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Why domestic banks go abroad? (Why domestic banks go abroad? (Client…
Why domestic banks go abroad?
Why domestic banks go abroad?
Others: firm-specific advantages, prestige, impact of regulation, exchange rates & distance from domestic markets
Location and product cycle
Extends potential life & benefit from financial innovation
Financial product developed in one market & transferred to other market
3 stages
Standardised product
Maturing product
Innovative product (new)
Diversification of earnings (reduces risk)
Strategy is facilitated by acquisition of existing bank already operating in the market
Banks from politically unstable home may establish more secure income stream & asset base in countries with more stable political/ economic environment
Not only doing similar business (geographical diversification) but also new services (product diversification) both and home and abroad
By expanding into different markets, bank can expose their risk & return profile
Client activities
As a result, client may instead bank with foreign MNB with domestic branches
They may loose multinational domestic clients, not only in foreign markets but at home
This might be defensive
These relationship- privileged position to follow their customers abroad
Banks in home markets have information advantages from their on-going client relationships
Leveraging of strengths
May acquired from years of competing with
Past operations in similar foreign market
Previous MNB
Sophisticated domestic fin. sector
Domestic products & services, systems & management could be duplicated offshore
Result in economies of scale reduce overall transaction costs
Seek to capitalise these skills overseas
Banks with management skills, knowledge & experience/ developed business processes, practices/ IT
Opportunities for growth & profit
Potential MNB are more likely to expand into less competitive foreign banking sectors
Domestic banks seek local business in overseas markets
Potential MNB may face competitive domestic banking and financial service sector. Larger foreign markets with high growth rates have more appeal
Domestic banks seek to increase growth and profits overseas