The advantages and disadvantages Essay Example

The advantages and disadvantages Essay Citigroup may find many advantages of entering joint venture arrangements with Chinese partners. First the banking Chinese market is a restricted one and Citigroup cant enter many branches of banking activities. A joint venture is a way to allow them to penetrate those new markets with a minimal cost. The specific importance of guanxi in China is another argument in favor of this agreement since a joint venture can help acquiring these connections. On the other hand a joint venture can help making a positive impression on the POBC since it shows that the company wants to build relationships within the country and that it is here to last and to implement in the long-term. A joint venture can also help providing staff from local population more easily. For the retail business, a joint venture may be helpful for building a broad customer base thanks to Chinese banks ones which can help the targeting of Citigroups customers. In general a joint venture with a Chinese company allows the foreign company to understand better the ins and outs of the question. But some disadvantages may appear if the decision is taken to build a joint venture with a Chinese bank. First Citigroup has very few experiences in building a joint venture (only two, in Hungary and in Saudi Arabia) and it was only when forced by central banks authorities. That means that they might not be able to manage such an endeavor, in particularly since they have to deal with the specific Chinese culture and customs. We will write a custom essay sample on The advantages and disadvantages specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on The advantages and disadvantages specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on The advantages and disadvantages specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Then we can see that in the case of a joint venture between Citigroup and a Chinese bank, the contribution of each partner would be unequal. Citigroup is efficient, hasstrong brand equity, and is known as very successful worldwide. The Chinese banks, on the opposite, have to be reformed since they have a lot of bad loans, they must support inefficient state-owned companies, and the government wants to control them. Even if the entry of China in WTO would force the government to let them go and to open markets, it would be very expensive for Citigroup to repair a wrecked bank1. The banking activity is very different from the industrial activities that usually use joint ventures to enter the Chinese market. And there seems to be no appropriate Chinese partner for a joint venture. Citigroup can effectively enter the Chinese market, but it needs to take care about a few important elements. It is, as we know, a strong financial institution, but the Chinese market is a very particular one. Whenever we go, we need to know the local culture and the business we are getting into. Knowing the way business works and how people think at it, is very important, and Citigroup put a big effort on trying to understand Chinas practices and the way people from there act when doing business. This is the reason why we strongly believe that they can have success, but only if they continue to commit some jobs to locals and train their best managers on-site. This will make their business healthier and more efficient. The question, anyway, is unfortunately not answered yet. Will this strong effort on local people be enough for them? Of course not. This is an important variable in the game, but not the only one. As we know, China is a mixed economy close to the extreme of command or centrally planned economy2, so it is very difficult to get state permissions to open businesses in the country. Citigroup, anyway, got it, but now it has to face with some challenges. China is going through a transition, so it is important for managers to understand the direction and the speed of change and how their own industry will be affected by these changes. Even if Chinese growth has been far stronger than for other countries in transition, China has maintained totalitarian political control while loosening the economic one, and a major challenge is privatizing SOEs. The companys success so, will also depend from the liberalization pace. To work properly and in the best way Citigroup needs really open markets. Its products, financial servies, can have a very huge market in China but, as everybody knows, the more open are the markets, the more competitive can the company become. This element let us think, especially if we consider that Chinas pension system is largely unfunded, corruption is widespread and the country rates very low in the Opacity Index and even worst in the Transparency Index, in which it is rated worst than Nigeria3! Moreover, the company allocated a lot of resources on e-business, but this is not really the best thing to do in a market like the Chinese one. The big number of restrictions on telecommunications and Internet let it be a waste of resources for the company, that pushed on this investments from an international perspective. This wont be a competitive advantage in the short term, period in which they have to rely on th one side on guanxchi and Joint Ventures that, as also the companys managers said, give to the institution short-term advantage, but not long-term benefits, and on acquisitions (their favourite strategy between the two) on the other side. The short-term objectives, anyway, are not the only one to be considered. Citigroup has got the WTO on its side. The WTO membership forced China to open its financial system to foreign corporations and, even with some hesitation, China is opening more and more its borders to foreign companies. Another reason for the possible future companys success is the fact that Chinese companies can learn a lot from Citigroup, copying its way of doing business and trying to achieve specific skills that nobody else have, so they will not strive for eliminate a company that can give them such an innovation. Some critics say that to achieve complete success in china and Compete more effectively within the market the Communist party should be advocated to an end. Maybe this will be impossible in the short term and, even if it could be useful, we dont think it will be necessary. Citigroups long-term objecives, then, summarized in the concept of expansion in China, can be achieved from the company just by moving slowly and following the Chinese market step by step. Despite the market situation and darkness, there are absolutely good elements that let us think at Citigroup as successful in competing with Chinese financial institutions. 4. Present and defend your recommendations in regard to a strategy for Citigroup. Citigroup wants to enter the Chinese market to expand its product line and market share, but before starting with that the company needs a deep analysis of the market in which it wants to operate.