Lecture 5 Internationalization Strategies For Financial Services

HIGHER INSTITUTE OF MANAGEMENT STUDIES (HIMS) BUEA
Marketing of Financial Services

2020/2021 Academic Year
Lecture 5: Internationalization strategies for financial services
Lecturer: Nkwetta Ajong Aquilas (PhD)
09/03/2021
Internationalization strategies for financial services
Learning Objectives
Identify key drivers of internationalization in the financial services
sector
Understand factors influencing the choice of internationalization
strategy
Identify marketing implications associated with internationalization.
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Internationalization strategies for financial services…
Introduction
Internationalization beyond the basic notions of trade and
exporting to encompass all aspects of business activity that
extend beyond national borders.
Exporting is often thought of as simply the first stage in this
process, which can extend to the establishment of a fully-
fledged business presence in an overseas market.
Most discussions of service marketing, including those related
to financial services, tend to focus on marketing in a domestic
context.
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Internationalization strategies for financial services …
Most focus on international strategy and marketing focuses on physical
goods but services forms a greater and increasing portion of world trade
Internationalization and characteristics of financial services
The intangibility of financial services means that actually there is
nothing physical to move from producer to consumer. In principle this
intangibility may make it relatively easy to export some financial
services, particularly in corporate markets.
For example, if Ecobank Cameroon handles an equity trade for a client
in Ghana, it is effectively exporting its services – nothing physical is being
transported, but a service is provided remotely.
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Inseparability implies a need to focus particular attention on how
to manage interactions with customers in different locations, while
heterogeneity reminds us of the additional challenges associated
with providing a consistent service across different countries.
Concerns about fiduciary responsibility means financial services
providers also face the challenge of operating in potentially diverse
regulatory environments if and when they internationalize
In terms of service classifications, financial services are typically
heavily information-based services, and in principle are easily
digitized and this feature makes export relatively straightforward.
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However, the complexity of many financial services suggests that
significant interpersonal interaction is often required in their
delivery. This has important implications.
There is often strong pressure for a financial services organization
to have a physical presence in the market in which it is delivering its
services.
Many buyers (particularly those in retail markets) feel the need to
be able to access their service provider and are reassured by a
physical presence (even if they may deal with a provider remotely),
and regulators commonly require such a presence.
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One of the major challenges organizations face when operating
internationally relates to cultural differences, and the greater the
difference in cultures, the more the challenges. Cultural differences
impact on financial services internationalization in two ways.
First, there are issues related to familiarity and use of financial
products. In many Islamic countries, the prohibition on interest
means that it’s needless for your account accumulating interest.
Culture can impact significantly on interactions where the two
parties have different heritages. Cultural differences can affect the
development of long-term relationships, where the creation of
trust plays a central role.
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The drivers of internationalization
When considering the drivers to internationalization, it is useful to
distinguish between firm-specific and macro-environmental factors
Firm-specific factors are those factors that create incentives for
individual firms to move into international markets.
Macro-environmental factors are those features of the overall
environment that create conditions favouring internationalization
for all firms.
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Firm-specific drivers of internationalization
At the level of the individual firm, the motives for expanding beyond the
domestic market by a given provider may be divided into ‘push’ and
‘pull’ factors.
Push factors are essentially domestic market conditions that will tend to
encourage a firm to look outside its national markets, while pull factors
are features of non-domestic markets that encourage a firm to consider
expanding operations overseas.
Push factors focus essentially on conditions in the domestic market that
may in some way inhibit a firm from achieving its strategic goals. The
simplest example of a push factor might be slow growth, high costs or
high levels of competition in the domestic market.
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More commonly, overseas expansion is thought to be influenced by
pull factors which make overseas markets attractive.
Probably the commonest pull factor is size and growth of markets in
other countries. The liberalization of the economies of India and China
has contributed to rapid growth in both countries, and this, combined
with their size, has made these markets highly attractive and has
encouraged a large number of financial services providers to seek to
establish a presence in these countries.
International markets may also be attractive because they provide an
opportunity to leverage a particular competitive strength or because
they provide a means of adding value to the company’s service.
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Macro level drivers of internationalization
At the macro-level, there is a series of developments in the business
environment which make internationalization increasingly attractive.
These can broadly be grouped under global, international and
transnational strategies.
 The five drivers of globalization identified include market, cost,
technology, government and competition.
Market drivers
This category refers to those features of the marketplace that
encourage globalization.
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1. Common customer needs. In markets where customer needs
are essentially the same across the world, globalization is
thought to be an attractive strategy since a business can offer a
relatively standardized product across a series of markets.
In the global securities business the needs and expectation of
investment houses are generally very similar across countries,
and consequently the securities houses that serve those
customers are increasingly operating in a global market.
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2. Global customers. If customers themselves operate globally, then
again there is an incentive for the companies that supply them to
operate on a similar scale. One of the important drivers in the
internationalization of banking has been the internationalization of the
businesses that those banks serve.
3. Global distribution channels. If channels of distribution are global,
then it is much easier for companies that sell through those channels to
operate globally. Although we tend to think of financial services as
being characterized by relatively short distribution channels, it is
important to note that financial services are information-intensive and
that developments in electronic distribution systems have, in some
senses, created global distribution systems. E.g. ATMs
09/03/2021 13
Cost drivers
Cost drivers are concerned with extent to which expansion
globally can enable a firm to reduce its costs.
Most commonly, cost drivers are associated with economies of
scale – the cost savings that are associated with expanding the
scale of operations.
Such cost savings are often thought not to be relatively
important in the service sector, including financial services.
However, these cost savings may arise in other ways, most
obviously through access to lower-cost resources.
09/03/2021 14
In financial services the developments in IT have facilitated the
separation of front- and back-office processing, and consequently
one form of expansion overseas has been in the form of outsourcing
business processes to lower-cost countries.
Technology drivers
Technology drivers are in many respects closely related to cost
drivers – at least in a financial services context. The developments in
information and communications technology have supported
internationalization by facilitating global distribution and supporting
outsourcing for a range of business processes.
09/03/2021 15
Government drivers
Government drivers to globalization are the aspects of government or public
policy that make it easy (or difficult) for foreign firms to operate in domestic
markets. Most commonly, government drivers are the presence or absence of
restrictions on market entry, or the presence of regulatory systems which
restrict what foreign entrants may do.
Competition drivers
Competition drivers relate to a range of factors associated with the nature and
level of competition in different markets. A move into an international market
might be prompted by the entry of a competitor into the home market. Equally,
the entry of a competitor into a new market might create an incentive for a
company to follow suit in order to maintain some degree of competitive parity.
09/03/2021 16
Globalization strategies
The right approach to internationalization would depend on the
extent to which there were:
pressures to integrate activities across markets – i.e. pressures to
exploit economies of scale and offer a relatively standardized
product which leverages around particular assets or competences
pressures to be locally responsive, adjusting and adapting a
service offer to local (country-specific or regional) needs.
This resulted to the identification of four basic options for
internationalization, as outlined in Figure 6.1
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09/03/2021 18
International Strategies
An international strategy is, in many senses, a weak or unstable
position. Such a strategy involves doing broadly the same thing in a
series of different markets, but without any attempt to integrate
to get costs down or to tailor the service to the specific market.
While pressures for integration or responsiveness may not be
strong, firms following an international strategy will always be to
competitors who are able to integrate and outperform them in
terms of costs or competitors who are able to customize and
outperform them in terms of benefits offered to the consumer.
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Global strategies
A global strategy essentially focuses on integrating business
activities across markets in order to ensure greater efficiency in
operations; differences between markets tend to be discounted
and the pressure to be locally responsive is considered to be weak.
Rather than focusing on possible differences in customer needs, a
global strategy focuses on similarities and sees different
international markets as being essentially homogenous. Typically,
such a strategy is associated with manufacturers of highly
standardized physical goods and emphasizes economies of scale in
production and marketing.
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In many senses, it is difficult for any financial services provider to
be truly global because regulatory regimes vary across countries
and limit the extent of true standardization.
 Multi-domestic strategies
A multi-domestic strategy arises when pressures for integration
are low and the pressures for local responsiveness are high.
Such a strategy is characterized by operations across multiple
markets, but with a high degree of decentralization to ensure that
services are tailored to the needs of those local markets
09/03/2021 21
Any pressures on costs which might encourage integration are
outweighed by the importance of local responsiveness; if a head office
exists, its control is relatively weak and the organization is perhaps
best thought of as a federation of semi-autonomous companies.
Multi-domestic strategies are probably most closely associated with
manufacturers of products that are in some way culturally sensitive
(such as food and personal care) and where adaptation is essential.
 Multi-domestic strategies are relatively unusual, but in the financial
services sector such an approach would apply to relatively information-
intensive and people-focused services such as financial advice, where
local responsiveness is essential.
09/03/2021 22
Transnational strategies
Transnational strategies are a relatively recent phenomenon and have
emerged in markets where there are significant pressures to keep costs
low through global integration, and also a need for a high degree of
local responsiveness.
 This approach requires a high degree of global co-ordination and
careful management of operations to fully exploit opportunities for
increased efficiency, while retaining the flexibility to tailor the service to
a given market.
In principle, a transnational strategy creates a strong competitive
position, being more locally responsive than a global strategy and of a
lower cost than a multi-domestic strategy.
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In financial services, given that IT enables a greater degree of remote
delivery and facilitates the separation of front- and back-office
activities, there may be the potential for some of the providers who are
moving towards global strategies to become increasingly transnational.
Strategy selection and implementation
It is apparent that the choice of strategy is likely to depend on the type
of service and the nature of the business environment.
For example, services that require a high degree of interpersonal
interaction will probably be most suited to a multi-domestic strategy,
particularly if cultural or regulatory differences between markets are
significant.
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On the contrary, services that have limited requirements for
interpersonal interaction (information- or possession-processing
services) will be more suited to global or transnational strategies.
The choice between the two will then be driven by the extent to
which customer needs differ, and the ability of the organization to
deliver a differentiated service.
In addition to thinking about the right strategic approach to adopt
for international operations, there are three other important
decisions that require consideration:
Which markets to enter, how to enter those markets, and how to
market services within those markets
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Which markets to enter
In very simple terms, the choice of markets to enter is based on identifying
those that offer the best long-term returns. Factors such as size of population,
levels of income and rate of growth will have important implications for the
attractiveness of a market. Cultural factors will also have a role to play
Method of market entry
Exporting
Licensing
Strategic Alliances
Acquisitions
New Wholly Owned Subsidiary
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 Exporting involves supplying goods from the home country to
customers located in international markets. Different regulatory
systems and customer preferences for a physical presence make
this form of market entry difficult for providers of financial services
 Licensing: an agreement is formed that allows a foreign company
to purchase the right to manufacture and sell a firm’s products
within a host country’s market or a set of markets
 Strategic alliance involves collaboration with a partner firm for
international market entry
Acquisitions: When a firm from one country acquires a stake in or
purchases 100% of a firm located in another country
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New Wholly Owned Subsidiary: A firm invests directly in another
country/market by establishing a new wholly owned subsidiary
09/03/2021 28

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HIGHER INSTITUTE OF MANAGEMENT STUDIES (HIMS) BUEA

Marketing of Financial Services

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