC etc. Introduction of new banking services and new product development is a regular instance in financial market specifically in banking sectors. Therefore, the current service and product strategies of Barclays will be obsolete soon. Barclays must bring necessary changes in accordance with changing trends in Indian banking sectors. Considering the future growth of industrialization in India, Barclays has already entered into commercial banking services. It must try to follow cover a large target market like the other leading banks in India as its focused market is becoming crowded with other banks. The managing director of Barclays India, Karan Bhagat has announced that it will try to follow an aggressive strategy to entrench its presence in Indian banking sectors. However, he also confirmed that the bank will keep following its differentiated strategies by offering value added and unique range of products and service. On the other hand, the Indian banking regulators are encouraging to the prevailing foreign banks to acquire local banks license as many other foreign banks are eyeing in Indian banking sectors. In such case, the Barclays’ foreign branch in India needs to be converted into wholly-owned subsidiary (Tiwari, 2011). However, if this transformation will occur, Barclays needs to change its strategy. Currently, Indian consumers perceive Barclays as a high premium brand which is one of the reason, Barclays follows the differentiation strategy. However, as India is country with unequal distribution of asset and income which is expected to continue in next two decades. Therefore, following differentiation strategy will be effective for Barclays but it should differentiate its products and service through proper product development strategies by targeting the focused group of target market. Reference Alexander, G. S. and David, R. (April 12, 2011). Goldman Advance in India Means Turning Half-Cent Fees to Profit. [Online]. Available at: http://www.businessweek.com/news/2011-04-12/goldman-advance-in-india-means-turning-half-cent-fees-to-profit.html. [Accessed on April 21, 2011]. 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