Evaluation of Barclays Bank in India - Case Study Example

Evaluation of Barclays Bank in India Table of Contents Table of Contents 2 2.Analysis of environment 3 2 PESTLE Analysis 3 2.2 Industry life cycle 4 2.3 Porter’s 6 forces Analysis 5 3.Organization Analysis 7 Barclays Value Chain 7 Scale and scope 9 4. Analysis of strategy 12 4.1 Porter’s Generic model 12 4.2 Ansoff Matrix for growth opportunity 13 Reference: 17 Bibliography 20 1. Introduction Barclays Bank is one of the biggest financial services providers in the global market for around 300 years now. The bank has been operating as an investment banker in India from around 1970s. With the gradual expansion of the business, in 2006-2007, Barclays choose to enter the Indian Retail Banking sector. Due to the high interest rate and the increasing purchasing power of the Indian economy, the banking sector is on high demand. During this period, many foreign banks expanded their business to India as the economy of the country was growing at a very high rate of 8% per annum. The country provides ample opportunity for corporate banking, retail banking, micro finance and consumer financial banking sector (Bosworth, Collins & Virmani, 2007, p.23). Barclays took the opportunity of the growing economy in India and adopted the expansion strategy by introducing retail banking in the country. India is expected to grow massively in the coming years and since the bank has started from scratch, it has a big advantage as it does not have any legacy systems. In retail sector, the bank has introduced personal loans and cards business and also NRI business plans within few days of launch. Though the bank doesn’t have many branches in India with the advancement of technology like internet banking, the Indian customers are ready to operate with the branchless foreign banks which helped Barclays to explore more and more (Sciglimpaglia & Ely, 2010). 2. Analysis of environment 2.1 PESTLE Analysis The Pestle analysis is mainly done by the companies in order to find the environmental influence of the country on a business sector. Indian Banking sector is not much affected by the political government policies as compared to other developing countries because of the robust framework policy of free trade of the Reserve Bank of India. Indian economy has had a growth rate of around 8-9% during the last 3 years. 54% of the GDP of India was contributed by the service sector during 2006-2007 (Cetorelli & Gambera, 2002, p.617-648). The socio-cultural factors are also changing people’s lifestyle and their behavior continuously. The people of any developing country often demand high class products leading to the requirement of money from banks, thus ensuring a good prospect for Barclays bank. India with second highest population (1.17 billion) with literacy rate of 61% is very advanced technologically thus giving a great opportunity for Barclays to implement core banking system in India (Kamath et. al, 2003, p.84). Barclays use latest technologies like internet & mobile banking, CMA, NEFT, RTGS, INFINET, and Core Banking to get an extra edge over its competitors (IDRBT, 2004). But the Indian Government’s legislature and the farming policy for providing short term agricultural loans affects the banking sector on its profit in India. Indian environmental factor is very favorable for the agricultural development and thus the farmers’ needs are provided by Barclays through several customer centric schemes (Mohan, 2005, p.1106). 2.2 Industry life cycle The Indian banking sector can be broadly divided into two major categories i.e. nationalized and privatized bank. With the development in technology and product the nationalized bank are currently in transition stage while on the other hand the privatized bank like Barclays have crossed the transition phase with the implementation of technologies into their system. Since there is constant growth in technological and product it’s very difficult to determine a specific industry life cycle in banking sector. Thus taking into consideration the major areas of advancements, Roussakis represented a life cycle of commercial bank after the deregulation in the industry using the model developed by John F.Fisher. Figure 1: Industry Life Cycle (Source: Roussakis, 1997, p.153) Considering the factors as depicted in the above figure it can be referred that Indian banking sector in constantly improving and is still in its transition phase. 2.3 Porter’s 6 forces Analysis In order to survive in a competitive environment, the six forces need to be well evaluated for designing strategies against it. The Degree of Rivalry is an important factor to understand the competition in the market. India is a highly concentrated market in the banking sector, thus creating a difference in service is very important for Barclays. With the initiative from the Indian Government and RBI reforms like deregulation of interest rate, reduced SLR and CRR, free trade the competition in Indian banking sector has intensified. The bargaining power of the customers are rising very high with the fast growth in the number of nationalized and privatized banks adding to it the customer are having ways to avail loans from different sources. The account holders, employees and IT service providers are the major suppliers for Barclays. With a huge labor force in India the bargaining power of employees and IT service providers is comparatively low but on the other hand the bargaining power of the account holders is high as there is other way of investing money into the market. The core banking system and internet banking facility is only available with the banking sectors only therefore threats from substitute are low for Barclays. The following table shows the summery of the banking sector of India. Table 1: Summary of the Banking Industry: 1990-91 to 2003-04 (in Rs. billion) (Source: Prasad and Ghosh, 2005) Barclays faced several problems while entering in the banking sector of India due to the rules which has been designed by RBI in favor of domestic bank to maintain their profit level (Thomas, 2005, p.32). The sixth force for strategic management is the complementary of a service or product that facilitates the value of a product. Like in case of Barclays service the use of technology like internet banking, mobile banking can be very good complementary services which attracts the customers for its fast transactions at a very low cost (Hill & Jones, 2009, p.54). Figure 2: Porters 5 Forces model (Source: Harmon, 2007, p.34) 3. Organization Analysis Barclays Value Chain The Barclays bank is a financial service provider thus its value chain is different from the value chain of the manufacturing sector which was developed by Michael E. Porter. Therefore Barclay’s value chain follows the value chain of banking industry with multiple layers of operational processes. The potential competitors of Barclays Bank in India are like the State Bank in the nationalized sector and Standard Chartered Bank in the private sector. Barclays Bank in India gains advantage of the existence of potential stakeholders and other foreign investors. The organization effectively functions in both retail and commercial banking along with generation of other banking products and instruments. The firm is focusing on huge investments to enhance its infrastructure to generate better service to its clients along with development of its technological and human resources. To improve on the customer service parameter the organization worked closely with the British Council to enhance the service delivery parameter of the employees. (British Council, n.d.). Barclays Bank counters service innovations through the development of service parameters using developed technology. Moreover the bank also innovates the process of rendering loans to reduce the payment amounts of customers.(BankAdvisor, n.d.). Commenting on its efficiency parameter Barclays Bank earned success in launching a big project on microfinance of around Rs. 5.46 Crore together jointly operating with social organizations. (NDTV Profit, 2011). Figure 3: Barclay’s Value Chain (Source: Duke University, n.d.) Scale and scope With the implementation of deregulation and globalization process in Indian banking sectors the “Financial Sector Reforms set in motion in 1991 have greatly changed the face of Indian Banking” (IBA Committee, 2003). By introducing better management system, product development, wealth management and customer relationship Barclays has increased its efficiency in a very fast pace. This has caused to increase their revenue which in turn maintains a higher capital adequacy ratio (CAR). Figure 4: Industry average Capital Adequacy Ratio (Source: Aswin and Sabu, 2010) The appreciating economic condition of India led to an increase in the gross national savings of the country and its financial market pulls 47% of the total national savings. Figure 5: Indian Household Saving as a Share of Gross National Saving (Source: McKinsey & Company, 2007) This figure indicates the better performance of the overall Indian banking industry and the market opportunities is going to be better and more stable in future at India thus giving a great opportunity for Barclays to grow with this growing economy. Barclays being the third largest provider of financial services in England entered the Indian market with the belief of giving the best banking services to the customer. The target customer of the Barclays are mainly leading Indian corporate, small and the medium enterprises, offering loans, payments, cash management services to the customers. With a wide range of products/services, the Barclays have a big ground to cover the market with its different customer centric services. The product/services of Barclays include Consumer Banking products like the savings accounts, fixed deposits, personal loans, credit cards, investment services and NRI banking services and another vertical is the Commercial Banking products like loans, finance and credit, cash management, treasury solution, trade finance loan and the golden credit cards. Very few banks in the market have this kind of diversified service range which is a major strategy of this bank. Beside this, the bank also provides online and mobile banking facilities which some of the competitor lack. This attracts a lot of customer from the business sector for easy time saving transaction. Barclays India also targets the Indian corporate sector. The companies who want to grow overseas business are the prime customers of the bank. It provides a variety of customized client centric services of loans, deposits, cash management and many more (Slater & Narver, 1998, p.2). Investing in community is another important factor for the Barclays sustainability strategy. Barclays has a proud tradition of supporting community. With this strategy, they not only have a positive impact on the society but also it helps them to generate business from it. The bank invests in several community welfare programs through its community investment strategy. They mainly focus on four aspects - 1. Youth development which encourages the young generation for upgrading their entrepreneurship skill 2. Preventive Health program helps the development of medical science for preventing several diseases 3. Income Generation and Financial Inclusion is a program which helps in promoting job creation and financial education 4. Environmental Sustainability to build resilience for the change in the climate. With this innovative approach, the bank reaches out to the customers and indirectly gains benefits from this strategy. In India, this type of services are not available from any of the banks and thus their approach of serving the society gives a positive impact on the mind of the customers in India (Barclays, n.d.). 4. Analysis of strategy 4.1 Porter’s Generic model For analyzing the competitive environment, Porter’s Generic model can be a very useful tool. When a company wants to get an extra edge in the market and grab a market, the Porter’s Generic Model strategy is adapted. The strategy adopted by Barclays in India is like Differentiation Focus. Most of the foreign banks entering into the Indian market tap the top market of the country. The main target customers are net-worth clients who will generate huge business for the bank. Barclays on the other hand realized the un-banked and the under-banked segment of the country are the mass segment to target for. This segment has a huge potential in generating business at India. With proper positioning and differentiation strategy, the bank entered the retail market in India at the bottom of the pyramid. The unbanked and the under-banked segment comprise of the lower income group of the society like the clerical staffs, transport drivers etc. It launched several banking products targeting this segment in India. Along with the commercial banking products which target the top corporate of India, the ground coverage is also needed in a country like India which has a huge mass segment in the lower income group. This part is often avoided by most of the other players who enter the market, thus creating a huge prospect for Barclays. The banks innovative technological practices like online banking, mobile banking results in the low cost transaction system for the customers where there is a new trend amongst the customers in India to move away from branch banking which is also success key for the firm (Kannabiran & Narayan, 2005, p.6). Figure 6: Competitive advantage (Source: Neil Botten, 2008, p.268) 4.2 Ansoff Matrix for growth opportunity To identify the opportunity for growth of the company, the Ansoff Matrix are often implemented which was developed by Igor Ansoff. This matrix helps businesses to decide their market growth and product strategies. These growth strategies can be described as – Market penetration strategy is employed for an existing product into the existing market to increase their market share. Product Development is the strategy adopted by the companies who want to introduce a new product into an existing market. Thus, developing a modified new product which can appeal to the target market is required in this market strategy. Diversification is the growth strategy used by companies to introduce a new product into a new market. It’s a very risky strategy as the introducer has very little experience about the target market. Market Development is the strategy adopted by Barclays as this growth strategy is concerned with the existing product into new market. Since the target market is very well understood by the competitors’ strategies and growth rate, it’s an advantage in introducing it into a new market for an existing product for Barclays. According to the need of the target market, the company evaluated their strategy and launched their customer centric services in India. This is often used when a company wants to enter a new geographical region in order to expand their business through new distribution channel and creating new target market customers (ICSB, n.d.). Figure 7: Ansoff Matrix (Source: Mercer, 1996, p.171) 5. Sustainability Investing in different community is an integral part of Barclay’s sustainability strategy. Globally, Barclays’ main focus is on financial inclusion, enterprise, entrepreneurship, helping people into employment and education. Barclays believe that it is important to serve the community as it has a very positive impact on the people of the community around the world and also it helps to boost business in future. For community welfare, Barclays invest on four major areas for its corporate sustainability. These are Youth Development, Preventive Health Program, Income Generation and Financial Inclusion and Environmental Sustainability. In the year 2009, about £54.9 million was invested on different community projects globally. The three main pillars for Corporate Social Responsibility of Barclays are banking on brighter futures, looking after the local communities and the charity begins at work (Chandra, 2011). This defined path results in maximizing resources along with a sustainable impact. With the banking on brighter future programs, the bank helps the society to cope with different problems of the society. Over the next five years, Barclays have a plan to invest about US $150 million for the program and also focus on financial inclusion, enterprise, entrepreneurship, helping people into employment and education. The biggest initiative undertaken by the company is its partnership with the UNICEF with a big investment of US $1.68 million on a 3 year project in India. This project will focus on the development of the woman and girls. The next program of Looking after Local Communities is another pillar for the corporate sustainability. This program involves activities like mobile van hospital, building entrepreneurship amongst youth etc. With this unique corporate sustainability strategy, Barclays are strongly into community involvement. This is the best way by which Barclays meets the demands for its customers in India and also engages the local stakeholders be colleagues, a community representative or a customer. With this innovative fundraising program and also its initiative of serving the society, give a strong ground for Barclays as no other banks India is involved in this kind of activities (Barclays, n.d.). These social activities also have a strong impact on the mind of the customer and improve trust among the customers for the responsibility the bank showed towards the society (Lo & Sheu, 2007, p.345). 6. Conclusion and Recommendation Barclays entered Indian market with the Retail market with great diversification in the product line. Customer centric approach is one of the major reasons for the success of the company. India being a country with huge mass of people in the lower income group, the company will have to introduce more innovative services and plans for this segment. The corporate sustainability techniques are unique at Barclays and the company has targeted the best way to keep the business running and should encourage more and more social activities. As a recommendation, the ‘Thinking Globally and Acting Locally’ strategy is strongly recommended for Barclays Bank. The implementation of this strategy would help in effectively taking care of the beliefs and sentiments of the target market. There is no more a requirement for the company to be present at the place physically. 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