To implement this strategy, Citibank continued to open new branches in major cities as quickly as the government would allow. According to China Business Daily (2004), in addition, Citibank opened the first bank to offer banking services to Chinese consumers in 2002, as well as the first international bank to launch two new investment products, Premium Accounts and Market Link Accounts, in china.
At the beginning the pace of growth in china was not pleased due to regulatory Chinese government imposes on foreign institutions. Moreover, the regulatory changes that Citibank had expected never materialized, and as a result the bank was unable to offer the bulk of the services most importantly to profitability in China.
Due to this situation, the bank changes its strategy in the country. Citigroup changed its strategy to accept joint ventures and buying into state bank systems. Citibank was to decide to pursue the joint venture due to many reasons. One of those reasons was building its own structure in a communist China was too slow and expensive due to bureaucratic communist system. In addition, the Citibank had to associate with senior officers to gains a favor in expanding it branches. According to market analysts, partnership with the state-owned banks is very important in a communist China because of the high presence of corruption and mismanagement by top communist party members.
The goal of the bank has been to grow its market over the next 10 years through its embedded bank strategy. To reach this goal, Citibank took the bold to buy a stake of a domestic Chinese bank in order to offer more of its services to Chinese customers. According to People’s Daily Online (2006), in December of 2002, Citibank bought a 5% stake in Shanghai Pudong Development Bank for $67 million.
According to Conklin (2006), today, under good leadership of Citigroup, it has grown in China from 150 employees in 1999 to more than 9,000, with operations encompassing corporate and investment banking, consumer banking, private banking, as well as Citigroup’s software and technology services subsidiary. During this period, Citigroup has taken a leadership position among foreign banks in China, with Shanghai the location for many of Citigroup's milestones. For example, According to the Ivey Publishing, Citigroup was the first foreign bank to enter the retail banking business in the post-WTO era with the opening of its Peace Hotel consumer outlet in 2002, and in 2004 was the first to launch a joint credit card venture with partner Shanghai Pudong Development Bank. Therefore, Citigroup has displayed adaptability in its attempt to expand operations in china.
China is a giant economy and military power in the world today. Therefore, the future of Citigroup is bright, and it is everyone’s belief that Citigroup will remain as a key driver of the continued success of the Chinese economy.
B. China’s entry into the world Trade Organization at the end of 2001 brought promises that foreign financial institutions would be permitted to operate through china. In 1998, Citigroup and Travelers Group Inc had merged to create the new Citigroup Inc. Travelers brought a vast array of financial services that added to Citibank’s existing portfolio of consumer and commercial lending.
Citigroup had determined the business prospects for each of its activities in the growing China market. However, this may come with a huge risk. As a result of a communist leadership, there is fears of social and economic dislocation might leaders of china impose regulatory restrictions limiting the pace of foreign expansion.
China’s huge prospective as an economic power was seen by many potential investors for long time. Even if one get access to about seven percent can be sufficient to harvest enough profits. However, this is not as easy as it sounds.
China is a communist country with huge bureaucratic and centrally controlled government economy. In this kind of economy, initially, Citibank’s strategy was to avoid all kinds of joint ventures, and to maintain its controlling and operating independently. It was not too long to notice this strategy was a failure. The strategy was hindered and its competitors gained the upper hand in the country.
On top of this, Citigroup undertook a substantial expansion in China. However, many other giant financial institutions were also expanding in China, intensifying competition. By 2006/2007, analysts throughout the world were becoming increasingly concerned about the possibility of rapid inflation in China, and the government of China shared this concern. However, Citigroup seems not concerned by this issue, and did nothing.
Citigroup entered the Chinese market as a powerhouse attempting to leverage as global bank to force its way to the top. However, it did not borne any fruit during that time. Consequently, Citibank did change its strategy to reflect a more local view point quickly. While it makes sense to change strategy if things are not doing well initially, Citigroup should do more to build its well known brand name in China as it did well in many other countries around the world.
Moreover, the idea of expanding the services that Citigroup offers in China is well supported, however, it should be very careful with growing too quickly. Citigroup had become too complex for investors to understand, and as a result share values began to decline. According McGeehan (2006), during the time of 2001 to 2006, a number of subdivisions within Citigroup were charged with unethical behaviors. It seemed that Citigroup had simply become too large and complex for central management to prevent inappropriate decisions on the part of various groups scattered throughout the world. It appeared that Citigroup needed a new corporate culture to guide globally decentralized decision-making. According to the corporate press release (2005), it was not operating on high profits during the expansion period.
Citibank need to secure its profits before it expands its activities. The Chinese regulatory environment is interfering within any business operations and making growing more difficult and expensive. In addition, the Chinese market is still growing, and it is not easily predictable what kinds of business segments will be profitable and which ones will not. Citigroup, while securing its current services without expanding too quickly lest overextension, it needs to continue to explore the market power and business segments.
Moreover, the eastern coast of China has been growing for the last decades because this part of China where the largest and wealthy citizens live. However, there are large part of China population are not reaping the development boom altogether. Citigroup should lobby in relaxing the government regulations on its operation to expand into western section of the country. This vast section of the country is just being ignored by the government as well as by foreign investors. If Citigroup decide to expand its activities to these areas, the government may gladly permit Citibank to do it. The Chinese government would be happy to see economic expansion to those unfortunate areas and Citigroup could get an opportunity to explore new territory and get increased its market share in the Chinese economy. Therefore, Citigroup has not displayed adaptability in its attempt to expand operations in China.
Reference
Corporate press release. (2005). China: Citibank Opens New Consumer Bank Branch in Shenzen. Retrieved from website http://www.citigroup.com on June 4, 2007
China Business Daily. (2004). Citigroup Unveils Bold New China Plan. Retrieved from website on June 3, 2007
Conklin. (2006). International Business. Retrieved from website http://coe2.policy.sfc.keio.ac.jp/ja/event/file.pdf on June 3, 2007
McGeehan. (2005). China’s Banking system and How Citibank can capitalize on its liberalization. Westview press.
Peace & Robinson. (2005). Strategic Management (9th ed.). New York: McGraw-Hill.
People’s Daily Online. (2006). Citibank and Pudong Development Boost Cooperation. Retrieved from website on June 3, 2007
