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Internationalization of Chinese and Indian Banks: Patterns and Strategies MASTERARBEIT Titel der Masterarbeit Internationalization of Chinese and Indian Banks: Patterns and Strategies Verfasser Norbert Brammer, BSc angestrebter akademischer Grad Master of Arts (MA) Wien, 2011 Studienkennzahl lt. Studienblatt: A 066 864 Studienrichtung lt. Studienblatt: Masterstudium Wirtschaft und Gesellschaft Ostasiens Betreuer: Prof. Dr. Rüdiger Frank Acknowledgments I would particularly like to thank Prof. Dr. Rüdiger Frank for preparing me to accomplish my thesis by supervising me during the whole masters program, including valuable support during the development of the topic and conception of my master thesis as well as being ready to help throughout the entire writing process. I must express my greatest thanks to my girlfriend Marion Noack for her affectionate and patient support while I worked on this thesis. Marion Noack, my brother Holke Brammer and Jani Juhani Mustonen deserve special thanks for countless advices, many valuable ideas and suggestions during numerous discussions as well as for proofreading. Last but by no means least, I thank my parents Friedrich and Ute Brammer not only for enabling me to pursue my studies but also for their full support during my whole education. I would sincerely like to thank them and my brothers Thorsten and Holke Brammer for their sympathy and encouragement. Table of Contents 1 Introduction ................................................................................................................ 1 2 Analytical Framework ............................................................................................... 5 2.1 Comparative Method ............................................................................................. 5 2.2 Porter‘s Diamond Model ....................................................................................... 6 2.3 Timing of Market Entry ...................................................................................... 14 2.4 Market Selection ................................................................................................. 19 2.5 Reasons behind the Banks‘ Internationalization ................................................. 20 2.6 Entry Mode Choice ............................................................................................. 22 3 Introduction of the Compared Banks .................................................................... 26 3.1 Chinese Banks ..................................................................................................... 26 3.2 Indian Banks ........................................................................................................ 28 4 Analysis ..................................................................................................................... 30 4.1 Analysis of Home Market Conditions – Porter‘s Diamond ................................ 30 4.2 Analysis of Timing Strategies ............................................................................. 43 4.3 Analysis of Market Selection .............................................................................. 50 4.4 Analysis of Reasons behind the Banks‘ Internationalization .............................. 57 4.5 Analysis of Entry Mode Choice .......................................................................... 70 5 Comparison and Interpretation.............................................................................. 76 5.1 Comparison of Home Market Conditions ........................................................... 77 5.2 Comparison of Timing Strategies ....................................................................... 80 5.3 Comparison of Market Selection ........................................................................ 82 5.4 Comparison of Reasons behind the Banks‘ Internationalization ........................ 83 5.5 Comparison of Entry Mode Choice .................................................................... 84 6 Conclusion ................................................................................................................ 86 Abbreviations ................................................................................................................... 93 References ......................................................................................................................... 95 Appendix ......................................................................................................................... 119 List of Tables Table 2-1 Offshore Financial Centers ................................................................................ 25 Table 4-1 Internationalization Process of BOC ................................................................. 44 Table 4-2 Internationalization Process of ICBC ................................................................ 45 Table 4-3 Internationalization Process of CCB ................................................................. 46 Table 4-4 Internationalization Process of SBI ................................................................... 47 Table 4-5 Internationalization Process of ICICI ................................................................ 49 Table 4-6 Internationalization Process of PNB ................................................................. 50 Table 4-7 Market Data of Countries entered by BOC ....................................................... 58 Table 4-8 Market Data of Countries entered by ICBC (Part 1 of 2) .................................. 60 Table 4-9 Market Data of Countries entered by ICBC (Part 2 of 2) .................................. 61 Table 4-10 Market Data of Countries entered by CCB ..................................................... 63 Table 4-11 Market Data of Countries entered by SBI ....................................................... 64 Table 4-12 Market Data of Countries entered by ICICI (Part 1 of 2)................................ 66 Table 4-13 Market Data of Countries entered by ICICI (Part 2 of 2)................................ 67 Table 4-14 Market Data of Countries entered by PNB...................................................... 69 Table 4-15 Entry Mode Choice of BOC ............................................................................ 71 Table 4-16 Entry Mode Choice of ICBC ........................................................................... 72 Table 4-17 Entry Mode Choice of CCB ............................................................................ 73 Table 4-18 Entry Mode Choice of SBI .............................................................................. 74 Table 4-19 Entry Mode Choice of ICICI ........................................................................... 75 Table 4-20 Entry Mode Choice of PNB ............................................................................ 76 List of Figures Figure 2-1 Porter's Diamond Model .................................................................................... 7 Figure 2-2 Basic Patterns of the Waterfall Strategy .......................................................... 15 Figure 2-3 Basic Patterns of the Sprinkler Strategy........................................................... 17 Figure 2-4 Basic Patterns of the Combined Waterfall-Sprinkler Strategy ........................ 18 Figure 4-1 Finance to China's Non-Financial Sector ......................................................... 34 Figure 4-2 Psychic Distance of Countries Entered by BOC .............................................. 51 Figure 4-3 Psychic Distance of Countries Entered by ICBC ............................................. 52 Figure 4-4 Psychic Distance of Countries Entered by CCB .............................................. 53 Figure 4-5 Psychic Distance of Countries Entered by SBI ................................................ 54 Figure 4-6 Psychic Distance of Countries Entered by ICICI ............................................. 55 Figure 4-7 Psychic Distance of Countries Entered by PNB .............................................. 56 P a g e | 1 1 Introduction While American and European banks are consolidating their businesses after the Global Financial Crisis, banks from emerging countries are increasingly expanding. According to a survey conducted by The Economist Intelligence Unit (EIU) in 2008, 65% of 275 executives of global banks and other financial institutions focus their operations on domestic markets and reduce product lines while 48% in Asia-Pacific said they plan to increase their international presence (The Financial Express 2009). Particularly, Chinese and Indian banks are increasingly fostering their internationalization1 (Ho 2011; India Incorporated 2011). In China, the Industrial & Commercial Bank of China Ltd. (ICBC) is the most aggressively expanding bank (Cambreleng 2011). For instance, in only one month, January this year, ICBC opened five new European branches in Paris (France), Brussels (Belgium), Amsterdam (Netherlands), Milan (Italy) and Madrid (Spain) (ICBC 2011a). Moreover, in May this year, the bank started operating two branches in Pakistan (ICBC 2011b). Li Lihui, president of the Bank of China Ltd. (BOC), recently said in a report in the China Daily that the bank has made overseas business a strategic priority and will further expand its international presence to become a ―truly world-class bank‖ (Xinhua News Agency 2011). Furthermore, China Construction Bank Corp. (CCB) is planning to enhance its global footprint. Regional hubs and economies with close trade and investment relations with
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