International Business & Strategy - BNP Paribas (Term Paper Sample)

International Business & Strategy - BNP Paribas’ retail banking
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Introduction
Most global players in the banking and financial service provision looking to expand into new markets seem to be keen to do so through retail banking. Retail banking entails changes in the bank’s strategic focus to include services and products meant for consumers only as opposed to their traditional concentration on the corporate and government markets. Services offered during retail banking incude mortgages, saving and transactional accounts, loans, and debit/credit cards. The retail market is currently very vibrant in many developing countries due to growth in the middle class. Such environments give international banks such as BNP Paribas an opportunity to realise their expansion plans.
BNP Paribas is one of Europe’s most successful banking institution with operations in more than 70 countries globally, more than 180,000 employees, and global assets in excess of US $100Billion. A look at the bank’s recent balance sheet figures lists profits, which exceeded 150 million Euros in 2014 placing it in the top tiers of mid-sized banks in the European continent. Therefore, BNP Paribas is more than able to fund its retail banking expansion plans leaving only one issue; the target region or market for its expansion process. This report will identify one promising target market for BNP Paribas’s retail banking expansion plans and analyse its potential for success using a business strategy approach.
The East African retail banking market
Most peaceful regions of the African continent are currently enjoying double-digit growth rates buoyed by industrial, agricultural and mineral-based developments. Africa’s potential in terms of agriculture, industry and mining is vast. However, the decades of turmoil, civil war and other negative aspects of the continent continue to prevent it from reaping its potential. However, recent efforts by the African nations themselves aided by Western well-wishers seem to be changing its economic and development fortunes. At the forefront of these developments, economic empowerment through micro-finance and retail banking operations have continued to optimise the financial capability of the African markets (EY Emerging Markets Center, 2014). Some of the most promising markets in terms of retail banking include the Central and East African regions.
The East African banking scene has been in a state of stagnation for decades due to the greatest deterrents of economic growth - corrupt leadership and civil war. However, since the mid 1990’s most of the countries have embraced peace and fostered mechanisms aimed not only cultivating social and economic growth, but also optimised their sustainability. Countries such as Kenya, which have not been victimised by the evils of civil unrest and war, have developed and sustained constant growth in their banking and financial services sectors. Kenya’s retail banking sector is testament to its relative peace since there are more than fifteen localised banking organizations in the country. By developing their individual economies and then fostering regional cooperation, the East African banking market has emerged as one of the African continent’s most attractive investment destinations for foreign players.
From a banking perspective, East Africa is not the very well developed. Save for Kenya whose retail banking sector has experienced a boom in the last decade, Uganda, Tanzania, and Rwanda still lag behind in terms of service penetration as demonstrated by various reports. As of 2011,out of the populations’ potential customers consisting of people aged 15 and above with an account in any financial institution, Kenya led with up to 40 percent penetration followed by Uganda with about 20 percent (Continent of dreams, 2013). Rwanda and Tanzania registered even lower figures demonstrating the regions lag in adopting and using banking and financial services. However, recent reports show that the level of penetration of banking services is on the rise aided by an improved awareness of its benefits and changes in the banks’ strategies towards retail banking and microfinance services.
BNP Paribas could take advantage of the fact that although the traditional heavy weights of banking in the world such as Standard Chartered and Barclays exist in the East African region, their adoption of the retail banking business model remains sluggish (Cadle et al., 2014). Although local banks seem to be taking up the slack created by the big bank’s hesitance in offering retail banking services, their portfolios seem unable to keep up with demand. One demonstration of this scenario lies in Kenya’s KCB Bank.
Notwithstanding the bank’s good performance locally, expansions based on retail marketing into neighbouring countries seem hampered by among other things a lack of financial ability. However, the local banking sector is growing as demonstrated by recent growth in KURT’s (Kenya, Uganda, Tanzania and Rwanda) banking assets. Recent figured place this growth from US $ 45 Billion in 2012, to US $ 52 Billion in 2013 (Financial Services in Africa, 2015). Although there is a lot of growth, BNP Paribas has the ability to penetrate into all potential markets easier based on its financial ability, especially though mergers or takeover of struggling baking institutions and micro-finance lenders whose increasing customer base it could capture and exploit.
The East African retail banking market’s macro-environmental characteristics
Macro-environmental characteristics entail the factors that affect a business’s operations in a certain market. As such, the banking sector is subject to some political, economic, social, technological, and legal factors. However, in keeping with BNP Paribas’ entry into the East African retail banking market, a look at the target market’s macro-environmental characteristics would entail:
1 Political factors – The African continent has endured political unrest for decades. Such circumstances have, and continue to degrade the ability of the continent’s various economic sectors to grow. East Africa has not suffered as much as parts of Central and North Africa, but the Rwanda genocide in the mid 1990’s, coupled with Idi Amin’s dictactorship in Uganda and Tanzania’s ineffective socialist based uprising, as well as Kenya’s internal problems contributed to the region’s slow uptake of banking services. However, with the end of the Rwandan situation, Tanzania’s adoption of modern economic policies, Uganda’s deposition of Idi Amin and Kenya’s adoption of multi-democracy, growth in economic sectors such as banking started. The relative peace among these four East African countries has contributed to their formation of a regional trading and economic bloc dubbed the East African Community, which seeks to unite the players’ political and social development strategies for optimised growth (Raeis Zadeh, 2006). In addition, the relative peace continues to foster social and economic growth as demonstrated by the growing middle class. Such circumstances have attracted foreign investment in industrial, mining, and financial sectors meaning a middle-level bank such as BNP Paribas seeking to expand its retail banking operations in new territory.
2 Economic – The East African region is an economic powerhouse on the African continent based on the rich variety of mineral resources, relative peace, sustained political development, and regional cooperation. The existence of many local and international banking and financial institutions demonstrate the growing potential. Kenya had more than 40 banking and financial institutions as of 2014, with Uganda and Rwanda having 25 and 12, respectively. Tanzania had 34 (EY Emerging Markets Center, 2014). These statistics demonstrate the continuing economic development in the East African region. In addition to the number of banking and financial institutions, local economic monitoring organizations, as well as the IMF, World Bank and local central banks all share the same testament to the East African regional economic developments (Cadle et al., 2014). In addition, local banks seem to be expanding operations regionally as witnessed by Kenya’s KCB foray into Uganda. Such economic development is one of the most important underlying factors that international banks seek while drafting and executing their expansion strategies. Such development in the East African region points to a growing middle class that requires tailor-made banking solutions which some of the local banks cannot meet due to systematic and financial inabilities. Therefore, BNP Paribas could consider this lucrative region during its retail banking expansions.
3 Social developments – At the heart of every economically developing country’s growth, are social factors that foster continued growth as much as they result from it. East Africa’s social community is bases most of its social and community development activities and strategies on the widespread belief in unity. No wonder upcoming providers of microfinance services such as Kenya’s Equity Bank and Rafiki Microfinance continue to enjoy fast growth by exploiting the notion of togetherness in social and economic development. Such rapid and effective social changes continue to form an important part of the regions financial and banking sector growth. However, international players seem slow to notice these cues as they continue to concentrate on their bread...