Human Resource Issues
Citibank has set a standard in the financial world in leadership and management. They have implemented a six sigma program that is enviable. They have won numerous awards in these areas yet they have not been able to apply their management and leadership prow ness in China. They have been unable to overcome the income differentials and the focus that Chinese have on interpersonal harmony which is left over from government owned leadership (Pearce & Robinson, p. 30-6). They have also been unable to successfully plant expatriates or cultivate successful managers from the labor pool (Pearce & Robinson, p. 30-6). This is yet another example of how they have failed to adapt to the environment despite an enormous advantage in position.
Branch Networking
Citibank, along with many other banks jumped into the financial race when China joined the WTO. One of the big differences is that Citibank had been there for quite some time. Many experts expected large international retail banks like Citibank to move quickly and increase branch networking in China, but it has not happened (He & Fan, 2004, p. 5). Once again these facts prove that Citibank has fallen well short of adaptation to environmental factors in China’s financial market.
Joint Venturing
A specific instance where Citibank was unwilling to adapt to the Chinese environment was through joint ventures. China had stated that all foreign insurance ventures must be 50% owned by Chinese government. Citibank felt that such ventures would lack long-term success and therefore decided to forego joint ventures and attempt to penetrate the insurance market through mergers and acquisitions. The result was that AIG, a company who did not have the Chinese experience of Citibank, was able to gain 88% market share of the foreign insurance business. Had Citibank been willing to accommodate the joint venture proposals, they would have created a dominant market share due to their history and experience in China.
Change of Strategy
In the beginning, Citibank avoided joint ventures with any Chinese domestic partners. Due to the extremely slow growth of expansion of their banking branches, the bank’s 2001 annual report announced a change in their strategy. The report stated “Our goal is to grow our market share over the next five years through our embedded bank strategy. By “embedded bank” we mean a bank that has roots in the country as deep as any local indigenous bank, building a broad customer base, offering diverse products, actively participating in the community and recruiting staff and senior management from the local population. Our long history in these regions positions us as a genuinely local bank.” ()
To obtain this goal, Citibank bought a 5% stake in a domestic Chinese bank called Shanghai Pudong Development Bank (SPDB) for $67 million. The two banks will establish a 50/50 joint venture company to manage a credit card business as soon as Chinese law will allow. The question arises, when will this occur? Citibank is well-known for their credit card business and should have put top priority into this venture earlier.
Citibank has also entered the market for China’s non-performing loans. In December 2004, it purchased a substantial share of non-performing loans from Silver Grant International Industries. Silver Grant is one of the four asset management companies created by the Chinese government in the late 1990’s to manage the non-performing loans from Chinese banks. The historical problem with this market has been the extreme high risk factors. “The communist system of awarding loans to state-owned-enterprises (SOEs), whether they are profitable or not, have lasted until the present day and some analysts estimate that NPL’s make up almost 30% of all outstanding loans” (Gordon, G. 2001).
Conclusion
Citibank has done well in the financial world and can improve their status in the Chinese financial market. They set many standards in leadership and management; unfortunately they did not apply these skills at the most opportune time and lost the coveted spot of first to compete position in access, services, licensing, human resource issues, and branch networking. Citibank has had a foothold in China since 1902 and has not been able to significantly out perform other financial institutions that have merely been in competition in China since China’s entry in the WTO. This lack of greater success is a clear indication that Citibank has not been able to adapt to the environmental factors present in China.
References
Citigroup. (n.d.). Citigroup Global Locations: China, Peoples Republic of. Retrieved April 7, 2006, from
He, L., & Fan, X. (2004). Foreign Banks in Post-WTO China: An Intermediate Assessment. China & World Economy, 12(5), 3-16. Retrieved April 7, 2006, from .
Pearce, J., & Robinson, R. (2004). Strategic Management: Formulation, Implementation, and Control (9th ed.). New York: McGraw-Hill Irwin
