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Case Analysis of Citigroup

Essay by   •  December 23, 2010  •  Case Study  •  1,082 Words (5 Pages)  •  2,053 Views

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Citigroup Case Analysis

The purpose of this paper is to debate the pros and cons of Citigroup's entry into the Chinese financial market and their ability to adapt to this foreign culture. Team B debated both sides of the case with strong arguments for and against Citigroup's ability to adapt. The paper will present both sides and conclude with Team B's final agreement on Citigroup's success or failure to adapt in the Chinese financial market.

Historical Operations

Citibank has operated in China for more than a century and has a long history of goodwill in the country. The company began operating in China in 1902, and by 1930 was one of the country's largest and most important banks. Citibank had branches in nine cities, but the emergence of the Communist revolution meant that those branches were subsequently closed. Citibank reopened an office in Shenzen in 1984 and slowly began to rebuild its base and reopen its ties with the Chinese government.

Adaptability and Failure to Overcome Environmental Factors

Citibank has been in the Chinese landscape and financial geography, essentially since the beginning of foreign investment and financial dealings in China. Since China entered the World Trade Organization (WTO), many other financial institutions have been given the opportunity to compete in the Chinese market and the foothold Citibank established was squandered by the company and all but lost. As we will prove, Citibank failed to leverage their first to compete position in access, services, licensing, human resource issues, and branch networking.

Licensing

Before China's WTO membership, Citibank was licensed only to provide corporate banking services to foreign invested enterprises (Pearce & Robinson, 2004, p. 30-2). Since the WTO induction, the licensing has not increased much more than any other company that was not afforded the huge head start that Citibank had.

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

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