The purpose of the report is to give an analytical study on the expansion strategy of Commonwealth Bank of Australia. In this discussion, the paper sheds light on three markets in which the bank intends to entry. The three markets based on which the market expansion report will be presented are France, Brazil and Korea. The paper begins by giving a brief overview of each of the markets and then further elaborates on the difference between those markets in terms of structure. In these two sections, the paper discusses several aspects like political condition, economical condition, social conditions, etc in order to have a fair understanding of the markets. The further discussion includes determining and identifying the potential challenges that the bank has while operating business in those markets. As a most important part of the discussion, the study highlights on the possibility of future development of each of the markets whether it will benefit the bank or not. While discussing, the paper takes the foreign exchange and trade implication under consideration. Along with that the study sheds light on hoe the cultural aspects have an influence on the bank’s attempt of entry into those markets. After the paper gives possible suggestive measures regarding the expansion strategy of the bank so that it attempts of entry into those markets can be more effective. The paper gives a conclusion upon the completion of the entire discussion.
1. Brief description of each markets – France, Brazil and KoreaOverview of French market
Political condition
As per Hull (2017), France falls under the developed countries. The stable political condition of the country due to less political troubles in comparison with other countries positions the country as suitable for business establishments. The government structure of the country is semi presidential system following the French Constitution (BBC News 2018). The secular, democratic and social republic features of the democracy make the environment suitable for drawing attention of the investors along with new business entry. The country holds 5th position in terms of GDP across the world with $3 trillion (Wearden and Smith 2018). The government of the country in certain territories like Monaco, Saint Pierre, Mayotte, Miquelo, etc, has given a limit of a fixed amount of investment within 150000 Euros for the foreign enterprises (Hull 2017). The major benefit of the French market is that the government has no such policy in order to restrict any business to enter in the Chinese market which does not match the culture and belief of the people of France (BBC News 2018). On the other hand, the government of the country in order to maintain a proper business environment elucidated a proper structure of taxation and made it payable by the businesses in the country.
Economic condition
While giving an overview of the economic condition of the country, the discussion includes several aspects like interest rate, rate of employment, inflation level, GDP of the country and so on. Thus to begin with the discussion the GDP of the country needs to be discussed. The rate of GDP of France is seen to be increased from 0.3% to 8% which suggests a better economic condition of the country suitable for attracting investment from the investors even within recession (Welch and McGonagle 2013). In comparison with the economic conditions of other big countries of Europe, the GDP growth of France reveals that the country is in the better position for foreign investment. The unemployment rate of the country marks 10.4% in 2015, 10.1% in 2016 and 9.4% in 2017 (BBC News 2018). Even though the statistics suggest a decrease in unemployment, much fluctuation cannot be seen in the unemployment rate. As per the statistics of the year 2015, the poverty rate was 14.2% which was 14% in 2014 and 13.8% in 2013 (BBC News 2018). The figures show a slight increase in the poverty line with the increasing population in the country (Sassen 2018). It can be understood that the economy of the country is moderately stable since only 14.2% population of the country generate less that 60% of the medium level of income (Welch and McGonagle 2013). All these above mentioned statistics suggest that the economic condition of the county is favorable for setting up of new businesses.
Social condition
The population of the country as per 2017 marks 64,979,548, out of which 18.5% population belongs to the age group of 0-4%, 65% belongs to the age group of 65% and 16.5% people are from above the age of 65 years. In terms of literacy 99% people are above the basic level of education (Thompson 2013). 75% of the total population of France lives in the urban cities which denote that the city is developing (Cahuc et al. 2013). The people of the country speak mainly two languages: Catalan and French (Kaynak and Baker 2013). The French culture suggests that the people in the country live a luxurious lifestyle and have high purchase capacity. The bank can be benefitted if it operates in the country.
Technological condition
The technological develop in the country has been considerable over the recent past years. The country holds the 4rth place in terms of industrial power. On the other hand, the country possesses the leading position in the space technology, in the field of nuclear energy, in sustainable environment and in computer engineering (Gilpin 2015). The 230 engeneering colleges in the country with more than 87 universities those are famous for conducting quality reaserch in the field of technology (BBC News 2018). The government aid towards further technological development as well as industrial development increases the standard of leaving in the country. The French government spends nearly 2.2% of its GDP towards the development in the field of technology as well as in the area of industrial development (Gilpin 2015). The increased number of in patent application denotes the growth of technological advancement in order to give more improved product or services.
Political condition
The political condition of Brazil is comparatively stable for which the country has been able to become the leading tourism destination in the entire Latin America. The proactive approach of the Brazilian government helps to the country to maintain a political stable condition in the country (De Villa, Rajwani and Lawton 2015). The government of the country follows the democratic structure. The government has undertaken several reformations in order to secure industrial development of the country. The major disadvantage of Brazil’s political condition is that it is grossly influenced by corruption (Baierle 2018). Initiating business operation in the country can be difficult since the bank might face issue related to corruption like paying bribe to the government officials to get permission of business operation.
Economic condition
As per Nica (2013), the major advantage that the country’s economy has is its huge population and huge inflow of FDI. Thus, it can be said that Brazil has potential to generate a considerable benefit to the bank. As per the statistics of 2016, GDP per capita of the country was USD 8726.90 billion (Van den Berg 2016). The same year experienced revenue at the government’s end was BRL 2046. In terms of GDP, Brazil secured the 7th position among the world’s largest economies which reveals that the economy of the country is in a better position in order generate profit to Commonwealth Bank (Nica 2013).
Social condition
The country holds the 5th rank among the other countries across the world in terms of population. The unemployment rate of the country was 11.26% which denotes a very minimum portion of the total population generate income below the middle level (Schneider 2018). Hence, a significant number of populations belong to the wealthy class which can be considered to be investing in the business of the bank. Since the products of bank demands high to medium level of purchasing power of the customers, it can be expected that the purchase rate and the profit margin both can be of higher level (Baierle 2018). The Brazilian people are considered to be modern with a fascination towards luxury products. Thus, the bank keeping this social factor in mind can introduce expensive range of products such as investment plan in order to target the customer who have high purchase behavior (Schneider 2018). The other factor is that the South and Southeast regions are most densely populated area which account for the largest portion of the country’s GDP per head. Setting up business particularly in these regions can be beneficial for the bank.
Technological condition
Like any other countries across the world Brazil has been adopted technological advancement in order to comply with the industrial growth of the country. The development of information technology was evident with the considerable growth securing the third position among the most advanced industrial sectors. 1/3 portion of the total GDP of the country is generated by the IT industries. As per the statistics of 2015, the growth of IT industry marked 9.5% (Kumar and Siddharthan 2013).
Political condition
The Korean political system follows the democratic constitutional governance policy. The political condition of the country is moderate. The government of the company has been taking several measures in order to accelerate the growth the industrialization to considerable manner. Presently the country holds the 11th position among the largest economies across the whole world. Over the recent past three years, the growth of the country has been spectacular which enable the country to draw investments from the foreign countries. The stable political condition is the major driving force behind the consistent growth of the country. On the other hand, the tax and other trade laws of the country are flexible aiding to the business growth of Korea.
Economic condition
Till the year of 2016, the GDP growth had been consistent. However, the year 2017 experienced a slight growth in the rate of GDP with 3.1% (Shin, 2013). Due to several factors like the impact of cycle and the steady decline in the potential of the country’s growth has been causing the stagnancy in the economical growth of the country (Kong 2013). The situation became further unfavorable since the international relation between China and Korea declined. However, Korean market has the huge potential as major international electronics companies have base there. The GDP increased from $1,411.04 billion in the year 2016 to $1529.74 billion in the year 2017 clearly suggests that the economical growth of the country is not stagnant rather being increased (Shim and Lee 2016).
Social condition
Due to industrialization and increased rate of foreign investment, the socio-cultural condition of the country has enhanced over the time. The population in the last five years has been increased mainly in the major cities (Kim 2014). The Korean people generally operate business in the international level targeting a wide range of customer base. On the other hand, the business culture of the country focuses more on production for which the country has been able to secure 11th rank among the leading economies (Kim 2014). Hence, it is understood that the people of the country have medium to high level of purchase power which will be beneficial for the bank. On the other hand, the industrial development will also be a scope of investment for the bank.
Technological condition
In terms of technology the country is ahead in the race with other countries. The Korean market is mainly famous for the modern technology based electronic products. In this regard, it needs to be mentioned the leading mobile phone company Samsung has its base in the country which has business network in all over the world (Kumarand Siddharthan 2013). Thus, the country’s specialization in the field of technology and science has assisted the country to retain the rapid growth economically. Ranging from automobile to computer science, robotics, and biotechnology and in other areas, the country holds the competitive advantage across the other countries in the globe.
There are differences between the markets which need to be discussed in order to develop expansion and entry strategy into those markets.
|
French |
Brazil |
Korea |
|
The considerable increase of GDP suggests that the country has better economic condition. The rate of unemployment is low with 9.4% than other countries. The political condition is stable creating business opportunities for foreign investment. The people of the country posses a high purchase capacity majorly. The government has a structured legal system in order to enter international business in the market. |
The growth rate of GDP of Brazil is slower than in comparison with French. The unemployment rate of Brazil is higher than France. The political condition of Brazil is moderate. However, the major drawback of the political structure of the country is that it is highly influenced by corruption. The people of the country have medium to high purchase capacity. Like French government, the government of Brazil has also the précised legal framework for the foreign investment and business set up. |
The GDP growth of Korea is mainly stagnant. However, a slight increase has been seen in 2017. The unemployment rate of Korea marked lowest with 3.708%. The Korean political environment is also quite stable like French. The people of the country possess medium to high purchase capacity. The Korean government has a very flexible legal structure in terms of foreign trade since most of the companies in the country are international. |
Source: created by author
Each of the countries will have certain challenges in terms of operating in those markets. The major problem will be with the market of Brazil since corruption is a major threat in the country. While operating the bank might need to give bribe or additional charges in order to get permissions from the government officials (Schneider 2018). The other challenge is concerned with the French government since it has strict trade laws and regulation including taxation (Welch and McGonagle 2013). Thus, the bank needs to fulfill all the trade laws and regulations in a very serious manner otherwise the business operation of the bank might be disrupted any time on the grounds of non fulfillment of trade laws. The challenge the bank might face while operating into the market of Korea will be due to the stagnancy in the growth of economy of the country (Shim and Lee 2016). Hence, such an economic environment might be unfavorable for the bank causing initial business loss.
All the markets have considerable future development which can be in favor of the bank. There is a huge opportunity of future development of the Korean since the country generates a large amount of revenue from the electronic and technology industry (Sassen 2018). The electronic and technology is rapidly increasing since the giant Smartphone companies like Samsung is focusing on more production with delivery over the entire world. On the other hand, there are huge opportunities for the French market since the government of the country is approaching for more foreign investment in the country (De Villa, Rajwan and Lawton 2015). Thus, for more foreign business set up, more financial assistance will be required which will be generated by the leading banks like Commonwealth Bank. In addition, possible future development can also be seen with Brazilian market since tourism is a growing sector of the country drawing a large amount of revenue (Schneider 2018). As tourism is s growing sector, it is expected that more companies will be entered in the industry which will create a scope for the bank to invest.
Impact of culture varies from one country to other. According to the socio cultural aspect, French people have a greater rate of purchase power which will comply with the expensive range of products like investment policies of the bank. On the other hand, the people of Brazil have a fascination towards the luxury product from which conclusion can be drawn that the people of Brazil have strong purchase power (Schneider 2018). Thus, while buying an expensive product like luxury car the bank will assist them by giving lone. As per the cultural aspect of Korea, there is a huge scope for the bank to play the role of assisting new technological and electronic business setup in the country.
All the countries have different trade laws and regulation including taxation. Thus, the bank needs to fulfill all the trade laws and regulations in a very serious manner otherwise the business operation of the bank might be disrupted any time on the grounds of non fulfillment of trade laws.
While operating the business in those countries, the bank must need it to be assured that the business center or headquarter is located in the prime location, preferably in the capital cities of the countries.
The product range needs to be designed keeping the requirement of each market. For example, the bank needs to focus more on the customer centric investment policy for the French market, while for the Korean market, the loan policies will be business centric.
In the era of modern technology, the bank needs to assure that its service are available over the online mode so that a wide range of customer base can be addressed in order to draw their attention.
Conclusion
Thus to conclude it will be right to state that the aim of the report was to give an analytical study on the expansion strategy of Commonwealth Bank of Australia. The paper threw light on three markets, namely France, Brazil and Korea in which the bank intends to entry. The study opened the discussion by giving a brief overview the markets and then elaborated on the difference between those markets in terms of structure. The further discussion included identification of the potential challenges that the bank might have while operating business in those markets. The study also discussed the possibility of future development of each of the markets while considering foreign exchange and trade implications, impact of culture of those countries and suggestive measures.
References
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