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Case analysis GLOBAL CROSSING

Submitted to: Prof. R. Gadgil Submitted on: 16th August 15, 2005

Submitted by: Gaurav Dutt 1004025 Section A MBA (Global)

Ques. 1.In your opinion will Mr. Purwars Global strategy succeed? Ans 1: I believe that Mr. Purwars global strategy will be successful. Mostly SBI has been an inward looking organization. It has grown from 400 branches in 1955 to almost 14,000 branches in 2005 locally. It has hardly grown globally SBI has 54 offices spread over 38 countries. Being the largest bank in the country, it is befitting for SBI to have some global ambitions and a global presence. Since bank is new to this area; & has never acquired banks overseas. So, to begin with, it is better to acquire some small banks and acquire some experience to foray into international markets. Yes I believe SBIs global strategy will succeed because of following reasons: 1. As the exports of Indian economy are increasing and Asian and African countries are on of the big importers of Indian product therefore it would be a very wise move to establish SBI in these markets as it will provide company with a critical mass to develop the markets further also it would be an attractive destination as it can also help in serving the large expatriate population which is settled in these nations. 2. Opening up of the financial sector from 2005, under WTO, would see a number of global banks taking large stakes and control over banking entities in the country; therefore it becomes imperative for Indian banks to target global markets so as to derisk their dependence on Indian markets. 3. State Bank of India's India Millennium Deposit scheme, which was launched in 2000, is maturing in November this year. The deposits that were targeted at nonresident Indians were focused at ramping up forex reserves on the back of rising crude prices and a slowdown in foreign capital inflows. The PSU bank can use these deposits to retain the deposits for its overseas expansion. 4. According to a survey conducted by Ficci almost 80% of Indian banks are planning to expand in the Global markets with a special emphasis on following markets ASEAN, SOUTH ASIA, USA, SOUTH AMERICA, REST OF AFRICA. Thus in order to be a first mover SBI has to move into these markets for warding of the competition. 5. Global banks have a better growth rate than the rest of the industry. Some banks have more than 60% of post tax profit from global operation. Thus, walking on a tested ground will be easy for SBI. 6. Indias cost advantage in IT & labour will percolate to companys cost advantage. Company would be able to its cost more quickly. 7. Indias export is increasing .It can act as a facilitator in these foreign transactions. SBI already handles one-third of countrys foreign exchange trade, instead of loosing its position in that area, it should concentrate on capitalizing its advantage.

Ques 2.What pitfalls, if any, will Purwar face in pursuing his strategy? Ans 2 : Pitfalls which company may face are: o Chinese banks can also be a major threat to this strategy because China has emerged to be one of the prime exporters to many African and Asian nations. Thus local trade business of these countries might move to Chinese banks. o One of the threats to SBI in African and Asian nations could be the high NPAs in these countries for eg: In Nigeria the NPAS of banking industry are as high as 20%. o 80% of other Indian Banks are also eyeing these markets as a potential for growth thus providing SBI with the challenges of more leaner and meaner Private Indian banks. o Lack of local knowledge of markets like Central Asia. o Poor asset quality. Bad debts account for 30-40% of total assets. o Regulatory hurdles in some countries like Middle Eastern Emirates. o There could be some HR related problems, which may occur as the company is becoming global and entering in new markets. o Implementation of IT infrastructure which is quintessential for the efficient working of bank globally(for fulfilling resource sharing requirement) Ques 3. Is SBIs positioning proper? If so, why? If not, Why? Ans 3: Yes SBIs has positioned itself as a Bank at anytime, from anywhere. SBI is opening its branches where there is large amount of Indian expatriates or where there is huge trade opportunity with India. Generally banks are concentrating on markets where there is large pool of Indians neglecting trade opportunity these countries have with India. They could take advantage by entering in to these untapped markets which have huge potential for growth. SBI has a good brand image in the country. Extending that to other countries will also leverage the bank while catering to Indian expatriates and other multi national companies. Positioning as it is said is what you do to the mind of a consumer, SBIs positioning as a bank to handle Indian trade and a bank for expatriate Indian is not exactly in sync with its global ambition. This type of positioning could present following flaws to expand globally.

1. Positioning itself as a bank for Indian trade and a bank for expatriate could do a confused positioning for other prospective customers for the bank. 2. Going in for joint venture with this positioning would become virtually impossible as local banks of these countries would resent to position themselves as a bank for Indians 3. Acquiring smaller banks might provide the bank an entry into these global markets but it might act as double edged sword for the bank as the brand image of these banks might be accrued to SBIs foray into the global market hence warding off the future business prospect. 4. Other Indian Banks with joint venture in non financial sector might provide them an experience to work according to global standards hence they could better leverage their position in retail banking sector. 5. Also targeting the trade from India as a major market for SBI might lead it to be a niche player rather than a full banking solution providing organization.

Ques 4.What competitive pressures do you envisage for SBI in the coming years in the global market? Ans 4: Growing integration of economies and the markets around the world is making global banking a reality. The surge in globalization of finance has also gained momentum with the technological advancements which have effectively overcome the national borders in the financial services business. Widespread use of internet banking has widened frontiers of global banking, and it is now possible to market financial products and services on a global basis. In the light of above discussion major competitive pressure that SBI might face are as follows:o The pressure on banks to gear up to meet stringent prudential capital adequacy norms under Basel II and the various Free Trade Agreements that India is entering into with other countries, such as Singapore, will impact on globalization of Indian banking. o The growing pressure on capital structure of banks is expected to trigger a phase of consolidation in the banking industry. In the past mergers were initiated by regulators to protect the interest of depositors of weak banks. In recent years, there have been a number of market-led mergers between private banks. o The implementation of Basel II norms has raised the bar for Indian banks seeking an international presence. The top international banks can lower their capital requirements through the use of sophisticated risk management techniques and thus compete more aggressively than before.

o 2005 onward may present potentially dramatic changes that include, among others, a sliding dollar, rising interest rates, introduction of Basel II accord and international accounting standards, and the possible flattening of consumer lending boom. o Competition from other global banks, which already have very good brand image in the market. o From local banks, which will know local market, conditions better. o More and more Indian banks are entering the global markets nullifying the competitive cost advantage with Indian banks. o Already many banks are investing heavily in IT infrastructure. Thus that would become a norm in the years to come. The increased expectation of customer will further put pressure on the bank.

Ques 5. If you were to design SBIs global strategy, what would be your plan? Ans 5. : Suggested global strategy for SBI is as follows 1. State Bank of India's India Millennium Deposit scheme, which was launched in 2000, is maturing in November this year. The deposits that were targeted at nonresident Indians were focused at ramping up forex reserves on the back of rising crude prices and a slowdown in foreign capital inflows. The PSU bank can use these deposits to retain the deposits for its overseas expansion. 2. SBI should also target East European Nations as potential regions for global expansion as these regions has a huge trade relationship with India also the NPA in these nations have tremendously reduced to 11-12% since the division of USSR. 3. Rather than going in for acquiring spree SBI should try and form joint ventures with established banks in other countries as it would give the bank a hands on experience about the customer and industry in each specific country without burning a hole in SBIs pocket. 4. Technology is a major force that is driving the global banking therefore SBI should use the strength of Indian IT sector as a major force to make its presence felt in global markets. Bank should go in for utilizing the extensive utilization of economical software strength of Indian IT companies.