Q1. Based on your knowledge of firm internationalisation, critically evaluate and discuss the modes of entry into foreign markets used by Handelsbanken.
Handelsbanken, one of the most profitable banks in the Swedish market, has gone from strength to strength through the firm internationalisation strategies they have implemented since the 1960s. Although they have experienced a few setbacks in recent years due to market changes, they have had overwhelmingly positive results each time they have expanded into a new country, with their strategies of decentralisation and cost-consciousness, they have successfully globalised their operations through north-west Europe as well as with representative offices further afield.
There are 3 modes of entry into foreign markets; Trade related, transfer related and foreign direct investment. Trade related entry involves exporting from the country production is based in and distributing them to international customers. Transfer related entry modes involves contractual relationships such as licensing or franchising , where an international partner of the firm uses its intellectual property for an agreed upon fee (Tiernan, 2012, p. 134). Handelsbanken have predominantly used foreign direct investment (FDI) as a mode of entry into international markets. Foreign direct investment may be defined as ‘an investment in the form of a controlling ownership in a business in one country by an entity based in another country' (Berkery, 2018). Foreign Direct Investment can be divided into wholly owned subsidiaries; where the foreign assets are fully controlled by the investor; and joint ventures; where two or more firms collaborate to join a new company. Many companies use joint ventures to enter into a new market with an already established local company, to make use of their resources and loyalty shown by customers as it is harder to break into a new market alone (Tiernan, 2012, p. 169). Handelsbanken briefly tried joint venture when they took over some indebted swedish companies to form a company called ‘Industriarden' which in turn led to the ‘Handelsbanken sphere'. However Handelsbanken is predominantly a wholly owned subsidiary.
In 1961 many Swedish firms had set up production facilities in Sao Paolo, Brazil; Handelsbanken saw an opportunity and set up a representative office there, which was the first of its kind for the bank. This representative office was followed by others in New York, Paris and Beirut. Once Sweden liberalised its financial markets and opened up for cross border banking operations it created a wealth of opportunities for Handelsbanken to internationalise. However, in keeping with Handelsbanken's traditionally cautious attitude, they decided to take their time and chose the safest option. They opened an office in Oslo in 1986, but still on a low scale and only serving Swedish companies. Over the course of the next few years Handelsbanken continued to internationalise and opened offices in Finland & Denmark, not yet braving markets outside of Scandinavia. These offices are what is known as greenfields investment which can be defined as 'Direct investment to build a new manufacturing , marketing, or administrative facility, as opposed to acquiring existing facilities'. (Tiernan, 2012, p. ?) This was a well thought out and cautious way in which to break into foreign markets as it has allowed Handelsbanken to have control of the type of culture it had in the organisation and it eliminated the risks associated with acquiring another bank. It was also advantageous for Handelsbanken as it allowed them to have ‘have full ownership and control over these subsidiary units.'(Nisha, 2016). This allowed them to maintain the culture that had already been established in their Swedish offices, which was of the utmost importance to those at senior level in Handelsbanken. However it did require more capital as it can be the most expensive entry mode. It can also be the most challenging in terms of managing local resources but Handelsbanken conquered this by sending out their own season executives to run and maintain these offices.
Handelsbanken were able to acquire Skopbank, which was another mode of entry into international markets and in this case, the Finnish market. An Acquisition can be defined as ‘The purchase of an existing company or facility' (Berkery, 2018). This can be seen as a calculated move by Handelsbanken as Finland had been having a financial crisis and had lost faith in their own banking system so customers were looking for a new bank to trust. They acquired Midtbank in 2001 and added 23 branches to the 7 that already existed. This was a more challenging acquisition as they had to combat the already established culture of the company, to keep inline with their own beliefs. They were able to conquer this by sending experienced members of the Handelsbanken team to serve as ambassadors. Handelsbanken did not lose their typical cautiousness in this acquisition, their main concerns were the differences in national culture, as this had strongly influenced the overall culture of the company. There were many benefits to acquiring these two smaller banks as opposed to setting up greenfields investment. These would be that acquiring these banks is a fast and efficient way to enter the market it also eliminates some competition from the marketplace. As previously stated, acquiring already existing entities can be more expensive than other options available but in this case it worked out quite well for Handelsbanken.
When Handelsbanken looked to branch into the UK market, they were seeking to acquire smaller entities similar to the approach they had taken with Midtbank and Skopbank. Unfortunately they could not find a viable option for this and decided to simply take their well seasoned approach of opening small offices in their chosen location, otherwise known as greenfields investment. This was a calculated move as there was an opening in the UK market for a bank which was more decentralised compared to those already trading in UK financial market. This degree of decentralization would allow each branch manager to have a large amount of independence, ensuring that Handelsbankens core philosophy was still in play. This quickly led to the success of Handelsbanken in the UK and subsequently a large expansion of over 150 branches by 2014. They also managed to acquire an asset management company which managed assets of £1.6 bn, this increased Handelsbanken's position considerably.
Handelsbanken has continued to grow and grow in regards to opening new representative offices in Poland, Germany and the Netherlands. They never over extended themselves and continued their tried and tested approach of being incredibly cautious when entering a new market, and invested a lot of time into recruitment in order to keep the same culture Handelsbanken had spent decades perfecting and keeping in place. The idea of decentralisation is imperative to Handelsbanken's success, as it attracted customers from other banks who were unhappy in their own bank, and it also attracted perspective employees who valued working indepently. Even though Handelsbanken have been traditionally risk averse,
...(download the rest of the essay above)