The Strategies that Barclays Are Adopting to Enter New Markets and Expand Their Operations - Essay Example

GOING GLOBAL Table of Contents Executive Summary 1 Introduction 2 Theoretical Background 2 The Multinational Strategy 4 The Global Strategy 4 The Transnational Strategy 5 Drivers for going global 5 Company Profile 6 Where to go Global and Which Markets to Enter 8 Choosing Between Foreign Entry Strategies 8 Exporting 9 Licensing & Franchising 9 Direct Investment - wholly owned subsidiaries 10 Critical evaluation of Overseas Strategy 10 Criteria for entering overseas markets 11 Product transportability and Costs 12 The Need to Adapt to Local Market Conditions 13 Standardization vs. Adaptation 13 Conclusion 14 Executive Summary This paper discusses all the strategies that companies today are adopting to enter new markets and expand their operations. One example of a bank from England has been taken to help explain all the theory involved. The bank that I have chosen to give as an example is Barclays. Globalisation is the truth of today's companies and without it they would not be able to survive in the business world. A general background is given which follows a detailed discussion on the different strategies that can be followed by companies. Next we come to the bank and the strategy that it has adopted. We critically analyse their strategy and see how they are coping in the international arena. The paper ends with a discussion on two strategies: standardisation and adaptation. When companies decide to enter new markets they have to decide which one they will follow and once they have decided this, they develop a plan. All further decisions are based on this strategy. We have discussed many things concerning the bank, their strategy, their history and what are they looking for when they decide to locate in a new country. The details of costs have also been discussed in detail. Also, the strategy the bank follows whether it wants to standardise its products around the world or customise them according to the country. We also looked at the adaptation techniques that the bank uses when they enter a new market. Also we analyse what has worked for the bank; to standardise their product or to adapt it to countries requirements. Introduction Today the whole world is one big market. There are no boundaries and businesses can operate all around the world without having offices in any of the places. Most of this has been possible because of the internet, communication has become easier and faster. Each and every company uses a different strategy to expand into the global market. The onset of going global is gradual. One of the main reasons why companies have decided to expand into markets around the world is because they want to gain a competitive advantage which is possible if you locate yourself in a country with lower wages, especially third world countries. There are many decisions that a company has to take before they can actually expand around the world. The laws differ and there are many cultural differences which may hinder the process. Simply speaking if you are not thinking in terms of global then you are not thinking business management. Going global is this important in business management today. Theoretical Background To go global means to sell goods or services internationally. It requires that there be harmonization between the policies for different countries and that these policies, rules and regulations be adapted to the local market conditions. It is sometimes used to refer to overseas expansion efforts through licensing, franchises, and joint ventures. According to Richard L. Daft in his book, Management, when a company decides to introduce its operations in the global market, they go through four stages: Stage 1: The domestic stage, managers are considering international markets but are currently only operating in the home country. The production, operational and marketing facilities are located at home. Stage 2: The international stage, as exports increase, the company decides to open an office in another part of the world. This is a multi-domestic approach. The products are being marketed around the world by an international division which caters to the needs of the all types of people. Stage 3: The multi-national stage, at this stage the facilities have been located in many countries. The company still has a home base but may use another company to help operate in two separate countries and have a bi-national approach. Stage 4: The global stage, this is also called the stateless stage because by this stage the company has no home country. It operates around the world and the top management is not located at one place but can be found in different countries, they have different nationalities. At this point the company acquires resources in any country which provides them with the best opportunities and the lowest costs. There are three key factors that need to be considered when an organization decides to operate in the international environment. These key factors are: economic development, legal and political environment and the socio-cultural values that the people of these countries hold. The economic development factor includes many things such as infrastructure, per capita income, exchange rates, economic conditions, and resource and product markets. The legal political environment of a country includes factors such as; political risk, laws, restrictions, frequency of government takeovers, tariffs, quotas, taxes, terrorism and political instability. While things like social values, social beliefs, language, religion, taboos, kinship patterns, formal education and the literacy rate and time orientation are included in the socio-cultural factor. When we base global corporate strategies o n two factors, the need for national responsiveness and the need for global integration we come up with three strategies that can be followed: the multi-national strategy, the global strategy and the transnational strategy. These three strategies have been mentioned in the book, Management by Richard L. Daft. The Multinational Strategy The multinational strategy is when the organization modifies its products and services according to the needs of the individual country. Thus for each country, there are separate marketing and production departments. Thus the company has adopted many nationalities, not in the literal sense but in the world of business. This strategy is adopted when the company wants to please all their consumers around the world by taking care of their needs country wise. The Global Strategy This is when the company decides to standardize its products and services through out the world. They do this under the assumption that the world is a single global market and the needs of all people are the same. The theory behind this is that people all around the world want to and do behave, dress, and act the same way. Although, this strategy has worked for some companies it might not work for all. Also, it depends on the products and services being provided. Islamic countries will not allow companies to sell products which may contain alcohol or things that are not allowed in their religion. The Transnational Strategy When a company wants to achieve both things, global integration and national responsiveness, they go for the transnational strategy. This strategy is a combination of both the multi-national and global strategy. Not many companies can achieve this strategy as it requires coordination from all the branches around the world so that efficiency and flexibility can be maintained. This is basically when companies do customise the product according to the country but try and keep costs down by having some level of global integration. For example: they may keep the packaging design the same, so that money does not have to spent on deciding a new design and time can also be saved. Drivers for Going Global By drivers for going global we mean factors that led to the process of organizations thinking globally and then implementing this strategy within their companies. There are four drivers for going global as mentioned by Australian Department of Defence in their presentation to the Regional Defence Seminar. These four drivers are all interdependent. They are: improvements in transport and communications technologies, these have enabled the process of communication to take place within minutes no matter what part of the world you are in. The tastes of the consumers around the world have changed as people have become more aware of the things that are available in other nations and their desires to consume these things. For example: people wanting to drive a Mercedes although they might live in India or Pakistan. Also, people have migrated to other countries and they might want certain things from their home country to be available in the country of migration. Policies have changes, movement of goods have become easier as countries have reduced the barriers that they had initially set up to protect themselves. Corporations have also changed their strategies in this competitive world. To maintain a competitive edge they need to stay ahead of the competition in all aspects, thus they have turned to countries were their operating costs will be lower. Many companies have done that and are operating or getting their products made in third world countries. We all know how difficult it is to find things that are not made in Indonesia, India, China, Bangladesh or Pakistan. Company Profile The company that I have chosen for my paper is a European Bank called Barclays. The bank has been involved in the banking sector for over the past three hundred years. They are a major global financial service provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services. The bank is spread over sixty countries and employees over 120,000 people. The number of customers that the bank caters to is twenty-five million. The company has divided itself into six divisions, namely: UK Banking, Barclaycard, Barclays Capital, Barclays Global Investors, Wealth Management and International Retail and Commercial Banking. According to the bank itself, each of these divisions is responsible for some task and provides customers with a service. Let's see a little something about each division. "UK Banking delivers banking products and services to over 14 million retail customers and 775,000 businesses in the UK. Barclaycard is one of the leading credit card businesses in Europe, and has 17 million cards in issue. Barclays Capital, the investment banking division, provides corporate, institutional and government clients with solutions to their financing and risk management needs. Barclays Global Investors is one of the world's largest asset managers and a leading provider of investment management products and services. Wealth Management has over 580,000 affluent and high net worth clients. International Retail and Commercial Banking is our global retail and commercial banking operation, with over 2 million international clients, in geographies which currently include the Caribbean, France, Spain, Portugal, Italy, Africa and the Middle East." The strategy that the company follows is to be one of the top banks in the world. They have developed their company in such a way that their aim is possible. According to the bank they have not made themselves dependent on any one market or segment of customers. They have developed the bank into a diverse network of employees, locations and customers. The bank has four strategic priorities: they want to build the best bank in the United Kingdom, they want to accelerate the growth of the global products and their businesses, they want to develop retail and commercial banking activities in other countries abroad and they want to enhance operational excellence. They bank has recently made investments which are directed towards the division of International Retail and Commercial Banking. The bank mentions on its website that they are doing exactly what they had planned to do and are able to give excellent care and performance to its customers. They are making good profits; the divisions that they have developed are well grouped but also spread across the world. The achievement of the strategy has gained momentum as they think that it is a good one and will benefit them further. In the end, the bank says that they have momentum which helps over all. The bank operates in countries like Italy, Monaco, Cyprus, UAE, Switzerland, Jersey, Hong Kong, Spain, India, Zimbabwe, Germany, Ghana, France, Egypt, Seychelles, and many more. Where to go Global and Which Markets to Enter When the bank decides to enter new markets they have to analyse the new location or country on the basis of some criteria. When banks decide to go global they do so because they get the opportunity to increase their yields and get higher returns compared to the single market they are catering to, where the returns are not high enough and yields might not be increasing. Whenever banks diversify their portfolio they want to reduce risk and we all know that a diverse portfolio helps in achieving this. Also, when you go global you are doing business in different countries, the portfolio is hedged into the base currency which is the banks home currency and then this changes the risk return portfolio. Choosing Between Foreign Entry Strategies Foreign entry strategies are the ways that a business can enter the new market. There are many ways of doing that, a company can outsource its products, they can export their product or services, they can license their resources to people already operating in that country or they can franchise. They can adopt a totally different approach and go on their own. This is called direct investing. The entry strategy that best suits Barclays is the direct investment. They build their business in a new country from scratch. Exporting When a company exports, the production facilities are located in the home country while only the finished product is distributed around the world. Thus the only expenditure that the company bears when exporting is the marketing of the products and sometimes the transportation costs. When exporting the ownership of foreign operations is none and the cost of cost to enter foreign operations is medium. There are numerous problems or disadvantages which are related to exporting, these are: cultural differences, government regulations such as quotas which limit the number of good exported, taxes on imports increase the cost of the product, and geographical distances may deteriorate the quality of the product. Licensing & Franchising In licensing the company makes some of its resources available to the person who has received the license to sell their product. The agreement includes the technological expertise, managerial skills and patent or trademark rights. The licensee, the person who has received the license can then manufacture and sell the company's products in his country. Many companies have done this these days as it cheaper than other strategies or techniques of entering new markets and the company achieves a small ownership in the foreign country. Franchising is when the company provides the franchisee with the whole package if resources. It is a form of licensing. The franchisor, the company or the individual who has allowed the use of his name, then provides the franchisee with the materials and services, equipment, ingredients, trademark, managerial advice, and a standardised operating system. Although franchising is more expensive than licensing but it gives more access of ownership in a foreign country. Both these methods of entry are relatively easy ways of entering into new countries are forming their own ownership and name in these countries. Expansion is relatively quicker this way. Direct Investment - Wholly Owned Subsidiaries This is when the company manages its own facilities in a foreign country. This gives the company total control over its operations and is the most expensive method of entering a new market. Barclays has adopted this policy. Recently Barclays has entered the financial market of Pakistan under this strategy. In direct investing you have two options; wholly owned foreign subsidiaries or green field venture. A wholly owned foreign subsidiary is when the company acquires an affiliate in the country they want to enter into. This saves cost and time. The business is already set up you just have to pay the price. In a green filed venture, the company builds itself in the new market from scratch. The company can do exactly want it wants to do and achieve the things that it wants to achieve but on the other hand it is risky and requires a lot of market research before launching of the business. Barclays follows the strategy of Direct Investment - wholly owned subsidiaries, they purchased the Expo-Bank in Russia, according to Gill Montia, in her article 'Barclays acquires Expo-bank of Russia.' Critical Evaluation of Barclays Overseas Strategy Barclays Overseas Strategy is to acquire a bank and then make the necessary changes which will help it move towards the strategies and goals that the company has already laid out. The bank should realise that they can not follow one strategy in all their acquisitions abroad. They might have to change their plans according to the situation that exists within the country. Every country is different and the way of entering that country should be customised according to the needs and developments of that country. Experts should be sent from the bank to help the new staff accommodate themselves to the new goals and strategies. The bank being the best in the world has been able to make their strategies work world wide. They have also adapted to the culture and the policies of the nations that they have ventured into. Criteria for Entering Overseas Markets When deciding to enter new markets, the bank sees the infrastructure available. If the country can provide it with all the resources they need, for instance, communication and roads. The political environment of the country is also very important. If the government keeps changing then Barclays will have to think over the matter; changing governments can change the requirements for multi-nationals and cause a problem for the company later on. The level of education in the country affects the decision. If the people of the country are not educated enough then the bank will have to bring its own employees initially and that would cost them more. The training requirements of the future employees, how much training do they require and if they have sufficient experience. This is especially important when hiring employees for the top management positions. The income levels present in the country. Since it is a bank and one of the top banks of the world, they need to ensure that a higher income group exists in the market. The income of this group should be high enough to be able to afford the services that the bank is offering. Product Transportability and Costs Banks are providing us with a service and not a product. Keeping this in mind is not very simple to transport these services from one place to another; there is too much detail involved. Although technology today has enabled us to use the services of the bank throughout the world, and with ATM's we can utilize their services at least through out the country but it is not as easy as it seems. To enable banks to provide this service of availing their services around the world is costly. This ability helps the company maintain its competitive advantage as customers are looking for banks that can provide them with the best deals, and for them to switch over to your bank there has to be something extraordinary. When a company does not strive to keep costs low and be more efficient than their competitive advantage can be taken away by a new company or by a competitor. According to Subramanian, Bala, in the article, 'Transferability of Best Practices for Global Competitive Advantage: A Cultural Perspective,' "Usually multi-national overlook the fact that they are competing in a global environment which has different cultures, languages and norms and they just concentrate on trying to get the best practice. Their attempt at adopting the best in class processes and methods creates difficulties in transfer of the best practices across national and cultural boundaries and may even diminish, instead of enhancing, competitiveness." Inter-firm transferability of resources is when material not needed in one area can be utilized in another area or profits from one division of Barclays be transferred to another division when need be. This helps in deterring losses and keeping the balance sheet looking positive. The Need to Adapt to Local Market Conditions Every company has to adapt to the local market conditions, without this the customers will not accept their product or service very readily. To be successful in a new country or market you need to make sure that you understand the needs and wants of the people living there. When a firm adapts it is showing the target market that it is accepting them and their culture, it is showing them that the company is there for them and will do anything to make them happy, but also would like to make a profit. Standardisation vs. Adaptation Standardisation is the complete opposite of adaptation. To be standardised means to have a product or service that is for everybody without any changes, it is also referred to as 'one size fits all.' Standardisation helps in keeping the costs low and you can supply the same product or service to everybody. If Barclays were to follow this strategy they won't have to change any policies, rules and goals of their bank but just open branches all over the world. But this policy is best applied to services or products that are consumed by a large number of people and when it is economically unfeasible to customise. Customisation on the other hand, is when you tailor the product to an individual's need; in Barclay's case they tailor it to the needs of the people of one country. This is usually for products which have high margins, less sales and a limited number of customers. Not everybody is looking for this service and not everybody can afford it. Conclusion Barclays is one of the leading banks in the world. They give us the right picture of what going global is actually about. Every company will have to adapt to some aspects of the new market to be successful otherwise the consumers will not accept them and the money and the time spent will go to waste. To make sure that this does not take place research locations before coming to a decision. Not only look at the culture and the norms but also the business environment and the political environment as they can affect you the most. No business can go global all of a sudden, it takes time and is a gradual process, as mentioned there are four stages to it. Bibliography 1. About Barclays, http://www.michaelpage.co.uk/mini-site/3636/2189/about-barclays.html 2. Australian Department of Defence, The Drivers for Globalisation, 2000 http://www.anz.com/business/info_centre/economic_commentary/Globalization_II.pdf 3. Gill Montia, Barclays acquires Expobank of Russia, Banking Times, 2008, http://www.bankingtimes.co.uk/03032008-barclays-acquires-expobank-of-russia/ 4. Inflation Linked Bonds - Why go Global http://www.franklintempletoninstitutional.ca/ca/inst/en/pdf/commentary/researchpapers/FTFI_InflationLinkedBonds_WhyGoGlobal_Letter.pdf 5. Subramanian, Bala, Transferability of Best Practices for Global Competitive Advantage: A Cultural Perspective, 1999, http://www.allbusiness.com/specialty-businesses/398607-1.html Read More