ICICI’s Global Expansion

Assignment - Group C6

1. Should it distract itself from opportunities in the Indian market with its global
strategy?

ICICI Bank has established its stronghold in India evolving from a traditional development
finance organisation which focussed on commercial lending into full-fledged banking services
firm with expertise in retail banking, insurance, asset management and venture capital. It’s
foray into the domestic banking market has shown promising results with phenomenal growth
seen in the last five years. It has created a strong position by leveraging its technological
knowhow and better customer service ( 90-day rule and weekly sanction of short-term loans)
driven by their investments in organizational culture.

Moreover, the reasons why most of the banks failed in their expansion have been counteracted
by the strengths( differentiators – technology and customer service) that ICICI possesses.
Therefore, it makes complete sense to not lose the opportunity of an international expansion.
Existing players in the international space do not have a “hard-to-copy” differentiator which
brings down the barriers to entry to a great extent. They have been leveraging their past
relationships with the customers which is not sustainable in a competitive space. Moreover,
there was hardly any product innovation or investment in the technology which made their
processes extremely slow and inefficient. Hence, it also is a motivator for ICICI.

SWOT Analysis for ICICI:

Strengths
- Technologically advanced
- Strong organizational culture that is
a boon while coordinating between
the division overseas
- Quick processing time due to strong
organizational culture
- Higher penetration through bank
branches and ATMs
- Capability to operate higher number
of bank network due to their
domestic stronghold
- Good knowledge of the domestic
environment and customers
- Availability of talent pool suitable to
acquire expertise in any new advent
Weaknesses
- Lack of an extensive network as that of the
SBI and other Money Transfer Companies
- Lack of awareness among the population
about the technological advancements
- Lack of a banking culture among the
Indians ( 60% of the population did not
have a bank account)
- Lower penetration of the retail segment as
compared to other southeast Asian
companies
- Smaller bank network and lower
penetration as compared to the public bank
SBI
- Lower trust among the population because
of the fact that it is private bank
 Opportunities
- Existing overseas banks have a slow
process
- Focus only on the high net worth
individuals with focus shifting to
mass markets
- Existing players relied on the
established relationships (no
aggressive marketing) which is does
not have a sustainable competitive
edge
- Very little product innovation
- Little knowledge of the current
market
- Advent into mobile banking
opportunities
Threats
- Current business may not survive in
the new economic environment
- Slowing credit growth & thinning
margins in corporate lending
business
- Domestic business wasn’t secure
either. The competors started
upgrading the technology, cutting
down on workforce slack and
increasing the presence pan-India
- The margin spreads in domestic
retail and commercial banking has
fallen drastically in recent times.

BCG MATRIX:
Relative Market Share

Star: International Expansion ?

Growth Rate
Market

Cash Cow: Domestic Retail Dog

2. Why should it believe that it can succeed where prior Indian banks’ forays overseas
had failed?

The issue that most of the banks faced when it tried to expand overseas were the following:

- Lack of understanding of the international market, customer needs and country specific
operational challenges: These challenges in most cases are very specific to the country where
the firm is operating hence it requires the firm to have exceptional coordination skills to
smoothen the operations across countries.
- Lack of coordination: The processes followed by the existing players was such that it took
the request through the Indian division for approval which took a lot of time and contributed
to the delay. This process can be essentially quickened through increased coordination among
the department.
- Lack of technological advancements and innovation: The banks didn’t invest in the
upgrading the technology nor did it try to come up with new products. This became a deterrent
to the success of the incumbents.

Reasons for ICICI to succeed:

- Strong technological background and continuous investments in innovation

- Good financial stronghold in the domestic market which plays the part of cash cows in terms
of generation of revenue.
- Higher customer satisfaction due to the faster processing time which adds to the level of
customer service – a major source of competitive advantage
- Huge network of Banks (445) and ATMs (510) across the country which will make banking
service easier and preferable.
- Presence of mobile banking as an option.
- Having managed the large workforce through the changed organizational culture, it would be
easier for ICICI to collaborate and coordinate across countries

3. Does the strategy of pursuing the Indian diaspora make sense? Why or why not?

The idea of targeting the Indian diaspora is because of the higher number of transactions
involved with the native land – be it remittances, investment products, contributory funds,
imports or exports. Therefore, a clear market exists when we look at their transaction volumes.
The focus group discussion with the potential customers clearly brought out the need for better
products especially in the remittance market. Moreover, the number of Indian businesses in
abroad has been growing at a rapid rate which would provide it with a visibility in international
operations and could possibly offer other services in due course.

4. Who are its principal competitors in this endeavour?

The major competitors can be categorized as follows:

(i) Existing players in the International Market – who are serving the Indian diaspora in foreign
land.

- Foreign Banks: Citibank and HSBC

- Public Sector Banks: SBI, Bank of Baroda had the largest share in the international business.
- Money Transfer Companies: Western Union, Money Gram, Exchange houses like UAE
Exchange

(ii) Potential entrants: SBI, Bank of Baroda and other Indian Banks who have been operating
the foreign space but might have plans to expand into the other regions of the world which
ICICI is currently targeting.

5. If you believe that ICICI should go global, on what geographies should it focus? What
should be its strategy in each of the suggested geographies?

Since the strategy of ICICI was to focus on the Indian diaspora, it inclines us to choose the
international location which has maximum number of Indians residing. Also, being mindful of
the regulatory environment of the country of expansion is an important factor to consider.
Given the need of the customers to get remittances processes quickly and the market of
remittances ($15 Billion from a total of $150 billion worldwide), it becomes indicative for
ICICI to look for opportunities in this segment. Moreover, cheaper and better remittance
products would attract customers to keep their money in the banks. For the banks, the dual
benefit of getting cheaper funds as well as the opportunity to cross-sell other higher value
products makes this opportunity highly attractive. Also, offering only India-based products like
remittances and NRI bank accounts do not need setting up a bank branch or subsidiary.
Therefore, it is also cost-effective and the expansion would be fast. So, for a beginner, they
could start with an expansion to all the countries where the diaspora is found in a majority. For
instance, Canada, US, UK, GCC, France, Germany and Singapore. This can be broadly clubbed
into West and East.

The strategies that it can adopt in the suggested geographies would be as following:

- East (Saudi Arabia, UAE, Oman, Kuwait, Qatar, Bahrain and South East Asia): The
customer predominantly in this area are migrant workers who has a low remittance to diaspora
ratio as 1219. Since, the amount of remittances is not high but the volumes of transactions are
high. Hence, cheaper options for fund transfer would attract the customer to use our services.

- West (France, Germany, Canada, US and UK): Here, the number of transactions are low
but the amount transacted is high. Therefore, a higher transaction fee would not deter the
customers from using the service but the service quality should be high. Hence, the focus
should be on technological advancements so that the time lag for the transactions can be
reduced and it should be made as hassle free as possible as the profile of the people using the
service are from the premium segment who would be likely to pay a premium based on the
service.

6. Size of the Business: Retail Market

Product Size of Market (in million $) Market size of ICICI (in million $)
Deposits 659000 23065
Housing Loans 6382 191.460
Auto Finance 1809 289.440
Credit Cards 5 0.250
Total Market Value 667196 23546.15

According to the table, by considering the growth percentages in the various verticals, the
projected market size looks like the following:

Assumption: Share percentage for deposits is assumed to grow by 0.5% every year.
 7. Size of the Business: Remittances

Remittances to India (2001) = $15 Billion

Assumption: Average transaction value of remittance as $200
Approximate number of transactions = $15 Billion/ $200 = 75,000,000
Assuming ICICI captures 10% of the transactions,
Number of transactions: 7,500,000
The price that can be charged by ICICI should be at par with the current service of the wire
transfer of Western Union. Hence fee per transaction: $10

Potential size of market = 7,500,000 * $10 = $75 million

8. Opportunity in International Corporate Banking

Estimated Market size in Trade finance: $750 million

Treasury and corporate: $70 million

Since the UAE Exchange, the most popular money transfer company had a market share of
10% in the $15 billion remittance market. Assuming that other banks are also in the space,
having a 10% market share would result in ICICI’s establishment as a key player in the market.

Hence the market for ICICI is net of 82 million.

9. Local retail banking in UK & US: Projected Annual Revenue

Total Indian NRI population in US and UK: 3,878,765

Assumption: ICICI captures 10% of the market in this segment, and the earning being $750
per customer.

Market Share: 3,878,765 * 10% * 750 = 290 million