Operations of Citibank in China

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There are undoubtedly various reasons that made China to allow the ing of the foreign banks whereby it usually have the hopes of creating an international financial hub in the city of  Shanghai. However, it is not only that a shortage of foreign in banks will affect the Chinese firms but they will still require financing from cross-border as well as advisory services since the foreign banks usually have considerable experience (Hughes and MacDonald, 2002). Additionally the overseas networks of the foreign global banks is also very crucial in financing China’s outbound investment and growing trade as well as the remodeling of the Yuan to attain a status of a global currency. Finally, the foreign banks were to also bring on board valuable know-how and knowledge of global banking as well as liquidity to the embryonic corporate bond market in China  thereby greatly helping to lower the companies funding costs that are in need of credit (Baker, 2003).

The Citibank had created as well as maintained a very  unique as well as enormously wide set of  competitive  advantages in China  and mostly in the  emerging makes thereby ensuring its continuous expansion. Among the main competitive advantages of the Citibank are the global network which is very important in the process of serving its list of clients of the corporate banking thereby very crucial in the development of the consumer franchise within the lucrative offshore markets (Hughes and MacDonald, 2002). Moreover, time and experience is also another competitive advantage due to its longtime operations in the Chinese banking sector it has accumulated a lot of experience compared to other competitors. Moreover, localization and commitment have also been key tom developing competitive advantage mainly through developing close ties with the local communities thereby creating good reputation among corporate, government and communities (Baker, 2003).

Citibank  has also embarked on a worldwide strategy has been undertaking an aggressive expansion strategy in an attempt of getting competitive advantage over its international competitors through specializing on the exploitation of the emerging markets. There is also the aspect of centralized decision making whereby all the branches implements the decisions  that have been centrally arrived at (Baker, 2003). Moreover, the Citibank has also embarked on striving to attain the global presence thereby increasing its customer base globally.

The global relationship strategy of the Citibank has been an aggressive focusing on the top multinationals globally an area in which it usually have a competitive advantage over both the foreign and domestic banks in China. Hence its strategy has been to target the strong  state-owned enterprises. Hence the this strategy mainly focused on identifying the companies likely to develop faster as  well  as more profitable. Thus the Citibank embarks on choosing companies that were not based on their financial statements numbers but those have a likelihood of performing better (Hughes and MacDonald, 2002).

Additionally the Citibank global consumer finance strategy has been to provide a global one-stop shop for all the consumer financial services. Therefore this meant a uniform service whenever any consumer decided to bank with reliability and convenience hence most of the consumers were more content with the services they were actually receiving at the bank in comparison with their domestic bans. Thus this was very crucial in expanding the customers base as well as improving the consumers loyalty a phenomenon that was clearly depicted in the Citibank’s financial statements (Hughes and MacDonald, 2002).

The legal structure of the Citibank in its foreign operations has been constant throughout the globe thereby ensuring uniformity in the entire of the legal structure. For instance, before any foreign investment has been made Citibank must engage its lawyers in extensive discussions with the destination country authorities to ensure that all regulations and requirements are clearly laid out before establishment as well as during operations (Conklin, 2006). In addition, the senior executives possible opinion of the acquisition of the local financial institutions would be justifiable if the bank want to undergo an aggressive expansion to meet the market demand and achieve market competitiveness (Baker, 2003)..

By 1930’s  Citibank was undoubtedly one of the major foreign banks operating in China, operating 14 branches in 9 cities of China. However, this evolution trend drastically changed in 1940’s after the communist takeover which led to the closing down of all the Citibank branches in China. Moreover, the operations of the Citibank in China resumed in the year 1984 when it ed a new office at Shenzhen  city and began its operations and a slow process of licenses application in order to expand its operations (Hughes and MacDonald, 2002). This strategy yielded fruits even though at a slower rate due to the rigidity of the China government regulations on foreign banks investment (Conklin, 2006).

In 1997, Citibank China already reached a crossroads in deciding the best ways of participating in the rapidly growing Chinese economy as well as the huge foreign direct investment inflow. Alternatively the Citibank had already been allowed by the government to do local business instead of continued specialization in the corporate banking. Additionally in the same year a wide range of new potential services such as RMB (Chinese currency) banking, credit cards, and various domestic market fee-based services were allowed. However, government regulations continued to severely restrict the types of services and products that Citibank had to offer (Hughes and MacDonald, 2002).

Despite the Citibank been  allowed to begin its operations in the local market there were various restrictions that were imposed by the Chinese government not only to Citibank but to all foreign banks. These Chinese regulations required that  the bank to provide its local market services through an entity that was already designated by the regulatory authority in China (Conklin, 2006).  These restrictions also prohibited Citibank and other foreign banks from getting involved in direct soliciting customers to whom they would offer their services as well as requiring efforts of developing new customers to be exclusively conducted via the entities that were already designated by the government (Baker, 2003)..  Additionally, the Chinese government prohibited the Citibank from directly purchasing the services that were  supplied  by other foreign banks and vice versa.

Despite the credit cards been an important as well  as lucrative part of the consumer banking lineup in Citibank elsewhere in Asia the Chinese government was pessimistic about  the credit card business (Conklin, 2006). The government of China had very great sensitivity towards inflation therefore it believed that alongside corruption out-of-control inflation was among the contributing factors to the Tiananmen problem of 1989. Hence  from the government’s point of view it was very important to achieve the goal of inflation constraints. Hence the government believed encouraging borrowing by using the credit cards would end up increasing inflation and discouraging saving (Hughes and MacDonald, 2002). Hence it was not in the best long-term interest of the government to embark on encouraging hasty retail credit card market development (Baker, 2003)..

Situating myself in the year 1997 the government of China will not likely allow the Citibank to issue credit cards to the Chinese people. This mainly because considering the global financial crisis the issuance of such credit cards was likely to greatly promote borrowing thereby discouraging saving among the people of China hence contributing to the worsening of the situation by increasing the levels of inflation (Conklin, 2006).

In ensuring that the Citibank continues  to maintain its €˜first mover’ advantage in the market it is likely that the senior management embark on a wide range of strategic issues. Thus in the future globalization which ensures the spread of new technologies and market-based economies are likely to continue presenting great opportunities both in emerging and developed markets. Hence this will go a long way in ensuring that Citibank continues to enjoy its €˜first mover’ advantage (Conklin, 2006).

The Citibank executives are likely to ensure that the bank become among the first one to enter the domestic market in China mainly by ensuring that it abides to all the required legislations. Additionally, there is also the need for ensuring that they establish cordial relationship with the government authorities. Moreover, they should continue embracing there global consumer finance strategy which incorporates all the major corporate, government and communities (Hughes and MacDonald, 2002).

If other foreign banks manages to enter into the domestic market earlier than the Citibank, it would also ensure it achieves its competitive advantage by offering low-cost but superior credit management, a strong brand as well as an exportable business models that are usually in possession of superior acquisition capabilities (Conklin, 2006).

References

Baker, J.C. (2003). Financing International Trade. Westport, CT: Praeger Publishers

Conklin, D.W. (2006). Cases in the Environment of Business: International Perspectives. Thousand Oaks, CA: Sage Publications, Inc.

Hughes, J.E. and MacDonald, S.B. (2002). International Banking: Texts and Cases. Boston, MA: Addison-Wesley Publishing Company, Inc.