Citibank: Launching the Credit Card in Asia Pacific
Citigroup is an American multinational financial services company based in New York City. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate Travelers Group. Nowadays is one of the world’s largest banks. In 2010 was in 22nd position worldwide, ranked on its total assets. Finally, it has the world's largest financial services network, spanning 140 countries with approximately 16,000 offices worldwide, 260,000 staff around the world and holds over 200 million customer accounts.
In 1989, Citigroup tried to penetrate in Asian Pacific countries by establishing new ways of payment such as credit card. The risk was high and the New York headquarters should take a decision soon, in order to face the rival banks.
The Asian Pacific countries (Australia, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, Taiwan and Thailand) are emerging markets and their rapid growth economies were incredible for several years until now. Since 1978 Citibank has a representation there, but approximately 10 years later (in 1989) launched the most innovative service, a new product named credit card. Citibank’s mission in the Asia Pacific region was to be the most profitable provider of financial services to an increasingly affluent and middle-income market.
First of all we should bear in mind that entering into new markets means that Citibank has more opportunities to sell the same product to multiple clients or sell multiple products, such as Citibank’s core products, car loans, deposits and mortgage products, to the same customer. Also, in some countries there are very large population potential customers. In the sector of security, Citibank has quite high technology that can make users feel safe.
On the other hand, many people express doubts about this venture. There are many regulations designed to protect local banks and limit the expansion of foreign banks. In addition there is lack of credit experience and the market is undeveloped yet. Also, economics in these countries are not as developed as in the United States. In some regions the risk is high, because of the political corruption.
I recommend the card launch and I focus on the possibility that some countries could be success. However, in Asia Pacific area you can find different people among countries, with different habits, traditions, religions, so each country has their own market characteristics in comparison with the others.
So, we must take into account the fact that it is impossible for the bank to target all these different countries-cultures at the same time. In my opinion a “safe” choice could be: Malaysia, Hong Kong and Australia.
Malaysia: 16,726,766 population in 1989 and growth rate 8.1%. It has successful business population and growing along with infrastructure. Also, middle and upper class is growing sharply. With 61% of the population living in rural areas, people had plenty of card options to choose from 1989. However, according to Malaysian law, only consumers with an annual income of 9,000$ or more could own a credit card. Also, 25% of its population earns more than 12,000$. Citibank is very possible to get customers at this country, due to high growth rate, 8% is higher than the average value of the latest 5 years (from 1985 to 1990). A total 390,000 desired customers could achieve 900,000 cards (regardless the kind) annually, with revenues approximately 88,200,000$. (Exhibit 4, 8, 10)
Australia: 16,500,000 population in 1989, growth rate 4.0%, but is already saturated market. However, it is the most stable country with small political/economic risk. An average Australian carries 2 cards. Visa and Mastercard hold 35% of the market, but half of the cards issued by local banks. (Exhibit 4)
• Break even: SP-(FC÷VC)=BE
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