Running Head: Citigroup in Post-Wto China Analysis

Running head: Citigroup in Post-WTO China Analysis

Citigroup in Post-WTO China Analysis

Strategy Formulation and Implementation

MGT 578

February 25, 2006

Citigroup in Post-WTO China Analysis

Introduction

Citibank, part of Citigroup, was one of the first foreign banks that entered China over a century ago (1902) and hence has a long history of goodwill in the country. Before China's entry into the World Trade Organization there were significant limitations on the scope of foreign businesses. As a result, Citibank was only permitted to participate in limited corporate banking services and in limited Chinese cities. Since China's membership into the World Trade Organization, many of these limitations have slowly begun to diminish; nevertheless Citibank and other foreign banks must manage within the existing regulations.

Argument #1: Citigroup has NOT displayed adaptability to expand China operations

Some of Citigroup's business actions could seem to show their lack of adaptability to expand their operations within China. Initially they failed to take part in joint ventures to facilitate their entry into China and even still hesitate to partake in significant number of joint ventures choosing instead to try to grow through acquisitions. As a result of the significant number of regulations that foreign-banks faced, this would create a slower entry rate for Citigroup. Initially Citigroup was unable to introduce credit card services due to restrictions on foreign players and limited access in personal banking. While restrictions still stave off foreign players and local banks are reluctant due to credit risks, the answer to adaptation into the multibillion dollar credit card industry appears to be joint ventures between foreign banks and local branch banks (Von Emlod, Pitsilis & Wong, 2003). Citibank's attitude toward joint ventures was: "We recognize that most JVs do not last very long; JVs give an institution a short-term advantage, but not long-term benefit. We do not think that we need to do a JV in China" (Pearce & Robinson, 2004, p.30-15).

Citigroup has the opportunity to not only expand its operations in China by entering primarily in the eastern coast but could also look at the western coast markets. While the eastern coast has higher population of wealthy citizens, there are significant opportunities to reach the population of consumers and businesses in the western area of China. Citigroup could look at this avenue as an opportunity to be the first major foreign-bank to handle the needs of this area of China. While Chinese banks and other foreign-based banks fight for the market share in the wealthier east coast, Citigroup could take advantage of this lack of attention and penetrate this market. This would give Citigroup more opportunity to expand their operations in even more areas of China.

Argument #2: Citigroup has displayed adaptability to expand China operations

Citigroup has demonstrated significant adaptability in trying to expand its China operations and gain more market share. Their keen sense of creating relationships through global business relationships has enabled the company to create a broader, more dynamic presence in more major cities within China. Citigroup understands that whether on the home front or as a foreign organization, strong business relationships will be critical in growing their operations. When Citigroup was able to get former President Bush, British Prime Minister, and Margaret Thatcher to visit China, the Chinese government and the PBOC realized that Citigroup could bridge gaps and build relationships with lasting effect.

As a result of their positive government relations and public affairs, Citibank could offer more products and services within their Chinese operations. For example, they made insurance products and expertise available through the Traveler's Life and Annuity division. In 2002, Citibank was the first foreign bank to offer renminibi services, banking services to consumers in China, and made investment products available. Further in 2004, they expanded their service offerings by making consumer banking business available in Beijing. While they were not the first foreign bank to offer these services, this marked "a strategic move by the US-based bank to further explore the Chinese market" (China Daily, 2004). Also they created a foundation for auditing that transformed Chinese banking internal auditing. Citibank offered technological advancements when they selected SPECTRA Technologies POS terminal to implement the EDC installment plan, hence creating greater convenience to merchants and cardholders (Spectra Technologies, 2005).

Citigroup also recognized the need to develop the human resource technical and financial knowledge in professionals within China. In 2004, they designated $174, 000 in an Information Technology Initiative "to lend critical support to Chinese universities to increase resources for professors and students interested in information technology" (Citigroup Foundation). This eight-week course would teach mainframe computer skills and provide knowledge on various software applications. This initiative showed Citigroup's adaptability to the existing environment which they wanted to participate in. So realizing the need to develop human resources, they were willing to invest in and partner with universities throughout China.

In an additional effort to expand their China operations, Citigroup is now attempting to acquire 85% control of Guangdong Development Bank. "Acquiring outright majority control of a Chinese bank would be a first for a foreigner, and possibly