Internationalization strategies for financial
6.6 Globalization strategies
As well as there being variety in the extent to which financial services providers operate globally, there are variations in the approaches that they adopt. The next section explores in some detail the different ways in which organizations may choose to operate in non-domestic markets.
● pressures to be locally responsive, adjusting and adapting a service offer to local (country-specific or regional) needs.
This led to the identification of four basic options for internationalization, as out- lined in Figure 6.1.
6.6.1 International strategies
An international strategy is, in many senses, a weak or unstable position.
Such a strategy involves doing broadly the same thing in a series of different markets, but without any attempt to integrate to get costs down or to tailor the service to the specific market. While pressures for integration or responsiveness may not be strong, firms following an international strategy will always be vulnerable to competitors who are able to integrate and outperform them in terms of costs or competitors who are able to customize and outperform them in terms of benefits offered to the consumer. Historically, this is probably the strategy that many financial services organizations operated in the early stages of internationalization.
HSBC, for example, traditionally operated across a range of markets, offering rela- tively standard banking services but under a different brand and name in each country. In the UK, HSBC traded as the Midland Bank, in Australia as the Hong Kong Bank of Australia, in the Middle East as the British Bank of the Middle East and in the USA as the Marine Midland Bank. In 1998, the bank announced a move to create a unified brand for all its operations worldwide in order to be able to integrate marketing activities, improve marketing effectiveness and increase share- holder value. In effect, HSBC was moving away from an international strategy and towards a global strategy by more fully integrating its marketing activities worldwide.
Global strategy
Low High
HighLow
Force toward global integration
Force toward local responsiveness Transnational strategy
International strategy
Multi-domestic strategy
Figure 6.1 Different forms of internationalization (adapted from Ghoshal and Bartlett, 1998).
6.6.2 Global strategies
A global strategy essentially focuses on integrating business activities across mar- kets in order to ensure greater efficiency in operations; differences between markets tend to be discounted and the pressure to be locally responsive is considered to be weak. Rather than focusing on possible differences in customer needs, a global strat- egy focuses on similarities and sees different international markets as being essen- tially homogenous. Typically, such a strategy is associated with manufacturers of highly standardized physical goods and emphasizes economies of scale in produc- tion and marketing. Matsushita is the example cited by Ghoshal and Bartlett (1998), with 90 per cent of its production concentrated in highly efficient plants in Japan and yet 40 per cent of its revenue coming from sales overseas.
In many senses, it is difficult for any financial services provider to be truly global because regulatory regimes vary across countries and limit the extent of true standardization. However, in retail markets, banks such as HSBC and Citibank are arguably following something close to a global strategy, with recognized global brands and strong presence worldwide. The same may be said of American Express, Visa and Mastercard. In corporate markets, Bank of Tokyo Mitsubishi, with its diver- sified global network and ability to provide a full range of services to customers worldwide, is probably also following something close to a global strategy.
6.6.3 Multi-domestic strategies
A multi-domestic strategy arises when the pressures for integration are low and the pressures for local responsiveness are high. Such a strategy is characterized by oper- ations across multiple markets, but with a high degree of decentralization to ensure that services are tailored to the needs of those local markets. Any pressures on costs which might encourage integration are outweighed by the importance of local responsiveness; if a head office exists, its control is relatively weak and the organi- zation is perhaps best thought of as a federation of semi-autonomous companies.
Multi-domestic strategies are probably most closely associated with manufacturers of products that are in some way culturally sensitive (such as food and personal care) and where adaptation is essential. Multi-domestic strategies are relatively unusual, but in the financial services sector such an approach would apply to rela- tively information-intensive and people-focused services such as financial advice, where local responsiveness is essential. For example, De Vere and Partners – one of the largest chains of independent financial advisers – operates in 30 different countries worldwide. Differences in regulation and differences among consumers mean that scope for integration is limited, and that advice must be tailored to customer and country context.
6.6.4 Transnational strategies
According to Ghoshal and Bartlett, transnational strategies are a relatively recent phenomenon and have emerged in markets where there are significant pressures to
keep costs low through global integration, and also a need for a high degree of local responsiveness. This approach requires a high degree of global co-ordination and careful management of operations to fully exploit opportunities for increased efficiency, while retaining the flexibility to tailor the service to a given market.
In principle, a transnational strategy creates a strong competitive position, being more locally responsive than a global strategy and of a lower cost than a multi- domestic strategy. There are probably relatively few examples of genuinely transna- tional strategies in services, not least because of the difficulty of delivering both integration and responsiveness. In the service sector more generally, MacDonald’s is sometimes cited as an example of a service-based company moving towards a transnational strategy. It uses supply-chain management systems and global brand- ing to ensure a high degree of integration whilst, within this framework, adjusting the products offered in each country to accommodate the tastes and expectations of domestic consumers. In financial services, given that IT enables a greater degree of remote delivery and facilitates the separation of front- and back-office activities, there may be the potential for some of the providers who are moving towards global strategies to become increasingly transnational.