Chinese Merchant Bank Harvard Case Solution & Analysis

Chinese Merchant Bank Case Study Solution

Abstract

The case illustrates the transition strategy of the Chinese merchant Bank (CMB).It describes the transformational strategies that the CEO and director of the bank took, in order to make the disruptive change in the banking industry so to sustain the competitive advantage of the bank in market and maintain the leadership as the 6thmost profitable bank after the big five. the core competence of the bank remain technological innovation and its customer oriented service which created a strong brand image in the mind of the customer and also created a distinct position in the market, making it compete against the big 5 bank of the industry.

Over the period of time, with the changes in Chinese government regulations to promote capital market and credit market industry, many foreign banks have entered the Chinese market and also facilitated the local banks to increase the services in order to make the operations profitable and sustainable. The case further outlines, the two transformational strategies CMB took under the leadership of Ma weihua, which transformed the brand image of the bank and also enabled its streamline its operations by making the cost low and profits high. It incorporated digital platform to offer exquisite and above the line services to the customers that integrated with the changing life style buying behavior and target segment of the CMB bank.

Keywords:  Business strategy, leadership, Transformational Strategy

What was the first transformation and how did it address problems faced by CMB?

Chinese Merchant bank is the 6th most profitable bank in chin, after the big five. It has developed its business strategy so to sustain its competitive advantage in the market leadingto profitability. However, in 2005, when the Chinese government started lifting barriers on capital markets, making these market to emerge in china, and thus diluting the role of banks leading to Financial disintermediation, the CMB bank under its first transformation strategy, introduced the credit cared service in the market.

Ma, believed that the market has the potential and growth in credit card market and estimated the profits in the 8th year of operations, however, defying the market research and analyst proposals,, the bank started to make profits in the third years, which propagated the idea and also strengthened the strategy of CMB bank to plunge into the credit card market. Also, along with this, under the first transformational strategy, the CMB bank for the first time offered the retail banking services to the customers, small-Medium enterprise loans and non-interest income to the Chinese market. This rousted the bard image of the bank in the industry, making it stand out of the market as a distinct bank. The particular transformational strategy also allowed the CMB to miti gate the increasing power of the suppliers (organization) in reducing the interest rates, and also reduced the dependence of CMB on interest for its profitability .Not only this, the transformational strategy also allowed the bank to attract more customers under different financial services, increasing the footfall, and thus leading to profitability.

Furthermore, while implementing the First Transformational strategy, the bank develop extensive sales teams, which cross sell to the customers by finding or locating them from within the bank or from the super-markets.it also increased the sales teams so to offer the exquisite customer service to each of the customer, establishing the brand equity in the basis of customer services, which leads to customer loyalty and hence retention. Also, it developed the sales teams in different cities of chain, to develop market penetration through low cost structure. All these measures helped CMB to make a stand out position in the market, along with the control on bargaining power of the buyer, with sound profitable operations.

How did the second transformation build on the first transformation?

The aim of the second transformation according to Ma Weihua was to reduce the cost of capital and maximize the profits. Under the particular strategy, the Chinese merchant bank introduced the services of credit card and retail banking, which expanded horizon of service and offering to the customer and thus lead to increased profitability. The second transformational strategy has been developed ion the first strategy, in a way, that under the first transformational strategy and era between 2004-2008, the bank managed to develop a differentiated brand image in the market with smooth stream of cash flows, however, in order to become more sustainable and increase the profitability of bank, CMB focused ton extending the product line, by offering more financial services under the credit card category.

It started offering platinum, diamond and infinite card to the consumers to increase the product penetration in the market. Since the bank already laid its credit card strategy in first transformational strategy ,it becalm easier to extend the service in order to synchronize with market behavior and also tap the market through aggressive market penetration strategy .Also, in order to reduce or mange the non-performing loans, the bank developed a structure to control the non –performing loan, under which it analyzed the customer profile and then offered the loans accordingly. Since in the first transformational phase, the bank gather or managed the customer data, it helped CMB, managing the non-performing loans in the second transformational strategy.

Chinese Merchant Bank Harvard Case Solution & Analysis

 

 

In addition, to extent the market reach and developed extensive banking network, the CMB followed the push and pull strategy. Under the Pull strategy, the bank established the online channel to locate and identify the potential wealthy customers for the credit services. This became effective tool for bank to use because it largely laid the sales teams in different markets sand cities of china, in first transformational strategy and thus provided the data to perform the online data analytics to locate the potential customer for credit services .Lastly, the bank developed its credit card services and extended it to use the card for online payments so to sync with the changing market dynamics which was shifting towards online purchases .The bank flanked the new entrants like ali-pay by offering the existing customer promotional gift and the reward point system......................

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