Global Corporate Strategy
Running head: Case Study of City Group
The report looks at a brief introduction of the situation facing Citigroup. It then looks at leadership roles that led to Princes resignation. These include application of a controller strategy. It also looks at an industry analysis (using porters five forces) of the financial service sector with IT being the main factor to be considered during analysis of power of suppliers. Lastly, the report looks at the strategies that caused failures of the CEO and gives possible future strategies like partnerships and technological strategies.
Citigroup is a global leader in provision of financial services. It has established itself in a number of countries all over the world. The Company was started in the year 1812 and was initially called Citibank, it then became Bank Handlowy in the year 1870, and this was then followed closely by the Smith Barney three years later. Eventually there was the formation of Bahamas, Solomon Brothers, in 1884 and 1910 respectively. There were other names that came to be identified with the Company years later and some of these companies include Citi Cards, Diners Club, Citigroup Private Bank, and Citi Insurance.
The situation that we shall examine is the fall of the executive director of the Citigroup Bank. This occurred earlier this year after it had become clear that the bank was experiencing a number of key issues in its revenue generation. The chief executive resigned from his position after it was clear that he had a big role to play in the companys losses. This was highlighted after there were complains form a number of stakeholders in the company. These included shareholders in the industry. (Douglas, 2007)
The company had started experiencing write downs of close go eight million dollars; these were against devalued investment securities. This meant that the bank was not operating within conducive environments. This meant that they would be deprived risk approaches in the banking industry. After the resignation, the company started registering reduced trade in the companys stocks. And most stockowners began selling off their shares.
Management and leadership role by Chuck Prince prior to his resignation
Chuck Prince faced a lot of challenges as he approached the end of his reign in Citigroup. Prince was expected to make sure that the company stays ahead of its competitors, he also had the challenge of ensuring that Citigroup fought off economic dislocation, he also had to ensure that the company kept up with global advancements in technology.
Citigroup is an international company and there are a number of global outlook managerial and leadership perspectives that Chuck Prince should have put in place if he wanted the company to remain on top of their game. The three major considerations for any global business which a top manager (and CEO for that matter) should prioritise are as mentioned below;
• Worldwide functions
• Global business
• Regional/country pressures (Perlmutter, 1969)
If the above mentioned factors are catered for by any manager, then a company will be well on its way to achieving a global outlook. This means that the company will have formed an integrated global network. These global forces that have been listed above can only be considered if the manager of a given global organisation adopts thinking of an integrator. There are three types of global perspectives that a manager running a global business can have. He can either have one of the following perspectives exercising his managerial roles: they can be defenders, explorers, controllers and integrators. These mindsets range form the most global to the least global. Managers who adopt the most global mindsets are the most successful when trying to fight off competition and when ensuring that the company integrates economies of all concerned countries. (Kefalas, 1997)
The first category of managers is the defender. The defender is the type of manager that is rigid concentrates mainly of internal factors within specific countries of operation. These types of leaders are the ones who are most likely to look up to special agreements, trade barriers and duties to help them deal with external competition. Such leaders are also expected to know very little about advertising done in foreign countries. They are also uninformed about foreign markets and know very little about what foreign competitors are up to. Such leaders heavily depend on the political and legal systems within their countries of operation and rarely face their competitors had on. (Ghoshal, 1993)
The second type of leader is one that encompasses the idea that there exists a foreign market. He is called the explorer. This manager is not as internally focused as the defender. This type of manager does not consider investment in foreign markets as a dangerous venture or one that should be disregarded. However, this kind of manager does not simply engage in global business anyhow. Such leaders critically analyse the business environment within any foreign market before entering it. They look at the types of competitors that exist in those markets. They also examine the kind of policies that have been put in place. Threats are also an equally crucial part of their decision making. These types of managers make their decisions in a centralised fashion. They approach foreign business with a lot of watchfulness. These types of leaders normally concentrate on internal business and look at foreign business as something on the side. Some strategies that such types of leaders use are franchising and exporting. This way of conducting global business is not considered as a very aggressive strategy and has normally been marred with failures.
The third category is the controller. This type of leader is the type that engages in serious foreign investment and business. But the manager uses systems that have been previously successful in markets that have parent companies. These kinds of managers are normally found in large corporations like Coke. This kind of strategy is called ethnocentrism. This can be defined as the use of values that have been proven in parent companies. However, sometimes this type of manger could use the regiocentric strategy. Here, the leader can consider culture and values of the region which he operates but this does not mean that he/she does not prioritize the values by the mother company. This means that most decisions are controlled by the parent company. Such managers normally use advertisements and marketing strategies that have been used in their parent company. This is normally characteristic of companies that have been heavily franchised. It should be noted that this kind of management strategy can backfire terribly when members of a particular foreign operation do not relate to the brand image of the mother company. (Kefalas, 1997)
Lastly, there is the integrator leadership role. This kind of mentality is the mot appropriate for conducting business in the global market. This kind of manger ensures that he analyses, understands and applies the knowledge obtained form studies of international markets. This kind of manager ensures that there all the stakeholders are integrate in the management of the companys operations. This means that he coordinates all the supplying duties, developing duties, clienteles needs and distributors duties. This kind of manager has a high level of knowledge and skills that enable him to forge relationships with the above mentioned stakeholders. This kind of manager is aware that there are diverse cultural preferences within any type of business environment and they do their part in ensuring that these cultural differences are incorporated in the way they conduct business. This means that the manager is always coming up with new types of alliances. He is also changing his/her strategies whenever there are different types of opportunities or threats that the organisation faces. This kind of manger does not look at differences that exist in the international world as a threat but integrates these factors in the operation of the Company. This implies that this kind of leader is more of a coordinator rather than a controller. This kind of leader does not restrain but instead leverages, this also means that the manager assimilates rather than conquers and focuses on a wining on both sides rather than losing for one partner and gaining for another party. These kinds of mangers ensure that information flows from one art pf the world to another. This means that all the elements in the global environment are interdependent and need to be incorporated according to him. Such managers know what is going on with their suppliers, their secondary and even their tertiary suppliers. This means that they have a large network of all the parties involved in the organisations business.
From the above listed managers, it is clear that there are some managers that are the worst in operation of global businesses while there are others who totally understand this concept. (Murtha, 1998) The integrator is the most efficient manager in the trade. In the case study, Chuck Prince was obviously not an integrator; he tried being more of a controller. He did not keep up with the global trends in technology and competition in the financial service sector. If he had been deeply analytical of the financial sector, he would have foreseen the serious changes that occurred in the industry and adjusted accordingly. (Global Economic Prospects, 1992)
Competitiveness in the global financial industry
This will be done by an industry analysis using porters 5 factors on the financial services industry.
Porter analysis of the financial services industry
Porter generic strategies are a strategies based on the dimensions of the strategic scope meaning the market penetration and strategic strength referring to the company. For porter a company is impacted by five forces. (Porter, 1985)
Threat of new entrants
Apart from rivals posing threats to existing companies, new entries in the industry also pose a threat the existing companies and increases competition in the industry. In practice any company should be able to enter and leave the market. (Barney, 1991) Nevertheless, industries have features that protect high profits of the companies in the industry and restrain additional competitors from entering the industry. The financial services industry has become deregulated by most world economies. This is especially so for Bank of Tokyo. The bank has faced the challenge of the industry being open to any player who can enter as the market is free and liberal. However, Bank of Tokyo has protected its market share through patent and ensuring that it opens more branches so that it can reach more customers in order to keep its market share. (Porter, 1985)
Bank of Tokyo has experienced competition from other financial service providers like building societies, investment bankers, mortgage lenders and stock market dealers. These entrants have started providing services that the Bank also provides and many people are running to these new service providers because they specialise and have limited cases of bureaucracy.
Power of suppliers
Each industry needs raw materials, components, labour and other provisions. This need creates supplier-buyer relationships between the companies which provide the raw material and the industry. In cases where suppliers are powerful, they can impact the industry through selling of the raw material highly. However, sometimes suppliers are weak, this happens when there are many suppliers for the same product or if the purchasers are many. In the financial service industry, suppliers in IT are many and the industry is not impacted by these suppliers. (Porter, 1985)
Chase Manhattan is a main buyer in the industry and it has used it economies of scale to source for better deals to ensure that it gets the best quality of raw materials. The main raw materials in the financial service industry could be Companies that offer up their shares for trading by the bank. The bank like any other financial service provider also gets its monetary supplies from interests or profits that come from interest rates charged to clients. Lastly, the most important supplier in the financial service is the Information Technology provider. These suppliers do not pull a lot of clout in the industry mostly due to the fact that there is higher number of internet suppliers that have access to internet communications at a very cheap cost. This means that banks can access internet at low stakes. This means that services that rely on internet like ATM services, credit card facilities etc can easily be provided. This is an advantage to banks and disadvantageous to these suppliers. (Porter, 1985)
Power of buyers
This is the impact that buyers have on a specific industry. Generally if there is a strong buyer power, the relation between the industry and the buyer is termed as "monopsony" such a condition happens when there is one buyer and many suppliers. On the other hand buyers are weak when they are many/ different and there is no specific buyer has particular influence on the price of the product. The financial service industry has strong buyers; Chase Manhattan has taken advantage of this by setting prices of its service packages which are custom friendly and offering more products on the market to satisfy the demand of various customer segments. (Fayerweather, 1982)
The financial service industry is a deeply competitive industry. This means that buyer power is high. There are a number of commercial banks in the US market and this means that Chase has to be at the top of its game if it is to have any reasonable position in the market. Buyers opt for banks that offer better packages. This means that Chase has to adjust its policies to suite its client base.
Availability of substitutes
Substitutes in an industry, according to porter, are products from other industries. A threat of a substitute will occur when the demand of the product is affected by changing price of a substitute product. The price elasticity of a product is directly affected by the availability of substitutes. Since availability of substitutes will make the demand of a product to be more elastic. In the case of financial services, the industry is getting threats of substitutes from other loan scheme providers or through investment bankers. To wade off fear of substitutes, Chase Manhattan has built a strong brand name, good customer orientation and has created a patent of some of its food products to ensure that they are protected. (Chase Manhattan, 2007) This has given Chase Manhattan a distinctive advantage, it has been able to keep its market share and its financial services have continued to attractive high demand. (Porter, 1985)
Good examples of substitutes that commercial banks face are mortgage lenders. These companies essentially provide the same service that banks provide i.e. they offer loans and charge interest on these loans. Another example of a substitute for commercial banks can be investment banks. The banks offer shares and other financial products for trade then charge a fee for the service. Chase has had to provide specialists that deal exclusively with those services so that it can give clients that personal edge that these substitute financial service providers have. (Prahalad, 1981)
In a convectional economic setup, competition among rival companies reduces profits of the companies to nil. However, competition can not be perfect and companies that are sophisticated can counter competition by gaining competitive advantage over their rivals. Competition varies depending on the different industries. In the financial service industry, competition is high as there are many companies offering the same services. In pursing competitive advantage in the industry Bank of Tokyo has continued to improve its financial services. (Prahalad, 1998)
The company has offered reasonable interest rates in line with current trends in the banking sector. There are a number of commercial banks in the Japanese market but the reason why this particular bank is doing so well is due to the fact that all customers are always looking for a way in which they can save. Low interest rates are a simple yet effective way of keeping off the competition. (Bank of Tokyo-Mitsubishi, 2007)
The company also have expanded it channel of distribution through franchising and opening up more branches around the world. Another way the company has undertaken is entering into agreement with other companies such as IT companies. This ensures that financial management is done well since IT and banking go hand in hand. (Porter, 1985)
Chuck Princes departure from Citigroup and future strategy
Prior to Princes departure, Citigroup was experiencing sub prime losses. There are a number of factors that could have triggered this kind of problem.
After the 2000 millennium crossover, many companies realised that they would not survive the changes unless they met challenges of; management, information technology and globalisation of businesses. This is a threefold experience that has brought radical changes in many companies. The main challenge Citigroup underwent before announcing losses was inadequate management. This was through application of the controller rather than the integrator management role. (Chakravarthy, 1985)
Customers in a foreign market are normally sensitive on currency, quality and quantitative figures of countries which the products originate from. Therefore in implementing a market strategy, various issues need to be taken care of; infrastructure, information and other resources must be accounted for. First, development networks that is crucial to the company. Secondly, are government issues such as licensing, taxing, policies and duty remittances. In addition, transactional costs are crucial to international marketing because there are language barriers, logistic costs; physical distance and other bargaining costs that make costs very high. Enforcement of contracts and weak legal integration between countries are other factors that need to be assessed. Citigroup failed to these factors mentioned above during its service delivery. (Bartlett, 1989)
Although international trade generally benefits a country as whole, interests within countries put obstacles such as protectionism to limit free trade. The Chinese government has done this before and other countries such as the United States have also done it for the good of its citizens. This can be done in several ways; tariff barriers, quotas, voluntary export restrains, subsides to domestic products, non- tariff barriers etc. These factors were also not dealt with accordingly by Prince.
The Company should consider the following strategies to improve its position in the financial service sector in the future;
Internet generation strategy
One of the best drivers for business is the internet. It is closely connected to globalization because of its global outlook and efficiency. The largest impact that the internet offers is the distribution and sales. This is one of the disintermediation factors that allow companies to reach their customers in all parts of the world. (Dyer, 1991) Online marketing also referred to as E-commerce is based on the technology of internet and the usage of personal computers. In earlier days companies used power full computers to computerize millions of transactions carried out every day. Through internet Branches of the same company, it can develop networks, through which they could keep up to date with business progress and could improve service provision to customers. E-marketing is relatively a new advancement in the field of marketing. Despite that, there are many business and customers who have switched from traditional to online marketing. The reason being quite obvious, the convenience and flexibility it provides cannot be ignored. Flexibility of time, place, human resources and consists involved. As internet globalizes this world and in the same rate online marketing is becoming global. This should be adopted by Citigroup.
The way the company operates its business should change in line with technological changes. The internet for example, could assist companies such as this one to meet new markets and extend its global outreach. It has had a profound impact on the marketing mix strategies of many organizations. Businesses should keep in touch with changing technology and modernization in this ever changing world. (Grant, 2005)
Strategic partnership with companies dealing with complementary products can also help marketing to get the targeted group. There is need to always be able to observe the current market trends and predict any eventuality that may arise such as change in market prices or development of new brands of the service through blending with other services. Joining international trade organisations like International Federation for Alternative Trade (IFAT) which is global network of fair trade bodies which will act as representative of local producers in identifying global changes and providing assistance to producers to meet the required standards. (Barney, 1997)
Joint ventures are forms of market entry that allows for technology sharing and joint product development. The main advantage of joint ventures is to get proper political connections that will allow for favours to be achieved. It is usually suitable when; the market power, resources and size of the partner is small compared to the industry leaders. If Citigroup can merge or have joint ventures with any company which is still junior in areas of its operation then it can boost its market power, it will be able to meet the demands in that particular region. The main issues that are usually sorted out during the discussions for joint venture are; agreement periods, pricing methods, ownership and control, local firm capabilities and technology transfer. (Berry, 1990)
Organisational management and planning strategy
This is one of the changes that an organisation does in order to meet challenges of the intended market. It also goes inline with how approaches can affect organisational performance. The organisation under study should comprise of a structure that will provide a confident management team, sales force, technical team and the company directors. The use of a scorecard to control and monitor the companys performance is very important as the concept is very simple, all factors that influence the organisations overall performance are taken into account and analysed mathematically. Typically, a scorecard measures across four key areas;
1. Financial perspective- how shareholders perceive the company
2. Customer perspective-customers view towards the company
3. Internal process perspective- the efficiency and effectiveness the processes in the company
4. Learning and growth perspective-the companys agility level (Baird, 1994)
The resignation of Prince was a classic case of one who did not apply effective leadership roles when running a global business. The hardships that Citigroup has undergone could be avoided if the company adopts technological, management and partnership strategies in the near future. (Aaker, 1984)
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