Strategic options
Category: General Banking
Diversification versus specialisation
For all-purpose banking, as we know it in Continental Europe, further diversification will involve the development of all round financial business with the addition of insurance and savings accounts, leasing, factoring, electronic banking products and management consulting.
On the other hand specialisation implies a concentration on selected business areas.
The all purpose banks may come to abandon certain market segments for profitability reasons; because a profit centre approach service units will be turned into subsidiary companies with resulting specialisation.
Consolidation on the domestic market versus further foreign expansion.
Credit institutions which operate internationally generally pursue a two fold aim of consolidating their domestic market position and achieving further growth on major foreign markets. If, for reasons of profitability, a choice has to be made, priority will be given to home market through widening the product range and rationalising the branch network.
Further expansion abroad often suffers from a lack of access to customers deposits implying a dependence on expensive money to develop. So banks tend essentially to concentrate on corporate finance business for the subsidiary companies of their customers, investment banking and asset management activities.
Product orientation versus distribution orientation
The production and the selling of banking services are traditionally one operation but cost reasons have lead to a rethinking of this. When a bank has a dense distribution network, it is in the bank’s interest to place more products with their customers against commission payments this is why they conclude co-operation agreements. When a new product has to be introduced, the bank has to find the best solution between Making and buying from a cost and marketing point of view.
Internal development versus Mergers and Acquisitions, joint venture and co-operation agreements
A market position at home and abroad can be strengthened by the development of banks own branches or subsidiaries, the acquisition of holdings, mergers with banks joint venture agreements between domestic and foreign banks or co-operation agreements on strategic alliances between banks.
Major Institutions versus medium and small operators
To-day, size itself is not a condition for survival. Niche operators offering a special high quality range of products and pertinent advice have proved extremely profitable.
Major companies find themselves obliged to review their organisational structures and ensure the necessary flexibility and national adaptation to the needs of customers.
Typically Banks come under a wide range of sizes.
DIAGRAM 1.6
