Team 3

Ishaan Nakra Luv Grover Prakhar Srivastava Pranjal Kala

22PGDMBFS21 22PGDMBFS30 22PGDMBFS38 22PGDMBFS39

Pulkit Chhabra Shaan Dipesh Shah Harshvardhan Gupta

22PGDMBFS41 22PGDMBFS50 22PGDMBFS62
CENTRAL DILEMMA

Is China's Credit card market attractive

enough for BAC to expand it ties with CCB
and create a new Joint Venture partnership.?
RECOMMENDATION

Yes, China's Credit Card

market is attractive
enough for BAC to expand
its ties with CCB and
create a new joint venture.
 PESTLE
ANALYSIS
National Level Analysis

P E S T L E
The political landscape The economic landscape The social landscape was The technological The legal landscape was The environmental
was highly supportive as: was slightly negative as: slightly negative as: landscape was positive: slightly negative as: landscape has not been
touched upon in the
Chinese government There was prevailing Some banks were hit by There were concerted The CBRC could impose case but any
promoted controlled corruption and corruption scandals and effort on the part of the challenging terms for organization will have to
foreign investments in inefficiency. many were seen as Chinese government to foreign investors in meet the Chinese
banks to strengthen the inefficient. modernize the industry, lucrative areas like retail environmental
financial sector. There were doubts and there were several banking to safeguard guidelines to sustain in
regarding the ability of Due to the deep high-level agreements Chinese banks and the market.
Foreign companies were the foreign banks to engrained Chinese with the U.S. regulate the domestic
allowed to hold up to 25 impact the system philosophy, the people in government that money supply and
per cent of a bank’s without substantial China were highly debt- extended technical demand.
shares, with any equity control. averse and had a deeply support to achieve these
individual bank limited rooted savings culture. objectives. The companies would
to an ownership of 19.9 WTO obligations have to meet the strict
per cent mandated China to regulatory requirements.
reform its banking
The government aimed sector, removing
to modernize the currency restrictions and
industry, collaborating non-prudent measures
with the U.S. for for foreign-invested
technical support. banks.

We deduce that all the aspects signify a positive outlook and hence the country as a whole is attarctive enough to start a joint venture
 PORTER'S 5
FORCES MODEL
Industry Level Analysis

Threat of new entrants
Even though, upon being
admitted to the WTO the
government was encouraging
the foreign investments in
banks. Due to high regulatory
and licensing requirements,
the threat to new entrants
would be low.
Bargaining power of
buyers
The consumers in China had
one of the highest savings rate
in the world (at 40%) and
showed reluctance to take
debt. Apart from this, they
showed little loyalty to their
primary credit cards and
showed high propensity to
acquire new cards. As a result,
the bargaining power of the
buyers will high.
Competitive Rivalry
There is immense competition
not only from the big four
commercial banks (which are
state owned) but also from
foreign banks which have been
positioning themselves to take
advantage of the opening of
China’s banking sector to more
competition. This shows that
the competitive rivalry will be
high.
Bargaining power of Threat of substitutes
suppliers
The suppliers in this case The threat of substitutes will be
would include payment on the higher side mainly due
networks along with the to the Chinese philosophy
technology providers and the which is highly debt-averse
employees. The bargaining and have a deeply rooted
power of the suppliers will be savings culture.
high due to the command the
payment networks hold over
the market and the high cost
of switching that the credit
card issuers face.

Hence it can be observed that 4 out of the 5 forces are on the higher side. This shows that the market is not easy to
enter. But BAC has got an opportunity to do so, which BAC can utilize to get into a market full of opportunities.
 SWOT ANALYSIS
OF THE JV Company Level Analysis

No prior experience of this

Strong parent companies market by BAC
BAC's technological No visibility with respect to
infrastructure existing players
CCB's heritage and Heavy investment to make
customer base payment infrastructure

Industry experts
expected the
Savings adverse
Chinese credit card
philosophy of people
industry to bring in
Low profitability due to
$1.6 billion in profits
low defaults
by 2013, hence, there
Reduction of transfer fees
was chance to gain
to even lower levels
early-mover
advantage

This positive SWOT analysis underscores a robust alignment of strengths and opportunities, paving the way for a promising and successful future.
 MOTIVATION FOR PARENT
COMPANIES TO PARTNER
BANK OF AMERICA
Need for BAC to partner:
By 2005, the U.S. credit card sector had reached a
state of maturity. Among households with annual
incomes exceeding $30,000, a substantial 92 percent
possessed at least a single card, contributing to an
average of 6.3 cards per household across the board.
CHINA CONSTRUCTION BANK
Need for CCB to partner:
China's banking sector had faced challenges in its risk
profile in recent times and U.S. bank would provide its
Chinese counterpart with advice on developing credit
cards and improving its risk management.
 GROWTH OPPORTUNITIES
IN CHINA
China's banking sector stood out as a highly appealing domain within the country, drawing keen
attention from both international investors and regulators.
By 2003, Chinese banks held deposits totaling 20.8 trillion yuan (equivalent to US$2.6 trillion), while
China boasted a savings rate of 40 percent.
Within China's rapidly growing retail banking sector, the credit card market emerged as a
particularly alluring prospect for foreign banks.
Around mid-2003, Chinese consumers held three million credit cards. This figure surged fourfold
to 12 million within two years, with projections anticipating a rise to 50 million by 2006.
The majority—ninety percent—of Chinese credit cardholders fell within the mass-affluent (annual
household income of $4,000 to $6,500) or affluent (household income exceeding $6,500)
consumer categories.
Many industry experts expected the credit card industry to bring in $1.6 billion in profits by 2013
Consumer credit displayed evident expansion, as indicated by the consistent rise in housing loans,
car loans, and the card industry. From 2000 to 2003, housing loans experienced a fourfold
increase, while car loan values surged by a factor of ten. Over the same period, the quantity of
bank cards issued in China escalated from 277 million to 650 million, accompanied by a growth in
card loan amounts from 11 billion RMB to 62 billion RMB.
Numerous Chinese small business proprietors secured their finances beyond the established
financial structures, relying on loans from business associates, family members, and
acquaintances. Credit cards offered an additional channel for these entrepreneurs.
Hence, this shows that the Chinese Credit Card Market has tremendous growth opportunity.
 STRENGTHS OF
BANK OF AMERICA
BAC was not only highly equipped in the credit card
business but also had a robust technological
infrastructure. It played a pivotal role in establishing
contemporary centralized banking procedures,
automated check handling, account numbering, and the
enduring magnetic ink character recognition technology.
These innovations facilitated the association of credit
cards with individual accounts to such an extent that
BAC gained widespread recognition for pioneering the
concept of credit cards.

During June 2005, Bank of America unveiled its intention

to acquire MBNA, resulting in the nation's second-largest
bank becoming the largest credit card issuer. This move
brought with it 40 million active accounts that held an
impressive $143 billion in outstanding balances
This shows that credit card business was a core
competency of BAC and could leverage its resources to
capture the new market as well.
 STRENGTHS OF
CHINA CONSTRUCTION BANK
CCB held a prominent position in the Chinese market across various products and services, such as
infrastructure loans, residential mortgages, and bank cards. Among the top four Chinese banks, CCB stood out
for its impressive profitability and its remarkable track record of maintaining the lowest levels of non-performing
loans.
With a workforce exceeding 300,000 individuals, CCB operated through a vast network of 13,977 branches and
sub-branches across Mainland China. This network could be easily leveraged by BAC for expansion.
Furthermore, it extended its reach internationally with branches in Hong Kong, Singapore, Frankfurt,
Johannesburg, Tokyo, and Seoul, along with representative offices in London and New York.
Notably, CCB had forged strong banking connections with numerous major business conglomerates and key
industry leaders, strategically contributing to China's economy.
CCB held a prominent position in the Chinese market across various products and services, such as
infrastructure loans, residential mortgages, and bank cards. Among the top four Chinese banks, CCB stood out
for its impressive profitability and its remarkable track record of maintaining the lowest levels of non-performing
loans. This showed that forming a joint venture with CCB could be highly profitable in the future.
It has shown strong growth seen by the fact that: as of June 2006, CCB reported a significant count of 4.2 million
customers utilizing its dual-currency credit card. Within the initial five months of 2006, CCB issued
approximately one million cards denominated in both yuan and U.S. dollars, marking a two-thirds increase
compared to the corresponding period the previous year. Notably, transaction activity on dual-currency cards
nearly tripled, reaching 13.7 billion yuan ($1.7 billion).

Hence, CCB is a bank with strong foundations. BAC can easily use its own expertise to build upon the strong
network to create a strong market presence.
 FINANCIAL ASPECT OF THE
JOINT VENTURE
Exhibit 3
China Construction Bank

Provision for credit losses in 2005 has been increased to 14,533 from past year's 8,827. A rise of
almost 65%, suggesting that CCB is expecting higher defaults such as delayed payment or rise in
volume of credit disbursement.

However, Non performing ratio is constantly decreasing suggesting that bank is becoming
increasingly efficient in risk management while issuing credit and also better recovery rates.

Combining both the above points it can be inferred that CCB is forecasting rise in number of
people opting for credit card and delaying payment however those delayed payments won't get
converted into non performing loan. Rise in defaults will act as revenue source and lower NPL
shields from losses.