Citigroup: Taking Sides Case Analysis

Citigroup: Taking Sides Case Analysis

Citibank, part of Citigroup, was one of the first foreign banks that had obtained licenses to conduct a limited range of commercial activities in China. When China entered the World Trade Organization at the end of 2001, Citigroup was still at an early stage in its China strategy. By 2002, Citibank had become one of the strongest foreign banks operating in the People's Republic of China, but as a foreign bank it had only limited market access, for a limited array of services. Citigroup wanted to determine the growth prospects for each of its divisions, and which of its vast array of financial services should be the focus for expansion in China (Conklin, 2005). Learning team A, have analyzed the case entitled "Citigroup in Post-WTO China." Sides were taken by team members on whether Citigroup has or has not displayed adaptability in its attempt to expand operations in China.

Citigroup has displayed adaptability

Citigroup has operated in China for more than a century and has a long history of goodwill in this country. Citigroup's reputation is explained in the case study which states:

Citigroup had a well-established reputation for commitment, which has made Citigroup popular with the Chinese government. Unlike other banks which moved into the countries on the expectation of brisk profits and then moved out when they were slow to materialize, Citigroup moved in early with the intent to stay. (Conklin, 2005)

Citigroup's reputation and intentions has helped earn the trust of the Chinese government which demonstrates the advantage Citigroup has over other banks in being able to adapt in China.

Citigroup has displayed adaptability by becoming the first foreign institution to be given approval for foreign currency dealings with Chinese customers. The license given to Citibank is a service promised to international financial institutions under China's bid to enter the World Trade Organization.

The bank has displayed adaptability in its accounting and auditing practices. Citibank was chosen by the People's Bank of China (PBOC) to work with improving internal auditing processes of domestic banking systems. PBOC used the banks internal auditing standards by implementing a guide for its own use. After using Citibank's internal auditing standards, the banks internal control standards was forwarded to other Chinese banks.

Citigroup has displayed adaptability in the company's insurance, investment and personal banking services. Citigroup has made a commitment to localization. Through localization Citigroup has managed to hire local people for 95% of its international jobs. This along with Citigroup's commitment to helping local industry has helped shape the perception of Citigroup by the customer. Being able to shape customer perception has certainly helped Citigroup adapt where other foreign banks have failed.

Citigroup has not displayed adaptability

Although Citigroup was one of the first foreign firms to obtain licenses to conduct business in China with limited market access, and has successfully adapted and integrated its business in other global markets, it does not have ability to adapt in China. There are several factors that contribute to its inability to integrate and expand its operations post WTO China. Some of these factors are the need for government reform, the PBOC, which is the regulatory agency in China, the financial condition of state owned enterprises (SOE), human resource challenges, China's sensitivity to inflation, and Citigroup's outlook on joint ventures.

Citigroup is accustomed to working in the open market of capitalistic societies. Although WTO mandates open markets China is impeded in this area. In order for Citigroup to be successful in China there is need for government reform. Many experts believe that, in order for China to deliver on the agreements made through WTO, there needs to be political reform. Since the Communist party currently runs China there would need to be a "shift toward democracy, free speech and modern commercial laws," before Citigroup could adapt.

PBOC is responsible for ensuring that China meets the WTO commitments, however, with the poor financial condition of state banks PBOC also needs to ensure that foreign competitors do not force them out of the market. This is accomplished by creating regulatory reforms to counteract the demands of the WTO. PBOC has initiated regulatory controls that state funding requirements, geographic restriction, and application restrictions. This has placed limits on when and where Citigroup can operate its business and it is unable to adapt to these controls.

If PBOC does not continue to institute more regulatory control over foreign companies such as restrictions on deposits, interest rates, and reserve requirements the SOEs will be impacted beyond restoration. The current condition of the SOEs is such that the government has thought of allowing