Strategic Management of Barclays Bank in India - Essay Example

?Strategic Management The case study of Barclays Bank in India Table of Contents Executive summary 2 Introduction 3 2. Background 3 3. PEST factors affecting the company in different ways 5 3.1. Political environment 5 3.2 Economic environment 5 3.3 Social factors 8 3.4 Technical 9 4. Findings and conclusion 10 5. References 14 Strategic Management The case study of Barclays Bank in India Executive Summary This study analyzed the sustainability of the innovative approaches introduced by Barclays Bank when it entered the retail banking market of India. A framework of analysis is used whereby the external and internal environmental factors affecting Barclays Bank operation in the retail sector is reviewed. The strength, weaknesses, opportunities and threat are presented in order to give a view of the situation prevailing in Indian banking system. Findings and conclusion show that the innovative strategies of Barclays are not sustainable because it is overtaken by the economic crisis which is the main reason for decline of growth. Foreseeable solution is an alternative strategy that the bank should consider to attain growth in the Indian market. Strategic Management The case study of Barclays Bank in India 1. Introduction The purpose of this report is to provide information on the strategic situation of Barclays Bank in India. This will consist of systematic analysis of factors associated with the external environment such as political, economic, social and technological that impacts the operation of the business. By knowing the factors that affect its operations, Barclays can align its corporate policies and strategic priorities in the present setting. Barclays Bank entered the Retail Banking system in India on May 2007 and used innovative growth strategies to attract the underserved population of the country. Barclays regarded this sector as a good potential for launching of its innovative products. But there is doubt on whether this strategy would work well under the economic crisis circumstances. The challenges faced by Barclay in pursuing this vision has been difficult, so that an analysis will be done to know if Barclays has succeeded to achieve growth in Indian banking. Barclays Bank is a late entrant to India but considered timing is just right. In an interview with Suresh Gurunani, Head of Barclays Retail Baank , said that it is better to start from scratch because it does not have any “legacy system” (Boir & Palande, 2007). Why India? India is a emerging market , it offers a wealth of opportunities in trade, technology transfers, and direct foreign investment (Chuan, Li). Further to this, prediction as to the state of India’s economy states that soon enough, it will be one of the countries that will overtake the Group of 7 economies (Hamilton, 2011). Background. Barclay’s Bank mission in India is to offer a unique retail banking service with a vision of increasing customer convenience through innovative products and service offering. Barclays saw the opportunity of growth in the retail banking sector because of the large segment of population that do not go to banks. Barclays used innovative strategies to introduce the bank to the Indians. Its marketing strategy was done in three parts: first, the brand was introduced to create awareness and interest; the second phase was devoted to communication of Barclays as a heritage bank to create trust, and the third is the buildup of the brand suggesting its unique propositions. The business model of Barclays is composed of the following product offerings: The bank offered credit cards like smart budget card, Platinum debit card, seven-year personal loans and Premier League Card. The bank also proposed the “kudumb” savings account which allowed a family of maximum four people to have a single account that could also be extended to other members of the family like the maid. Their “No Frills” account has a maintaining average quarterly balance of as low as INR 350 equivalent to $7 only. Personal loans of up to a maximum of 1.7 million INR (equivalent to $33,000.00) payable at a smaller amount of up to 7 years. Regular loans are payable only in 4 to 5 years. For high end urban customers, Barclays offers the English Premier League card and Barclaycard Gold which allowed individuals to choose the setting of billing date, maximum amount due and the credit limit. For the middle income and lower end group of customers, Barclays offered the Barclays Smart Budget which allowed customers to decide how much they could afford to pay each month. Barclays Banks introduced the internet and mobile banking services to drive down operating cost. In the “Hello Money” approach, Barclays Bank carried their banking services to the customer in their mobile anywhere, anytime, at fast, simple and secure ways. With the use of a GSM handset, Barclays’ customers turn it into a bank for its use. The clear and compelling objective of Barclays is based on its business philosophy to earn, invest and grow. The bank aspires to be one of the leaders in the global financial service industry, and to help its clients and customers worldwide to attain their goals. The stakeholders of the company are composed of an organized group that includes Barclays Capital, Barclays Global Investors, Barclays Wealth and Global Retail and Commercial Banking (GRCB). This group of companies has arrived at a single objective to drive its growth across the globe and enter new markets, whereby at this point, is India. 3. PEST FACTORS AFFECTING THE COMPANY IN DIFFERENT WAYS PEST is a short name for politic, economic, social and technological, and is a model used for analyzing the environment in which the business operates (netMBA) 3.1 Political impact. Government policies that affect business directly or indirectly are government laws, regulations and policies. In India, there are government policies that affect operations of Barclays Bank and that of other foreign banks too. These specific policies are: The RBI guidelines, March 2005-2009 that permit foreign banks to establish by setting up wholly owned subsidiary or conversion of existing branch into WOS in India. In cases where there is a need for expansion, foreign banks were allowed to set up rural branches with an investment of up to 74% and only 12 branches per year. Foreign banks have been clamoring for equal participation and treatment from the RBI, but to date, this has not been responded. As of 2009, RBI has continued with its present policy and procedures governing the presence of foreign banks in India (“As foreign banks…”). But it looks like that in 2011; a shift of this policy is seen in the decision of the RBI when it announced that additional branch licenses will be granted to private sector banks. This move is expected to ease the entry and attract new players (pymts.com.2010) 3.2. Economic environment are those forces wherein the business has little control over. The factors that affected operations of Barclays Bank and those of other foreign banks are not the economic indicators of interest, inflation, or GDP, but perception and public trust of Indian customers to foreign banks. The collapse of the financial sector in the U.S. has disillusioned Indian customers to foreign banks. The article found in Knowledge.wharton, stated that deposits in the nationalized banks, State Bank of India, and its associates grew substantially in 2008 as compared to the commercial, private and foreign banks that were on the losing side on the same period. According to the said report, the RPI made a policy statement that for 2009-2010, public sector banks’ deposits grew by 24.1% on March 27 as compared with a year earlier. For private sector banks, deposit growth was just 8% and for foreign banks 7.8%. Report says “The fall of Lehman Brothers and the ensuing institutional uncertainty saw massive withdrawals from foreign banks and an increase in deposits with public sector banks, as it was assumed that the government would always bail them out”. Information from Maps of India confirmed this perception because despite of technologies improvement in the banking system, customers still preferred the public sector banks. As an evident, a graph is presented showing net income comparison for banks in 2008 to 2010l. Source: Business maps of India Evidently, the graph shows a big difference of net income between the public sector banks and the private sector banks. The solution found by analysts and even the government to correct this imbalance is to continue offering innovative and differentiated business models to the rural/low income sector of the Indian population (scribd.com. 2010). Aside from alternative strategies needed to win the race, foreign banks are encouraged to grow by acquisition (scribd.com. 2010 and slide share.com. 2010). There are some doubts as to the true picture of the Indian economy. According to some analysts in the web, India is due for economic recovery in 2010 as it appeared that the country was well insulated from the shocks of the economic crisis (Bharat book.com 2011; indiainfoline, 2010; thaiindian.com. 2010 and Theodora.com, 2011). Analysts believed that India has rebounded robustly from the economic crisis because of the strong domestic demand. On the other hand, analysts from the CNN suggested otherwise as it predicts Indian economy will slow down in 2011 because of high inflation, fiscal deficits and current account deficits; despite of the assurance of the Indian Prime Minister for Finance that will improve. Brian (2010) argued that 2010 remains to still be a crisis year to Indian banking system as he said: “ the use of the Reserve Bank of India over night funding window is an indication. Affairs on Monday, has seen banks use repo route to raise a record Rs 1.59 lakh crore. The loans were high despite central bank announced temporary measures to inject Rs 48,000 crore into the system last Thursday” Meanwhile, Siddharsta Sanyal,executive from Barclays Bank, sees that the priority of the RBI at the moment is inflation (Economic Times, 2011) 3.3. Social environment are the demographics of the environment that Barclays operates within. According to the CIA Factbook, as of 2011, population of India is 1,189,172,906 and ranks as the second most populated country in the world. Out of this, 64.9% belongs to the bracket of 15 to 64 years of age, and 5.5% belongs to 64 years and above. It has a population growth rate of 8.6% and is ranked as 86th among the nations of the world. 30% of its population is urban, and 61% of population is literate. India used the educated English Speaking population to become a major exporter of information technology services and software workers. In 2009, 52% of the population is employed in agriculture, 34% is in the services and 14% is engaged in industry. 25% of the population lives below the poverty line. Demographics is an important consideration in an environmental analysis because other things being equal, economists expect the level of consumption to rise with the increase of population. Boyes and Melvin, (2002, p. 227) argued that the size of the population affects the position of the consumption function: the age of the population affects the slope of the consumption function. Given the demographic shifts from resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. (Scribd.com). For example, with regards to age composition on the economy, young household typically are accumulating durable consumer goods. 3.4. Technological environment. The Indian government has positive attitude towards technology. This is shown by the 500 technological institutes for Indian students, 1080 research institutes that include space research centre, medical research center and agricultural research center established in India (Kumar, V. 2009). The country has an IT sector that shows 35% growth rate; uses internet at large scale for e-commerce, e-education and e-accounting. Because of the healthy technological system of India, the banking system has been using information technology for implementation of total banking automation. One of the conveniences offered by IT is the introduction of interbank mobile payment service that allows retail customers to avail of the 24/7 fund transfers (Pymnts.com.news. 2010). Several studies also showed the importance of technology, most especially among the young generation. Cisco retail banking survey showed that young consumers are embracing new communication technologies such as video and are adopting on line behaviors “at an astonishing rate”. According to the survey, the rise of the young generation will have an impact on retail banking that could be the next opportunity for revenue growth. J.D. Power reported higher satisfaction of customers with the retail banking particularly on the convenience and transaction methods which include in-person, ATM, online, automated and live phone. Findings and conclusion A summary SWOT analysis and a statement of the problems facing Barclays Bank in India has been illustrated in the SWOT framework, linking its strength and weaknesses to the external environment has been provided. BARCLAYS BANK SWOT DIAGRAM STRENGTHS WEAKNESSES Capability Asset worth Sustainability of strategies OPPORTUNITIES THREAT Emerging economy of India Technology Demography change Competitive environment The strength of Barclays Bank is shown in its capability in operation. Barclays Bank has been in operations for more than 300 years and has global presence in Europe, the US, the Middle East, Latin America, Australia and Africa and employs about 157,000 people. It has been doing business in India for more than 30 years already as financial intermediary. Furthermore, it boasts of an asset worth more than ?1 trillion and continuous to serves over 48 million commercial and retail customers globally. Opportunities. To Barclays, the over 184 million people in India that are not served by banks are a big market for its retail banking service. These people consist of software workers, technology services workers, taxi drivers, clerical staff and other workers on odd paying jobs that either do not use banking services or not serious with their banking efforts. Aside from the above, Sakiya and Pariwal mentioned in their report the 69 million new households in India that is a bankable segment by 2009. There is also a mention about a surplus of 47 million people aged 15 to 59 by 2010 while other large economies face shortage of this target banking sector. As such, India offers significant across customer and market segments and provides an opportunity for a well placed maximization of product offers. Segmentation of markets can be categorized as to the very affluent, the mass affluent and the aspirational customers. Technological advancement of India is an opportunity because of the emergence of mobile phone, internet videos and other IT devices that can be used by the bank to target the young generation. The increasing number of population and shift of status for young households supports the target market of Barclays Bank. Threat. It is clear that there is an increased interest in India, and because of this competition from foreign banks will intensify. The retail banking sector in India is already crowded when Barclays entered the market. Competitors like Citigroup, ABN Amro, HSBC, StanChart and Amex are among those banks that have already established their positions. On record, there are “80 scheduled commercial banks, Indian and foreign; almost 200 regional banks, more than 350 cooperative banks, 20 land development banks, and a number of primary agricultural societies” (Investing in India). The Indian banking market is also noted to be dominated by the public sector banks composed of nationalized banks and the State Bank of India. These institutions also provided ATMs, phone banking, net banking, mobile banking that is similar to what Barclays Bank is offering. Sustainability. As a late comer in the retail banking sector in India, the bank has to compete with other large banks who had already established a stronghold in the Indian consumer. Shortly after Barclays offered innovative strategies to Indian customers, the economic crisis occurred that had affected credit and savings growth in 2009. As such, some of its strategies did not work well because of the shift of confidence of Indian customers to public sector banks. Conclusion It is clear that Barclays Bank has gathered momentum in its strategy of differentiation in its first year of operation. Shortly after its launching in May 2007, the bank was able to open five branches in a span of 18 months. However economic crisis took over in 2008 that widely affected its operations as well as that of other banks. The curious fact stood that while deposits and other transactions in these foreign banks declined, the public sector banks performed well and reported considerable growth during this period. Some foreign banks cannot withstand the situation and even consider selling their assets. In the final analysis, it is shown that the public sector banks are its staunch competitors in the banking field. It has been noted in the protectionist’s policy of the Indian government whereby it has restricted the opening of foreign bank branches and investments in areas reserved for Indian entities. This is also evident when the foreign banks’ requested to withdraw its restrictions on access to capital in the local market, which so far is not yet resolved. Public trust is also one of the contingent factors that lessened the strength of foreign banks in the Indian market. The clients have aligned their belief that public sector banks can protect their interests more than the foreign banks. Clearly, this is also an effect of the financial fiasco in the U.S. that created a bad image to foreign banks. But as long as this perception stays in the minds of customers in India, foreign banks face a difficult task ahead in its operations. As shown, the strategic plans of Barclays are affected by the perception of the Indian customers and have reacted negatively. As it is, foreign banks faced negative criticisms, publicity and silent protests of the Indian clients, and showed this by putting their confidence to their own banks, and this had an enormous impact on the operations and revenue of the business of the bank. What matters now is the change of strategies the bank should do to gain the confidence of bank clients in India. It is evident that their present strategies of innovation are not sustainable and a review of approach is needed to encourage clients to go to Barclays again. Some opportunity suggestions include acquisitions and the continuous innovation in retail banking. Business has a cycle; there is a period of growth, expansion and decline. Foreign banks experience the decline today, but after the recession is a period of growth so that Barclays Bank should be cautioned by this experience in strategic management process. References “As foreign banks detour, public banks forge ahead”. Viewed 15 April 2100 http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4376 Bharatbook.com: Impact of global financial crisis on India's banking sector . India's banking sector forecast to 2012 http://www.bharatbook.com/Market-Research-Reports/Indian-Banking-Sector-Forecast.html Boir, Anita Boir & Palande, Rajendra , 10 Oct. 2007, Barclays has exciting plans in India viewed 17 april 2011 Boyes, William & Melvin, Michael. Determinants of consumption. Macro Economics, Houghton Mifflin Co. Boston, New York, 5th ed. 2002, p.237 Brian Diego, Dec. 21, 2010. Cash crunch affects Indian banking system. Investors chatroom.com. Viewed 17 April 2011 Business maps of India. Banks in India. India business directory. Viewed 19 April 2011 CIA World Factbook. 15 April 2011. South Asia: India. Viewed 15 April 2011 https://www.cia.gov/library/publications/the-world-factbook/geos/in.html Cisco . 2010. Cisco Retail Banking Survey Finds Generation Y Consumers' Needs Will Transform Retail Banking. Press Release. Viewed 17 April 2011 Economic Time, 17 March 2011. Inflation is clearly RBI's priority at the moment: Siddhartha Sanyal, Barclays Bank. ET Now. 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Jan 26, 2011. http://www.moneycontrol.com/news/cnbc-tv18-comments/indian-economy-to-slow-down2011-experts_510970.html NetMBA.PEST Anaysis. Viewed 17 April 2011 Pymnts.com. news. Research and markets: Opportunities in the Indian banking sector report provides insight into the impact of the Union budget 2010-2011 on the growth of the sector. Viewed17 April 2011 Sakariya, Sanjay & Paliwal, Pramod 2010. Barclays Bank in India: Innovative Retail Banking Growth Strategy. School of Petroleum Management, Pandit Deendayal Petroleum University, Gandhinagar. Theodora.com. India Economy 2011. Countries of the world Viewed 17 April 2011 Read More