The Report of Expansion Bank of Queensland Business in Thailand Analysis
The Report of Expansion Bank of Queensland Business in Thailand Analysis Song Wu 11/10/2012 Executive Summary: This article is one business investment report due to the requirement of Bank of Queensland Ltd.
As the management consultant, this paper combines the global economic situation and the prospect of the international business environment then gives the recommendations which Asian-Pacific region country the BOQ should chose as the expansion market of the business and how the expansion steps should take progression; this paper also points out the problems and solutions that may be encountered in the process of business expansion. Table of Contents Executive Summary:2 Introduction:6
Methods to Collect Information and Data7 International Business Environment7 GFC and the Debt Crisis7 The rapidly growth of Asian-Pacific region8 Analysis of Industry, Product and Its Environment8 Industry-based view:8 1. Rivalry among competitors8 2. Threats of potential entry9 3. Bargaining power of buyers9 4. Bargaining power of suppliers9 5. Threats for substitutes10 Resource-based view10 1. Tangible resources& capabilities10 1. 1Financial10 1.
2Technology10 1. 3Organisation11 2.
Intangible resources& capabilities11 2. 1 Human resource11 2. 2 Knowledge11 2. 3 Reputation11 Institution-based view12 Formal institution12 Informal institution12 Analysis of target country: economy, market and demand, trade policies and laws, Culture and political environment12 Overview of Thailand12 Political Environment12 Economic Environment13 Market and Demand13 Culture13 Policies and Laws14 Most appropriate entry and competitive strategy14 Conclusion and recommendations16 References:17 Introduction:
Local Australia banks have suffered through the year 2008 global financial crisis; and the debt crisis in 2010, in 2012, because of the economy recovery and the high speeding increasing demands of Asian-Pacific region country, lots of Australian banks starting planning on the further expansion. BOQ, now also is becoming a member of the expansion club, as a management consultant of the expansion market in foreign countries, especially in Asian-Pacific region, the recommendation that I give you now is the target market Thailand.
This report is giving a comprehensive analysis of the selection, also the paper will give you a fully clear introduction to the Thailand environment, including economy, culture and the political environment and the solution to the issues which may be occurred in the further progress. The paper is the guild to the operation of the offshore bank branch in Thailand, but the risks are existing, the main propose of the report is to minimize the risks and give the investors a comprehensive cognitive of the upcoming investment. Also the paper points out some issues that the expansion process might face to, the culture ifference and the prospect of the economic growth in worldwide and also the economic growth in the host and home country will be the main topics in this paper.
Methods to Collect Information and Data The methods this paper use to collect information and data is using the indirect materials, case studies and documentation review. Because of that the direct observation, the scope of the research and also a person’s life experience are limited due to time and space constrains, therefore, the indirect data and information collect method sometimes is necessary.
This method is applied by reading other people’s research and observation. Also the case study and documentation review methods are applied in this paper, since the financial and economic environment data research to this specific situation is rare to find, however, from the case and the news on the website and paper, the data can be easily gained. The paper uses the PESTLE analysis combine with VRIO framework to analysis the data and information, the strategy tripod are also used due to the selection of the strategy of entry.
International Business Environment GFC and the Debt Crisis After the global financial crisis in 2008, and the debt crisis in late 2009, which are the start of the nightmare of the global economy, in early 2012, the global economy are expected to enter into recovery phase, the International Monetary Fund made an announcement that the world economy has an expected global economic growth rate at 3. 5%, however, the two cuts of the forecast in April and October (now to 3. %) shows that the prospect of the global economy situation is not really very good, actually 2012 is the slowest year of the growth since 2009. But, the thing is that according to World Bank’s announcement, the expected growth rate has been divided into two parts, developing countries with a growth rate of 5. 3% and advanced countries with a growth rate of 1.
4% . ( World Bank database,2012) The rapidly growth of Asian-Pacific region After a significant transformation during the 2000s, the Asian-Pacific region countries became a part of the global supply chains, also the very ggressive consumer power based on the large population, the low labour cost and high productivity have made this region part of a non-ignorable global recovery power and most importantly, the integrations between countries in this particular area is the key factor, ‘the supply chain story means that China and India are currently a derived source of demand rather than an independent source of demand for the region, and intra-regional trade still relies heavily on extra-regional final demand’ (ADB 2007; Athukorala 2008, 2010; Athukorala and Yamashita 2009).
The rapidly growth in some countries in this area will have a positive impact on the other countries in this area. Analysis of Industry, Product and Its Environment Under this section, we mainly use the three prospective, which are industry-based view, resource-based view and institution-based view to analysis the industry in Thailand and the basic information about the environment in Thailand banking market, also the regulations, policies problem that the company should focus on when expands its business in Thailand. Industry-based view: 1.
Rivalry among competitors Among the foreign banks which have already hold business in Thailand, BOQ has advantages—-The owner-management system, this is the system of that the local mangers of the bank is not only the runs the branches, but own them, the local managers know exactly what and how the local customers needs and demands, this particular system also built up a good relationship between the bank and the customers. However, compare with local banks, the competition is still very fierce. Therefore, the rivalry among competitors is moderate. . Threats of potential entry The threats of potential entry is very low now, this is the main reason why we suggest this target country, during the year 2004, a two phase financial sector master plan (FSMP) has been announced in order to increase the general access to the finical services, the FSMP obviously increase the efficiency of the foreign banking service in Thailand.
In 2010, the foreign banks are allowed to open two branches in Thailand, however, til late 2011, there are only two foreign banks took the advantage of this policy.
In 2012, the government allows the foreign banks to apply for the foreign subsidiary licences, which will allow the subsidiary banks to open up to 20 branches in Thailand. This particular policy is no wonder a good opportunity for our company, so from what I can see here, the three main business services should be all hold in the Thailand market but step by step( banking, insurance, financing) So sum it up, the threat of potential entry is very low 3. Bargaining power of buyers
As the rapidly economic growth in Asian-Pacific region, the demand of highly performed banking services are needed in Thailand, the population of buyers in Thailand is very high including local customers, FDIs (financing sector) and foreign tourists (according to CIA report, tourism has become the major economic factor in Thailand from year 2007, therefore, the demand of tourists in Thailand is also a valuable buyers to the company) so the bargaining power of buyers. So the bargaining power of buyers is high 4.
Bargaining power of suppliers
The labour force in Thailand could be another valuable asset to the company, since the own-management system, the BOQ will be using local staffs to maintain the business. From the CIA report 2011, the Labour force of Thailand is mainly in services sector, which accounts for 46. 1% in year of 2011. The unemployment rate is very low, around 0. 7%, also, the education spending at the 28.
3% of the total government expenditure which ranked 2nd in the world education ranking, however, the average schooling year is low account for only 6. years, for Australian, it’s 10. 9 years. 5. Threats for substitutes The interest rate in Thailand is very low, in 2011, the interest rate is around 3%, the investment sector also play a role in the Thailand economy, and this is the main threat to the banking sector, however, as the BOQ will start business of financing in the second step, the threat will relatively reduce. Therefore, the threats of substitution is moderate.
Resource-based view 1. Tangible resources;amp; capabilities 2. 1 Financial Under the financial resources, the BOQ currently holds 39. billion total assets. Compare to the local banks, the highest local bank is Bangkok bank with total asset of 55 billion, this is an indicator which shows that the financial resources is abundant and also, with the operation of the subsidiary branch in Thailand, the network of the home country’s support will increase the advantage of this capability.
2. 2 Technology The mature online banking system has also become a valuable capability to the BOQ, since the online banking system now is widely used in the worldwide.
The well trained business investment consult system will be the most valuable resource that the BOQ will provide to the Thailand, especially under the business financing sector 2. 3 Organisation Integrated information system, effective and formal control system. The network of the branches in Thailand and in home country will be established, the convenience of the information exchange will be standing out. 2.
Intangible resources& capabilities 2. 1 Human resource The most valuable asset of the subsidiary firm, the mature and stable management team, this is something valuable and also inimitable. 2. 2 Knowledge
With 138 years of successful operating in Australian territory, the knowledge and experience is worth so much. However, the lack of the operating in overseas environment is a big problem to the company. The cultural differences and the formal and informal institutions are the weakness our company has, and to solve this issue, attention and the changes are necessarily needed 2.
3 Reputation With 138 years of successfully operating, the reputation of BOQ in Australia is good and famous; the brand is recognised by the world. However, the advertising in Thailand is necessary, and to built up a more famous and well operating reputation.
Institution-based view Formal institution The formal institution has already give an advantage to the foreign banks in Thailand, the finance ministry has announced that the foreign banks can now open up to 20 branches instead of 20 ATMs in Thailand under the permission of the ministry, only qualified applicants among the eligible banks are allowed to have this permission, and also, in 2008, the financial institution business act, BE2551 relaxed the restriction of 25% limited foreign ownership cap in Thailand banks to 49% of the financial shares.
These actions give BOQ an opportunity in Thai banking market. Informal institution Culture dimension, the cultural difference between Australia and Thailand is high, different language and norms make this expansion a lot more difficult than the expansion in other states in Australian territory.
However, since the Thailand is constitutional monarchy country and also democracy , the difference between the government system is not that huge, this will be discussed in the following section under the title of PEST analysis.
Analysis of target country: economy, market and demand, trade policies and laws, Culture and political environment Overview of Thailand Political Environment The government type is constitutional monarchy, chief of state is King PHUMIPHON Adunyadet, also spelled BHUMIBOL Adulyadej . Head of the government is Prime Minister YINGLAK Chinnawat (since 8 August 2011) and Deputy Prime Minister CHALOEM Yubamrung, the cabinet is Council of Ministers Economic Environment
The economic environment is a very important factor which could influence on the banking business, therefore an analysis of the economic environment is important to the expansion. After the 90s finical crisis and such many pro-investment policies, the economy of Thailand is rapidly growth just as other Asian-Pacific region countries, during the 2000-2007, Thailand experience a constantly economic growth of 4%, during the 2008, the GFC, ost Thai sectors suffered from a double drop, however, in 2010, the economic expanded 7. 8%, accounting the highest pace since the 1995, the GDP of Thailand was 609. 8 billion (CIA, 2011) The integration of the Asian-Pacific region countries also makes this environment very stable and constantly increasing.
Due to the high demand of services in India and China, and also Thailand has become one of the most important parts of the world-wide supply chain. Market and Demand
The demand of the Banking, Insurance and financing is increasing within a very fast speed, since the global economic recovery and also the highly and amazing ‘Asian development speed’ , the factor is not only the high growth rate in Thailand itself but also the very high growth rate speed in the countries around and have good business relationship with Thailand. During 2011, the investment accounted 26. 2% of the total GDP and mainly accounting for foreign investment, this is definitely an outstanding opportunity to the BOQ Ltd. Culture
We should pay a attention to the culture difference, the difference between Australia and Thailand is something we should respected to, according to Hofstede’s culture dimension, we can see The following figure: from this comparison chart, we can see that the culture difference between Australia and Thailand is very high, especially under the IDV, as well as the PDI, which IDV stands for individualism and PDI stands for power distance index, shows that how the society accept the hierarchical order in which everybody has a place and which needs no further justification.
And IDV shows the individuals are expected to take care of themselves and their families. Policies and Laws The policies and laws as we mentioned before, the Thai policies and laws are pro-investment business, which encourage the foreign banks operate in Thailand, the financial institution business act is the very first policy that encourage the foreign banks to operate business in Thailand, since the booming in Asian-Pacific region, the investment in Thailand is becoming more and more popular, thus the demand of foreign finical institution is also increased.
Most appropriate entry and competitive strategy As the policies and regulation restriction that Thailand is using, the most appropriate entry mode would be FDI with the permission of opening up to 20 branches, as a subsidiary. This is the most competitive entry mode that BOQ should take this opportunity.
The competitive strategy is differentiation, which the BOQ can provide the own-management system that other banks cannot provide to the customers in Thailand, also the local staffs know exactly what the customers’ needs and requirements, the advantage is more valuable than anything else.
To make the differentiation strategy, the advertising is necessary to built up the reputation in Thailand, therefore to gain more market shares in the Thailand banking, insurance and financing markets. Conclusion and recommendations
Therefore, here is the report of analysis the operation of new branches in Thailand report In this paper, we mainly discussed the research of banking services in Thailand, and the possibility of operating the branches in Thailand, within analysis of global economic prospect, and current target market economic environment and political environment, the paper gave the recommendation of going expand the business in Thailand, with BOQ’s three basic business and services: banking, insurance and financing, however, the expansion progress should take steps.
With the booming and the more and more open economic environment that Thailand is having, and also the amazing Asian-Pacific region economic growth, the successful of the expansion can be entirely predictable. References: ADB (Asian Development Bank) (2007), Asian Development Outlook 2007: Growth Amid Change, Asian Development Bank, Manila. Athukorala P (2008), ‘China’s Integration into Global Production Networks and its Implications for Export-Led Growth Strategy in Other Countries in the Region’, Australian National University, Arndt-Corden Department of Economics Working Papers in Trade and Development No 2008/04.
Athukorala P and N Yamashita (2009), ‘Global Production Sharing and Sino–US Trade Relations’, China ;amp; World Economy, 17(3), pp 39–56.
Asian Banking and Finance. http://asianbankingandfinance. net/branch-banking/news/thailand-relaxes-tight-controls-over-foreign-banks BBC news, Global economy: Who can drive the recovery? , August 2012. Bank of Queesland http://www. boq. com.
au/ Central Intelligence Agency, 2011. ww. cia. gov The World Bank database,2011 www. databank. worldbank.
org Foreign banks to increase their presence in Thailand, 2011, IFLR Hofstede, G. (1980). Culture’s consequences: International differences in work-related values. Beverly Hills, CA: Sage. Yiping Huang and Bijun Wang (2008), From the Asian Miracle to an Asian Century? Economic Transformation in the 2000s and Prospects for the 2010s