Introduction Citibank, part of Citigroup, was one of the first foreign banks that entered China over a century ago (1902) and hence has a long history of goodwill in the country. Before China’s entry into the World Trade Organization there were significant limitations on the scope of foreign businesses. As a result, Citibank was only permitted to participate in limited corporate banking services and in limited Chinese cities. Since China’s membership into the World Trade Organization, many of these limitations have slowly begun to diminish; nevertheless Citibank and other foreign banks must manage within the existing regulations.
Argument #1: Citigroup has NOT displayed adaptability to expand China operations Some of Citigroup’s business actions could seem to show their lack of adaptability to expand their operations within China. Initially they failed to take part in joint ventures to facilitate their entry into China and even still hesitate to partake in significant number of joint ventures choosing instead to try to grow through acquisitions. As a result of the significant number of regulations that foreign-banks faced, this would create a slower entry rate for Citigroup.
Initially Citigroup was unable to introduce credit card services due to restrictions on foreign players and limited access in personal banking. While restrictions still stave off foreign players and local banks are reluctant due to credit risks, the answer to adaptation into the multibillion dollar credit card industry appears to be joint ventures between foreign banks and local branch banks (Von Emlod, Pitsilis & Wong, 2003). Citibank’s attitude toward joint ventures was: “We recognize that most JVs do not last very long; JVs give an institution a short-term advantage, but not long-term benefit.
We do not think that we need to do a JV in China” (Pearce & Robinson, 2004, p. 30-15). Citigroup has the opportunity to not only expand its operations in China by entering primarily in the eastern coast but could also look at the western coast markets. While the eastern coast has higher population of wealthy citizens, there are significant opportunities to reach the population of consumers and businesses in the western area of China. Citigroup could look at this avenue as an opportunity to be the first major foreign-bank to handle the needs of this area of China.
While Chinese banks and other foreign-based banks fight for the market share in the wealthier east coast, Citigroup could take advantage of this lack of attention and penetrate this market. This would give Citigroup more opportunity to expand their operations in even more areas of China. Argument #2: Citigroup has displayed adaptability to expand China operations Citigroup has demonstrated significant adaptability in trying to expand its China operations and gain more market share.
Their keen sense of creating relationships through global business relationships has enabled the company to create a broader, more dynamic presence in more major cities within China. Citigroup understands that whether on the home front or as a foreign organization, strong business relationships will be critical in growing their operations. When Citigroup was able to get former President Bush, British Prime Minister, and Margaret Thatcher to visit China, the Chinese government and the PBOC realized that Citigroup could bridge gaps and build relationships with lasting effect.
As a result of their positive government relations and public affairs, Citibank could offer more products and services within their Chinese operations. For example, they made insurance products and expertise available through the Traveler’s Life and Annuity division. In 2002, Citibank was the first foreign bank to offer renminibi services, banking services to consumers in China, and made investment products available. Further in 2004, they expanded their service offerings by making consumer banking business available in Beijing.
While they were not the first foreign bank to offer these services, this marked “a strategic move by the US-based bank to further explore the Chinese market” (China Daily, 2004). Also they created a foundation for auditing that transformed Chinese banking internal auditing. Citibank offered technological advancements when they selected SPECTRA Technologies POS terminal to implement the EDC installment plan, hence creating greater convenience to merchants and cardholders (Spectra Technologies, 2005).
Citigroup also recognized the need to develop the human resource technical and financial knowledge in professionals within China. In 2004, they designated $174, 000 in an Information Technology Initiative “to lend critical support to Chinese universities to increase resources for professors and students interested in information technology” (Citigroup Foundation). This eight-week course would teach mainframe computer skills and provide knowledge on various software applications.
This initiative showed Citigroup’s adaptability to the existing environment which they wanted to participate in. So realizing the need to develop human resources, they were willing to invest in and partner with universities throughout China. In an additional effort to expand their China operations, Citigroup is now attempting to acquire 85% control of Guangdong Development Bank. “Acquiring outright majority control of a Chinese bank would be a first for a foreigner, and possibly prove to be a game-changer” (Bremner & Roberts, 2006, p. 44).
The acquisition of Guangdong would create a major presence of Citigroup “in the country’s second-richest province, where all foreign players want to be. Better yet, it has a 520-plus branch network” (p. 45). This acquisition could not only expand Citi’s retail front, but could “also lure the bank’s corporate clients to its investment banking services, which already have a track record on the mainland” (p. 44). “If the deal goes through, Citi will suddenly have a key advantage over those globe-girdling rivals like HSBC who have bested it in China so far.
It will have carte blanche in turning around Guangdong and won’t have to contend with all the political considerations and institutional resistance that foreign minority investors have had to deal with at other Chinese banks. Citi would install its own management team, while a booming coastal economy would likely mean continued double-digit growth in customer deposits” (p. 45). By understanding the challenges and focusing on core competencies and relationship building, Citibank is sure to provide the foundation for Citigroup’s continued expansion within China.
Despite this however, Citigroup should proceed with a balance of cautious growth and innovative service offerings and upgrades so that it can compete with other foreign competitors and eventually become the most successful foreign bank in China. Decision Rationale After evaluating the strategic actions taken by Citigroup, our team has decided that there is a stronger argument accompanied with supporting evidence to show that Citigroup has appropriately adapted so as to expand its operations within China.
While initially they may have insisted on taking a global approach to their entry, they have since re-strategized and taken a more local approach: a ? think global, act local’ approach. In their 2001 Annual Report, they addressed this as: “Our goal is to grow our market share over the next five years through our embedded bank strategy. By ? embedded bank’ we mean a bank that has roots in the country as deep as any local indigenous bank, building a broad customer base, offering diverse products, actively participating in the community and recruiting staff and senior management from the local population.
Our long history in these regions positions us as a genuinely local bank” (Citibank Annual Report, 2001, p. 20). By creating positive global business relationships, Citigroup has been able to create new products and services for the China market and create courses that are designed to teach computer and human resource skills, showing the company’s willingness to adapt to the post-WTO China. References Bremner, B. & Roberts, D. (2006, January 23). The year of the Citi? Business Week, 3968, 44-45. Retrieved February 25, 2006, from EBSCOHost database. (2004, March 26).
Citibank starts consumer business in Beijing. ChinaDaily. http://www. chinataiwan. org/web/webportal/W5023243/Uadmin/A5611057. html (2005, June 2). Citibank, HSBC and SCB(HK) made use of SPECTRA POS terminals for installment plans. SPECTRA Technologies. http://www. spectratech. com/Home. aspx/90 Citigroup Foundation: Financial Education. (n. d. ) Retrieved February 25, 2006, from http://www. citigroup. com/citigroup/corporate/foundation/iti_chi. htm. Pearce, J. A. & Robinson, R. B. (2004). Strategic Management Formulation, Implementation, and Control (9th ed. ). New York: McGraw Hill.