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Chapter 4: Case Study - Standard Chartered Bank
In order to comprehend why Standard Chartered Bank acquired Hsinchu international commercial bank (Hibank); therefore, this case would firstly analyze external and internal factors.
4.1 External Audits
Palmer and Hartley (2006, p.3) both address that 'some elements may seem quite inconsequential today, but may nevertheless have potential to critically affect a business organization in future years. The test of a good business leader is to be able to read the environment and to understand not only how business systems and their environments work today, but also how they will evolve in the future' .
Moreover, it could be helpful for companies to understand opportunities, threats, trend and also the choice of strategy by means of environmental analysis. Generally speaking, external audits would comprise environmental, market, customer and competitor analyses.
4.1.1 Environmental Analysis
This case would adopt PESTEL model, which could divide macro-environmental factors into 6 dimensions: Political, Economic, Social, Technological, Environmental and Legal factors.
- Political factors
- First & Second Financial Reforms
- World Trade Organization
In order to participate in WTO, Taiwan would firstly need to catch the trend of finance internationalization and liberalization; as a result, Taiwan government developed the first and second financial reforms, for example, to modify the laws or loosen the relative restrictions. The Legislative Yuan passed 'Financial Holding Company Act' in 2001, so that this act could authorise to establish financial holding companies and also permit financial institutions to implement M&A. (2008 Policy Report, 2009) As for financial reforms, it would be significant beneficial for the development of financial institutions. According to the outcome of financial reforms, it could be clearly found that financial service's share of GDP had significantly climbed to 10% in 2007, compared to 6% in 1982; moreover, it also had effectively decreased non-performing loan (NPL) ratio form 7.48% in 2001 to 1.84% in 2007.
Interest rate liberalization: Prior to 1989,
bank interest rates were decided by the
government. The implementation of interest
rate liberalization in 1989 greatly enhanced
the efficiency of fund utilization.
Foreign exchange liberalization: In 1978, the
foreign exchange rate system was changed
to the floating exchange rate system; and in
1989, the central foreign exchange rate system
centered on the U.S. dollar was abolished and
the foreign exchange rate was decided by
market demand and supply.
On the other hand, after Taiwan joining WTO in 2002, Taiwan government would not only encourage local financial institutions to enter international markets but also welcome foreign banks to invest in domestic financial market. At the same time, Taiwan would actively participate in international financial organizations and activities; for example, to attend annual conference of International Association of Insurance Supervisor (IAIS).
In addition, government would stage by stage open service-sector markets including, financial, insurance, securities and futures, and also continuously loosen the trade limitations, such as to lower tariffs or to eliminate the domestic-film subsidies levied on foreign films. (Council for Economic Planning and Development, 2002)
Although, Taiwan government continues to devote to finance internationalization and liberalization, there are still some government's interventions in financial and economic aspects. For example, in Taiwan stock market, there are some limitations in the price fluctuation of stocks; more specifically, the price fluctuation of each share per trade day could not rise or fall over 7% of share price. Besides,
Economic factors, which might heavily affect on business operations, would be inclusive of economic growth, exchange rate, interest rate, inflation rate and so on.
- Economic Growth
- Foreign Direct Investment
As for economic growth, since 1980s Taiwan government carried out policies regarding privatization of state-owned enterprises and liberalization of finance, such as to loosen controls and protection in the economy. During this period Taiwan economic growth rate was up to 8.2% per year. (see appendix)
After 2000, global economic growth faced many challenges, such as the impact of 911 terrorist attacks, the U.S. financial crisis and SARS epidemic, and such continuous negative influences also leaded Taiwan to achieve an average economic growth rate of 3.8%. However, Taiwan, setting a record of the world's fastest economic growth in modern history, achieved an average annual economic growth rate of 7.9% between 1952 and 2007. (Council for Economic Planning and Development, 2008)
When it comes to foreign direct investment (FDI), it might play a vital role in the economic development in Taiwan's modern history. FDI contributed to the transfer of technology and improvement of industrial competitiveness. According to the official document published by Council for Economic Planning and Development (2008), inward FDI decreased from US$4.11 billion in 2001 to US$0.45 billion in 2003 due to the economic bubble of the internet.
Nevertheless, with the rapidly advancement of Taiwan's R&D capacities, many top-tier transnational corporations (TNCs), such as Intel and IBM, would establish R&D centres in Taiwan. Thereby, inward FDI had a significant rise at US$7.42 billion in 2006; in fact, inward FDI in 2006 was 3.57 times than 2005. In 2007, owing to the increasing number of cross-border M&A activities, inward FDI climbed to a peak of US$7.77 billion.
In addition, the Asia financial storm of 1997 heavily damaged Taiwan financial system, so that the non-performing loan (NPL) ratio within indigenous banks rose to a historic high of approximately 7.5% in 2001.
From the location perspective, Taiwan, a natural gateway of East Asia, is located in the strategically geographical position, in the middle of a chain of islands covering from Japan to Philippines. Besides, Taiwan is close to the southeast coast of Mainland China separated from Taiwan Strait. Therefore, it could be beneficial for establishment of financial centres in Taiwan due to the advantage of geographical location.
Under the pressure of finance internationalization and liberalization, Taiwan government would continuously amend the relevant law or restrictions within the financial service industry.
The Banking Act of Republic China, amended in 1989, would permit the establishment of new banks, so that the total of banks in Taiwan had a dramatic increase from 24 in 1990 to 53 in 2000, and then declined to 39 in 2007 due to the trend of M&A within banking. Moreover, recently the Legislative Yuan also continues to modify the Banking Act, so that it could accelerate finance liberalization. The Financial Holding Company Act, legislated in 2001, would allow financial institutions to implement M&A activities; as a consequence, it could solve the problem of over-banking, facilitate the industry integration and enhance the synergy within banking.
4.1.2 Market Analysis
4.1.3 Customer Analysis
Without the notion of a market segment it would be difficult to understand the overall customer analysis. A market segment is referred to as the concept that one category of customers with the same needs is different from needs in other part of the market. (Johnson, Scholes & Whittington, 2008) Customer needs could be the indicator of market segmentation.
4.1.4 Competitor Analysis
To identify its competitors is fundamental factor in sustaining competitive advantage.