Standard Chartered PLC is a British multinational institution dealing with financial services. Registered in England, it is authorised and regulated by the Financial Services Authority (FSA). Standard Chartered has been a provider of financial services at the global level for centuries (Case Studies in Strategy 2013). Due to various strategies, this has primarily employed the bank in all its operations to ensure the sustainable growth and survival in an otherwise overcrowded industry. It remains the largest financial services institution with a British origin aside from Barclays Bank of Kenya to have spread its tentacles at the global scale.
In this essay our Pedagogical Objectives are premised upon the following facets. These include banking operations by Standard Chartered, a global bank and the regulatory framework in the target country, in this case China. They also include operational strategies employed by Standard Chartered to expand in China and the Far East, as well as the prospects and challenges facing the bank and other prospective multinationals in China.
Here we also seek to analyse what roles mergers and takeovers have had in the growth strategy of Standard Chartered Bank and to analyse the benefits and drawbacks of mergers and acquisitions associated with banking companies especially in foreign jurisdictions. We also have an analysis of the entrance of standard chartered and its impact on the Chinese banking sector.
Five common strategies have been used by firms over the years for entry into the new foreign markets (Market Entry Strategies n.d.). These are as follows:
i) Best innovation strategy both demonstrated and perceived - Here the firms undertake massive research to come up with the best products in order to attract attention easily and edge out competition.
ii) Product modification - The organisations merely expound or recreate an existing product adding on its number of uses or utility factor, in order to acquire the interest of prospective buyers.
iii) External environment - This occurs when the organisations deal directly with the external environment by either lobbying or financing their entry strategies, regardless of the type or quality of the product or service offered.
iv) Penetration price strategy - usually lower prices - With this strategy the organisations or firs give an entrance price way lower than their competition .The introductory price has a fundamental aim of getting the attention of a prospective user to the product but at the same time maintaining their bottom line or breaking even. When demand for the product grows then the prices are standardised to market rates.
Time is a crucial element when it comes to building a market entry strategy. The building of a market research intelligence system and creating a brand image through promotional activities takes time, effort and resources. Timing is considered when approaching the market as a means of creating suspense and building upon demand, as well as considerations of market research and rolling out of the required infrastructure. It is also considered that the prospective customers are given the sufficient time to ponder about the benefits or disadvantages of a new product.
A firm in one country may also agree to allow a company in another country to provide a product or service on their behalf. This is licensing, which may include franchises. It is a proper way to start operations in the foreign countries. It also links parent and receiving partner interests’. The licensors do not undertake the infrastructural risks, and the risk of investment is reduced on their part. The brand name continues to grow and the prospects for the further investment, renewal of licence or a possible buyout remain rife. Less capital is also tied up in the foreign operation and there exist options to buy into the business or take royalties in stock for the licensor as the available capital is freed. There is also an option to buy into to acquire royalties in stock.
Certain risks and challenges also present themselves. They include restrictions on the product development by the licensee. The licensee also acquires knowhow and intellectual property knowledge so licence is short. It also requires considerable fact finding, sufficient planning, cogent investigation and analysis. A licensee can only sell that, which he or she has been licenced, in the required format as stipulated in the contract document for the licence. No innovation or extrapolations on the product may be allowed. While this may have an aim of ensuring the consistency and quality assurance of the brand, it still has a limiting element on the licensee if the market he serves has specific needs that the brand can but is not offering.
In the recent past, myriads of issues have surfaced around the bad governance and unacceptable behavior in the financial services industry. This is mostly after the perceived lack of due diligence witnessed against some banks in the verge of the global financial crisis. At Standard Chartered, the belief is not just about their actions or the end but the means to the end. Due diligence and service delivery has been considered the key in retaining existing market share, as well as exuding the sufficient trust and confidence in acquisition of new frontiers. Robust corporate governance and observation of the basics of banking remain the key areas of focus for the standard chartered management. Most financial services institutions suffered in 2008/2009 due to the financial crisis as a result of mismanagement, as well as greed. Standard Chartered was least affected and actually posted a profit during that particular turbulent time.
The bank’s market strategy is centered on these values and basics. They are alive to opportunities and new prospects but cognizant of risks involved. Theirs is a long term based business model, investing in the future and maintaining a tight lead on the basics of banking. Their ability to grow business and give results despite the odds is irrefutable going by their half year financial reports of 2012.
Over the last decade, China’s trade with Africa has grown unprecedentedly. It has grown 30 fold with Kenya, with Nigeria 18 times and Ghana 19 times. Overall trade between China and Sub-Saharan Africa has risen twentyfold over that same period. In July, 2012, Standard Chartered brought the senior leadership of their African businesses to Beijing to business leaders and technocrats, 20 were from Standard Chartered, the single largest group by any organization (Standard Chartered News n.d.). Standard Chartered has siezed the opportunity to become the bank of a choice for trade investment, cross border government and multinational deals as well as infrastructure development.
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They seem to have recognized the Sino-Africa relationships to be the latest frontier in the emerging markets category of their marketing programme and supporting other multinational corporate, as they exploit the opportunities of China and Africa’s growth.
Standard Chartered is now focused on working with China’s rapidly-growing private sector companies. These small micro enterprises remain heavily under banked and more often than not are given little attention by the local banks. Quite strangely enough they represent the future prospects of China’s growing economy. It is important to note the same is being replicated in sub Saharan Africa.
The Chinese, allowed foreign banks to operate in seven towns in order to empower the business development in the inland poor regions including Harbin and Lanzhou in the west (Africa-China links promoted as Standard Chartered takes ... n.d.). Standard Chartered bank was one of these banks. It has a commitment to use its global networks to promote and grow economically sound businesses and projects, hence growing the trade and business corridors between these two regions (Africa-China links promoted as Standard Chartered takes ...n.d.). “Africa-China trade has risen up to ten times in less than a decade. Taking this into consideration Standard Chartered has the mechanisms, presence and expertise to make a tangible difference in supporting this channel of global and national economic growth (Diana Layfield n.d.).”
Supported by more than seven thousand staff in both corporate and retail, and taking into consideration its strategic positioning, Standard Chartered has assisted with investment between Africa and China by assisting trade relationships between the two regions (Kong 2008). It has operated in the global economy’s most dynamic markets and more than 90 per cent of its profits are earned in Africa and the Middle East and China. This focus on geography and a long term to deep relationships with customers has driven the Bank’s growth over the years.
The development of the company’s risk management infrastructure and capabilities has been fundamental in the way the company chooses to invest. Their fundamental approach to risk has stayed consistent over the years. As the business develops, so does the way they manage risk. If they do not understand any engagement, they simply would not put their money into it. It is as simple as that.
The global macroeconomic developments and external environmental factors such as political-socio, as well as natural environment also play a big part in sourcing of emerging the markets. Many of their client relationships go back generations and sometimes decades due to their long term business sourcing module. They also stand by their clients through good times and bad. That is what they did in the Asia crisis through the SARS epidemic in 2002 and throughout the global depression.
With The Waterfall Strategy, the business is spread in the international markets in a sequence. A firm first enters a new market and establishes a solid base. Once the product brand is recognised and established in the new market, lessons learnt are utilized to expand into another new market with similar characteristics.
The Sprinkler Strategy, however, presupposes that markets are approached and should be approached simultaneously. It is typically suited for products such as technological innovations which have a shorter life cycle.They can as well be suited at the Introduction Stage of the life cycle of the product. Markets can be entered simultaneously and mostly a lower Pricing strategy is used to generate as optimum profits from large from sales volumes. The experiences become market exclusive and cannot be felt or replicated in other markets unless the demographic factors and business environment are similar.
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The environment business operates in very dynamic and it is influential to the strategic marketing. The corporate strategy of the most, if not all the organizations operating in the global business world is usually aligned to or in response to the business environment mostly external. It is advisable for organizations to come up with marketing and corporate strategies after a keen analysis of the external environment with maximum efficiency and effectively. Any mistake overlooked or ignorance in analysis of external environment can have severe repercussions to the organisation.
Standard Chartered has heavily invested in its human resource, risk management and advanced technology to improve its operations. It can be deduced and concluded from the above marketing strategy of the bank that environmental factors are highly influential to the internal business operations and cannot be overlooked in marketing strategy of any organization (Standard Chartered Bank n.d.).
Standard Chartered remains a formidable growth story and focused on a strategy promised upon the fundamentals and basics of good banking their strong growth pattern has proven sustainable because it comes from across both Corporate and Consumer Banking. Africa and business in China performed particularly very strongly.
So far the strategy has worked for Standard Chartered. The bank makes most of its profits in fact the highest from these emerging markets. These include Africa, Asia and the Middle East. The fortunes in Europe seem to have stagnated or are rather dwindling due to demographic factors as enumerated above. The saturation of the European market is also a factor. The low income earners from the young population do not create a robust market for the growth of the company’s business. The Eurozone effect, as well as the depression in Europe, did not affect African and Asian Markets as much as it did the European Markets.With the highest labour force in the world, the prospects of Retail Banking in China cannot be overlooked. With American companies also transferring their manufacturing processes or outsourcing them to Chinese firms then the labour force is bound to increase multiple times. This cannot be ignored by a leading multinational financial services provider like standard chartered bank and it is for this reason that they continue to invest heavily in the China and its people.
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China also seems to have become one of the largest economies in the world. The steady pace by which they have grown from being a third world country in the 20th Century only shows a pattern that many can see prospective business and benefits. Their consistent relations with Africa and their inexpensive technology have earned them numerous construction tenders in Africa for road and bridge construction as well as the development of other infrastructure. This has endeared them to financial service institutions that seek to have a role to play, provide trade and infrastructure financing and reap the profits in the long run.
Their little exposure or lack of it to the European markets have made them easily considerable by many at this age when large financial institutions are consistently going under. As is evidenced from their overall market strategy, their honest approach to dealing with customers at both individual and corporate levels has developed a level of accountability, confidence and trust that has ensured they maintain market share and grow it even further in a competitive industry. Such strategies can easily be emulated across the business divide as they are not industry specific.
Their long term strategic marketing with China, which has grown to become the world’s largest economy and continuous investment in the same, has worked so well for the bank. The longstanding relationship for those numbers of years has created the trust and confidence of a partner rather than a capitalist venture seeking to benefit from the Chinese.
Their investment also in corporate social responsibility in these emerging markets has also increased their market share, as well as revenues and profit. Such initiatives include the Standard Chartered Marathon in Kenya, Facilitation of the Africa-China links by hosting African Chairmen of the Bank in Beijing, China to meet the top business leaders and technocrats.
Standard Chartered currently is one of the top trade banks globally, with a 5 per cent share of global volumes. The process of entering and then developing the international market especially in China and the east has not been an easy one. It has been ridden with a lot of difficulty and perseverance. This has largely been attributed to the two different economic platforms of Britain and China, as well as the emerging trend in banking and the financial services sector. Many critics perceive this to be a trade-off between China and Britain to ensure that Chinese institutions such as HSBC may also penetrate the English, Europe and international markets. The need to also compete for international tenders using trade financing from a western institution has also been a comment on the latest entrance into china by Standard Chartered. This is largely because china is highly in isolation when it comes to trading operations especially imports and services to other countries.
Globalisation seems to have taken charge. Who would ever think Standard Chartered Bank would be making tirades in a communist country some may ask. The Human Rights record of the Chinese also seems to be a big factor especially since Standard Chartered has a long standing culture of treating its employees according to internationally accepted human rights laws. The world has become a global village and here we learn it is more important to deal with the issues that will have an impact on our future generations than to spend time throwing blame round and analysing current events without practical solutions.
Globalization in this context refers to the expanded economic, political, cultural and social relationships extended across boundaries. Its aim is homogenization of political and social economy among countries. A standard banking system is partly dependent on the checks and controls by the central bank and the confidence of the customers that their money is safe and that whenever they want to withdraw it, it will be available. The role of a financial institution is to play a role in the allocation of financial resources from where it came from to the potential users. Standard Chartered Bank has asserted itself as an intermediary for investors and savers in the communist economy. In this context, globalization can be seen as a form of evolution which is steadily restructuring interactive ways among nations through clearing various barriers in areas such as commerce, communication and other areas of economic growth. This happens because of the existing free market forces and good corporate governance among other standards. In finance, Globalization has resulted to high international division of labor and the supplementary integration of world economies through trade of various goods and services, financial flows, and cross border investments. How the globalization affects the financial systems or banking systems is not something that can be forced but it is as a result of forces for change that are acutely rooted in the nature of human beings. It is as a result of drive for freedom and improved service, for latest discoveries and wide economic playing field. Globalization has done away with national or entity barriers in the banking sector to the free movement of capital internationally. This process is enabled by the supersonic change in information technology. With this view, an argument can be made that globalization is mainly an occurrence of capital mobility. For a healthy economy, there has to be an increase in transnational firms, domestic economic considerations and independent international financial institutions.