The world is becoming global and with it all the organizations want to be global as well. They want to reap the benefits which are huge in global markets. So almost all the organizations want to expand their businesses in the global market. As per Jianjun and Yanjing, 2009, the strategies to expand and enter in these new market are termed as the global business strategies.
According to Oliveira, 2017, Wells Fargo Company is a financial service company of America and based in San Francisco, California. As per market Capitalization and total assets, it’s the 4th largest bank of the US. It is on 26th number in total revenue on Fortune 500 list. Primary activities of the Wells Fargo are listed below:
This segment involves the regional banking, consumer deposits group, diversified products and Wells Fargo customer connections. The 2000 standalone mortgage branches also comes under the Wells Fargo all around the country. Besides these many mini branches come under this section which are present under other buildings and have Basic teller machine, ATM’s, private meeting offices and space permitting. It also includes Wells Fargo Wallet for the transactions through smartphones and was announced in March 2017.
Wholesale banking which includes consumer lending, loans to private students and equipment lending. In Consumer Lending, United States largest mortgage retail lender is Wells Fargo Home Mortgage. Almost one out of 4 houses are loaned by the company. It has the second largest servicing portfolio and spends US$1.8 trillion in mortgaging of home market. In 2012 company had 30% market share in US mortgages which came down to 22% in 2013? In private loans to students, Wells Fargo provides them to students for the expenses of colleges like housing, computers, tuition fees and books. In equipment lending, company finances the lease and the finance for different types of equipment’s for different types of company.
Wealth and Investment Management: Eras, 2019, stated that many products like Wells Fargo investments, LLC, Subsidiaries, Well Fargo advisors come under this category.
Wells Fargo is internationally present in many countries like Tokyo, Singapore, Honkong, London, Dubai and Toronto. In India and Philippines, they operate through back offices and 3000 employees.
Wells Fargo has total of 8050 branches and 13000 ATM in June 2018. The bank has its presence in 35 countries and serves to over 70 million customers all over the world.
Now Wells Fargo wants to have more wide spread in international markets especially in France, Brazil and South Korea. The report below in detail describes each market, their structures, estimated size and profitability, Potential problems and future development in each of three markets.
Structural difference of France, Brazil and South Korean Market
French financial system can very well be described as the sophisticated and large one. The total amount of assets this financial system deals in is over € 12 trillion with help of various financial institutions who collects and channels the saving. These institutes finance the financial economy of the country. Out of €12 trillion, €8 trillion are through credit institutions and are more dominant in the nature. Whereas the €4 trillion are managed through the insurance companies and asset managers. These institutions not only regulate the saving products but also helps in allocation of household savings in a much diversified form (Lepetit, Meslier and Tarazi, 2016). Therefore, The French financial structure is very stable due to steady and continuous flow of finance through banking network as well as debt market products.IN Western Europe, France has the largest banking system. The three major institutions in play are Societe Generale, BNP Paribas and Credit Agricole. Earlier Banque de France used to control all the banking activities by the direction given by the government. Plessis, 2016 states that but after deregulation and passing of various legislations, many restrictions lifted resulting in the free flow of capital and money. Besides banks, France have insurance industry which includes CNP, AGF and Axa along with many mutual benefit societies. These societies regulate the pension plans.
National Monetary Council (CMN), Brazilian Central Bank (Central Bank) and Brazilian Securities and Exchange Council (CVM) regulates and monitors the capital and financial markets of Brazil. A prior authorization is needed by the CVM and Central bank for the operations and creation in the security market, custody and settlement. Strict regulatory monitoring is done for all those engaged in the activities of operations and even their agents.
CMN in the country is the highest regulatory entity for financial system and sets the inflation targets for central Bank as well as monetary policies (Welch, 2016). Bacen Is an entity concerns with the regulation of banks, execution of monetary policies, and exchange controls. Brazilian Central Bank is mostly concerned with national currency’s purchasing power and its stability. The bank also ensures that there is always a safety and efficiency in the Brazilian payments and there are no issues related to it. CVM is regulatory agency for the whole nation and have the jurisdiction on the securities market. There is another entity B3 which is Brasil, Bolsa and Balcao by whom derivatives market and organized securities are managed. These entities provide the settlement services, registration and clearing.
South Korean Market
Monetary institutions and NBFI’s that is Non-Bank Financial Intermediaries mostly forms the financial structure or institution in South Korea. Bank of Korea and Deposit Money Banks including special and commercial comes under the Monetary Institutions. Central bank of Korea is the main Bank of Korea. In last 2-3 decades the financial structure and system of Korea has seen growth and diversification to a large extent. Earlier the monetary institutions used to dominate the financial structure of South Korea which is now declining in shares and the NBFI’s are rising due to increase in the assets. According to Kim, 2017, commercial banks within monetary institutions have seen the increase in growth instead of whole monetary institution system. Foreign banks are also showing growth in South Korea but it is the commercial banks which are playing more important part in moving the savings and providing the financing for the economic growth of country. Along with commercial banks, specialized banks are also growing at fast pace in South Korea. This growth is due to growth in the business of Korean housing bank, small-medium industry bank and citizen National bank. The NBFI’s in South Korea also has seen the massive growth in last decade.
Following were the findings after the critical analysis of financial structure of all the3 countries South Korea, Brazil and France:
South Korean market is more dominant by the non-bank financial intermediaries. They have seen the growth rate of over 35 % in last decade. The financial system in Brazil is very structured and mostly governed by the 3 entities namely CMN, CVM and Central Bank. In France, the financial structure is very diversified and open and stable with clear cut difference between credit institutions and insurance institutions.
The South Korean market is very much controlled by the government and even day to day activities are also monitored by the government. In Brazil, CVM is a regulatory entity and keep checks on the financial activity of country. The financial system in France is least governed by the government as they are very stable.
The Brazilian market is currently going through the major restructuring due to the EMU that is European economic and monetary reunion.
Estimation of potential size and profitability of 3 markets
France: France has the 5th largest economy in the world. The country has many world renowned universities, workforce here is talented and people re well educated. France financial markets are very sophisticated as well. France stands on the 9th number for attracting the foreign direct investment and a global market for inflow of FDI’s which is increasing by 2% every year as per report of 2018. Total 28,000 foreign owned companies are present in France and doing the business along with 29 worlds’ 500 largest companies presence. The global competitiveness of France stands at 17 the number in World Economic Forum. Almost 4600 US companies have presence in France which gives employment to 480,000 French citizens (Rossi, Borroni, Lippi, and Piva, 2018). In 2018, France’s banking assets were 7,223.61billion EUR.
Brazil: Brazilian financial system is largest in the countries which are emerging in last decade. Total asset value is R$ 1147 billion in 2002 which excludes mutual funds. This amount is 90% of the GDP. 84% percent of the system’s assets comes from commercial banks and remaining from developmental banks and the non-banking institutions.
Brazil. 9.1% was the ROE that is return on equity in 2002. Foreign banks ROE was 12.8% (Miralles-Quiros, Miralles-Quiros and Daza-Izquierdo, 2018).
South Korea: The value and size of Korean bank market is US$ 2,819 billion in 2018. The market is supposed to grow by 7.2% till 2023 as per CAGR. The total assets of the banks are 3.2 trillion US$. Total number of Bans in South Korea is 140 which includes 54 commercial banks, 5 specialized banks and 79 mutual savings bank.
Potential Problems for the entry of Wells Fargo
There are some challenges which the company will face while entering into the three markets which are France, Brazil and South Korea.
France: In whole Europe, banks are facing the low profitability. Especially in France, due to cyclical and structural factors, the profitability of banks is declining. The traditional banking activities have become less lucrative due to low nominal growth and interest rates which are low as well. France banking system is very traditional in its approach and the use of technology is not so much prominent currently. The biggest problem the Wells Fargo company will face will be the impact of new technologies on the banks especially on their retail payment business. As per Tursoy, 2018, the second problem the banks are facing is that with so many e commerce, social media and retail payment gateways, banks are supposed to switch between these social platforms which is not their strong suit. Banks have high compliance obligations and therefore, are more invested and concerned with the security and resilience of payments and system and doesn’t focus much on user friendliness. Also now with introduction of contactless cards, payment wallets, online and mobile payments, the technology and infrastructure needs more investment from the banks side along with facing competition with apple and PayPal sides.
Brazil: Brazil has a strong policy for the entrance of the foreign banks in country. It does not allow the foreign banks to swallow up their local and regional banks. Therefore, in Brazil, the domestic banks of private sectors are hegemonic. People in Brazil still trust their own banks than the foreign ones. The second problem is Brazil has that the banking market in the Brazil is very large and diversified and not suitable for the entry of foreign banks. Big and capitalized financial groups of domestic nature also imposes the barriers to the entry. There is also a potential problem that government or public sectors in Brazil still hold major share of market.
South Korea: According to most countries, South Korea is the most difficult market to enter due to government regulatory interventions and multiple policy. The interventions put by the government results in the decline and pressure on the margins of banks. These regulatory interventions include reduction on fees and interest rates, restriction on dividend payments and processing data in South Korea instead of Host company’s headquarters. Due to these restrictions, HSBC have already pulled out their operations from South Korean Market and many are planning to pull out too.
France is ranked 33 with score of 4.5 out of 7 in financial market development in global competitiveness by World Economic Forum. The market is termed as more trustworthy and confident and scored 4.7 in the same regards. France is currently busy with the market organization and technological advances (Guo, and Liang, 2016). It would lead to more mergers and acquisitions. As per Boot, 2017, development of Fintech in France is also leading France towards the banking reformation. Some of the regulations which France has passed recently are:
Crowd funding Regulation: This regulation provides the security and information to investors and protect them.
Distributed Ledger Regulation: Minibons on the block chains can be transferred and registered.
Initial Coin Offerings: Enthusiastic approach for the initial coin offering is adopted by the government
Payment Service regulations
Besides these the French economy is opening more for the upgraded technology. Many announcements have been made to introduce more mobile wallets, online banking platforms.
There are many transformations going on in Brazilian banking market to give it a competitive advantage. According to these transformations, the banks in Brazil are also taking proactive or reactive measures. The banks and the banking sectors are changing their strategies as per the changing world. Adopting the technology, cutting their costs, monitoring and diversifying the systems and improving their risk management.
Fiscal support for financial restructuring is done. Government has made a strict rule of not helping those firms which can’t help themselves or have sufficient self-rehabilitation efforts.
Reshaping the institutional framework is also being done to make banking sector or market mare influential and strong.
South Korea has been one of the worst market to enter in banking market due to the high amount of restrictions and interventions applied by the government. But there are certain developments happening in South Korean Banking market which increases its chances to be one of lucrative banking market.
Restructuring of the banking market has been the continuous process of South Korean government. Government has been taking many steps to restructure the market and allow private companies to increase their shares. Earlier the market was more in terms with quick fixes and partial measures were used to be taken to help ailing institutions. But now to stabilize the market extensive and swift measures have been undertaken. Fiscal support is being provided by the government on timely basis.
Potential Foreign Exchange and Trade Implications
The currency used in all the three market here are different. Therefore, change in the exchange rate of currency causes the fluctuations in the value of investment and therefore, causes the foreign exchange risk. It can be also termed as currency risk, FX risk and exchange rate risks. When there is the appreciation in the domestic currency, there is decrease in the returns and the profit of the company (Lee and Wang, 2018. Due to many factors there are always some kind of fluctuations keep happening in exchange rate market. It is very difficult to safeguard oneself against this kind of risk.
The regulations provided by the government regarding trading in the country also plays a significant role. Some countries have very friendly trade regulations and thus promote the foreign countries to enter into their markets whereas some are not so supportive. Banking market is one such market in which terms government are always sceptical about letting foreign players to enter on their ground. That’s why most countries control their banking market with the help of strict regulations and interventions from time to time.
Almost all the governments in world tightly controls their banking and financial markets. Because these banking and financial markets make the backbone of country. They allow the money to circulate in the system and give government the money to bring out the economic developments. In terms of three markets France, Brazil and South Korea, the report has detailed that the France Banking structure is more stable, and sophisticated. France house some of the largest banks of the world and their size and profitability is also more than that of Brazil and South Korea. The problem with the South Korean Banking Structure is that it is largely influenced and intervened by the government and government even keep eyes on the day to day activities. No foreign Banks and companies are allowed to enter, and if they enter they have to follow strict regulations and laws. The interest rates and other critical decisions are taken by the government which reduces the returns and profitability to a very large extent (Domanski, Kohlscheen and Moreno, 2016). The Brazilian banking market is not very structured and unorganized. The people here trust their own banks and financial system more than that of foreign origin. Government also supports more to the local and national banks which results in the decrease of profits.
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