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Eduardo Luis Montiel


Tatiana Sandino


Sandra Darı´o


This case describes the aggressive entry of BanCrecen, an affiliate of the ager, Rufino Urcid, was wondering whether the BanCrecer formula for success in Mexico might need some revision in Mexican bank BanCrecer, in Costa Rica in 1994. Its strategy, like that

of the Mexican home office, was to focus on personal banking, with the Central America. rapid expansion of neighborhood branches and strong innovation in the

design of financial products for consumers.J BUSN RES 2000. 50.29–


39. 2000 Elsevier Science Inc. All rights reserved.

In mid-September 1996, Mr. Rufino Urcid, general manager of BanCrecen, the Costa Rican subsidiary of a major Mexican bank, was considering the strategy pursued, so far, by the


he home office, BanCrecer, had more than five hundred organization he managed. He felt satisfied because, in less branches throughout Mexico and was among the thirty than two years of operations, BanCrecen had established 50 largest banks in Latin America. Its unique strategy of branches interconnected in “real time”, had captured over “neighborhood banks,” low cost storefronts with only a few 40,000 customers, and had introduced innovative concepts employees, is described in detail. After Mexican economic in the Costa Rican banking business.

liberalization, BanCrecer consolidated its national network Nevertheless, Mr. Urcid had concerns about some issues. and began a process of international expansion. As part of The new financial reform in Costa Rica would put an end this strategy, it sets its sights on Costa Rica, a relatively stable to the monopoly that state-owned banks maintained over country also undergoing economic liberalization. checking and savings accounts, and private banks would fi-The creation of the first Central American affiliate, Ban- nally be able to offer these services freely. This reform would Crecen in Costa Rica, coincided with many unforeseen events be in force starting the following month of October and there including the bankruptcy and closure of the third largest bank were great expectations in the local media about its impact. in the country due to speculation and the Mexican peso crisis On the other hand, after a period of significant growth, the in December of that same year. Costa Rica also entered a country was in the midst of an economic downturn. Some severe recession in 1995, and several major companies de- major businesses suspected of anomalies, had been judicially clared bankruptcy, creating insecurity among local investors. audited or questioned. All this led to a highly uncertain envi-Financial reform was under way, and after nearly fifty years ronment and Mr. Urcid was wondering whether the aggressive of state monopoly in banking, private banks would be permit- strategy for expanding branches and widening the product ted to receive demand deposits and savings starting in October. line was in need of revision.

All these events created an atmosphere of uneasy expectation in Costa Rica.

BanCrecer in Mexico

In this uncertain environment, BanCrecen went ahead with

its expansion plans, and as the case opens in September 1996, BanCreser1, the original name of a Mexican credit and service it had fifty branches interconnected in real time and more bank, was founded in the 1960s through the merger of Banco than 40 thousand customers. Still, it had not been able to General de Monterrey and some local financial companies. cover its rising fixed costs of operation, and the general man- Nationalized in 1982 and privatized again in 1991, its new

Address correspondence to Eduardo Luis Montiel, INCAE, P.O. Box 960-4050,

Alajuela, Costa Rica. 1Later, the name BanCreser would be changed to BanCrecer.

Journal of Business Research 50, 29–39 (2000)


owners had redefined the organization as one belonging to called coffee grower oligarchy and redirecting it to commerce the “personal banking” sector focused on growth. According and production”; 2) “restoring job creation and establishing to Mr. Urcid, the group’s objective was to grow profitably the conditions to grant subsidies”; 3) “creating conditions to and, to make it explicit, they had changed their original name promote the cooperative movement, in order to prevent social to BanCrecer, emphasizing this goal with the Spanish word class polarization and to feed middle class”; 4) “providing Crecer meaning “to grow”. the government with funds to restore the country after the In 1992, BanCrecer began exchanging experiences with revolutionary period is over”; and 5) “giving banking power some Spanish banks. As a consequence, one year later it had back to depositors and taking it away from bankers, who were embarked on a branching program derived from a model enjoying the profits of other people’s funds.”

known as “neighborhood banking,” which had been success- In time, the state-owned banking sector had become a fully implemented in Spain. BanCrecer’s new competitive national ideology and a source of pride to many. Some of its strategy, different than those of U.S. banks, had received a defenders portrayed the nationalized banking system as one strong boost as a result of the North American Free Trade of the country’s major achievements and one of its pillars of Agreement (NAFTA). By the end of 1995, BanCrecer had 539 development.

offices in Mexico, of which 104 were traditional and 231 After several decades, however, criticisms against the state-were MultiExpress offices, and the BanCrecer Financial Group owned banking system had increased. To some, the four state-possessed assets in an amount equivalent to some US$4,896 owned banks had turned into union-controlled bureaucracies

million. and creditor-controlled sources of credit. Customers would

After Mexico’s economy was liberalized, BanCrecer had often complain about slow processes and long waiting lines consolidated its national presence and had internationalized to get services. Particularly cumbersome was credit allocation its operations. The bank was opening branches in New York through a complicated system of credit limits for hundreds and Grand Cayman Islands, and purchasing a bank in north- of specific activities, or “portfolio ceilings”, for each institution. western Mexico (BanOro). Aside from high transaction costs to customers, there was evidence of an extremely concentrated portfolio, loan diver-sion, default on repayments, administrative inefficiency,

polit-The BanCrecen Project in Costa Rica

ical meddling, and lack of controls.

In 1994, BanCrecer shareholders had showed interest in estab- Starting in 1984, the Costa Rican government had imple-lishing branches in Central America, in view of the economic mented a series of reforms aimed at transforming the financial liberalization taking place in those countries and their geo- system. The first actions taken consisted of:

graphic proximity to Mexico. Initially, BanCrecen had thought

• Liberalizing interest rates and credit allocation of forming an alliance with two Costa Rican banks; but the

• Eliminating subsidized credits entirely attempt had not been successful. The decision was then made

• Granting incentives to the private financial system, to have a presence in Costa Rica through a subsidiary, called

through resources contributed by international branches Banco de Crecimiento Centroamericano (BanCrecen).

• Eliminating hindrances to state-owned bank operations Among considerations taken into account in the decision

• Strengthening the Financial Entity General Auditing Of-to operate in Costa Rica was the fact that the country did

fice’s (AGEF) legal capacity for exerting greater control not have major political problems and after carrying out two

and supervision structural adjustment programs (PAE I and II) was enjoying

• Authorizing private banks to mobilize funds at different relative economic stability (see Exhibit 1 on The Republic of

terms, except checking or savings accounts Costa Rica). Financial reforms implemented in Costa Rica

• Liberalizing foreign currency transactions; and building since 1984 were thought to foster the development of private

a liquidity fund for private banks financial entities, despite a deep-rooted tradition of having

state-owned banks over the past 50 years. Additionally, it was The subsequent years saw the establishment of more than felt that personal or “neighborhood banking” would turn out 20 private banks that mobilized funds through time deposits to be more attractive in Costa Rica than corporate banking, and issuance of securities and were lending to major compa-given that 90% of Costa Rican private businesses had fewer nies in the country. By the early nineties, despite operating than 20 employees and 95% had fewer than forty. restraints, private banks had managed to account for over half of new credits granted to the entire productive sector in the country and many banks were established or acquired by

Brief History of Banking

foreign investors.

in Costa Rica

The debate over the relative benefits of state-owned versus

private banks often heated up and reached one of its most The Costa Rican banking system was nationalized in 1948

critical points after a financial scandal in September 1994. At during President Jose´ Figueres Ferrer’s administration. The

that time, Banco Anglo Costarricense, one of the four major prime reasons wielded by nationalization champions at that


suf-fered huge losses as a result of some speculative deals and

Target Market

was eventually closed down, while some of its top executives The market niche had been identified as high- and middle-and Board directors were incarcerated. class professionals and salaried people in urban and semiurban In December, 1995, new reforms to the Banking System areas, as well as small- and medium-size businesses. BanCrecen Organic Law were introduced to deepen the bank deregulation maintained an approximately four to one ratio of personal and liberalization process. This new reform had the following versus corporate loans and deposits. Unlike BanCrecen, the

objectives: competition had focused on the corporate banking business.

Mr. Urcid frequently received executives of important firms, • Attaining greater independence and transparency in

op-asking for BanCrecen services. These clients had to be rejected erations performed by the Central Bank of Costa Rica

for being out of the target market. • Increasing the Central Bank’s efficiency

• Replacing the Financial Entity General Auditing Office

(AGEF) with a stronger organization, the Financial Entity

Products and Services

General Superintendency (SUGEF) BanCrecen had focused on offering its customers “simple” • Establishing a free convertibility exchange rate policy products from branches located throughout the country. They

and had a wide variety of products and services, as shown in

• Fostering the transparency and competitiveness of the Table 1.

banking system. To do so, private banks were authorized BanCrecen was ready to offer checking and savings ac-to manage checking and savings accounts, and ac-to make counts in October 1996, in line with the new bank legislation. use of rediscounts and emergency loans from the Central The “Electronic Supercheckbook” was going to be a checking Bank of Costa Rica, starting in October 1996. account offering an annual interest of up to 3% and an

interna-tional VISA/Plus debit card totally free of charge. Checks

BanCrecen Strategy

would have magnetic strips to expedite their processing, safety systems with codes and heat sensors, and a stub book for In November of 1994, just two months after the financial

accountholders to keep a copy of every check they issued. scandal brought about by the Banco Anglo bankrupcy,

Ban-With the “Savings Superbook” a customer would automatically Crecen began operations surprising both the general public

get life insurance and a BanCrecen Electron international debit and competition with its aggressive strategy. The initial plan

card taken by all VISA/Plus ATMs. This “superbook” would included developing ten branches and five automated teller

have an electronic strip to record all the information, without machines (ATMs) connected to BanCrecer’s data network in

the need for paper transactions and could be used in ATMs Mexico during their first year. However, the signing of a free

to withdraw cash (as if it were a debit card). trade agreement between Costa Rica and Mexico in April 1994

led to a change in the original plans, since one of the objectives

of this trade agreement was, among other things, promoting


the development of the Costa Rican financial sector. Growth strategy had been based on three core principles: 1) For this reason, BanCrecer decided to enter the Costa Rican standardization, indispensable to reduce cost and to project market more aggressively. It planned to open 50 branches a corporate image; 2) simplification, important to shorten instead of 10 and 19 ATMs instead of 5 during their first year operating times and reduce budget; and 3) timely penetration, of operations. According to Mr. Urcid, this decision had been needed to become the first bank in capturing the small-account prompted by the Mexican crisis of December 1994 (see Exhibit market segment.

2 on The 1994 Mexican Crisis), because BanCrecer’s capital

reserves earmarked to develop the BanCrecen project were


denominated in U.S. dollars in Mexico. Upon the Mexican

BanCrecen was the private bank with the largest number of peso devaluation, sizable financial profits had been made on

branches in the market. It operated through a very innovative this money, which, if left in their country of origin, would

network made up of 50 branches, known as “Multi-Express”, have been taxed by Mexican authorities.

and 19 automated teller machines, plus 5 additional branches Rufino Urcid explained the institution’s general strategy:

that would be in operation by December, 1996. Only three BanCrecen’s strategy consists of giving its customers the state-owned banks were able to compete with BanCrecen, in best possible treatment, as if each one was the country’s terms of geographic coverage based on the number of branches. largest and most important company. Every person should While these banks had 80 branches, they were not inter-be treated as the bank’s most valuable customer. Once a connected by an “on-line” system similar to BanCrecen’s. Ban-Total Quality service is rendered to this market, BanCrecen Crecen’s closest private bank competitor did not even have should strive to improve its products and services as 15 branches.

quickly as possible.

As in Mexico, BanCrecen’s small Multi-Express branches in Costa Rica, were designed for customers to carry out all This strategy of “neighborhood banking” was quite different


Table 1. Bancrecen Products and Services

Product/Service Description

Inver Express This investment instrument allowed customers to manage their money, while earning interest, and gave them access to cash by using their Electronic Card in ATMs.

Credi Express The Credi Express personal loan granted customers credit for terms of 6, 12, 18, and 24 months. Financing was approved according to customer income and repayments were automatically charged to their Inver Express.

Credi Express/Casa This was a mortgage credit to remodel, build, or purchase a home, with monthly installments up to 20 years. Financing was granted for up to 80% of property value, and charges were also made automatically to their Inver Express.

Servi Comercial/ This was the payroll payment system BanCrecen offered companies to save them the time and risk of han-No´mina dling cash. For every employee, BanCrecen opened an Inver Express account where his/her salary was

de-posited on payday.

Credi Estudios This was a student loan with the lowest installments offered by BanCrecen to finish the last two years of college and the entire master’s program. All students enrolled at universities that had signed agreements with BanCrecen had access to this loan, provided they earned a minimum salary and had been working over one year for a company.

International Service In the international area BanCrecen offered lines of credit, letters of credit, direct remittances, document col-lection, World Link check systems, travelers’ checks transactions, dollar transactions, international check is-suance, and international transfers to and from any part of the world.

Plazo Express This was a fixed-term investment instrument offering attractive interest for terms ranging from one month to one year, according to customer preference. Interest was automatically credited to the customer’s Inver Express.

Credi Express/Auto This credit was used to buy an automobile and could be requested for terms of 6, 12, 18, or 24 months. Financing was granted for up to 70% of the car value, and BanCrecen also offered car insurance.

Credi Comercial This was a working capital loan a company, business, or store needed to continue growing. It was offered in terms of 6, 12, 18, and 24 months.

Credit cards BanCrecen’s VISA card was an international card that could be used in Costa Rica and in more than 200 countries in the world. Its credit ceiling was established according to customer income and credit terms were up to 20 months.

Electron Card This was an international debit card backed by VISA. Just like Bancrecen’s VISA card, this could be used in Costa Rica and in more than 200 countries throughout the world. The card was obtained upon opening an account at BanCrecen with no additional payment. It could be used in Costa Rica and abroad to pay in over 12 million commercial outlets affilitated to Electron and to get cash advances from VISA Plus ATMs, numbering more than 250,000 throughout the world.

Various services BanCrecen had agreements with several institutions in order to provide other products, such as:

• Agreement with city halls to make municipal payments.

• Agreements with Western Union and American Express to provide international fund transfers through its branches

• Agreement with Citibank to receive Citibank card payments.

• Agreement with DHL Worldwide Express to offer courier service from branches

• Agreement with the Instituto Nacional de Seguros (INS) to offer the Bank-Assurance service.

by three or four employees working 12 hours a day, 9 AM • An automated business platform

• An ATM area, which was accessible from the outside to 9 PM, Monday through Friday, and Saturdays from 9 AM

to 2 PM. The staff worked in an extremely safe enclosure with and was open 24 hours a day (Figure 1). armored walls and bulletproof windows. One “parent” branch,

called because of its size, number of employees, and function,

Advertising and Promotion

would support some 15 smaller Multi-Express branches lo- BanCrecen’s advertising clearly had been different than that of cated in its surroundings. The smaller branches had the same competition. While the other private banks launched extensive architectural style as “parents” and differed only in their advertising campaigns in the various media, BanCrecen’s was smaller physical area. While “parent” branches were typically rather modest. Occasionally, it would publish ads in the mass located in 900- to 1,200-m2 premises with lots of parking

media, and it kept an Internet web site, but this bank’s market space, smaller branches only had 80 to 120 m2. Branch space

was rather based on “word-of-mouth” communication through-was divided into three subareas:

out the branches. Moreover, 20 telephone operators would do telemarketing in different sectors and would point out • A hall area, providing access to the teller window, with

which was the nearest branch. All branches had a standard no furniture, except for a ledge on the wall that doubled


Figure 1. Basic format of a Bancrecen branch.

stocked with brochures advertising bank services, products, sented at the bank’s various locations. Officials had enough and some periodic raffles. capacity and autonomy to make all decisions at teller windows to serve and please customers, except in very particular cases.

Human Resources

The institution had emphasized a strict recruitment policy

and also had ongoing employee training and specialization The company’s philosophy stated: “Those who say it cannot be

plans in various areas. Employees would get a diskette and done should not stand in the way of those who are doing it.”


interactive exercises to practice these operations. Through September. By the end of 1996, a tripling of the amount deposited in 1995 was expected (Table 2 and Table 3). Mr. employee codes, the system could record the time devoted to

practices and the mistakes made, in order to supervise the Urcid commented on the subject. effectiveness of staff training. Training ended with a one-day

We are not a group seeking profitability the first two years. course to clear up any remaining doubts and to tackle areas

To me there is a big difference between doing business where people had made most mistakes, according to statistics

and creating enterprises. The latter may last for 100 years, recorded by the system.

while a business may die off in 3. We do not do business, we create enterprises.


The June 1996 strategic business plan had established the The computer system, referred to by Mr. Urcid as the

“on-following short-term objectives: line” system, was extremely modern and allowed customers

to perform the same operations at any branch during the same • Completing the installation of 55 branches in Costa Rica working hours. Branches used a telecommunications system • Starting a regional expansion process in late 1996 that would send to Mexico the data on each transaction, to • Reaching the break-even point in Costa Rica by late be processed and returned in a total turnaround time of less 1996.

than 1.8 seconds. The system had a virtually unlimited

capac-In the medium term, BanCrecen was planning on becoming ity to simultaneously manage millions of customers.

the leading and most profitable bank in Costa Rica and consol-Credit applications were assessed electronically, based on

idating its expansion process in other Central American coun-a “Credit Scoring” system coun-and on coun-actucoun-al bcoun-ank experience, coun-and

tries. The 10-year long-term goal had been identified as open-were processed in five days or fewer. The system posed some

ing a bank in each Central American country and having 215 50 questions to applicants and scored their answers. Total

branches throughout the region. In addition to the 50 Costa score was used as a judgmental guideline; in addition, it served

Rican branches, 50 more would be opened in El Salvador, 50 to show customers in 30 minutes whether or not they were

in Guatemala, 25 in Honduras, 20 in Nicaragua, and 15 in qualified borrowers (Figure 2).

Panama. The system also included a database and a software

pro-Facing the future, Mr. Urcid wondered whether his strategy gram to assess customer groups by their willingness to pay.

had been the right one and whether or not he should continue For example, the program could identify customers by groups

with the expansion and diversification plans. and cross-tabulate variables to determine whether 25- to

35-year-old single men who applied for car loans had delinquency

problems. If that was the case, the system would automatically

Exhibit 1: The Republic of Costa Rica

adjust and would demand a higher score than usual from the

The Costa Rican democratic system was perceived to be the next applicant who had these three characteristics.

most stable in the region. The country’s first democratic elec-tions took place in 1889 and the army had been abolished in


1948. Political democracy had made it possible to improve Shareholders of the Mexican financial group had 51% of

Ban-national economy and raise the standard of living of citizens. Crecen’s equity and 48% was held by regional shareholders.

In 1993, Costa Rica was ranked 31st among countries in the The remaining 1% was in the hands of BanCrecen employees.

world with the best human development index2, above all According to plans, investment should be healthily diversified

Latin American countries, save Argentina. The country had through the project’s wide geographic coverage. One of the

managed to maintain a 93% literacy rate and a 76-year life main objectives of the financial strategy was maintaining broad

expectancy at birth. Its US$2,380 gross domestic product financial margins, if possible higher than those found in banks

(GDP) per capita (in 1994) had been one of the highest in serving the corporate sector, with lower operating costs.

the region.

In the early 1980s, several factors had substantially

weak-Results and Future Perspectives

ened Costa Rican economy, namely, an overvalued exchange rate, deteriorating terms of trade, and an increase in interna-As Mr. Urcid explained, the aggressive policy of opening 50

tional interest rates. Real GDP had fallen 7% in 1982, unem-bank branches in Costa Rica had prevented BanCrecen from

ployment had reached 9.4%, and inflation soared to 90%. showing profits in its first year of operations. Losses in 1995,

Successive governments had made adjustment efforts, sup-in the amount of ¢75 million (US$415,000), were mostly

ported by the International Monetary Fund (IMF) and the due to administrative expenses incurred in opening branches.

During the first year, assets had grown substantially, from

¢297 million (US$1.9 milllion) in 1994 to ¢2,215 million 2The human development index is determined by the United Nations on

(US$12.3 million) in 1995. However, deposits from the public the basis of life expectancy, per capita income, and literacy rate in every country.


Figure 2. Credit allocation.

World Bank, with two objectives: stabilizing the economy and deficit, in addition to a deteriorating balance of trade and a misaligned exchange rate, forcing the country to implement restructuring the productive apparatus. The First Structural

Adjustment Program (PAE I), established in April, 1985, had a Second Structural Adjustment Program (PAE II). As a result, in 1994 inflation had dropped to 9.8%, unemployement reduced economic unstability and resumed growth. Two years

later, then Costa Rican president, Oscar Arias Sa´nchez, had dropped to 4.1%, and the economy grew 5%. The following year, 1995, the economy went into a recession; economic been awarded the Peace Nobel Prize for his contribution to

pacifying the Central American area. growth rate had declined to 2.5%. The Third Structural Ad-justment Program (PAE III) was then set into motion, in The early nineties had witnessed new macroeconomic


Table 2. BanCrecen Balance Sheet (thousands of colones)

Accounts As of June 30, 1995 As of December 31, 1995 As of June 30, 1996 Assets 1,293,503 2,215,237 3,264,682

Cash 298,213 488,802 684,912

Temporary investments 149,672 288,598 403,951

Credit portfolio (net) 260,148 818,224 1,677,491

Credit portfolio (gross) 261,740 830,705 1,713,972

Credit portfolio (estimate) 21,592 212,481 236,481

Other accounts receivable 81,450 138,580 62,396

Liquid assets 0 3,848 0

Assets in use 106 94 82

Other assets 503,914 477,090 435,850

Total 1,293,503 2,215,237 3,264,682 Liabilities 364,541 1,361,083 2,313,724

Obligations to the public 299,027 1,327,846 2,203,805

Other financial obligations 0 25,770 31,330

Other accounts payable and provisions 33,408 7,098 72,633

Other liabilities 32,106 369 5,955

Net worth 928,962 854,154 950,958

Equity 300,000 553,051 553,051

Non-capitalized paid in capital 610,405 374,850 374,850

Equity reserves 2,183 0 2,713

Accumulated from previous periods 5,429 5,429 0

Results for the period 10,944 279,175 20,346

Total 1,293,503 2,215,237 3,264,682

Trust assets 0 0 25,003

Other creditor memorandum accounts 613,026 0 3,040,400

Source: Financial bulletins: June 30, 1995, December 31, 1995, and June 30, 1996. Costa Rican Financial System. Monitored by the Financial Entity General Superintendency (SUGEF).

September, 1996, the country’s economic conditions had not ble, given the intense capital flight; the Mexican peso had devalued 82.22% in 1994, from its figure in 1993. Conse-significantly changed, and the growth rate for the year was

projected to be even lower than the previous year’s. quently, the Banco de Me´xico had lost reserves in the amount of US$4 to US$5 billion in just two days, leaving reserves at US$6.5 billion, which was equivalent to less than one month

Exhibit 2: The 1994 Mexican Crisis

of imports.

Subsequently, authorities announced the Mexican peso The Mexican economy had significantly deteriorated from

float. Capital outflow also had a direct impact on the banking 1992 through 1994, a period where the country’s financial

sector, particularly those institutions whose credit portfolio system was in a process of liberalization and deregulation.

had expanded without any long-term monetary support. It The abundant capital inflow enjoyed by the country, used to

was estimated that US$20 billion would be needed to bail build reserves, had stimulated a credit expansion that created

out Mexican banks. a risky situation, in view of the extreme volatility of this money

Mexico had started to recover in 1995, with the support source. The situation worsened because bank liberalization

of the international community, which had made it easier had not been accompanied by suitable banking supervision

to convert the short-term domestic debt into a long-term standards. As a result, credit had declined disproportionately.

obligation (Figure 1). In 1993, a decline in economic growth and domestic

sav-ings, plus an overvalued exchange rate, had led to a large

widening in the current account deficit, which went from 3%

Teaching Note

of GDP in 1989 to 7% in 1990. In 1994, capital inflow had

Case Purpose and Teaching Objetives

started to ebb, due to an increase in U.S. interest rates and

the evidence of Mexican economy vulnerability. The Chiapas The purpose of this case is to examine the experience of uprising and two political murders had increased Mexican internationalizing a unique “neighborhood banking” strategy, uncertainty and resulted in a decline of foreign capital inflow. which has been very successful in Mexico, in the very different By mid-December, 1994, the Mexican government had environment of Costa Rica during a period of economic turbu-announced that the exchange-rate band ceiling would increase lence and institutional change.


unsustaina-Table 3. BanCrecen Income Statement (thousands of colones)

January 1 to July 1 to January 1 to Accounts June 30, 1995 December 31, 1995 June 30, 1996


Financial expenses 19,533 109,050 231,497

Financial expenses from liabilities 19,533 108,073 229,190

Other financial expenses 0 977 2,307

Fixed asset depreciation and bad debt expenses 2,500 11,336 24,000

Various operating expenses 966 5,819 13,541

Service commissions 966 2,324 6,615

Other operating expenses 0 3,496 6,926

Administrative expenses 22,476 160,951 902,330

General expenses 3,385 48,617 88,616

Other administrative expenses 19,091 112,334 813,714

Expenses from previous periods 0 47,859 0

Total expenses 45,475 335,017 1,171,368


Financial income 47,293 167,130 287,295

Financial income from temporary investments 11,076 7,043 17,531

Financial income from current credits 27,732 140,657 250,953

Fin. inc. from due and enforc. collection loans 0 12 1,227

Other financial income 10,485 19,418 17,583

Various operating incomes 12,775 46,281 911,200

Service commissions 10,983 36,914 65,416

Other operating income 1,791 9,367 845,785

Income from previous periods 0 31,486 0

Total income 60,068 244,897 1,198,495

Results for the period 14,593 290,119 27,127

Source: Financial bulletins: June 30, 1995, December 31, 1995, and June 30, 1996. Costa Rican Financial System. Monitored by the Financial Entity General Superintendency (SUGEF).

• To strengthen abilities in the analysis of competitive

Case Analysis

strategies in changing environments

What Strategic Decisions Did

• To provide a perspective on economic liberalization and

Rufino Urcid Face in September 1996?

the globalization of business, from the viewpoint of the

banking industry The objective of presenting the action question at the begin-• To analyze the impact of technology in the value chain ning of the discussion is to lay out the different alternatives in the financial service business facing the manager at the time of the case. At the end of the

This case is designed to be used in a course on strategy or on the management of financial institutions, at the graduate

Table 4. Advantages and Disadvantages of State-Owned Versus

level or during the final two years of an undergraduate program.

Private Banks

Type of Bank Advantages Disadvantages

Suggested Questions for Discussion

State-owned Public confidence Bureaucracy

1. What do you think of BanCrecer’s decision to enter Wide network of Administrative problems Costa Rica with plans for expansion to the rest of the branches Political interference

Low profitability

region? What are the advantages and risks inherent in

Concentration of credit

this decision?

Little technology

2. What are the salient characteristics of the banking in- High transaction costs dustry environment in Costa Rica that might be attrac- Very traditional products

tive for BanCrecer? Private Greater Little flexibility

profitability Few branch offices

3. What do you think of the BanCrecen strategy? What

than state Concentration in a few

risks and opportunities does it contain? What do you

banks corporations (adequate


Table 5. Comparison of BanCrecen and Competitors

BanCrecen Competitors

Target clients Small and medium-size companies Private banks focussed on corporations

Individual clients in middle and high income ranges State banks serving all segments Products and services Innovators: electronic checkbook earning interest, Traditional

credit card as part of a package, supersavings book Alliances with other service companies: DHL, munici-pal payments; Western Union, Xerox, National Insur-ance Co.

Point system for credit decisions Longer office hours

Branch offices Many small branches, interconnected and standard- Private banks with few branch offices ized, with one main branch for every 15 mini- State banks with multiple branches but not

branches standardized

Marketing Word of mouth Use of mass media


Human resources University level In general, not a very high academic level

Training in technology

Technology Back office in Mexico Little sophistication

Speed and sophistication Economies of scale

discussion the instructor might return to this question to take • The taking advantage of the relative backwardness of a vote or to close the discussion. Costa Rica’s financial sector relative to that of Mexico

Some of the choices that Mr. Urcid faces are the following:

What is Your Analysis of the

• To continue with an aggressive expansion strategy or to

Competition in Costa Rica?

consolidate existing branch offices

• To create affiliates throughout Central America or to If the instructor so desires, there is information with which concentrate operations in Costa Rica to analyze BanCrecen’s competition in Costa Rica (see Table 4). • To broaden or consolidate BanCrecen’s line of personal This discussion can be interesting because of the peculiar

charac-banking products teristics of the banking industry in Costa Rica at that time. • To change BanCrecen’s strategy in response to the legal- Upon analyzing these characteristics of the competition,

ization of private bank checking and savings accounts we may identify opportunities of personalized banking with • To confront operating problems such as the saturation technological innovation.

of branch offices during peak hours, which would result in improved quality of service but would require higher

Definition and Analysis of

levels of operating cost

BanCrecen’s Strategy

What Factors Prompted BanCrecer to

A part of the class session should be dedicated to analyzing

Decide to Enter Costa Rica in 1994?

BanCrecen’s strategy and comparing it with that of other banks This question may provoke a very rich discussion on the in the country. The main message is that BanCrecen decided reasons for the international expansion of banking operations, to pursue very different activities than those of the competi-and on their relative validity: tion. This may generate a discussion of the reasons for these

differences and of their effects. The strategy of BanCrecen is • The opportunity to replicate a successful experience in

clearly focussed differentiation in the Michael Porter scheme Mexico

of analysis, giving rise to an analysis of the advantages of this • The relative economic and political stability of Costa

type of strategy in the banking industry (see Table 5). Rica at the beginning of 1994

This analysis shows that the strategy of BanCrecen is radi-• The process of trade liberalization between Costa Rica

cally different than that of the competition, both in the public and Me´xico, upon the ratification of the Free Trade

and private banking sectors. But, it is also necessary to analyze Agreement

the sustainability of BanCrecen’s competitive advantages in • The utilization of a new market as a testing ground for

the long run, as well as the possible weaknesses of its strategy new financial products


Table 6. BanCrecen’s Advantages and Possible Weaknesses agency that regulates banking activity, called attention to

Ban-Crecen for having registered the sale of additional shares to

Sustainable Advantages Possible Weaknesses

its owners as “other income” and for not having shown losses of 128 million colones between July and December 1997.

The connection with the home Inability to provide adequate

office and the economies of service to clients in periods In any case, it was reported that up until December 1997,

scale of rapid growth the bank had earnings of 32.2 million colones (US$134,000

Innovation in service delivery Financial risk due to overrapid at the current rate of exchange) and was then serving 72,000

Use of technology expansion

clientes versus 44,000 in 1996. It had a total of 315 employees. By the beginning of 1998, BanCrecen had completed 53 branches and had 34 of its own automatic tellers plus another 20 through an alliance with a local credit card, Aval. It began

Closure and Sequel

operation of a seat in the National Stock Exchange and was The case does not contain information that would permit a exploring the possibility of opening a pension fund (comple-detailed analysis of the financial situation of the bank. Never- mentary to the national social security system) and four invest-theless, a perceptive student may note the large amount of ment funds in 1998.

“other income” in 1996, which raises doubts about the profit- In March 1998 BanCrecen was awaiting approval by the ability of core operations in the first years of operation, during regulatory agency of the financial system in El Salvador to such rapid expansion. begin operations in that country. According to Rufino Urcid, In December 1997, the Superintendencia General de Enti- the plan was to install 20 branches in El Salvador by the end


Table 1. Bancrecen Products and Services
Figure 1. Basic format of a Bancrecen branch.
Figure 2. Credit allocation.
Table 2. BanCrecen Balance Sheet (thousands of colones)


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