Global Corporate Marketing Strategies of Bankings - Essay Example

RBS move to China Contents Contents 2 Introduction 3 PESTEL Analysis 3 SWOT Analysis 6 Market Entry Strategy 8 Recommendations on Marketing Strategies 9 Conclusion 10 References 11 Introduction RBS or the Royal Bank of Scotland is a subsidiary of Royal Bank of Scotland Group. It deals in consumer and corporate banking along with finance and insurance services throughout the U.K. and Ireland. It was founded in 1727 and is based in Edinburg, Scotland (Legalawarenesssoc, 2011). Recently RBS has started an aggressive expansion plan in the emerging countries like China and India. RBS is the first bank based in the U.K. and seventh international bank to have entered into the banking business of China. RBS is also thinking of tapping the thriving Asian securities market. RBS has taken this formidable step as many international banks are focusing on Chinese security market for growth. RBS’ is entering the Chinese banking sector with a vision to bring European, US and British companies to China, and allow the investors to gain access to equities and debt of the foreign companies (ICFAI. 2011). PESTEL Analysis This analysis is done to find out the macro-environmental factors which would affect the business of RBS in China. Political China’s entry into World Trade Organization (WTO) in the year 2001 has raised the entry barrier of the overseas investors leading to a flow of investment in the securities and financial market of the country. The banks in China have to operate using the global operating standard in terms of accounting and corporate governance reforms. The large commercial banks like RBS need to follow an increased disclosure requirement in the auditing standard in order to be able to list in public. Recently, riots in China have created an unstable political condition. This has led to foreign companies becoming apprehensive about investing. However, strict measures have been adopted by Chinese Government to restore a safe environment for the investors in the country. Economic The Chinese economy which was reformed and was transformed into a market oriented one since 1978. This economic reform has helped in promoting an environment which has positively affected the individual initiatives and entrepreneurship. The economic condition of China has reduced poverty and has boosted the per capita income of the people to the highest level (Kuijs, 2012). In 2010 China was ranked as the country having second largest economy in the world. For the past 26 years the average economic growth has been sustained at the rate of 9.5% indicating the economy of the country is on rise (Davila, n.d.). The higher economic growth and the national income reflect the feasibility which RBS is seeking in the country for expansion. The country’s present banking industry is worth 14 thousand billion in assets. The following graphs show the GDP growth in China and how the foreign investments are utilized in the country. Figure 1. China’s rise in GDP and Foreign Investment (Author: Davila, n.d.) Social China is one of the emerging countries which is known for its huge population. With a population count of over 1.3 billion and raising at a rate of .45% the Chinese market would provide a huge base of customer for RBS. In addition to that it would also provide a profuse workforce for the bank. English language which was of late being ignored by China has been made mandatory in the schools by the government. Technology RBS has suffered in the late 2009 due to poor information technology (IT) system which has resulted in an infamous system shutdown in June (SIPRI. 2014). So RBS is not going to compromise in the technological aspects of the business. They are planning to spend more than £1 billion in upgrading the IT system in the next couple of years (The Telegraph. 2012). RBS has heavily concentrated on providing the bankers to have access to digital and mobile banking technology (Manigent. 2011). The bank’s aim to offer their customers a “bank-on-the-move” experience would require a prolific technological framework in the country they are expanding (Okumus, 2001). China which aims to emerge as the market leader in the science and technological fields would be a market for RBS as there are very few nations who can compete with the technological excellence of China (Delloite. n.d.). Environmental China like all other developing countries are facing serious environmental concerns. With the mammoth population and high rate of industrial development China is facing from air, water and sound pollution. In reports conducted it was found out that Chinese cities are the most polluted in the world. The Chinese government are trying to implement pollution control measures. The RBS also need to have certain policies in their corporate social responsibility which can help the government to address this issue (Delloite. n.d.). Legal China, in order to protect the interest of the foreign investors has framed a specific legal system which has been empowered by various multinational agreements and numerous domestic legislations. In order to meet the obligations of WTO, China aims to encouraged the flow of the foreign investment and regulate their entry through their industrial policies (Feng, 2010). SWOT Analysis Since China entered the WTO the financial market has transformed owing to the deepening of the openness and the transitional period coming to an end. This has brought about a change in the internal strengths and weaknesses and also has given rise to certain external threats and opportunities (Bohm, 2009). Strengths The strengths for RBS while expanding their business in China are it has huge capital reserve and assets which would provide them as a great competitive advantage over the other local players in the same market (Kui, et al. n.d.). RBS has adopted the scientific and effective measures to settle the bad debt which would yield them relatively less leverage of bad debt than the local players. The Return on Assets (ROA) is significantly high for RBS than the local financial institutes which state that the value created for the shareholders is high in case of RBS. With an efficient human resource management RBS has maintained a higher quality of the service offered by the employees compared to the local competitors. RBS is also well equipped with the risk control system unlike the local competitors (Gurufocus. 2014). Weaknesses RBS being a foreign player would not be having a detailed understanding of the culture and the behaviour of the Chinese customers. They might even misunderstand the customer demands. But the local competitors would be gaining a competitive advantage as they would understand the customer psychology better (Writemypaper, 2014). The fund RBS could absorb in the Chinese market would be limited which would be disadvantageous for them in distribution of network. RBS would also face difficulty in tapping the target market in the optimum capacity as the local banks already have established their brand names and hold the accounts of the clients featuring the target market and share a good emotional relationship with them (Barney, 2001). Opportunities The national banks of China are entangled with a number of legal policies which limits their efforts to work for the profit maximisation whereas RBS who is permitted to work according to the international standard would face no hindrance from the government in its effort to achieve the profit-maximisation objectives (The Economist. 2014). RBS can adopt the strategies which are innovations that has recently taken place in the international operating procedure of the financial institutes which the local players can’t adopt. Business internationalization is a way in which RBS can gain competitive advantage over local players. This means loss incurred in one market can be supplemented by profit in some other market. This advantage would not be available for the local institutes. Threats The recent problem which is looming over China’s financial sector is the problem of shadow banking getting inflated. The growth in the credit has enhanced China’s debt-to-GDP ratio by 210%, thereby worsening the loan quality by increasing the risk of defaults. In addition to that RBS would also face significant threat from the existing players who have already established themselves in the market (RBS, 2014). The other international financial service providers who have entered China before them have also gained a competitive advantage. RBS needs to prepare a proper action plan to tackle this high competition in the new market (Hrebiniak, 2006). Market Entry Strategy RBS have entered into the Chinese financial market by using hybrid market entry strategy (RBS. 2014a). This strategy is not in line with the strategies which are being explained in the theories (Pett & Dibrell, 2001). All the international banks who entered into the Chinese market have taken this strategy in order to overcome regulatory restriction and to exploit the market opportunity to the optimum level (Kostova & Roth, 2002). In a move which will significantly broaden the alliance of RBS with Bank of China it has entered into the car and household insurance market. RBS has paid $1.6 billion and earned a voting right for a consortium. After they have entered the Chinese market through Foreign Direct Investment (FDI) in the insurance sector they have also entered the securities sector in the quest to tap the thriving Asian market. They took the strategy of joint venture with one of the biggest local players of the sector Goalian Securities (BBC. 2011). This was a strategic move as it was required for any foreign investor to tie up with an existing player in order to enter the Chinese Financial market. This move has built on the minority stakes which RBS already had with two financial companies Suzhou Trust and Galaxy Futures (Dealbook. 2008). The joint venture with Goalian Securities has allowed RBS to manage the share sales and also to issue debt in the thriving financial market of China. Followed by the trend in which more foreign financial institutes have shown a great deal of interest in the lucrative Chinese market RBS was confident about their plans. With a stake of 33% in Hua Ying Securities RBS aims to become the top international bank in China. The strategy of expanding in the Chinese market after it had to sell £1.6 billion worth stake in the Bank of China was justified as the bank was in dire need of recovering the capital quickly which it lost previously. The strategies taken by RBS in order to tap the growing financial economy of China have proved to be successful. Recommendations on Marketing Strategies RBS has been successful in their effort to enter the Chinese market with the help of Hybrid Strategy. In order to sustain their success in the market they need to have innovative marketing strategies (Rogers, 2001). They can increase their awareness and make the target customers interested in the bank’s offerings by delivering free gifts (Hartline & Ferrel, 2012). Consumers can be shifted from the local banks if RBS offers freebies to them according to their needs. It’s very important to first understand what kind of freebee can attract the target group of customers (Doyle, 2009). RBS can also adopt a policy of referral incentive to the customers which will generate huge word of mouth promotion for the bank (Hill & Jones, 2012). This will again attract a huge customer base who if gets satisfied by the bank’s services and offerings will turn to be the regular customer of the bank. Offering of specialised credit card to specific customers can also attract new customers in RBS (Smart, & Creelman, 2013). The customers should be subjected to rewards on purchase of a certain amount through this card. In addition to this RBS can also attract customers through technological advancement. They can offer provisions of mobile banking or net banking to the customers. Generally all the customers presently seek convenience and want to bank with the technologically advanced banks (Mir and Watson, 2000). In addition to this RBS can also tie up with the travel agents or the big retail stores and can offer discounts to the customers who have RBS privilege cards. In this way they can co-brand their bank which would lead to greater awareness (Schnaars, 1998). Conclusion The essay is based on the way RBS has entered the thriving financial market of China. It starts with the company description and had an empirical analysis on the political, economical, social, technological, environmental and legal factors of China which has affected the entry of RBS in China. This was followed by a comprehensive SWOT analysis which brought out the strengths and weaknesses of RBS while competing in the Chinese financial market and also the opportunities RBS would be having along with the threats which they would be facing during their operation. The strategy which was taken by RBS to enter the Chinese market was thoroughly analysed and the essay ended with certain recommendations for developing their marketing activities in order to create more awareness and increase their customer base. References Barney, J. B., 2001. 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Chinas technological development and the implications for the rest of the world. Retrieved from http://www.sipri.org/research/security/china/research/technology. Smart, A. & Creelman, J. (2013). Risk-Based Performance Management: Integrating Strategy and Risk Management. Basingstoke: Palgrave Macmillan. The Economist. (2014). International Banking. Retrieved from http://www.economist.com/sites/default/files/20140510_international_banking.pdf. The Telegraph. (2012). RBS to overhaul poor’ IT system. Retrieved from http://www.telegraph.co.uk/finance/newsbysector/epic/rbs/9623156/RBS-to-overhaul-poor-IT-system.html. Writemypaper, (2014). Essay on “International Banking: The Royal Bank of Scotland”. Retrieved from http://www.writemypapers.org/examples-and-samples/essay-on-international-banking-the-royal-bank-of-scotland.html. Read More