BANCO SANTANDER AND THE CHINESE MARKET A Tale of Two Cultures

Group members: Lilian KNIJNIK, LU Min, VU Thi Thuy Linh and XIA Ren Jie Tutor: Alexis Collomb

OUTLINE

1. INTRODUCTION

2. STRATEGY

3. FINANCE

5. MARKETING

6. CONCLUSION

4. HUMAN RESOURCES

Banco Santander was founded in 1857 in Spain

Today retail banking is its core business - 82% of its profits

90.1 million customers

13,390 branches

2.27 million shareholders

It is the number one Bank in the World by market capitalization.

INTRODUCTION

Santander is present in 40 countries:

Geographical Distribution

STRATEGY

STRATEGY

Internationalisation Strategy

Case - Brazil

Case - Brazil

Private Banking

The Giant Dragon - Growth

China is the world's most populous and third largest nation. The population is 1.3 billion (2010). Shanghai (23 million inhabitants), Beijing (19.6 million), and Guangzhou (12.7 million).

The Giant Dragon - Gap

Why China?

Joint Venture

+

Santander will invest in the rural areas in China.

19.9% 80.1%

The population of 1.3 billion inhabitants shows a ‘never ending’ unattended demand;

Expertise already developed in Brazil in micro credits segments and private banking;

That’s were all the clients are going – need to keep up That’s were all the clients are going – need to keep up in the competition.

Why China?

FINANCE

Santander’s credit growth strategy for 2010 was based on the higher profitable segments: Individual and SMEs. Consequently, the banking institution reported revenue of €42.05 billion and an operating income of €23.85 billion in 2010 alone.

The biggest bank in the euro zone in terms of market value, Bank Santander had net profit to €8.181 billion in last year

China’s Macroeconomy

The Consumer Price Index (CPI) is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation. The CPI is also called cost-of-living index.

Financial Risks in China

Culture challenge

Political issues

Financial risk

Environment Environment sectors

Financial Risks in China

Cultural challenge

- ‘It doesn't matter whether the cat is black or white as long as it catches the mice’.

- Smart competitiors

Cultural challenge

- ‘It doesn't matter whether the cat is black or white as long as it catches the mice’.

- Smart competitiors

Political issues

- The ownership caps

- The policy shifts quickly

- Rising Chinese protectionism

- Lax protection of intellectual property rights

Political issues

- The ownership caps

- The policy shifts quickly

- Rising Chinese protectionism

- Lax protection of intellectual property rights

Economic and financial risk

- Santander’s clients are going to be mainly farmers , the amount of loan will be low; the cash flow will be negative for a long time.

Economic and financial risk

- Santander’s clients are going to be mainly farmers , the amount of loan will be low; the cash flow will be negative for a long time.

Environment sectors

There is a high inflation rate and a real estate bubble in china, people can't afford buying a house;

Santander has to resist temptation of the real estate. If housing prices fall further than expected, the NPL ratio of Chinese banks could rise by about Rmb5,400bn, to 13.4 per cent of total loans.

Environment sectors

There is a high inflation rate and a real estate bubble in china, people can't afford buying a house;

Santander has to resist temptation of the real estate. If housing prices fall further than expected, the NPL ratio of Chinese banks could rise by about Rmb5,400bn, to 13.4 per cent of total loans.

Financial Risks in China

HSBC is the leading foreign bank in mainland China and has 16 rural bank outlets Three of their rural banks established in 2007 , the oldest ones are profitable. According to that experience the payback takes 3 years.

Investment and Payback

HUMAN RESOURCES

HUMAN RESOURCES Santander’s human resources strategy

To manage 180 thousand employees in over 40 countries, Santander’s HR strategy

• Carefully prepare executives to future challenges

• Attract and retain the best talent by being the top position employer in the international banking.

• Consolidate the corporate culture and communicate strategic knowledge throughout the Group.

• Have tools and processes which are convenient to the hr management.

Santander’s HR Policies

• Segmentation policy

• Equality of gender policy

• Training and knowledge policy

• Remuneration policy

• Co-oporation between universities and employment in the Bank

‘Leading training programs’: encourage

employees to maximize their abilities.

‘Be the Best award’: encourages

employee behavior – achievement.

Santander creates flexible working

environment (right to join a union in

the company).

Santander offers the safety in

workplace.

Santander offers fix salary/ wellfare/

essential facilities.

Maslow’s Theory and Santander

Main characteristic of Chinese HR

4 types of candidates which are most often considered are: “local Chinese employees, overseas Chinese, Chinese returnees, and expatriates”;

Recruitment process; training and development, employee retention;

Compensation gaps have long existed between foreign multinationals and locals in China;

Lacking of talent employee and HR manager;

Poaching employees.

Cultural Challenges

• “Guanxi”: relationship based on mutual respect is a fundamental aspect of Chinese culture. In business, possessing a “Guanxi” is essential for a good business outcome.

• Mian-zi or “face” refers to a person’s pride and is formed from reputation and social status. In business, Mian-zi comes in the form of avoiding confrontation and direct criticism.

• Chinese culture is more hierarchical and group-oriented.

• Chinese employees are hesitant to provide negative or constructive feedback.

• Chinese people prefer to work with people whom they are already familiar.

MARKETING

MARKETING

Complex Net of Banks in 2010:

3 policy banks and State Development Bank

5 large commercial Banks

12 joint-stock commercial banks

147 city commercial banks

349 rural commercial banks

4, 349 village banks

China Banking Market Overview

1. ICBC Industrial and commercial bank of China 1. ICBC Industrial and commercial bank of China

2. BC Bank of China 2. BC Bank of China

3. CCB China Construction Bank 3. CCB China Construction Bank

4. ABC Agriculture bank of China 4. ABC Agriculture bank of China

THE BIG FOUR - STATE OWNED BANKS

Types of banks in China

Policy banks and national development banks

Large commercial banks

Rural small and medium financial institutions and postal savings banks

Foreign banks

Joint-stock commercial bank

Non bank financial institutions

City commercial banks and urban credit cooperatives

Banking Market Share in China

Non Bank Financial Institutions

Large Commercial Banks

Joint-venture Commercial Banks

Foreign Banks

Policy Banks and National Development Banks

City Commercial Banks and Urban Credit Cooperatives

Rural Small and Medium Financial Institutions and Postal Savings banks

Marketing objective

Step 1

Step 2

Step 3

Open more branches in rural areas and increase to 40% shares of joint venture bank;

Stepping into China

Santander decided to open 100 rural branches step by step cooperating with China Construction Bank;

Achieve above 20% market share in rural areas.

The Ultimate Goal

Enter into the more profitable market, the city market. Using its own brand and holding more middle and upper class customers.

Marketing objective

Current: Rural

Future: City

Main Competitors

in China

•BC and Temasek

•HSBC

•Standard bank

•Citi bank

•Four big state-owned banks

•Local bank

Client targeted in

China

•Low income customers

•Small companies

The middle and upper Class

•Medium and Large enterprise

Launching Products for Different Clients

• Low income customers (Farmers, etc.)

Agriculture loan - CCB new strategy is to support rural areas.

Santander will cover CCB’s investment in the rural area with lower

rates for farmers to take loans.

Small business loan – local development.

Education loan – support students in rural areas who can’t afford the

fees. Free of rates until the end of studies.

•Middle and upper Class

Housing loan – Young workers renting appartment

Private Banking - Wealth management for the ‘new rich’ in China.

CONCLUSION

CONCLUSION

Santander could be successful in China:

Santander’s Value Proposal for the Future

• Provide scholarship for

Chinese Universities;

• Invest on public

infrastructure ;

• Sponsor Chinese

famous brands

Sponsorships Sponsorships

Partnership Partnership

•Build good relationship

with CCB;

•Be a good partner of the

Chinese government to

rebalance the gap

• Helping China trading

with Latin America.

China’s Human Resource Development And Public Sector Reform Facing Economic

Globalization China’s Human Resources / Li Jincheng/ Institute of Administrative Science,

Ministry of Personnel Peoples Republic of China

<<unpan1.un.org/intradoc/groups/public/documents/eropa/unpan014255.pdf>> Access in 10th

June 2011.

Santander’s Corporate Social Responsibility Report 2010

<http://www.santander.com/csgs/StaticBS?blobcol=urldata&blobheader=application%2Fpdf&b

lobkey=id&blobtable=MungoBlobs&blobwhere=1265300993427&cachecontrol=immediate&ss

binary=true&maxage=3600> Access in 10th June 2011.

Santander’s Annual Report 2010

<http://www.santander.com/csgs/StaticBS?blobcol=urldata&blobheader=application%2Fpdf&b

lobkey=id&blobtable=MungoBlobs&blobwhere=1265299530310&cachecontrol=immediate&ss

binary=true&maxage=3600> Access in 20th May 2011.

Incorporation And Beyond Challenges For Foreign Bank In China

<http://www.kpmg.de/docs/Incorporation_and_beyond_-

_Challenges_for_foreign_banks_in_China.pdf> Access in 12th June 2011.

http://news.businessweek.com/article.asp?documentKey=1376-LHJZ2S0UQVI901-

1Q5NBPECGB3I5RHPKES5QGJKRU

Bric Spot Light Report, 2010

http://www.thomaswhite.com/explore-the-world/bric-spotlight/2010/brazil-banks.aspx

Banco Santander banks on China’s growing ties-Wang BO(China Daily)-2010-11-03

http://www.chinadaily.com.cn/bizchina/2010-11/03/content_11497401.htm

BIBLIOGRAPHY

Santander’s Wikipedia webpage

(http://www.santander.com/csgs/Satellite?canal=CAccionistas&cid=1146205899430&em

pr=SANCorporativo&leng=en_GB&pagename=SANCorporativo/Page/SC_ContenedorG

eneral);

Wikipedia. <<http://en.wikipedia.org/>>. Access in May 2011.

http://blogs.forbes.com/eco-nomics/2011/04/07/the-worlds-10-greenest-banks-goldman-

sachs-made-the-list/

http://www.travelchinaguide.com/intro/geography

http://www.chinapage.com/map/map.html

Urban Poverty in China: Measurement, Patterns and Policies

http://www.ilo.int/public/english/protection/ses/download/docs/china.pdf

http://www.boc.cn/bocinfo/bi1/201103/t20110316_1329099.html

Parada, Alemany and Planellas, The internationalization of Retail Banking: Banco

Santander’s Journey towards Globalisation,

http://en.wikipedia.org/wiki/Economic_history_of_Brazil

World Bank and International Monetary Funds

http://www.imf.org/external/index.htm

http://www.create.hk/archives/278

BIBLIOGRAPHY

BIBLIOGRAPHY

World Bank and International Monetary Funds

http://www.imf.org/external/index.htm

Annual report in 2010 of HSBC

http://www.hsbc.com/1/PA_1_1_S5/content/assets/investor_relations/hsbc2010a

ra0.pdf

http://www.santander.com/csgs/StaticBS?blobcol=urldata&blobheader=applicati

on%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1265300993427&c

achecontrol=immediate&ssbinary=true&maxage=3600

http://www.santander.com/csgs/StaticBS?blobcol=urldata&blobheader=applicati

on%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1265300993427&c

achecontrol=immediate&ssbinary=true&maxage=3600

http://en.wikipedia.org/wiki/Motivation

http://en.wikipedia.org/wiki/Motivation

THANK YOU!