Factors Underpinning the Process and Success of the Internationalization of ANZ Bank - Case Study Example

Research and Planning Code+ course name Professor’s name University name City, State Date Contents Essay Plan 3 Part A: Explanation for the choice of ANZ Bank 4 Part B. A List and a short explanation of books that have explored the area of internationalization of banking institutions 4 Part C: A list and a short explanation of scholarly journal articles that have explored the area of internationalization of banking institutions 5 Part D: A list and a short explanation of articles published on the internet that have explored the issue of internationalization of financial institutions in Australia 6 Part E: Expression of the Thesis Question 7 Part F: Detailed analysis and explanations for the factors underpinning the process and success of the internationalization of ANZ Bank 7 Introduction 7 The Changing Geography of Banking 8 Theories of Foreign Direct Investment (FDI) 9 Factors that enhance the success of internationalization of banking operations 10 Internationalization of ANZ Bank 11 Conclusion 13 Reference List 13 Essay Plan Part A: Explanation for the choice of ANZ Bank Part B: A List and short explanation of books that have explored the area of internationalization of banking institutions Part C: A list and a short explanation of scholarly journal articles that have explored the area of internationalization of banking institutions Part D: A list and a short explanation of articles published on the internet that have explored the issue of internationalization of financial institutions in Australia Part E: Expression of the thesis question Part F: Detailed analysis and explanations for the factors underpinning the process and success of the internationalization of ANZ Bank Part A: Explanation for the choice of ANZ Bank ANZ Bank is a major financial institution domestically as well as in the Pacific region, which makes it an important player in promoting international trade. Its objective is to increase its operations acrossAustralia,New Zealand, as well as the Asian market. ANZ has gained a competitive advantage through its super-regional strategy. The super-regional strategy focuses on the creation of a domestic strategic advantage through business operations simplification and focuses on strategic growth. The company also introduced a new management model whose focus is on geographical and customer segments, offering them innovative and value-added financial products. The bank’s internationalization process seems to have followed the product lifecycle as well as the eclectic paradigm theories of FDI. Part B. A List and a short explanation of books that have explored the area of internationalization of banking institutions 1. Alessandrini, P, Fratianni, M & Zazzaro, A 2009, The changing geography of banking and finance, Springer Verlag, Dordrecht. The book explores issues such as geographical diffusion of banking services as well as an increased trend towards a dominance of the banking sector by a few banks within individual countries. 2. Jones, G 2012, Banks as multinationals, London: Routledge. The book attempts to offer explanations as to why domestic banks may choose to move across borders to set up operations in foreign countries. 3. Mullineux, AW & Murinde, V 2003, Handbook of international banking, Edward Elgar, Cheltenham, UK. The book provides an explanation of the evolution of multinational banking activities as well as explaining the various theories developed to explain multination banking. It also explains the mechanisms through which domestic banks transform themselves into multinational companies. 4. Bitzenis, A 2012, Mergers and acquisitions as the pillar of foreign direct investment Palgrave Macmillan, New York. The book explores the issues of Mergers and Acquisitions as the prevalent form of FDIs. It goes further to explore the FDIs by banks through an analysis of the process based on the conceptual frameworks of the eclectic paradigm in the contextual model of the internationalization theory. Part C: A list and a short explanation of scholarly journal articles that have explored the area of internationalization of banking institutions 1. Uiboupin, J & Sorg, M 2006, ‘The entry of foreign banks into emerging markets: an application of the eclectic theory,' Eesti Majandusteaduse Seltsi Iaastakonverents, pp. 20-22. The authors provide an explanation of how the eclectic theory is applicable in explaining the entry of foreign banks into emerging markets. 2. Karunaratne, ND & Tisdell, C 2012, ‘Globalisation and multinational foreign direct investment-Australian insights,' Available at SSRN 2084028. The article provides a review of the key role that FDI plays in the globalization process, with an exploration of new trade theories in helping to explain the pattern and direction of FDI in the global economy. 3. Al Qur'an, M 2014, ‘Critical success factors in international market selection process,' Proceedings of Eurasia Business Research Conference, 16-18 June 2014, Nippon Hotel, Istanbul, Turkey The paper offers an examination of critical success factors for the choice of a desirable market, by firms that seek to establish operations in foreign markets. 4. Al Qur’an, MN 2010, ‘Determinants of successful international expansion of professional service firms: A case study of Arabian firms.' World Journal of Entrepreneurship, Management and Sustainable Development, vol 2, no. 1, pp. 65-80. In this paper, Al Quran explores the drivers of internationalization as well as the factors that influence the selection of a beneficial market for internationalization of operations. Part D: A list and a short explanation of articles published on the internet that have explored the issue of internationalization of financial institutions in Australia 1. Ellis, D 2014, ‘ANZ's Asian growth aspirations make it an interesting alternative to slower-growing domestic banks,’ Morningstar Quote Report. Viewed 19 September 2014. The report expounds on ANZ’s super-regional expansion strategy. It notes that one of the major factors underpinning its super-regional strategy is the gestated slower growth of the Australian banking sector in the years to come, (Ellis 2014). 2. McGrath, C 2014, ‘China banking opportunity could break records: ANZ bank chief,' Australia Network News. Viewed 19 September 2014. The article identifies the fact that the finance sector in the emerging markets of Asia, particularly China, can provide an alternative potential growth market for Australian banks. 3. Fry, E 2014, Aussie banks plan for competitive advantage in Asia, INFINANCE news, Viewed 19 September 2014. According to Fry (2014), ANZ Bank stands out as the sole Australian bank among the big four that comprise Common Wealth Bank, NAB and Westpac with a real regional financial services provider while its peers engage in cross-selling operations to their existing customers, (Fry 2014). 4. Bailey, M 2013, ‘Why the big 4 banks have never had it so good...but ANZ is the one to buy’, BRW. Retrieved September 19, 2014. The article by Bailey (2013) reiterates ANZ’s structural competitive advantages remain robust and sustainable making it more successful among its peers with a large moat rating. Part E: Expression of the Thesis Question What factors underpin the reasons for, process and success of the internationalization of ANZ Bank? Part F: Detailed analysis and explanations for the factors underpinning the process and success of the internationalization of ANZ Bank Introduction ANZ Bank stands out as the only Australian bank that has positioned itself strategically to reap the benefits of internationalization brought about by increased globalization in the 21st Century. ANZ Bank is a leader in financial services provision across the Pacific region across the value financial services value chain. A majority of local banks, particularly those forming the big four Australian banks, are presumably embarking on a wait and see situation before making any internationalization moves. The other three big Australian banks are monitoring the outcome of the efforts of establishing the Shanghai free trade zone. In addition, they are also monitoring the easing of Chinese capital controls. ANZ Bank has embarked on an internationalization strategy dubbed the ‘Super-Regional Strategy.' The strategy is succinctly aligned with growth opportunities domestically as well as regionally in Asia Pacific countries such as New Zealand and China. The plan envisages ANZ Bank becoming a global bank through its regional focus. The Changing Geography of Banking Advancements in technology, as well as deregulation of the banking sectors in many countries, have brought about substantial changes in the financial services industry across the world, (Alessandrini, Fratianni & Zazzaro 2009). Technological advancements have resulted in increased integration and consolidation of many banks while deregulation has brought about the geographical diffusion of banking services. Technology has allowed for innovative banking services such as internet banking that have significantly reduced the operational distance that has been a major barrier to globalization of trade. On the other hand, the deregulation of the banking ector has led to increased mergers and acquisitions in the banking sector. Major players acquire smaller domestic banks in foreign banks, mainly to gain a footprint in the retail banking segment that maybe risky due to lack of complementary assets, market knowledge and experience enjoyed by the local banks in the foreign countries, (Mullineux & Murinde 2003, pp. 31). Alternatively, banks may enter into strategic mergers with other financial and allied services providers in foreign countries. This entry is due to the need to enhance their capabilities in the foreign markets thereby achieving successful internationalization. Such practices have led to an increasingly observable situation where there are a few large national and multinational holding companies in the financial services. With their enhanced geographical reach, cross-order activities have recently increased leading to enhanced globalization of the banking services industry. Theories of Foreign Direct Investment (FDI) In an endeavor to explain some of the reasons underpinning internationalization of banks, a consideration of the theories of FDI is important. FDI theories help to explain the reasons why firms may decide to set up foreign operations, (Mullineux & Murinde 2003). FDI theories include the Product Life Cycle Theory, Eclectic paradigm and the New Trade Theories. New Trade Theories are those theories that recognize and incorporate the concepts of the firm’s scale, network dispersal, innovation and competition in the global arena (Mullineux & Murinde 2003). As per the New Trade Theories, trade and FDI inflows as well as Trade and FDI outflows increase in tandem in a complementary manner, (Karunaratne & Tisdell 2012, pp. 547). The international life cycle theory recognizes the internalization process as being systematic, incremental and predictable along the lines of the life stage of the product or service, (Mullineux & Murinde 2003). According to this theory, increased production in the home country results in greater competition. Alternatively, increased market pressure due to a saturated or declining domestic market agitates a company to consider capitalizing on international market growth opportunities. This competition catalyzes the desire to seek new markets in foreign markets resulting in internationalization of operations. According to Uiboupin & Sorg (2006), the eclipsing motive for establishing international operations is the search for new business opportunities which can be likened to the market seeking strategy envisaged in the eclectic theory. The eclectic paradigm recognizes the critical role that firm-specific and location specific factors play in determining the success or failure of a business. Consequently, firm-specific factors such as exceptional reputation, structural comparative advantages, better risk management techniques and increased access to investment funding, influence the success of internationalization of banks. Local banks may decide to set up operations in foreign countries due to the desire to increase growth and or to enhance profitability, (Mullineux & Murinde 2003, pp. 32). The challenge of maturing and extremely competitive local financial services and banking sector may compel banks to explore foreign markets. Where the foreign markets are relatively large and or have greater growth potentials, they may be appealing to banks that are seeking growth opportunities abroad to counteract domestically diminishing opportunities, (Ellis 2014). Factors that enhance the success of internationalization of banking operations Based on the eclectic theory company and location specific factors explain why companies setup operations in foreign countries. The factors also determine the success or failure of the internationalization strategy, (Al Quran 2010, pp. 75). Mullineux & Murinde (2003) posits that there are some conditions which should be complied with in order for a firm’s internationalization strategy to succeed. These conditions include the ownership of superior tangible as well as intangible assets that enable a company to compete effectively with local firms in the foreign market. The conditions offer a firm a competitive advantage relative to its competitors in international markets. Firm specific factors such as an immense financial muscle, capable human resources and superior management capabilities create a competitive advantage, (Al Quran 2010, pp. 75). In addition, Al Quran (2014) also posits that a firm's management attitudes, as well as target country market knowledge, influence the success of its internationalization strategy. Internationalization of ANZ Bank The Australian banking sector has recently experienced a slowdown in credit growth due to extensive competition in all financial services segments, (Karunaratne & Tisdell 2012). For instance, premiums for non-life product lines are at cyclical highs in the insurance industry. Notably, there have not been many successful internationalization expansion strategies among Australian financial service providers (Karunaratne & Tisdell 2012). The internationalization of ANZ bank is best-explained by the market seeking strategy envisaged in the eclectic theory. The eclectic paradigm recognizes the critical role that firm-specific and location specific factors play in determining the success or failure of a business. Consequently, firm-specific factors such as exceptional reputation, structural comparative advantages, better risk management techniques and increased access to investment funding, influence the success of internationalization of banks. The internationalization of the ANZ bank is largely precipitated by a desire to explore growth and profitability opportunities in foreign markets, (Mullineux & Murinde 2003 and Uiboupin & Sorg 2006). This internationalization strategy arose because the Australian financial services industry is saturated with major financial services providers such as the Commonwealth Bank, National Australia Bank and Westpac. In addition, heightened competition from aggressive newcomers such as ING and HBOS explains ANZ’s need to seek opportunities abroad. This saturation of the financial services sector and consequent heightened competition makes diversification through opening overseas branches an attractive venture, (Karunaratne & Tisdell 2012). Alternatively, ANZ Bank’s internationalization agenda is to some extent catalyzed by the desire to service its Australian corporate customers with operations in neighboring countries, particularly in the Asia Pacific region underpins the internationalization plan. Among its business segments is International and Institutional banking that has been set up to cater for its global customers, particularly in the Asia Pacific region. Diversified services and an extensive product portfolio enable ANZ Bank group to attract an extended customer base and reduce its market risk in the foreign markets thereby providing resilience and sustainability of its business operations. ANZ Bank’s internationalization agenda is based on geographic as well as socio-economic similarities in its foreign target markets, (Karunaratne & Tisdell 2012). ANZ Bank has location advantages due to its geographic proximity to foreign markets in the neighboring Asia Pacific markets, (Karunaratne & Tisdell 2012). It also has a robust financial muscle underpinned by a huge capital as well as deposit base in its domestic Australian market. ANZ has a long recognized reputation as a high creditworthy financial institution as well as a very efficient financial services provider backed by operational and technological know-how. ANZ Bank group offers a wide range of financial products and services, mainly following a bank-assurance model spanning insurance, banking and allied services. ANZ Bank has a robust presence across the value chain that spans retail banking and insurance products, corporate banking as well as wealth management services (Karunaratne & Tisdell 2012). ANZ Bank’s internationalization agenda is not, of course, without challenges. Fry (2014) highlights the fact that the frontier target market for ANZ Bank, the Chinese Financial services sector is already extensively banked. Consequently, the overall return on capital (ROC) for ANZ Bank has yet to match that of their Asian peers, (Fry 2014). Asian banks have also been known to compete on the sidelines of price, which has a negative impact on the profitability of the financial service firms, (Fry 2014). Such factors culminate in the challenge of consolidating its operations in multiple and overly differently characterized markets that have evolved differently. Conclusion Many banks are increasingly internationalizing their financial services operations with the objective of reaping from the growth and profitability opportunities available in foreign markets. The big four Australian banks including ANZ Bank have, in the recent past, experienced a highly competitive and maturing local financial services sector. ANZ Bank has become the first Australian bank to make an attempt at taking advantage of the size and growth opportunities in the Asian financial services sector. The comparatively high growth rate and growth opportunities in Asia form the basis of the motives for ANZ Bank’s internationalization strategy as it endeavors to neutralize the shrinking domestic profitability and growth opportunities. ANZ Bank has competitive advantages over its peers due to a robust local franchise as well as sustainable structural advantages. In addition, ANZ has desirable management capabilities, scale, cost efficiencies as well as tangible and intangible assets that effectively position it for greater success in its internationalization agenda as defined in its super-regional strategy. Reference List Al Qur'an, M 2014, ‘Critical success factors in international market selection process’, Proceedings of Eurasia Business Research Conference, 16-18 June 2014, Nippon Hotel, Istanbul, Turkey. Al Qur’an, MN 2010, ‘Determinants of successful international expansion of professional service firms: A case study of Arabian firms’. World Journal of Entrepreneurship, Management and Sustainable Development, vol 2 no. 1, pp. 65-80. Alessandrini, P, Fratianni, M & Zazzaro, A 2009, The changing geography of banking and finance, Springer Verlag, Dordrecht. Bailey, M 2013, ‘Why the big 4 banks have never had it so good...but ANZ is the one to buy’, BRW. Viewed 19 September, http://www.brw.com.au/p/investing/why_the_big_banks_have_never_had_VTS Bitzenis, A 2012, Mergers and acquisitions as the pillar of foreign direct investment. Palgrave Macmillan, New York. Ellis, D 2014, ‘ANZ's Asian growth aspirations make it an interesting alternative to slower growing domestic banks,’ Morningstar Quote Report. Viewed 19 September 2014, http://analysisreport.morningstar.com/stock/research?t=ANZ®ion=aus&culture=en US&productcode=MLE Fry, E 2014, ‘Aussie banks plan for competitive advantage in Asia’, INFINANCE news, Viewed 19 September 2014,http://www.finsia.com/news/news-article/2014/05/04/aussie banksplan-for-competitive-advantage-in-asia Jones, G 2012, Banks as multinationals, Routledge, London. Karunaratne, ND & Tisdell, C 2012, Globalisation and multinational foreign direct investment Australian insights, Available at SSRN 2084028, viewed 19 September 2014, < http://ssrn.com/abstract=2084028>. McGrath, C 2014, ‘China banking opportunity could break records: ANZ bank chief’, Australia Network News, Viewed 19 September 2014 http://www.abc.net.au/news/2014-03-17/an anz-bank-china/5326484 Mullineux, AW & Murinde, V 2003, Handbook of international banking, Edward Elgar, Cheltenham, UK. Uiboupin, J & Sorg, M 2006, ‘The entry of foreign banks into emerging markets: an application of the eclectic theory’, Eesti Majandusteaduse Seltsi Iaastakonverents, pp. 20-22. Read More