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Barclays Bank PLC, headquartered in London, has been operational for over 300 years in the United Kingdom (Barclays, 2011). In the UK market it offers several products and services that are grouped into four major categories; personal and premier banking, corporate and business banking, investment banking and wealth management (Barclays, 2011). The bank is renowned for its operational excellence and innovation, a reputation built from the banks pioneering spirit in several fronts in UKs banking industry. These pioneering aspects include establishment of UKs first credit card , the worlds first ATM machine and UKs first drive through ATM , among other innovations, in1966, 1967 and 1998 respectively (Barclays, 2011).
For a company with such high profile achievements, operational excellence and a wealth of experience, Barclays PLC has invested heavily in the international markets. One such market where Barclays has invested in is Kenya among other nine countries.
Introduction
In the recent years firms have continued to face changing, and often more challenging business environments. There are several factors that have contributed to making the business environment more challenging than ever before. Intense competition means that firms are increasing offering almost similar products due to product imitation and poaching of employees between firms. On the other hand, new companies entering the market often target niche markets derived from gaps in customer needs created by the mainstream firms (Morrison, 2009). All these factors contribute to the industry big players loss of market dominance and increasingly difficulty in finding growth opportunities in home markets.
Faced with limited growth opportunities in the home markets, firms are increasingly venturing into international trade to complement their home businesses. In the prevailing global economic crisis and tough economic environment, international trading provides an avenue and platform for financial recovery and prosperity for a number of businesses (Hong Kong and Shangai Banking Corporation (HSBC), 2011). International business offers businesses several advantages including expansion of market opportunities and growth avenues, and a unique platform for product and ideas development (HSBC, 2011).
The potential for business expansion and appetite for international trading is demonstrated by HSBCs global small business confidence monitor. The monitor indicates that up to 40 percent of the small and medium enterprises around the world are considering exploring the international market by the year 2013 (HSBC, 2011). In the context of United Kingdom companies, there are concerns that international trade do disrupt UK supply chains. However, it nevertheless offers critical growth opportunities for knowledge based UK companies (HSBC, 2011).
In the context of international trading we are going to explore United Kingdoms banking giant, Barclays Bank Public Limited Company (Barclays PLC), venture into international trade. In particular we are going to explore the Banks venture into Kenyan market through a subsidiary, Barclays Bank of Kenya (BBK) Limited. In this context, we will examine the management structure of BBK in relations to Barclays PLC, entry strategies of Barclays PLC into Kenyan market, BBKs local competition and the market challenges that BBK faces in the Kenyan market.
Barclays PLC entry strategy into Kenyan Market
In the context of international trade, UK firms such as Barclays bank have several advantages that they have been able to exploit. The British has a reputation of quality goods due to the high skilled manpower and technical knowhow (Hong Kong and Shangai Banking Corporation (HSBC), 2011). In the context of Barclays bank, some of the skills they would export into Kenyan banking industry include innovation in banking industry and the technological know how. It is notable that some of Barclays innovations are at the global stage. The British firms have also been able to export the technology in the emerging markets and increasing meet the consumer needs in those markets, drawn for the experience in the sophisticated UK market (Hong Kong and Shangai Banking Corporation (HSBC), 2011). The over three hundred banking experience that Barclays has in the very sophisticated UK market puts it a good position to exploit the experience in a less developed economy such as Kenyas.
Barclays Bank of Kenya (BBK) was established in 1925 when the country was under British Colonial rule. It is significant to note that under the colonial rule, the economic welfare of Kenyans were under the British rule. In this context, it was relatively easy for Barclays bank along with other British firms to make entry into the countrys economic system. BBK has 115 branches with an Automated Machine Tellers (ATMs) network of 236 units across the country (Barclays Bank of Kenya, 2011). BBKs services and product menu closely mirrors those of its mother company and fall under three major categories; consumer banking, corporate banking and treasury (Barclays Bank of Kenya, 2011).
While Barclays Bank PLC entered Kenya during the colonial rule, it is significant to note that the bank didnt exit the market after the countrys independence. This implies that Kenya continues to provide an ideal business environment. It is relatively easy to do business in Kenya as is evidenced in the International Finance Corporations economic ranking. Kenya is ranked at number 98 out of the 183 countries that were surveyed in the year 2010. The ease of doing business measures the conduciveness of the regulatory environment as it relates to business operations in the given country (International Finance Corporation 2011).
Market entry strategies include exporting and licensing. Other strategies are establishment of subsidiaries, joint ventures and franchising. The different market entry methods are suited for different businesses and markets. The different market entry methods also offer different power control and influence from the mother company. In the social political and economic context of Kenya under colonial rule, it made economic sense for Barclays Bank to form a subsidiary in the country to cater for the mainly white clients at the time.
Establishment of a subsidiary in Kenya offered Barclays PLC an opportunity and advantage of doing business without the hassles of alliances or joint ventures. The do it alone strategy, the establishment of subsidiaries offers, means that the Barclays PLC establishes offices with the required operational staff, crafts a business strategy and execute it. In the context of banking there are several advantages of establishment of a subsidiary as an entry mode into the market. There is protection of technology such as banking software, reliance on the expertise and skills of Barclays PLCs secondment staff and tapping on the international Barclays brand. Critical in enhancing brand visibility in the Kenya is Barclays PLCs sponsorship of the premier league, a football leagues with an international following. The subsidiary and the holding company are often separate legal entities and as such the holding company is not subject to the subsidiaries liability (Shenkar and Luo, 2008)
BBK management structure in relations to Barclays PLC
Barclays PLC is divided into two major business divisions that is Global retail banking and Corporate, investment and wealth management banking (Barclays, 2011). Barclaycard and Western Europe are components of Barclays global retail banking (Barclays, 2011). Other components include Barclays Africa and UK retail banking (Barclays,2011).Barclays Africa consists of ten countries divided into Barclays West Africa, Barclays East Africa and Barclays Southern Africa. Barclays Bank of Kenya falls under Barclays East Africa. Adan Mohamed manages Barclays Bank of Kenya. He also has added responsibilities of managing Barclays East and West Africa He reports to the head of Barclays Africa who in turn reports to the head of global retail banking sited in London.
In terms of management structure we clearly see the reporting lines of countrys functional head to the overall Barclays Bank PLCs management structure. It is critical to note that in the context of Barclays Bank, the functional head have control over BBK through the BBKs managing director. Barclays Bank of Kenya is a subsidiary of Barclays PLC (Barclays Bank of Kenya, 2011)
BBK local competition
There are forty four commercial banks in Kenya in which the Barclays bank of Kenya is the market leader in terms of profitability (Daily Nation, 2011). Barclays Bank of Kenya competitors includes Kenya Commercial Bank, Co operative Bank of Kenya, Equity Bank, and Standard Chartered Bank amongst other banks. While Barclays Bank of Kenya continues to be the market leader, the gaps in profitability to its closest rivals have been diminishing in the recent past (Daily Nation, 2011). There are several factors that have contributed to the Barclays Bank diminishing market grip including BBKs technology uptake, regional expansion and market perception.
BBKs Technology uptake
The Kenyan market is undergoing a mobile phone revolution. The mobile phone is used for financial transactions in additions to the normal day to day communications needs. Customers deposit hard cash into a mobile service provider agents spread across the country. The mobile service provider then transfers the virtual cash from the mobile service system into the clients cell phone. The client can then use the virtual cash for the daily day to day transactions or transfer the virtual cash to another persons cell phone in remote areas without a physical bank branch premises but with the mobile subscribers network. The commercial banks are able to link their banking system with the mobile phone payment platform such as M-Pesa. This means that customers can deposit money in mobile subscribers agents littered across the country and transfer the virtual cash in their mobile handset to their bank accounts and vice versa.
While this mode of business has been rising in popularity, Barclays bank has been reluctant to embrace the change. This can partly be attributed to the decision making chain which involves the UK management. It is also noteworthy that while mobile phone transactions have gained currency in Kenya, the same cannot be said of the UK where Barclays PLC is headquartered (Daily Nation, 2010). The lack of proper understanding or appreciation of the technology has contributed BBKs slow uptake of this technology. This has caused it to lose a substantial number of customers and contributed to its declining hold of the banking industry in Kenya.
Regional expansion
Kenyan banks have been keen to explore trading opportunities in the Eastern Africa countries. All the major banks have established subsidiaries in Uganda, Tanzania, Rwanda and most notably in Southern Sudan (Daily Nation, 2010). The recently seceded state from the bigger Sudan creates a critical growth platform for Kenyan firms. However Barclays Bank of Kenya has concentrated its efforts in Kenya. This is due partly to Britains role in world affairs in which Sudan is internationally condemned for human rights abuses in the Darfur region. As a result of sanctions placed by the United Nations on the country, it implies that Barclays PLC and in extension its subsidiaries cannot trade in Southern Sudan.
Cultural differences
In international trade, cultural differences in social structure, religion, political philosophy, manners and customs, and education affect the way the trade is conducted(Greet Hofstede,2009).Companies entering foreign markets must adapt to the local cultural requirements for them to be successful (Greet Hofstede, 2009). They must integrate their policies and working cultures in sync with the general cultural expectations of the countries they invest in. Cultural differences are measured using Dimensions of culture such as Geert Hofstedes Cultural Dimensions (Greet Hofstede,2009).According to Greet Hofstedes cultural dimensions, there are five cultural dimensions; Power distance index, individualism, masculinity, uncertainty avoidance index, and Long term orientation (Greet Hofstede,2009).
On the cultural front and in relation to Barclays Bank of Kenya, it is important to discuss two important cultural differences dimensions; Power Distance Index and individualism. Power Distance Index (PDI) is the extent to which the less powerful members of the organizations and institutions (like family) accept and expect that power is distributed unequally (Greet Hofstede 2009, pg 1).The power distance index suggests a social acceptance of the unequal power distributions by all members of the society (Greet Hofstede, 2009). Individualism measures the extent to which individuals are integrated into groups (Greet Hofstede 2009, pg 1).This is in contrast to collectivism.
Barclays Bank of Kenya has traditionally been perceived as a high end bank catering for the affluent in the society. While in the past it has maintained and even cultivated that image, in the recent past the rising tide has been to the low income mass market segment. This has been brought about by the emergence of powerful indigenous banks catering for the lower segment of the market. Barclays Bank of Kenya has reacted to these new phenomena to a varying degree of success. It has done this by classifying its branches into standard branches, premier life branches and premier branches. The later two branches are meant to cater for the affluent in the society while the former is meant to cater for the mass market. The bank has also been more flexible in its accommodation for the mass market through establishment of lower end mass oriented products such as pepea accounts (Barclays Bank of Kenya, 2011). While the strategy seems to appease both the high end and the middle class banking population, it is critical to note that most of the banking profits are from the middle class and low end mass market.
In terms of individualism and in the context of banking, Kenyan low end market often pool their resources through groups. The groups bank the members collective contribution expecting to access loan facilities on the basis of such banking. While BBK has group accounts such as Uwezo account, it however doesnt extend credit facilities to such groups. This is in contrast with one of its closest competitor Equity Bank.
Barclays PLC International trade competitive strategies
According to California State University (n.d), competitive strategies are measures put in place by a company to attract customers, withstand competitive pressures, and strengthen an organizations market position (pg 2). There are five competitive strategies namely overall low cost leadership strategy, best cost provider strategy, broad differentiation strategy, focused low cost strategy and focused differentiation strategy (California State University, n.d).
The overall low cost leadership strategy is based on achieving an overall low cost of production in the industry. This is achieved through cost cutting measures to reduce the cost of production and the overall cost of doing business (California State University, n.d). Barclays Bank of Kenya has to a certain degree embraced the concept of the overall low cost leadership strategy. In the year 2010, the bank put in cost cutting measures in a bid to remain competitive in an increasing tough market environment (Daily Nation, 2011). The same strategy prevailed in the year 2011 with the firing of 200 middle level and senior managers in a bid to keep the operating costs at the operational level (Daily Nation, 2011). The sacking of the managers came with the streamlining of the bank operational structure and merging of roles at management level as cost cutting initiatives.
There are several reasons why BBK has to some extent embraced overall low cost strategy. BBK had relatively higher numbers of middle level management staff who were paid relatively better off than their peers in the competition (Daily Nation, 2011). In a bid to cut cost on staff expenses the bank to reduce and streamline its management structure. The overall low cost strategy works best when the price is the major determinant in the completion, and it is relatively cheap to move to the competition. Other market environment through which the strategy works best include inflexibility in product differentiation, and there are similar consumers needs in the market (California State University, n.d).While BBK has had several fronts in the banking industry in Kenya including introduction of first ATM machine in Kenya and introduction of business trips to foreign country for networking purposes among other aspects, the same has been imitated by virtually all the banks. This creates little differentiation between BBK products and its competitors hence the appeal of overall low cost strategies. However the overall low cost leadership strategy makes the company inflexible to changing customer needs and the market environment due to obsession with cost cutting (California State University, n.d).
Conclusion and recommendations
While BBK has definitely dominated the banking industry in Kenya, the modern challenges such as the rise of indigenous banks mean that BBK must change its business strategy. The Kenyan banking industry has matured to a level where it has its own market peculiarities such embracing of mobile phone payment platforms into mainstream banking. In this context Barclays PLC must give BBK a free hand to respond to market changes and customer needs.
References
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