Markets and Channels
3. Financial risk management Exchange risk management services
2.6 Critical Aspects of Market, Product and Channel Strategies in the Corporate Area
This part of the research has been focused on some critical aspects of the choices being made by Italian banks in the area of corporate banking and has pointed out their main differences in comparison to the approaches un- dertaken by the other European banks at an international level. The analy-
sis will enable us to identify the critical and determining factors of the suc- cess of corporate strategies.
Willing to provide a clear description as well as to focus the main char- acteristics of the critical and determining factors of successful corporate strategies, both internal and external aspects have been analyzed. The for- mer regard the bank's organizational aspects and the type of relations the bank should develop with the corporate financial system as a whole in or- der to detect the most suitable and effective solutions. The latter regard the relations with customers and involve the ways in which the bank interacts with the demand functions of enterprises with the goal to enhance problem solving and customer satisfaction capacity.
In analytical terms, the critical and determining factors of successful strategies are the following:
- clear segmentation processes - both of first and, above all, second level - and consistency with the organizational divisionalization course un-
dertaken by the bank;
- strategic and operational enhancement of the marketing function;
- efficient operational mechanisms for the development of a smooth and substantial interaction between the bank's corporate lending system and the other product areas;
- constant and determined quest of the most suitable relational, profes- sional and contractual requisites in management positions;
- centralization of educational processes in assistance to the above men- tioned requisites and for the actual development of a "corporate culture"
within the bank.
The overall evaluation of the features of corporate banking models has revealed a number of key aspects which allow identifying possible suc- cessful courses of action among the financial intermediaries operating in the market (Caselli 2003b).
The first element to be considered is the possibility of re-producing the Anglo-Saxon or Continental Europe financial models in such markets as the Italian one, where:
a. a large portion of demand is concentrated between the small business and the corporate area, thus assuming the typical configuration of the middle market. This weakens the wholesale nature of the market of fi- nancial services and produces the typical drawbacks of an enter- prise/family mix. As a result, under these circumstances, it is difficult
to enter the market with a global vision of the supply and with product and distribution features suiting the wholesale competition context;
b. the financial system shows mostly local characteristics. Yet, it is true that around a strong and clearly distinguishable supply structure there is a fragmented universe of subjects (banks themselves, Mediocrediti, professional firms, venture capital companies, etc.) who concur to the production of corporate banking services. Therefore, the Italian market seems to be characterized by significant strengths as well as by struc- tural weaknesses. Among the former, the small size of enterprises and the local nature of banks lead the system to a sort of spontaneous bal- ance characterized by significant information and dimensional symme- tries. Among the latter, the incompleteness and the fragmentation of corporate banking services make corporate customer needs satisfaction an area of possible competition.
The second element to be considered is the role developed by financial intermediaries, who are a natural complement in enterprises' corporate fi- nance choices and therefore represent an important factor for the develop- ment of real economy. The analysis of the supply structure in such finan- cial systems as the Italian one, despite the presence of some elements of change, still reveals a quite "anonymous" profile for financial intermediar- ies. This is the result of the implicit agreement of non-interference between banks and enterprises, which allows banks to increase their investments and enterprises to have abundant financial resources available. Moreover, this element is affected by the still limited product diversification of finan- cial intermediaries toward the entire system of "product/geographical mar- ket/customer" combinations. The considerable distance from the "strongly personalized" exchange approaches, which are typical of the German con- text, or from "strongly professional" exchange approaches, typical of the Anglo-Saxon context, does not contribute to the development of strong, preferential and high-added value relations between banks and enterprises.
These fundamental features of the demand/supply system enable us to formulate some indications so as to identify possible development paths.
In the first place, the relevant position acquired by banks and confirmed by the overall orientation of financial resources system of transfer repre- sents the critical point for the growth of the market of corporate banking services. Each economic system creates its own original corporate finance model in relation to its own basic orientation in terms of transfer of finan- cial resources, as clearly shown by the Anglo-Saxon and German experi- ences. This means that both local and international banks must start inten- sive internal and external restructuring processes. Internally, commercial banking production and managerial processes seem not to suit the more
complex SBU structure. The set up of a corporate banking division and the creation of organizational roles around the figure of the client manager are indispensable steps for the coordination of the supply activity in order to finally create an actual added value for corporate customers. Externally, the organization of a service offer including the whole range of corporate banking services requires the development of production technologies and competencies that are not known or owned. Inevitably this will urge for a rational process of competence and product acquisition by networking with non-banks or by acquiring and controlling them according to the group or the universal bank approach.
In the second place, the typology of competitive strategies in corporate banking has to be differentiated according to the size of the bank. The fact that local banks hold a remarkable share of relations in their own territory gives them a "spontaneous" competitive advantage in terms of information and customer proximity. Vice versa, national banks rely on different dis- tinctive competencies largely deriving from the size factor, which is a tool for creating scale and scope economies and for attracting differentiated competencies.
As a result the former may defend their natural competitive advantage from the attacks of the latter only if they succeed in preserving their local identity and multiplying their range of services by means of alliances and agreements.
Therefore, the local bank may present itself as the small business pro- fessional partner, to which the small or medium enterprise out-sources the supervision and the management of its own financial function. Should this not occur, a large number of enterprises would be obliged to satisfy their needs through a discontinued and thus hardly optimizing acquisition proc- ess from a fragmented set of domestic and foreign, financial or non finan- cial subjects.
On the other hand, national banks should confirm the value of their own entrepreneurial formula in the different business areas of corporate bank- ing.8 This means not so much aiming at the local market areas, but posi- tioning their supply throughout the entire corporate segment as well as the more extended and complex segment of large corporates and institutions.
From this point of view, the pursuit of internationalization becomes an in- dispensable step for the following reasons:
8 However, the development path of national banks can include even intensive ac- quisition of smaller banks, with the aim of buying the "local" feature, which is small banks' asset.
- in the first place, the growing internationalization of the production sys- tem, even though exclusively based on exports, encourages enterprises to seek financial counterparts able to interact efficiently with a more complex set of requirements. Bigger-size banks should adapt their ser- vices to this new scale so as to avoid the risk of the demand migrating toward subjects that are able to operate on a global scale more success- fully thanks to their longer-dated experience;
- in the second place, the growing extension of markets represents an im- portant chance of growth for the bank's performance as it increases the variety and the diversification of its portfolio. The quest of new SBUs and the confrontation with foreign competitors thus represent the real entrepreneurial challenge for national banks who, after gaining a suffi- cient critical mass by means of domestic aggregations, should direct their structures to those, even new, sectors that are bound to produce adequate return on investment.
If this logical transition seems right, then national banks should confront themselves with other elements that characterize the different levels of the overall corporate system in a transversal way. Such elements are related to the issues of segmentation model sustainability and of corporate and pri- vate banking separation management.
In the first case the pursuit of the right positioning of the supply at the strategic rather than operational level will result in the definite and precise segmentation model that was chosen in the first place. However, the in- creasing degree of specialization requires not only the precise measure of the size and volume of the identified segments but above all the careful as- sessment of the benefits obtained from the availability of the most desired segments in terms of relative costs of organizational structure differentia- tion.
In the second case, the presence of SMEs and the value of family own- ership in major countries in continental Europe stimulate a strong demand for products and services in which the synergy between corporate and pri- vate banking is a basic prerequisite. This incentive seems to be potentially in opposition with divisionalized supply structures, where the production and operation systems of corporate and private banking are mostly sepa- rated. This should start research on the organizational, operational, con- tractual, process solutions and so on, which will allow the bank to create internally favorable conditions for winning the family business and with time satisfying the family business system of needs.
Paola Schwizer