Business world is dynamic and different factors influence the strategies of corporation in the business world. Corporate and Business level strategies of corporations are devised after analyzing the external environmental factors effectively and efficiently. These external factors are highly influential to internal factors of an organization and its business operations. (Porter, What is Strategy, 1996)
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The basic purpose of an organization when devising a business or corporate strategy is to gain a sustainable competitive advantage in the marketplace. An efficient analysis of external environmental factors enables an organization to exploit its core capabilities, competencies and resources to gain a sustainable competitive advantage in the marketplace relative to competitors. (Porter, The five competitive forces that shape strategy, 2008)
Standard Chartered has its presence in UK since 150 years ago. Its headquarters are in Basinghall Avenue, London. It is important to note that Standard Chartered is one of the largest banks of UK. Standard Chartered is multinational organization and its operations are spread not only in UK but different parts of the world such as Asia, Africa, Middle East and other parts of the Europe. It has presence in 14 European markets. (Standard Chartered Official Website, 2008)
In this paper, Standard Chartered bank UK has been selected to study as an organization which evaluates the external environmental factors efficiently such as PESTLE, SWOT and Porter five forces to devise an effective strategy to gain a sustainable competitive advantage in the marketplace. The paper is divided in two parts. The first part discusses the external business environment that influences the internal factors and business operations of Standard Chartered such as SWOT, PESTLE and Porter five forces analysis. It also discusses and evaluates the current business and corporate strategy Standard chartered bank in UK and other parts of the Europe to gain a sustainable competitive advantage. The second and final part is designed to make recommendations which are followed by the conclusion.
External Environmental Analysis
PESTLE Analysis of UK Industry
If we rationally analyze the political conditions of United Kingdom then the political condition in the external macro environment are:
The UK economy is an open economy which allows and appreciates foreign/local direct investments. The UK comprises the market based / free market economy with less governmental control and interventions. The government plays its role as a facilitator rather than influencer in the business industries and markets.
UK government supports and appreciates competition among different organizations to improve their efficiency and to make wider choice/lower prices available to consumers. In this way, the government supports both the organizations and competitors.
There is a political stability in the country which provides opportunities for foreign direct investments. (The National Archives, 2010)
Standard Chartered has actively undergone growth through expansion in other parts of the Europe and to beat the competition. It is an effective and efficient strategy to grow under stable political conditions of United Kingdom.
Economy is suffering from a recession due to global financial crisis. It is a threat for the financial sector because standard chartered is operating in this sector.
Unemployment has increased.
Bargaining power and disposable income of consumers has decreased due to inflation and unemployment. It is threat for consumer banking.
Production level has decreased and the government is considering revising its taxation policies due to economic recession. This is a threat for Wholesale banking sector
But, economy has started recovering now gradually.
Standard Chartered is facing some difficulties due to the economic and financial recession in UK. (BBC News, 2010)
Consumer’s focus is now shifting towards standardized goods and services are low prices. Consumers are now more focused towards savings rather than spending. It is an opportunity for standard chartered bank.
Consumers are more rational and sophisticated now. Banking services are needed to be very direct and personal.
Brand loyal customers are now becoming brand switchers due to low disposable incomes.
The demographics of UK has changed dramatically with the increased number of younger generation and presence of different ethnic groups such as Asian, and Americans across the world which have low incomes and low purchasing powers. There is an opportunity for standard chartered bank to launch products/services targeted towards youngsters with low incomes and low savings. (Walayat, Britains Population Growth and Ageing Demographics Impact on UK House Prices, 2010)
The government supports competing technologies in the UK and appreciates innovation and technological developments.
High Research funding for technological development is being made UK government in different sectors.
To support open economy to increase competition for providing better services to consumers, the government plays the role at a catalyst in technological developments throughout the Europe.
Standard Chartered has invested heavily in advanced technology to improve its banking operations. (DTI, 2003)
The government supports and regulates economy as market-based and open.
Consumer courts and consumer laws legislations are strict to prevent consumer crime and to provide consumer protection. Banking sector needs to be very careful about that when designing marketing communication strategies.
The UK government has adopted some special laws and measures to monitor the competition and to prevent the corporations for being monopolies.
The UK government follows the consumer protection directives of European Union (EU) which are very strict and consumer friendly.
The UK legal environment drives the organizations towards efficiency and performance with indirect legal pressures. (BBC News, 2009)
Environment and culture of the Europe support performance based and consumer friendly organizational cultures.
Ethical Standards are high and organizations have to participate actively in the corporate social responsibilities.
The organizational environment in UK is less diplomatic and more performance based due to economic recession and intense competitive pressures.
The culture of Standard Chartered Bank is performance oriented rather than diplomatic (Ingram, 2011)
Standard Chartered according to the PESTLE Analysis
It seems from the business strategy and corporate strategy of standard chartered that it is more focused on Europe because of the political stability and relatively favorable political conditions in different parts of Europe than in Asia or Africa. It is a wise approach to focus more on Europe because there (although European economy is saturated and Asia/Africa contains the different developing countries with developing economies) is a flight of capital and low foreign direct investments due to political and economic instability in Asia and Africa. It is wise to play safe and smart as Standard Chartered is doing. It is an effective and efficient approach of Standard Chartered Bank.
Economic conditions and competition is a threat for the banking corporations of UK. But, Standard Chartered is focusing efficiently on different kinds of banking services such as consumer banking, wholesale banking, retail banking and corporate banking which clearly reveals efficient portfolio management of standard chartered bank. Standard Chartered bank is pursuing a differentiation strategy relative to competitors by offering different products and services to customers and it is actually following variety based positioning which was described by Michael Porter (1996, What is Strategy) to differentiate and to compete with the competitors. (Standard Chartered Official Website, 2008)
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People now need savings because of the economic recession. Also the government spending in technology has increased. People are more focused on standard goods and services at low prices and market has now become fragmented and saturated. Therefore, Standard Chartered is offering standard goods and services to customers by accessing them effectively and efficiently. Standard Chartered has employed high end technology to integrate its banking operations and relationship marketing such as online banking, ATMs, and also it has employed latest technology in branch banking. It is attempting to reach customers with standard services at low prices with access based positioning as defined by Michael Porter (1996, What is Strategy) as strategy by reaching customers online, personally and through social media marketing. It is also important to note that technology and information has now become a competitive advantage for organizations. The same is the secret for Standard Chartered sustainable competitive advantage in the marketplace that is technology and information. It is the effective and efficiently strategy by standard chartered to reach customers innovatively and efficiently by making effective use of technological conditions to exploit social conditions of UK. There is also a threat for Standard Chartered in employing differentiation strategy because the social, economic and technological conditions highly appreciates a cost advantage rather than a differentiation advantage in UK because of the low disposable incomes of consumers and low purchasing power. Cost advantage may allow standard chartered to offer banking services to customers at relatively low prices to target customers than competitors.
Standard Chartered actively follows legal obligations of UK legislation. It is obvious that consumer laws in UK are very strict and it is not possible for an organization to survive in the UK banking sector without following legal obligations of UK legislation. Finally, based on the culture of UK, Standard chartered has a less bureaucratic and more performance based culture according to the environmental conditions of UK. Employees are compensated on the basis of their performance and value addition rather than their hierarchal influences and bureaucracy in the Standard Chartered Bank. (Standard Chartered Official Website, 2008)
Banking Industry Analysis and Porter Five Forces
Bargaining Power of Customers
Customers are smaller in size and, due to economic recession, their purchasing power is low due to low disposable income. Due to large number of customers with diverse needs and low volume purchases, the banking sector of UK is fragmented. Due to fragmentation in the UK market, the bargaining power of consumers becomes low. But, on the other hand, the switching costs of consumers or customers are very low which makes their bargaining power moderate. For example, consumers can easily switch to competitors if standard chartered fails to provide the desired services to target market. But, also reveals an opportunity for standard chartered to convert its differentiation advantage in cost advantage.
At the corporate level, corporations or other businesses are large and their buying volumes of services are relatively high. Therefore, banking corporate customers are concentrated which makes their bargaining power high. But, on the other hand, switching costs for corporate to competitors are high for example it is not possible for an organization to transfer its corporate banking account to a competitor of Standard Chartered due to long term relationship and complexity of switching. This makes the bargaining power of corporate customers low. This again reveals an opportunity for Standard chartered to develop a cost advantage to efficiently serve the corporate customers.
Bargaining Power of Suppliers
There are different suppliers for Standard Chartered in UK such as technology providers, equipment providers and others. The banking industry in UK is very advanced and well developed. The numbers of Suppliers are large and industries at their side are also saturated. The suppliers are also facing intense competition among themselves and within their industries. This makes the bargaining power of suppliers low. The Standard Chartered bank can negotiate heavily with different suppliers on costs and prices to develop a cost advantage for changing environmental factors because the bargaining power of suppliers is low.
Barriers of Entry and Exit
As identified in the PESTLE analysis, the UK government highly appreciated foreign direct investment and it is a free market economy. Therefore, there is a high threat of new entrants in the banking sector due to low government interventions and free market economy. In other words, the barriers for entry in the banking sector of UK industry are low. But, the banking sector of UK is saturated and it is not attractive due to competitive rivalry and competitive turbulence. The competitive advantages of corporations in banking sector are being imitated rapidly by competitors and there are intense pressures on organizations for survival. This becomes a barrier for new entrants. It also reveals that Standard Chartered must employ a cost advantage instead of differentiation advantage because competitive advantages are now imitable, customers have low disposable incomes, economic recession and low purchasing power and it is the time to consider a penetration pricing strategy to capture as much market share as Standard Chartered can to beat the competition.
In case of loss, it is easy for corporations in the banking sector to sell the business to competitors which makes market exit easier. This condition is favorable for standard chartered as it can exit the banking sector in case of failure or non-achievement of organizational goals.
Threat of Substitutes
There is a low threat of substitutes as economy is suffering from recession. There are not attractive investment opportunities available for consumers. Also, consumers are more focused on savings rather than investments. It is the best time for standard chartered to increase its market share with a cost advantage.
There is an intense competition in the banking sectors. The competitive advantages of banking corporations are being imitated now. Industry is saturated. The effective strategy for Standard Chartered is penetration with cost advantage to capture more market share instead of its current strategy of differentiation advantage with variety based positioning. But, access based positioning strategy is efficient due to competitive rivalry as it is increasing the market share of Standard Chartered.
Standard Chartered is one of the oldest banking of UK. It has the first mover advantage in the banking industry of UK.
It has the international exposure and it has access to international resources. It is able to gain location advantage by expanding to a new geographical region. It is also able to gain ownership advantage due to foreign direct investment support and free market economy of UK.
Standard Chartered has sustained a variety based and access based positioning which is difficult for competitors to imitate.
The bank has the skilled human capital
The bank has made technological investments and it is the technology leader in banking sector.
Standard Chartered has failed to sustain a cost advantage. The PESTLE analysis and Porter five forces highly appeals a cost advantage in the banking sector rather than having a differentiation advantage.
The current PESTLE analysis and Porter five forces reveal that banking sector market can be succeeded if Standard Chartered gains a cost advantage instead of differentiation advantage such as economic recession, low bargaining power of customers, low disposable incomes and market saturation etc.
The Standard Chartered can invest in the developing economies and can harvest its major capital investment from UK to gain location and ownership advantage.
Low entry and exit barriers of Market
Competitors are efficient in imitation of competitive advantages
Customer sophistication and rationality
Low disposable income of customers
Recommendation and Suggestion for Standard Chartered
Introducing a new concept for Standard Chartered – “Value”
It is recommended for Standard Chartered to keep pursuing “access based positioning” with technology by gaining a cost advantage in the marketplace. It is obvious from the PESTLE analysis people are now focused on savings rather than spending. Due to low disposable incomes and low purchasing power, the customers are seeking ways for making profitable investments which make them save money.
The basic purpose of corporate strategy of an organization is to maximize shareholders’ value and same is the case of Standard Chartered UK. The most effective way to maximize shareholders’ value is to increase customer value which will cause increased sales, profitability and market share. Customer value at this time in UK is “money”. Therefore, value can be described as “Value is the worth in monetary terms of the social, economic, technical and service benefits in exchange for the price paid for the Standard Chartered Services”. The price of these banking services of Standard Chartered should be relatively less than the competing products and it should save for money for customers relative to competitors in terms of investment returns and interests. It is possible only if Standard Chartered focuses on reducing overall costs at the organizational level and supply chain level. Supplier side is important because bargaining power of suppliers is low and standard chartered can negotiate more with suppliers to bring its overall costs and in return provide services to its customers at low price which will definitely save money for them. It is also attractive as customers have low purchasing power and low disposable incomes.
Positioning of standard chartered must be changed to “cost” instead of differentiation. Positioning can be defined as what customers perceive as advantages and disadvantages of our products and services. The desired positioning for the brand would be “value” as it provides value to customers by saving their money and increased worth in terms of economic, social, technical and service benefits relative to competitors. The positioning can be stated as follows:
Value = Standard Chartered banking services life cycle costs – Competing brands lifecycle costs
Where Lifecycle costs = Purchase price + Usage Cost + Disposal Cost
The banking services must be enhanced at every level of customer experience such as purchase, usage and disposal and the banking services must be offered at lower price. Enhancement of services and reduction in overall costs would decrease standard chartered lifecycle costs relative competing brands lifecycle costs and thus Value will Increase. The product, price, place and promotion will reinforce product positioning as “Value Provider” to customers.
Standard Chartered must not seek to throw good money after bad because of critical economic conditions and changed consumer trends. It above “value” strategy would increase the market share of Standard Chartered bank in UK as it is the penetration point to capture more market share in banking sector. It is also a harvest strategy because competitive advantages are now imitable and industry is unattractive. The Standard Chartered must pursue its differentiation advantage in the developing economies of Asia, Africa and Middle East. The organizations can grow more efficiently there because of the catchup effect of growing economy. Standard Chartered is wasting its resource in differentiation advantage in UK market because customers are more rational, less rich and banking sector is saturated. It should save its resources to invest in growing economies.