The Analysis of Strategic Management of the Consumer Banking

The Analysis of Strategic Management of the Consumer Banking Business in
Taiwan: An Empirical Case Study on the Citibank in Taiwan
Chin Ling Chu
Lecturer, Department of International Logistics and Marketing Management,
Tatung Institute of Commerce and Technology; Doctoral Student, Insurance
Group, Program in Business, Feng Chia University, Taiwan.
[email protected]
Ming Chen Lee
Professor, Department of International Logistics and Marketing Management,
Tatung Institute of Commerce and Technology, Taiwan.
[email protected]
Abstract:
Facing rapid growth of markets, accelerated advancement in technology, intensive
competition from increasing participants, and dynamic needs of customers, Taiwan’s
banking industry has evolved very dramatically in the last decade. In 1990, the
Taiwanese government revised the Banking Law that made free establishment of
private banks possible. The deregulation was considered the driving force that had
made all the positive changes. This revolutionary revision resulted in the opening of
16 privately owned banking institutions that brought the Taiwan’s banking industry to
a new era.
To dodge direct competition with the government ran bank where serving local
companies and corporations was the focus, and to avoid becoming the excessive
suppliers to the over served commercial banking sector, these newly set up institutions
shifted their attention to attend to individual customers. The industry went from
traditional commercial banking dominated to unconventional consumer banking
centered. The term “consumer banking” started to be recognized by consumers and
was popularly practiced by the industry. Familiar names such as Tai-Shin Bank, E.
Sun Bank, and Fubon Bank are the products of the deregulation and the
representatives of consumer bank.
Among the many foreign banks who have invested operation in consumer banking
business in Taiwan, Citibank seems to be the most recognized and acknowledged.
From the perspective of revenues and profits, it has had an outstanding track records.
Its financial performance has been consistently make jealous of others in the field.
Besides the impressive financial statistics, Citibank Taiwan has also established itself
as a market leader in the Taiwan banking industry. It symbolizes a provider of
innovative financial services, and a large secure international bank according to a
survey conducted among its customers. Citibank Taiwan’s indisputable success in
managing its consumer banking business has long been the center of attention in the
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local banking industry. This study will focus on analyzing the key factors for the
success of Citibank’s consumer banking business in Taiwan. A detail review of the
strategic management will also be presented in the study.
The objectives of this study are to (1) investigate Citibank Taiwan’s strategy in
managing its global consumer banking sector, (2) to probe the key success factors that
have created Citibank’s position in the industry. Six hypotheses are developed to
accomplish the objectives. They are as followed:
1. Early entrance and development in consumer banking business and clear
corporate direction have help built a solid foundation for the consumer banking
businesses in Taiwan.
2. Localization and delegation in the human resources created an enormous power
in its talent poor that is one of the most important factors to Citibank’s success.
3. Limited resources and regulatory constraints led to Citibank’s premium pricing
strategy that in terms developed its brand positioning.
4. The concepts of sales goal setting and marketing promotional activities educated
and stimulated customer’s needs.
5. New participants such as the local private banks’ emphasis on consumer banking
sector created a positive competitive impact to Citibank in the long run.
6. Supports from the headquarters enriched the resources and highlight the
importance of Taiwan branches to Citibank.
This study adapts in-depth interviews with the senior managers in Citibank
Taiwan. It captures the development process of Citibank Taiwan consumer banking
sector from early 1980s to present. In addition, all reports and statistics are provided
from the MOF and Central Bank of Taiwan as well as internal financial data from
Citibank.
Keywords: Consumer banking, Citibank, Premium pricing strategy, MOF(Ministry of
Finance),
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I. INTRODUCTION
In 1990, the Taiwanese government revised the Banking Law that made free establishment of
private banks possible. The deregulation was considered the driving force that had made all the
positive changes. This revolutionary revision resulted in the opening of 16 privately owned banking
institutions that brought the Taiwan’s banking industry to a new era.
The industry went from traditional commercial banking dominated to unconventional consumer
banking centered. The term “consumer banking” started to be recognized by consumers and was
popularly practiced by the industry. Familiar names such as Tai-Shin Bank, E. Sun Bank, and Fubon
Bank are the products of the deregulation and the representatives of consumer bank.
Not only are the new Taiwanese banks eager participants in it, the foreign banks are those who
are very aggressively pursuing this business as well. Big International names such ABN Amro Bank,
Standard and Charter Bank, and Bank of America are the representatives for their kind. By
leveraging their global presence and worldwide distribution networks, these foreign banks have
presented themselves as serious players in this market and have taken a part of the territory from the
hands of our many local banks.
Among the many foreign banks who have invested operation in consumer banking business in
Taiwan, Citibank seems to be the most recognized and acknowledged. From the perspective of
revenues and profits, it has had an outstanding track records. Its financial performance has been
consistently make jealous of others in the filed. Citibank Taiwan’s indisputable success in managing
its consumer banking business has long been the center of attention in the local banking industry.
This study will focus on analyzing the key factors for the success of Citibank’s consumer banking
business in Taiwan. A detail review of the strategic management will also be presented in the study.
The objectives of this study are to (1) investigate Citibank Taiwan’s strategy in managing its
global consumer banking sector, (2) to probe the key success factors that have created Citibank’s
position in the industry.
II.MACRO & MICRO FACTOR ANALYSIS
In this section , we will examine both the international and external factors affecting and
influencing the early 1980’s to present.
A．
． Overall Economic Factor
According to the substantial proof of "Cross-Sectional Regression Model" by Fieleke , the
express variables used by US banks for accessing setting up branches aboard are:
(1) Direct investment in local market by US corporations
(2) GNP In the local countries
(3) Trading volume In the local countries
(4) ROI (return on Investment) of branches In local the markets
As to the foreign banks operating in Taiwan, both the first and the third item are critical factors
in deciding whether or not to open overseas branches.
Figure 1. GNP vs. Per Capita Income from 1992 to 1997
According to Den-Pai Yu's and Chang Fong Lee's studies, the influential growth factors for
foreign banks in Taiwan (1984) included:
(1) Interest rate gap among Taiwan and other countries
(2)The economic activities and financial activities in Taiwan
(3)The variance of trading balance
(4)Deregulation in establishing branches
Figure 2. Deposit and Loan Outstanding by Foreign Banks
B. Deregulation of Banking Industry in Taiwan
The relaxation of regulations on credit card by the Minister of Finance (MOF) was the prelude
to the scene. Taiwan's first credit card, the National Charge Card (NCC), was introduced in 1984.
Strictly speaking, it was not a credit card but a charge card. The NCC offered no revolving credit
and couldn't be used abroad. By late 1980's, usage of NCC was declining and could not be helped.
In 1988, the government allowed the NCC to function as a credit card with all normal and standard
credit card features. More importantly, this action announced the birth of credit card business in
Taiwan.
The opening of the credit card market was especially attractive to foreign banks. While the new
private banks had to create new systems from scratch, international institutions could simply
translate credit card know-how from homes as they began issuing American Express, VISA,
MasterCard, Diner's Club, and JCB. As a result, foreign financial institutions quickly attained a
secure position in the market Citibank and American Express both launched cards in 1989, and
other foreign banks later followed the trend after deciding to develop consumer business in 1994.
A total of 4.5 MM cards are now in circulation since then. Foreign banks ac count for 40% of
the total market. After factoring in the subjective and objective advantageous elements, Citibank
became a pioneer in Taiwan's consumer banking and have been receiving very prosperous pay back.
The nine-branch network and over 2800 Citibankers support an average of NTD$ 600 million in
deposits per branch (the highest in Citibank worldwide), 1 million customers including banking and
card product, and 2.2 revenue/expense ratio.
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C. Rising of Consumer Banking
The shift in focus from the traditional commercial banking to the new consumer banking is the
result of the change in external environment as well as the rise of consumer awareness. In an article
"the banking industry meets the new Taiwan" written by the American Chamber of Commerce in
Taipei had a such observation: " First , the government lifted its decades-old ban on new banks.
This ended the monopoly enjoyed by 16 government / semi- government banks-12of which were
government run．Revisions to the ROC Banking Law in 1989 allowed new banks to apply for
licenses. And soon 1992 new domestic banks were approved.
New banks took one look at the existing system, in which the large government Banks were
firmly entrenched in corporate banking, and decided to try to break into another area . ”The new
banks coming in saw that their opportunity was to provide quality service to the Taiwan
consumer , ” says Jeffrey Williams of American Express.” The Taiwan consumer now is educated,
is becoming wealthy, and has traveled and seen what’s available internationally. Therefore, there’s
tremendous opportunity for anybody able to serve these needs.”
Figure 3.Loan and Deposit of Individual Accounts in Domestic Banks
The emphasis on consumer banking sector can be seen in the above figure.
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D. Strategies & Activities of Foreign Banks’ Consumer Banking Sector in Taiwan
According to Ya-Wan Cheng’s study on “The strategic management of foreign banks in
Taiwan”(1993), there are 3 phases of foreign banks’ activities which are
(1) Aggressive growth
(2) Conservative operation
(3) Strategic re-construction
As for the characteristics of foreign bank, Ling-Lung Shen (1988) pointed out the flexibility on
management strategy yet in a limited scope.
(1) To understand customers’ needs aggressively rather then the traditional monitoring customers’
credit.
(2) To utilize the human resource and give up nepotism and favoritism.
(3) To create the “account officer” system to take care individual needs
(4) To structure equipment to automatically function and save man power
(5) To build a global network
(6) To educate customers with advanced financial knowledge
Echoing to the changing of society and rising of consumer needs, the strategic adjustment were
made:
(1) To weight the fee-based transaction in responding to the shrink interest spread.
(2) To emphasize consumer banking as well as personal financing, e.g. auto loan, mortgaged loan,
credit card, mutual fund, foreign currency transaction and so on.
(3) To innovate in financial product, e.g. montage loan with revolving line.
(4) To localize in senior staff, e.g. to hire local people as either general managers or department
heads.
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E. Strategy of the Global Consumer Banking of Citibank
The most representative announcement in strategic movement in Citibank is the “Memo from the
Beach” written by Chairman of Citibank in early 1980s. He stressed on his view and expectation to
consumer business. The main points are as followed:
(1) The consumer sector is immensely large, growing in importance and currently poorly served by
financial organizations.
(2) Some relevant new delivery technologies are available to the business and will have an
important bearing on both the economic dynamics and the institutional and legal / regulatory
framework. As a result, re-configure and reinvigorate existing effort is necessary.
(3) Rather than utilizing simple new technologies and delivery system, the fundamentally consumer
business is to substantially satisfy a family’s financial needs.
(4) The measurements including three categories:
a. Occupation of space- market share, penetration rate, and share of mind.
b. Profit absolute contribution or PCE, and ROTA
c. Character of organization-organization climate, and skill level
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III. HISTORICAL STUDY AND RELEVANT THEORY
Before all the hypotheses are proved and tested, some terms will be defined in this section. First
we will define what strategy is, then we will look at the strategy of corporations Who operates in
foreign countries. Furthermore, the strategies adopted by foreign banks in Taiwan and lastly the set
of strategies used by Citibank Taiwan will later be analyzed.
A. Strategy
Oster, S.(1994) in “Modern Competitive Analysis” defines strategy as a set of concrete plans1,
articulated or self-revealing over a period of time and assist the organization to archive the
organizational goal. Oster thinks that strategy is also a combination of choices which need to be
selected by the organization. More fundamentally, she depicts strategy as a commitment to choose
one set of actions rather than another and this commitment will explain the necessary allocation of
limited resources.
In another way, she believes that the choice of strategy is proven to be a dominant reason,
which lads to level of profitability of certain industry. At the same time, more attentions are now in
the human side of strategy, in understanding the role of leaders in identifying and implementing
strategies, and in understanding how organizational power is both created by strategic options and
how it affects those choices. In general, the impact of attractiveness of particular strategies is highly
dependent on the history and nature of the organization be studied.
Oster further defines some forces which help shape the strategic planning process. As said, since
all organizations function within a broad community, the regulations and customers of a society will
help determine the feasibility of new strategic directions, as well as macro factors such as the
overall level of economic activity in a society. Nevertheless, organization themselves can
sometimes affect the external environment in substantial ways.
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Strategic
plan
for
Existing
Process
and
potentia
l
External
environme
ntal
Internal
factors
(economic
characteristi
cs
,
of the
organization
(goals ,
assets ,
Figure 4. Forces contributing to strategic plan
Another important pa1t of an organization’s environment is its rivals, existing and potential.
Rivals certainly will affect a company’s capacity to enter a new area, but at the same time new
strategic decisions of that firm may also influence the number and condition f those competitors.
Based on these three forces- the firms of the firms, an analysis of its external environment, and a
detailed consideration of its rivals, organization can begin to formulate a strategic plan which leads
to a new direction.
Another related theory that shows us the potential attractiveness of the industry is the Five
Forces Model developed by Michael Porter, It believes that the level of one’s profitability is
contingent upon level of competition, buyer power, supplier power, entrant barriers, and availability
of substitute products. We will summarized the implication of these five forces as below:
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Potential
Entrants
Threat of
New entrants
Industry Competition
Suppliers
Buyers
Rivalry among
existing firms
Bargaining power
Bargaining power
of suppliers
of buyers
Threats of
substitute products
or services
Substitutes
Figure 5. Porter’s Five Forces Model
B. Intensity of Competition
Porter demonstrates that intense competition among firms in an industry drives down average
productivity. Nevertheless, historical experience has shown that some level of coordination will
play to become collective benefits of industry participants. Total profit in an industry is greater with
coordination than without. However, a large number of firms in a market weaken coordination
opportunity. He further comments that in general, in industries in which the major competitors are
all similarly sized, competition is more intense. Industries with substantial specific features exhibit
high barriers to exit and intensified rivalry. Also, variability in demand can also bring in more
rivalry within an industry.
C. Presence of Substitute Products
Porter comments that it is widely proved that the availability of substitutes affects the ability of
a firm to raise its price or change its products attributes. These substitutes are especially important
in markets in which there are few players in a limited market or ones in which it is difficult to raise
market supply quickly. Substitute products play a very modest role. quickly. Substitute products
have uneven roles in industry dynamics. In highly competitive industries or during periods of
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excess supply, substitute products play a very modest role.
D. Buyer Power
Porter further states that there are considerable differences across markets in how powerful
buyers are and how capable they are to drive down prices or influence levels of product quality.
E. Power of Suppliers
In the same way that powerful buyers can squeeze profits by putting downwards pressures on
prices, suppliers can minimize profits by raising input cost as well.
F. Regulation
Though Porter doesn’t not explicitly identified government as one of his Five Forces.
Government regulation has been, in another way, pointed out to have a tremendous influence on all
of the players in the market. Government action affects levels of competition, buyer and supplier
power, the importance of substitutes, and the power of entry. The banking industry was specifically
recognized an excellent example for the effect of regulatory changes. Undeniably, banking
regulations affect virtually all facets of the bank’s operation.
G. Banking Strategy
H. De Carmoy in his study of Global Banking Strategy (1990) identified four changes, which
made this banking industry the way it is now.
(1) Change of the Technology
(2) Change of the Competition
(3) Change of the Regulation
(4) Change of the Human Resource
Change of the bank’s production methods due to the extremely rapid application of technology
have been prevalent to most areas of finance. Of all the reasons for the evolution of the banking
industry, this factor is the most important and carries the most far-reaching changes, which impacts
the possible offering of banking services.
However, although technology is critical, the nature and level of competition has become at
least as important a factor as technical progress is in shaping the banking industry. In addition,
competition and technology are complement to each other because it is basically impossible to
compete effectively without the availability of sophisticated technology.
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As proved, regulatory authorities also plays a critical role in influencing how a bank operates.
Although the lifting of certain constraints will generally lead to a more flexible banking operation, it
also will create inevitable results as follows:
(1) An increase in bank’s liability cost
(2) Greater competition between all the participating players in the financial areas.
(3) A change in the composition of the banks’ profit and loss
The forth factor lies in the serious problem of human adaptation to the evolution of technical,
commercial, and regulatory changes. Techniques may change but people remain much more cling to
their origins, their training and their past behavior. Age, training, activity, and remuneration can also
weaken one’s capacity to meet the opportunities. Human resource management is believed to have
become at least as critical as that of technology. With all these constraints, he believed that a world
oligopoly has gradually formed.
He further points out three strategies to tackle the above four constraints.
(1) The ability of market participants to detect and to react to changes in risk
(2) The capacity of the institution’s executives to react rapidly and effectively to Market signals
(3) The authorities’ reaction to any serious difficulties encountered by the institutions
He further stated that each company needs strategy , which enable a more flexible organization
to cope the constraints. Senior management need to think how to implementation. Their roles
consist first in identifying market opportunities and in formulating global vision.
H. Strategy of Foreign Companies
Chong-Ming Ho (1991) reaches the following conclusion by evaluating the level of
configuration and coordination of foreign companies in Taiwan:
(1) Reasons to choose Taiwan as investment destination
a) Localization to dilute investment risks
b) Expansion of ownership
c) Specific resource in Taiwan
d) Integration between upper- and lower-stream industries
(2) Competitive strengths of foreign companies
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a) Marketing and human resource strength
b) Benefits of product features
c) Cost leadership
d) Benefit of production efficiency
I. Strategy for Foreign Banks in Taiwan
Ling-Lung Shen (1988) studied the policy and regulation that our government can work on
for the internationalization of Taiwan’s banking industry:
For local banks
(1) Enhance the level of autonomy of state-owned banks
(2) Gradually deregulate foreign exchange control
(3) Maintain the number of branches and profit of foreign banks at a reasonable
(4) Gradually relax some restrictions of foreign banks to strengthen their operation flexibility and
stimulate competition and innovation in local financial market
(5) Closely monitor financial structure and capital flow of foreign banks and ensure their
development is in line with our expectation of a speedy internationalization.
(6) Strengthen training of local financial professional
(7) Develop a healthy domestic financial environment
Kuo-Hsiung Chang (1986) begins to examine the strategy of local new banks as follows:
(1) Cooperation strategy
In the face of increasing competition in banking industry and limited resource, strategic alliance
has become a trend for local new banks to enhance their competitiveness in the market
(2) Strategy of innovative financial products
(3) Strategy of establishing bank image
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IV. HYPOTHESES TESTIFICATION AND VERIFICATION
This section will cover testification and verification of the six hypotheses. Each of
the hypotheses will coincide with the contents of the material in the relevant studies
and theories.
Hypotheses 1.
Early entrance and development in consumer banking business have help
Citibank in building a solid foundation for its consumer banking businesses in
Taiwan.
Although not the very first foreign bank with an office in Taiwan, Citibank has
had a long history with Taiwan and it has been an embedded part of this island for
over 34 years since 1964. Five years after the first foreign bank, now known as the
Japanese First Daich Bank, was permitted to set up its branch, Citibank became the
second foreign bank to establish an office in Taiwan. In 1964, Citibank had set up its
first representative office in Taipei, which had become its first branch one year later in
1965. Operating and regulated under the same set of rules, Citibank and its
predecessor and many other followers could only provide capital inflows to the needs
of the local industry for the Taiwanese government and not allowed to offer other
banking services.
As we have seen earlier that Oster defines strategy as a set of concrete plans,
articulated or self-revealing over time, to help the organization accomplish the
organizational goal. More fundamentally, she thinks that strategy is a commitment
to undertake one set of actions rather than another. This definition is being validated
and verified very clearly by Citibank. The famous “Memo from the Beach” written by
then the executive vice president John Reed in 1976 clearly demonstrated such
characteristics that Oster stated, In this eminent memo, he clearly depicted his vision
and plans for developing consumer banking. He sees growing in importance in this
market and that new technologies will have an important bearing on both the
economic dynamics and the institutional and legal I regulatory framework. More
importantly and fundamentally, he sees consumer banking business is to substantially
satisfy a family’s financial needs. John Reed’s vision toward consumer sector
emphasized “quality service to family units” instead of developing deposit, loan, or
card business is the fundamental concept for Citibank.
With this corporate wide celebrated vision and commitment, in early 1983,
Citibank’s New York headquarters had identified 13 countries worldwide to develop
consumer banking business to realize the business decisions and plans. It was a
corporate top-down decision without the involvement of the local businesses. Among
the countries identified, Australia, Hong Kong, and Taiwan were the representatives
for the Asia Pacific region. By October the same year, the first country manager was
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appointed to lead the local operations. Within the next 18 months, the Taiwanese
government relaxed regulations and allowed foreign banks to operate consumer
business staring from January 1, 1985. Not only did Citibank has a head start in
setting up branches for businesses, but It also initiated the earliest start up in the
consumer banking. It became the very first foreign bank that started up consumer
banking in Taiwan.
Early entrance and development in consumer banking business have built a solid
foundation for the consumer banking businesses in Taiwan. Many other external
environment factors have also contributed to its success. This could also be examined
by Michael Porter’s Five Forces Model. Although this model was developed mainly
to explain the potential attractiveness and profitability of a particular industry, t is,
however, the external conditions which lead to Citibank’s success. We will explore the
five elements, industry competition, substitutes products, potential entrants, supplier
power, and buyer power, one at a time.
A. Industry Competition
When Citibank set up its operation for consumer banking in late 1983, it was in
the form of joint venture. Due the regulatory constraints at the time, Citibank bought
out 45% of a local financial institution, TFIT, and through TFIT’s existing distribution
channel, Citibank was able to participate in consumer banking business. The majority
of the financial institutions at this time, both local and foreign, have their focus of the
business on the traditional commercial banking sector. Therefore, at the initial stage,
Citibank was in no competition for the retail business with the industry. No others
seemed to be able to foresee the needs to be served by financial institution at the
individual customer level. It was not until the lift on the ban of setting up private
banks in 1990 which led the attention to turn to consumer banking did Citibank start
to detect the sense of competition.
Between 1983 when Citibank first set up to the time when a large number of
competitors, both local and foreign, entered the market, Citibank was able to invest in
its technology, products, human resources, etc, which are the very solid ground for its
accelerated future development in consumer business.
B. Substitutes of Products
Strictly speaking, there were no substitutes for what Citibank was providing to the
local customers for a long period of time. Inherited from its parent company, Citibank
Taiwan was more service oriented than any other local banks that offer the similar
products. In the traditional local banking environment and culture, consumers.
particularly customers who are in need of additional fund or capital tend to be in a
position that are lower, therefore, officers at banks who have authority to grand to
approve loan became very important to know and to please. The availability of these
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products to the general public depends on the hands of the officers at the banks.
Substitutes of products were non-existence.
C. Potential Entrants
The implication and the actual effect of this element was not acknowledged by
Citibank until the new local private banks come into play. For a period of 7 years
from the time Citibank started, there simply was not a single new entrant to the local
banking industry that poses threats. These entrants in this time period were not
interested in serving the individual consumer, not to mention devoting resources to
developing business to serve this market.
D. Supplier Power
When Citibank Taiwan set up its consumer banking business in 1983, it was the
first and the earliest foreign bank that established operation in the consumer banking
sector aimed to fulfill the financial needs of individual customers. The immediate
follower in the same nature was not in the market until several years later. There was
then a period in which Citibank was the only supplier to this market. Therefore, from
a supplier side’s point of view, there was very little competition running against
Citibank.
A. Buyer Power
During the initial stage of Citibank’s enterance, there was not so much of the
buyer power present. The local consumers were not able to influence Citibank’s prices
in terms of the rates charged by the bank.
Hypotheses 2.
Localization and delegation in the human resources created an enormous
power in its talent poor that is one of the most important factors to Citibank’s
success.
From the interviews conducted with the senior management of the Bank, the one
concept that was imbedded across businesses was that “People are the Most Important
Asset” for Citibank. Currently there are more than 2,700 people employed by
Citibank Taiwan and the consumer side of the business accounts for about 80% of the
human resources.
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Figure 6. GCB and GF Human Resource Distribution
With these impressive numbers, it also made Citibank Taiwan’s employment size
the second largest in the world outside of the United States.
Besides the impressive numbers, Citibank is also famous in the Taiwan banking
industry for hiring young potential graduates. Among all the employees in Taiwan, 99
% of the employees are local talents. More than 95% have Bachachoe’s degree from
the top universities in Taiwan. More than 25 % of the local talents were educated
overseas and own master degrees or higher. Most importantly, all senior positions in
one down levels from the country manager are held by the local employees. Citibank
holds three principals in human resources. They are to recruit, re-train, and retain.
Citibank’s internal evaluation system has also emphasis in people management.
A. Recruitment
There are 3 entrance paths to enter Citibank and to be advanced in Citibank.
(1) Junior staff hire
(2) Management associate hire
(3) Mid-career hire
Junior staff hire is the conventional and traditional way of hiring for Citibank.
As mentioned earlier, Citibank prefers to hire graduates for top schools , therefore, the
majority of the entrance level positions is being filled by these high quality talents as
junior staff. From the extensive interview conducted, among the three ways of
entrance, junior staff hires appeared to be the most difficult way for Citibankers to
climb the corporate ladder. A prime example is the ex-country head of Citibank
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Taiwan of 11 years, Thomas McKoen, who started out in the bank as a messager and
worked his way up to became vice president and assumed a country head’s role. We
will see the comparisons among the three.
Management Associate hire is one of the more prestige way to enter Citibank.
Each year, the human resources of the bank especially select young talents to be
Management Associate (MA) of the bank. They are to spend approximately one year
of the time rotating through major functions of the local business and are expected to
very quickly understand the business. This program is to prepare future leaders for the
bank and therefore, these MA are also treated differently. Besides the obvious training
opportunities, they also have much more exposure to the very senior managers of the
bank which was the unmeasurable asset for them. The current Citicorp CEO and
Chairman, John Reed was a MA himself when he entered Citibank.
Mid-career hire is the method a human resource director would use when a
specific kind of talent or skill is needed and yet no proper candidates are available. It
is to go outside of the organization and hunt for the talents to fill the gap. One
personal must be mentioned here is the ex-senior vice president of Citicorp in New
York, Pei-Cha. Mr. Cha was a graduate of Tung-Hai University of Taichung and later
received his MBA from UCLA. He was working for General Foods before he was
hired by Citibank to head the branch operation in the US and Europe. Pei-Cha
continued his career with Citibank until 1997 when he retired. He no doubt represents
the typical example of a successful mid-career hire.
These three types of hiring strategies were used extensively in different stages of
the development in Citibank. One phenomenon worth mentioning is that mid-career
hires seem to have been Citibank’s favorite method to recruit these days both in the
local market, Taiwan, as well as Citibank globally. According to a senior manager,
when Reed decided to develop consumer business 30 years ago, he hired a lot of
outside talents to start off the business in the US. Among this group of people,
Pei-Cha, the most senior Chinese vice president, was recruited this way from General
Foods three decades ago. Now these people are either retired or are no longer with the
Bank, Reed needs new blood, he needs to have new ideas. Therefore, people such as
Bill Campbell from Phillip Morris, Larry Philippines of General Motors, and Simon
William of General Motor as well were brought in from consumer product companies.
This senior manager also mentioned that this successful transfer of ideas was what
Citibank needed to establish consumer business 25 years ago. If that was a revolution,
then what we are experiencing throughout Citibank’s consumer business all over the
world could be called a 2nd revolution.
B. Re-Training
The traditional view might be that the training in the related field during school is
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an important factor when it comes to acquiring a position in the banking industry.
However, Citibank Taiwan has taken a very different approach in this respect. It has
been known in the industry that people are different education and experience
background are widely used and appreciated in Citibank, particularly if you are young
and have a lot of energy. Its system and culture are prepared to transform any
potential individual to become a professional banker.
The banking industry and the regulatory agency for banking often even consider
Citibank as the training ground for banking professionals. Citibank Taiwan has the
largest and the most extensive training programs in the industry. Not only does its
classroom training is comprehensive and it covers a wide variety of topics, its
on-the-job training is also outstanding. An important characteristic of its training is
that they are topic specific, which means that one is trained extensively in his or her
area of responsibility. This is also one of the reason why Citibank has so many
specialized bankers.
B. Retention
As competition for products and services have become more and more intensive,
so has the needs for professional bankers. This phenomenon has made it increasingly
difficult for Citibank to retain its people these days. Since that Citibank Taiwan has
the long-standing reputation as a professional training ground for banking
professionals, Citibank employees often become the hiring targets of other financial
institutions.
To retain its high quality staff, Citibank has put together some efforts to improve
its fringe and benefits. Besides the continuous effort of improvements, the human
resources department has also delegated some time to develop Management
Resources Inventory (MRI). It is a system which track and trace experienced
Citibankers‘ career paths and objectives. The primary purpose of this system is to
promote bankers at positions such as two down from the country head to become one
down. Citibank’s internal communication channels are also very open and wide.
Besides the traditional supervisor staff evaluation, Citibank has also been trying to
implement upward evaluation. An upward evaluation allows staff to evaluate their
supervisors in a confidential manner and give supervisors chances to see how they
perform in the eyes of their staff.
Hypothesis 3.
Limited resources and regulatory constraints resulted in Citibank’s premium
pricing strategy which in tern developed its brand positioning.
Citibank was licensed in 1965 and GCB business established in 1985. The
government with insufficient foreign reserve and cheaper labor made several
17
decisions to pursue certain exporting light industries such as textile, food, etc. earlier
in the 1970s. Foreign banks were therefore allowed to set up branches in Taiwan and
bring in foreign currency in the form of US$ loan to local industry so as to build
factories and encourage trading.
A. Permission to Set up Branches
MOF’s permission for foreign banks to set up branches in Taiwan was “flexible
consideration,” which basically depended on the demand of foreign currency under
macro economic environment. Starting from 1983, that MOF formally passed the
regulation-“Principals for Foreign Banks to Set up Branches and Representative
Offices ” on setting up branch. These principals become the basic and main rules for
foreign banks including Citibank to expand network in Taiwan. These principles were
modified in 1985, 1986, 1989, 1990, and 1993 respectively, and the limitations were
loosened gradually. However, the limitations on the number of branches and locations
are still the drawbacks for expanding the network for Citibank.
Fig 7. Number of branches of government, private, new,
middle & small banks, foreign banks, & co-operation, Post office.
B. Start of Consumer Business
Since foreign banks were not allowed to engage in consumer related business
such as soliciting deposits or loans from the public in the initial stage; therefore,
Citibank set up GCB operation in Taiwan.
MOF officially allowed foreign banks to engage in consumer business on July1,
1985. Given that, GF was requested to hand over auto receivable business and
small-and-medium construction business to GCB. Consequently Citibank used an
expanded definition of consumer business and stepped into asset- based finance first
(account receivable finance for auto loan dealership), raw land and construction
18
finance business based on TFIT experience. There were limited suppliers in market in
the beginning even to the “indirect consumer business ” for Citibank had not provided
the offering to the general public yet.
C. Fight for Resources
GF was the founder for Citibank in Taiwan. However, staff on GF side was
reluctant to be involved in consumer business due to its different nature from
traditional GF business.
Fig 8. Comparison on the nature difference between
GF and GCB loan business
Business
GF loan
GCB loan
Loan amount
Large
Small
Transaction
Few
More
Loan procedure
Tailor-made Standardized
Customer information needed Detailed
Pinpoint
Analysis needed
Statistics
One by one
The resources deployed in the management level and the staff were different. As a
result, almost all GCB staff was recruited from outside Citibank family. 3 Account
Officers transferred from the GF side formed the original management team.
Furthermore, offices, operations, facilities, tellers, and documentation processing
were moved and got support from GF, even including the processing Diners card
merchant coupon.
Since GCB relied on GF for various operational support, GCB operation
suffered financial losses for the first year since it had to accept high allocated cost
from GF which rendered it impossible for GCB to exercise a reasonable cost control.
Not until 1985 did GCB start to make profit as a result of the deregulation by MOF,
which permitted foreign banks to open consumer business. Although Citibank started
with loan business, funding was also supported by GF who used the interbank channel
and got low rates since GCB hadn’t solicited the deposit, and the asset portfolio
wasn’t big.
To respond to the growing funding need, Citibank formally set up its Taipei
branch to be an outlet for soliciting consumers’ deposit in Nov. 1986.
19
The business was headed by 3 product groups-Asset, Liability, and Card(Diners).
As a consequence, the prototype for consumer business of Citibank was formed. Two
branches were set up during the period from 1986 to 1989; loan as well as deposit
volumes remained in a low level, for the resource allocating process was still going on
between GF and GCB in Citibank.
Organization became stable through evolvement. A fraud case in issuing the
corporate bond of Taiwan Electronic Corp resulted in management’s decision to
separate two entities-Asset product group. Responsible for mortgaged loan, auto loan,
and B & P loan (to target at small business and professional customer groups).
Liability Product Group. Mainly responsible for deposit business.
D. Credit Tightened Policy
A credit tightened policy was adopted in Feb. 1989- the government adopted the
policy to prevent banks from extending loans to construction business to cool down
the booming real estate & stock market. This policy had an impact on Citibank’s
strategy in asset business, forcing she to shift the focus from construction loan to
consumer mortgaged loan with the auto loan continuing to increase.
While asset business was in a set-up stage, market started to drop. Citibank
withdrew from B & P market, but a brand new opportunity came when Citibank
learned a lesson from Australia.“ Mortgaged Power” was the market innovator in
mortgaged business and emphasizing for flexibility (unlike the traditional installment
loan). It was introduced into Taiwan in 1989. The new offering based on the
advantageous system support monopolized in the market for over 2 and half years.
E. Formation of Premium Pricing Strategy
Citibank set up its Taipei branch in 1986, Kaohsiung branch in 1987, and
Taichung branch in 1990. In the period that Citibank developed its consumer business
strategy, the limited distribution was the major concern for growth. Government
positioned foreign banks as foreign exchange suppliers who had no need to develop
distribution, The special treatment existed in the following regulations of the early
period:
(1) All foreign banks are permitted to buy and sell foreign currencies; in contrast,
the new private bank, trust investment company, middle-small business bank,
and co-op are not allowed to do so.
(2) All foreign banks are permitted to pre-sell the foreign currency loan, but local
banks assigned to buy from/sell to foreign banks are not allowed to do so.
Nevertheless, these special treatments didn’t benefit Citibank in developing
20
consumer business. Citibank developed “premium pricing” under the following
context:
The constraint on the network enabled Citibank to target at the small affluent
group by soliciting the large-amount deposit and providing high standard service.
Citibank started to launch “CitiOne / CitiGold account acquire savings, and claimed
that “service charge” would be applied to customers unable to meet minimum balance
(NT$250,000 in liability balance for CitiOne account holders and NT$30,00,000 in
liability balance for CitiGold account).
The Profit-driven concept also led to high value R/E ratios (revenue to expense
ratios) in evaluating performance – a common principal is 2:1 in general business.
Basically, Citibank exercised “Profit Center Earning ” to evaluate performance of
different product groups. It depended on the PPM (Product Profitability Model) to
predict and monitor R/E ratios.
F. Business Momentum Gained in Card
The credit card business was promising from the 1990s because few customers
owned credit cards. The low penetration rate among the customers made Citibank
realize that the potential of the product in the market was enormous. In the beginning
of 1993, Citibank issued 300M credit card. However, a very unfortunate thing
happened in that summer -the Austria incident - when some tourists from Taiwan
using Citibank credit card were turned down by Austrian merchants very rudely. This
incident did harm to the existing customer base, brought down the application rates
and adversely affected bankcard image.
After the incident Citibank started to study the possibility of the “photo card” to
create differences in the hope of winning business momentum.
G. Investment in branding
“Branding ”was where Citibank invested most of the money from 1993 to 1996.
From the “pricing” point of view, Citibank products were less competitive in the
market for she charged certain fee and unsatisfied rates:
(1) Minimum balance to qualify for deposit account holders
(2) Interest rates and fees for loans
(3) Annual fees and revolving interest rates for credit card
So “ branding ” strategy was the way out. However, the premium of branding is
that , for example, customers would use Citibank credit card when they had more than
21
one credit card , knowing that Citibank credit card was more prestigious.“ The Citi
Never Sleeps” campaign was another example of a banking product which promotes
excellent banking service even in remote access and which circumvents timing / place
constraints.
Hypothesis 4.
The concept of sales goal setting and marketing promotional activities
educated and stimulated customers’ needs.
A. Sales Goal Setting in Banking Industry
Citibank is the pioneer for introducing “sales goal” concept in Taiwan consumer
business while using direct sales force to promote financial products. The mechanism
started up with budgeting in “Full Year Forecast” of a quarterly rolling basis. Namely
sales goal was set and cascaded to individual team and individual sale during FYF
process.
Utilizing sales to promote/serve corporate account was a general practice in
foreign banks. Since Citibank started with consumer business by support of GF side
from 1985, and because of the complex nature of auto account receivable and of
construction finance were similar to GF asset business, Citibank was succeeding the
concept in the first beginning. However, Citibank GCB was introduced the “incentive
program” to stimulate sales when Citibank changed focus to mortgaged housing loan
from 1989.
B. Incentive Program
Following a global Citicorp policy in 1989, Citibank asset business started
incentive program by allocating sales goal and giving premium for exceeding specific
standards. The standards included setting junior individual goal and team goal. In
addition, the basic idea is to use % of profit as incentive to boost sales volume.
Moreover, the regular incentive program needs agreement and consultation from
human resource department as well.
Creating a competitive environment was another side of exercising incentive
program.
Basically Citibank reduced organizational layer to separate staff in different team
for competition, and asset side specially adopt monthly ranking to raise sales
motivation and sales heads’ responsibility.
Citibank introduced “PB/AO system” in liability product, which allowed every
customers had his/her special account officer to provide service and consultation in a
22
personal way. PB is a personal banker to serve CitiOne account and AO is a account
officer to serve CitiGold account. The incentive applied to liability side as well in
1990s.
Furthermore, Citicorp set up investment consulting company to launch mutual
fund starting from 1994. Investment Consultant (IC) teams were set up with incentive
program to educate and promote mutual fund to liability customers. Even regulation
prohibited Citibank from advertisement as well as recommendation, sales force still
performed well to create profit using the “below the line” approach.
C. Marketing promotion Mix
Citibank is a pioneer to utilizing marketing promotion as well as sales force to
achieve sales goal in consumer banking field. Marketing mix tactics included
advertisement, direct mailing, event, and joint promotion and so on.
In term of joint promotion, Card business demonstrated a good example. Aside
from launching photo card in 1993, Citibank jointed promotion with Evergreen and
Philips that offered a competitive discount to cardholders in 1994. These kinds of
package activities also contributed to higher SOV (Share of Voice). Soon, Citibank
achieved the landmark of 600M cards in 1994.
As to direct marketing, Citibank is the first in the financial market to utilize
direct marketing to existing customers. For example, Citibank centralizes customers’
information and account information to build up” Marketing Database”, which is the
fundamental base to send direct mailing as well as to provide name list for sales to
call potential customers. Moreover, by analyzing customer behavior base on these
fact-base information, marketing mix was enriched and increase effectiveness.
Besides, Citibank is innovative to solicit customers by ”member get member” to
encourage customers introduce or recommend their friends/relatives to become
customers by giving premium as encouragement.
A paragon for event marketing was “Macau promotion”. Citibank achieved 1
million card in force, thanks to successful marketing strategy which lifted Citibank
image to a record high. The strategy was the first in the market which combines travel
and credit card applications. However, the historical landmark for acquisition
happened to have some mishandling on application, which directly impact the
reputation for Citibank in 1997.
D. Keen Competition Encourage Marketing Effort
New banks joined marketing competition from 1992, China Trust was transformed
to commercial bank from a trust investment company; which enable her strategy
23
become more flexible and the keen competition started with credit card business.
Citibank issued the photo card in 1994 with the photo printed on the back of card ,
a practice adopted by Citibank around the world. Market competitors didn’t have a
high opinion of the Citibank photo card. However, with a lot of market research as
well as successful positioning, the photo card eventually won important market share.
China Trust started to follow soon and more than that, they issued photo card with
photo on the front to differ from Citibank. Citibank conducted a survey on card design
due to customers’ complaint about the position of the photo. Finally, the research
showed that the photo with the signature on the front was most preferred. So Citibank
launched the new design at a fast pace to grab leading position from China Trust.
It was an extremely successful strategy that Citibank increased 183M cards in that
year with over 40% of the applicants opted for the photo card. By making a big noise
in market with incremental marketing spending Citibank solicited many new
customers who emphasized individualization by their own photos and signatures on
their cards. In the war of “photo card”, both Citibank and China Trust spend more
than ten millions on advertising expense.
In 1995. CIF (card in force) in card business grew to 850M and market share
reached 28%. Many foreign banks coming into this market intensified keen
competition. Local banks offered free-annual-fee credit card from previous year.
Standard Charter started to issue Nan-San insurance co-brand cards while some
competitors were anxious to explore niche market. Citibank started to feel more
pressure from customers asking for waiver of annual fee. However, the annual fee
stood for the differentiation strategy from other banks as Citibank emphasized other
benefits and service quality to certain segmented customers.
E. Bulk sale for a new try
Bulk sale had not been the major sale channel for card business until 1996. The
reasons were that first AMEX was ready to launch its credit card and offered free
annual fee for the first year. And research showed AMEX had a similar brand image
to Citibank, which exerted pressure on the sales. Secondly, Citibank was not a very
attractive brand to some big companies, or the government employees, or some fixed
salary class like teachers or military officers. The customers mentioned above are
more conservative, have been offered fee-waive by some local banks, and generally
have good credit performance. However, Citibank didn’t win these customers often
due to the pricing reason and lost this segment. So Citibank planned to approach this
segment by launching the buck- sale program in July and August of 1996. Reviewing
the performance, we may detect that applications in these two months were incredible.
However, some problems happened. Although Citibank policy wasn’t offering
free-charge of annual fee, some sales people paid the annual fee for customers in
24
order to achieve goals. Eventually “forestalling AMEX” strategy was proved to be
effective. However, because this was a just a 2 months program that AMEX wasn’t
completely forestalled. Some argument is that this strategy should have continued so
that AMEX couldn’t come into this market. In fact, Citibank had planned a consistent
strategy that time - hooking those customers by buck-sale and sequentially retaining
them by reward programs from January 1997. Unfortunately, Citibank delayed the
reward program, thus ruining the overall plan. This inconsistency caused attrition
afterwards.
F. Brand Image Building by Prestigious Service
A so called ”first-class cabin” service (Business Week #437) brand image was
built from the “CitiGold Priority Banking” which was launched in 1988. CitiGold
account was designed to build up the brand image in consumer banking at earlier
stage. “Segmented market” concept was first implemented in consumer market. “3
million” minimum balance was set to screen the most potential customers and to
concentrate on the targeted customers.
In addition, the “one on one” service that emphasized personalized, tellermade,
full-fledged service also demand Citibank to equip account officers with abundant
skill and product knowledge to serve customers.
In addition, Citibank is intending to break “location limit” by developing remote
channels and strengthen her global network as well. The following is the schedule for
service offering:
(1)Global Citicard , waive withdrawal fee in out-branch ATM in 1994.
(2) ATM for withdrawing US cash in 1995.
(3) CitiPhone to provide information and transaction in 1995.
(4) Consolidated statement to let customers browse all his/her account balance and
transaction records monthly in 1996.
(5) Model branch build up from 1994 to 1996.
Hypothesis 5.
New participants such as the local private banks emphasis on consumer
banking sector created a positive competitive impact to Citibank in the long run.
Ever since 1991 when the government revised the banking law and allowed the
establishment of new private banks, consumer banking business has been identified as
25
a profitable area by almost all flew banks. Coupled with the later involvement of
privatized state-owned banks, severe competition in consumer business has become a
commonplace among the banking industry. However, the competition has in some
ways created an environment for Citibank to generate even larger profit. In this
session, some factors which have led to the positive impact to Citibank will be
analyzed.
To illustrate the shift of market share among different banking structure in
Taiwan’s banking industry since the deregulation in 1991, the following figures have
shown a clear shift of deposit and loan volume from local state-owned banks to new
and foreign banks, particular in deposit business. Some differences which distinguish
new banks from state-owned banks include level of services provided, flexibility of
product offering, and other customer-driven services.
Fig 9. Market share of Deposit and loan volume from 1992 to 1997
Data: Ministry of Finance, Bureau of Monetary Affairs
The most noticeable difference in the present banking market with participants
from new players is the rising quality service level across all banks, private and
state-owned. As more banking products have become common offerings, level of
services provided in each banks has gradually influenced the decision process with
whom to bank with.
In 1991, the year in which 15 new licenses were offered to new banks, Shanghai
and UWCCB, both with private investment, ranked the 1st and 2nd in terms of service
quality among all banks. The only state-owned banks in top five was Taipei bank. At
26
that time, it is already a general perception that private banks provide better quality
service with better financial performance. Six years later, the newly released 1997
Service Quality survey presented the top five awards to Far Eastern, An-Tai, ICBC,
Chinatrust, and E. Sun Bank, all private. banks among fifty banks in this survey.
Farmer Bank made the 12th on the list yet the 1st place as state-owned bank. It is
undoubtedly clear that service level has been recognized as a differentiator for new
banks to stay competitive in the market. Citibank ranked the 9th, up from the 13th in
1996.
A. Service is important
Service has long been identified by Citicorp as a corporate aim to provide an
environment that identifies, encourages, and rewards excellence, innovation, and
quality customer service. The rising recognition of service level in the market of
Taiwan reinforces Citibank’s commitment in providing quality services. Citibank
Annual customer satisfaction survey was in place in the beginning years of consumer
banking business to monitor the service level to its existing customer and provide as a
reference to help increase new acquisition. In a longer term, this self-checking
mechanism has been served as grounding for Citibank to maintain and secure its
market penetration in consumer business.
27
Fig 10. Citibank Consumer Loan and Deposit Volume from 1994 to 1997
Loan volume
The saturation of banking institution in the market of Taiwan has also provided an
environment for customers to recognize and appreciate innovative and flexible
product designs. In this perspective, Citibank has never failed, if not exceeding,
customer expectation. Due to the limited number of branches, Citibank need to extend
its reach, and thus non-manned CitiBanking Centers were set up in some populated
areas to serve Citibank customers. This concept of non-manned ¡§branch¡¨ was first
introduced in Taiwan by Citibank. In addition, in order to supplement its limited
number of branches as compared with the growing number of branches of private
banks, ATM service charge was waived in 1991 for all Citibank customers who
transacts with Citicard. Moreover, some global features of Citibank’s ATM machine
such as the withdrawing limit both within Taiwan or abroad and in Shanghai, China
has also been raised. Also, US dollar in cash, outlet for credit card payment, cash
advance, and statement request all have made Citibank’s ATM machine the most
sophisticated in the market. Although service level may not absolutely correlate with
the financial performance, yet, Citibank’s commitment in providing excellent
customer service has undoubtedly been perceived by customers in the market. The
most recent 1997 customer satisfaction survey showed 82.2% overall satisfaction
among all existing customers. General public perceived Citibank as one which is
trustworthy to manage their money, caring them as individual, good in building
relationship, and providing consistent and predictable services.
28
B. Pressure and growth
In terms of product design, the vicious competition has applied pressure to
Citibank and motivated it to develop products which help new acquisition and retain
existing customers. In lending side, Mortgage Flex product which add in revolving
features in regular mortgage product or a pure revolving lending product of Mortgage
Power has both generated interest in the market. The Cash Back product which
features cash rebate to award those who are willing to keep a longer relationship with
Citibank have also spurred the attention from the market. Bonus Mortgage and Ready
Credit were also created to award, in cash or additional credit line, those who have
kept a positive relationship with Citibank.
In deposit side, remote saving and notice saving were created to supplement our
limited branch distribution and provide customers with more flexibility to access their
saving. The relationship offering across lending and deposit customers was adopted to
encourage new acquisition through existing customer base in the face of the severe
competition.
In another way, the competition has also stimulated Citibank to take actions in
protecting its market share. The usage fee of NT$500 for Mortgage Power customers
is no longer charged by Citibank due to the pressure from the market. The recent used
car auto loan business was pursued by Citibank only after they noticed the decreasing
profit margin in auto loan business since many competitors have long engaged in used
car business. Citibank is now undergoing some drastic changes in pursuing products
and service which it may not be interested in the past due to its higher credit concern
or which it may not have them high in the priority. As the profit margin is becoming
slimmer and customers are well educated about the product available in the market, it
is inevitable for Citibank to continue undertaking bold and timely actions to stay in
leading position in the market.
On the other hand, more players in the market also provide a lobbying platform
for all interested. Further deregulation in banking product or service is foreseen as
long as market competitors keep exploring the tolerance level of our governing
institution.
Hypothesis 6.
Supports from the headquarters enriched the resources and highlight the
importance of Taiwan Branches to Citibank.
In 1985, Citibank GCB was established. As of the end of 1997, the eight- branch
network and 2,146 Citibankers support an average of $513 million in deposit per
branch (the highest in the Citibank world), 1.1 million customers for the bank and the
credit card. Its 2.21 revenue/expense ratio is one of the highest around the world. It is
29
estimated that Taiwan contributes 150 million in earning, of which 60% was delivered
by the consumer bank. There is no doubt that the success of Taiwan GCB ever since
its inception in 1985 was partly a result with the support from the Headquarters. Some
areas which are identified are analyzed as follows:
A. Vision Establishment and Execution
Citibank has been successful in setting up global vision across the countries it has
operation in and continues reinforcing the concept through continuous engagement
around the vision. The Reed’s “Memo from the Beach” written 20 years ago
successfully established a vision around consumer banking business and built a
community within Citibank of understanding and commitment to develop this
business.
This vision was then carried forward and reached the regional level. In early
1980’s, thirteen countries were identified by Headquarters to develop consumer
business. Within Asia Pacific region, Hong Kong, Australia, and Taiwan were selected
by Headquarters to develop consumer banking business.
Since then, the headquarters continually reinforced the concept of consumer
business through actively engaging in the fine tuning of this initiatives on
repositioning, business direction, exiting, removing undesirable behavioral
characteristics such as error rate, and passing the strengthens and the vision of
Citibank to all level of management.
The investment in setting up a global vision and effort of seeing through it has
served Citibank well as it has received a variety of public recognition concerning its
operation throughout the world. The Far Eastern Economic Review has named it the
leading financial institution for many consecutive years, ranking it among the top ten
brands in the region. Euromoney ranked it the best bank in Asia in both 1995 and
1996, as well as the best foreign bank in ten countries in the Asia/Pacific area.
B. Human Resource Investment
To demonstrate its commitment in developing consumer banking business in
Taiwan, Citibank has been dedicated its effort in human resources development within
the country and proving sufficient number of headcounts in support the operation.
(1) Citibank’s commitment in development consumer banking business has been
reflected by its continuous investment in headcounts. The following figures
demonstrated the upward growth in headcount figures since 1990.
30
Fig 11. GCB and GF Human Resource Distribution from 1990 to 1998
(2) Not only did the number of headcounts grow, the investment in developing human
resources was another focus for Citibank. Citibank has long considered human
resources the most important asset. It is committed to continually develop individual
staff and prepare every individual with new knowledge to meet new challenges. It has
long been Citibank’s corporate drive to ensure a continuous learning and growing
environment. As a result, Citibank developed the first training Center ever in Taiwan
among banking institution in 1991.
(3) Service Excellence Award is established to encourage staff with precise, accurate,
and fast service quality. The quarterly presentation of these awards has always been
made public to recognize these outstanding performers in providing quality services.
C. Policy and Procedure Establishment
(1) In its philosophy of human resource management, Citibank advocates a “Balanced
Scorecard” evaluation for senior management. This mechanism requires senior
management to pay attention to the following aspects: People Management, Customer
Franchise, Risk Control, Financial Performance, and Community.
a) People Management: Citibank has long emphasized the importance of people talent
and team spirit. Through this appraisal, people management require seniors and
middle management to develop road map for all with potential and through effective
people management to raise productivity and target business goal.
b) Customer Franchise: As a service industry, Citibank has made every possible
efforts to delivery quality services that meet the customer’s needs. The quarterly
customer satisfaction survey and 24 hours service line allow senior management to
have direct access to the core of customer needs. The survey result and follow-up
from customers complaints all serve as important indicators to evaluate senior
performance. Not only for external customers, in order to encourage positive service
attitude, quarterly “service excellence award” is presented to staff with proven service
quality which will serve as example to all other employee.
31
c) Risk Control: Citibank requests all management to conduct effective credit control.
The KYC (Know Your Customer) concept have broadly introduced to Citibank
culture and all are abided by the responsibility to reduce the possibility of fraud or
money-laundry to the minimum.
d) Community: As a commitment of our social responsibility, Citibank encourages
senior management to devote personal time in community activity. Some locally
sponsored activities such as United Way donation, 3000 hrs community activity, and
etc.
e) Financial management: Citibank adopts “Profit Center Earning” concept to manage
the product profitability. Based on the Product Profitability Model”, each products’
anticipated revenue, cost, expense will be forecasted to estimate profitability. The
revenue to expense ratio has also be targeted at I to 2 ratio for banking products and I
to 3 for cards products. In addition, growth on sales and total productivity and
delinquent and write-off ratio are also been closely monitored on monthly basis for
the Corporation to have an effective control on financial performance.
(2) Aside from its evaluation mechanism, Citibank has also made significant advances
in gaining credit control over its new consumer product, given the extensive level it
has engaged in consumer lending activity. A conceptual model on Consumer Credit
Cycle was developed to explain all of the elements involved.
32
Product Planning
Write-offs
Collections
MIS
Credit Initiation
Account Maintenance
Figure 12. Credit Cycle Model
As the arrows in this model suggest, these phases are dynamic and interactive,
information derived from one phase strongly influence decision being made in other
phases. For example, a business experience in collection and loss recognition will
“feed back” to the product profitability and planning phase. With this concept of
credit reviewing mechanism and prudent exercise of this concept, Citibank has been
able to expand its credit-based business to a maximum while at the same time
maintaining quality portfolio.
D. Social Involvement
Not only does Citibank strive to ensure its financial success in each market, but it
is also committed to be a local bank in each individual local economy. All these
efforts have been continually demonstrated in its involvement in local community
activities.
The “World Leader Forum” held by Citibank since 1992 have drawn much
attention from the public and allowed the citizen to develop a global view through the
visits of these world-class opinion leaders. The sponsorship of New York
philharmonic by the Bank in 1984, 1989, 1994, and 1998 also received numerous
acclaim from the public. Other activities such as the local-initiated charity programs
have also been part of Citibank global commitment to be a localized organization with
demonstrated social responsibility in this particular market.
Fortunately, even with significant investment spending, Taiwan GCB operation
remain a major contributor in Asia Pacific and will eventually attract more
investment.
For example, although mortgage portfolio in Taiwan ranks the third largest after
33
United States and Australia, it has been the largest contributor in terms of PCE (Profit
Center Earning) to Citicorp for many consecutive years. The following figures
illustrate the approximate revenue distribution among some north Asian countries for
the year of 2000. Taiwan remains the dominant contributor for the years to come.
PRC
12-15%
Taiwan
20-25%
Philippines
15-20%
Korea
15-20%
Hong Kong
15-20%
Source: “Citicorp Asia--In the Franchise Vanguard”, Salomon Brothers
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V. CONCLUSION
With the “billion customers” vision in mind which translate to a 20% market share
goal for the business across the globe, Cititbank initiated the Global Fulfillment’’
program in Nov. 1997. This program is established with the aim to fulfill a million
customer’s need at a top quality level. In addition, given the vicious competition in
the global marketplace, the gradual slim profit margin in all products and market has
called for an effective cost management. With the Global Fulfillment initiative, it will
also ensure that Citibank can deliver the lowest costs most effectively with highest
quality services throughout all Citibank products. Moreover, it will maximize
convenience for all its customers as well as being able to customize service delivery
when required. As a consequence, consolidation of some regional processing center is
underway. Citibank intends to operate a small number of regional processing centers
around the world that will provide the highest quality and the lowest cost. With the
same thoughts, regional phone centers are other alternatives to ensure a consistent
fulfillment concept to carry through the 2010 task.
Citigroup is aimed at providing consumers and corporate customers superior
banking, brokerage and investment banking, asset management and insurance services,
all in one place. The size will surely be an advantage in making the range of choices
wide, prices reasonable and access convenient. For Citibank customers, this merger
definitely provides a better access to more global financial offering and serves the
financial needs of a growing number of customers worldwide. From economy point of
view, merger does provide an opportunity to reduce overhead and distribution cost.
After this merge, Citibank reassure that its branding and quality initiatives will still
continue. Their goal is still targeted at achieving Customer Satisfaction and Loyalty
through People and Quality. Given this objective, it will continue striving to
reducing defects and cycle time in all the processes. In addition, the training will
continues, measurement of quality will also continue being implemented worldwide
and process improvement teams are still under way. Overall speaking, Citibank firmly
believe that quality will remain a breakout strategy.
With three million customer share from the One Billion Customer vision By 2010,
Taiwan has also actively participating in many global initiations. The recent
re-organization within Citibank, Taiwan from Sep.1997 which adopted the One Bank
Strategy and thus combine the Bank and Cards Center was consistent with the one
Billion vision which focus on customer relationships rather than single product
offering. Moreover, it provides opportunity to optimize functional synergies for cost
35
effectiveness. In addition to this, the consolidation of Operation and Technology in
July, 1998 is another intention in the Global Fulfillment program with the attempt to
leverage advance technology to handle future applications in volume. Within these
efforts, centralization of credit approval, collection, operation works in Taipei Branch
are all undertaken in the intention to achieve cost-effective and defect-reduction
delivery process.
Over the past decade, the consumer banking business in Taiwan has gradually and
successfully gained its ground. There is absolutely no doubt that Citibank has been
playing a crucial role in developing and leading the business growth in Taiwan. The
competition will continue, even more vicious as we can foresee. Yet, Citibank will
continue pushing ahead to meet its commitment for year2010 and all the years to
come.
36
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