Competitors
Category: Bank Management
In an EBTRA survey carried out by the Irish Management Institute, it turned out that in most CIS countries banks do consider competitive pressure non-existing or of secondary order. This is a bad sign for the banking sector as such and again highlights that most banks still function on behalf of government. However, those banks that are actively seeking new markets, will in the long run compete with each other and with foreign banks for the most profitable firms and depositors. A concentration process will be the consequence, and only the most performing banks will be able to stay on the market.
Consequence for strategy: Banks must make up their mind whether they are capable to operate in an efficient way on their own, or whether they can be more efficient when teaming up with other domestic, CIS or foreign banks. There is a large scope for co-operation, for instance between Russian and Kazakh banks, or for regional co-operation in, for instance, the Caucasian states. Clearing systems must be developed, the infrastructure for data transfers must be created, and in the case of large investment project pooling of resources is needed in order to keep the risk acceptable.
Bank twinning programmes are an important step towards more co-operation. Pooling resources and banking skills of a Western bank with the specific cultural and sectoral knowledge of CIS bankers can create important synergies. Moreover, such arrangements can create long-term relationships. In the absence of legal security, business partners need to have trust in each other. Otherwise, exchange of funds and services will be constrained by the fear that the partner behave opportunistically. Mutual trust is one way through which business contacts can become fruitful even in the absence of a stable institutional framework.
Obviously, these co-operations also involve a certain risk for competition on the banking markets. If one or several groups become to strong and dominate the market, market power may be abused. However, as long as entry on the CIS banking market from the outside, i.e. other foreign banks is possible, this risk is small. Entry can however only be guaranteed if there exists an efficient regulatory framework and the market is completely liberalized. Both conditions are not fulfilled yet.
Consequence for the use of resources: The main consequence is that managers must realistically evaluate their bank’s chance to survive on its own on a market that may become highly competitive. While the acquisition of funds and corporate clients is a task that must be tackled immediately, building up a network of banking partners is a medium-run task, but must not be forgotten. Since TACIS is supporting twinning processes and collaboration of CIS banks through its financial services programme, large part of the resources needed in order to build up networks are financed from the outside which is advantageous for the banks.
Consequence for organization: The main consequence of increasing competition will be that the banks must be able to react very quickly on changes in the market. This necessitates an efficient flow of information within the firm, and a system of incentives that gives employees a sufficient interest to work hard and render their bank more profitable. Human resources management is hence crucial, The following section discusses this topic.