CONCEPTUAL MODEL OF ENTRY MODE: THE

CASE OF BANKING INDUSTRY IN SOUTH AND EAST EUROPEAN

MARKETS

Authors:

Maja Makovec Brenčič, Tomaž Čater, Andreja Lavrenčič,

Luka Peršič

17 November 8th Portorož Business Conference

Internationalization of services is increasing, especially internationalization of banking/finance services

Proposed model provides complete framework for entry decision of banks entering developing markets

Characteristics of the model:Major strength lies in its analytical and explanatory power which derives from reliable secondary literature, previously tested models and expert opinion.Includes relevant internal factors of the company and external factors of both home and host country/market and variables which operationalize the factors.Includes weights to measure the importance of variables. Can be adapted if needed.

17 November 8th Portorož Business Conference

External factors: host country/market

Greenfield investment

Acquisition

Joint Venture

Strategic alliance

Export

Proposed entry mode

Level of control and involvement

Degree of involvement

Risk propensity

Availability of intangible resources

Availability of tangible resources

Degree of control

Internal factors

Economic activities between countries

Sociocultural distance between countries

External factors: home vs. host country/market

Market size

Market potential

Legal barriers

Banking industry development

Competition intensity

Host country stability

Host country development

+ + + ++

+

++ --

-

+

Source: Hollensen, 2001; Own adaptation, 2006

Model of entry mode selection

STRATEGIES OF A SMALL SPECIALIZED BANK

ENTERING UKRAINIAN MARKET

Authors: Tomaž Čater, Primož Ocvirk, Gregor Pfajfar, Mare Vahen, Staša Žunič

17 November 8th Portorož Business Conference

Analysis of general and narrow invironment in Ukraine

Analysis of general environment– PEST analysis

Analysis of banking industry environment– Analysis of market size– Analysis of competition– Analysis of financial products and services– Location assessment – Evaluation of possible distribution channels– Case study analysis of TBIH Group and Erste Bank

Developments of economical, socio-cultural in legal-political environment in Ukraine present opportunities for a small specialized bank looking for niche markets there.

A small specialized bank can expect a growing demand for the proposed products and services in Ukraine. The market size harbors much opportunity for differentiation and profitable niche operations.

17 November 8th Portorož Business Conference

Model for determining the mode of entry into Ukraine

Fact

or

grou

p

Factor Variable IndicatorIndicator

valueVariable value

(1-10)Variable

weight (1-10)Factor value

Factor weight (1-

10)Proposed entry mode

A B C D E F G H I JNo. of Slovenian companies in host country No. of Slovenian companies 9 4 3Gross domestic product (GDP) GDP ($ mil) 80.300 9 6GDP growth Annual % change in GDP 2,6% 2 1Foreign direct investment (FDI) % of FDI in GDP 2,7% 1 6International trade (Export + Import) / GDP 0,94 6 7Unemployment rate % of unemployed in active population (ILO) 7,1% 7 9Inflation Rate of inflation 12,3% 2 1Level of corruption Corruption index 2,4 2 7Sovereign country risk Fitch's sovereign risk rating B+ 5 7GDP p.c. in Purchasing Power Parity (PPP) GDP p.c. in PPP 7.200 9 6Telephone infrastructure Telephone lines per household 0.7 4 8Internet infrastructure % of households online 2,1% 4 6Foreign investment in financial sector % of investment in financial sector in FDI 22,2% 2 6No. of suitable partner banks for cooperation 10 % of all banks 16 8 2No. of banks No. of banks per 1 bil GDP 2,0 6 3Average size of a bank Total assets of banks / nr. of banks ($ mil) 269 8 3Difficulty of obtaining a licence Period for an entrant to obtain a new licence (estimate) 6 4 4Favorability of taxation system for companies Corporate tax rate 25% 8 4Trade volume with Slovenia % of Slovenian trade balance 0,7% 5 4Slovenian FDI to host country % of FDI to host country in total FDI 0,2% 3 2Diff. in level of corruption Ratio (relationship) between home and host country corruption 2,46 6 7Diff. in Power distance (PDI) Ratio (relationship) between home and host country PDI 0,45 7 8Diff. in Individualism (IDV) Ratio (relationship) between home and host country IDV 1,75 8 8Diff. in Uncertainty avoidance index (UAI) Ratio (relationship) between home and host country UAI 0,85 4 8Diff. in Masculinity (MAS) Ratio (relationship) between home and host country MAS 0,24 5 5Diff. In Time Horizont Ratio (relationship) between home and host country TIH 2,10 5 8Financial resources Estimate - 2 8Human resources Estimate - 5 7Knowledge on host country Estimate - 2 7International experience Estimate - 8 6

Desired control Desired degree of control Estimate - 5 3 50% 8 Joint VentureRisk propensity Level of risk propensity Estimate - 8 7 80% 9 Acquisition, Greenfield

Degree of involvment Long / Short term involvment Estimate (lower value lower degree of involvment) - 3 6 30% 5Strategic Alliance, Joint

Venture

Host country stability

Host country development

59%

Strategic Alliance, Joint Venture

48% 9 Joint Venture

7Availability of tangible

resources

Inte

rnal

fact

ors

34%

Availability of intangible resources

Joint Venture,

Ext

erna

l fac

tors

: ho

me

vs. h

ost

coun

try

43% 10

6Joint Venture,

AcquisitionSociocultural distance

between countries

Banking industry development

Competition intensity

Legal barriers

Economic activities between countries

Acquisition, Greenfield

60% 5Joint Venture,

Acquisition

70% 6

35% 7Strategic Alliance, Joint

Venture

Ext

erna

l fac

tors

: hos

t cou

ntry

Market size 73% 8

Market potential 36% 9

48% 6

Acquisition, Greenfield

Strategic Alliance, Joint Venture

Joint Venture

55% 8Joint Venture,

Acquisition

STRATEGIC PARTNERSHIP WITH LESS THEN 10 % SHARE

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Niche characteristics identificationTwo main sections:

– corporate banking (FTES , deposits and loans from legal entities, accounts, etc.) and

– financial markets (investment and treasury banking).

Segmentation:– Principle customers (home-country companies):

• direct contacts by bank representatives and by direct mail • making the most out of existing clients is essential for

long-term profitability – Non-principle customers (Ukrainian SMEs):

• below-the-line promotions (seminars, counseling) the possibility of cross-selling other bank’s products and services

17 November 8th Portorož Business Conference

Strategy development (relationship marketing approach)

STRATEGY CORPORATE

BUSINESS RELATIONSHIP MARKETINGRELATIONSHIP MARKETING FUNCTIONAL

“Try to please everyone and you will please no one”.(Beare, 2003)