Individual Case Report on Bank of America and the Chinese Credit Card Market
Individual Case Report on Bank of America and the Chinese Credit Card Market
Introduction & Problems Identification
With its double-digit growth in revenue and net income in 2005, and successful merger with MBNA Corporation (MBNA) on January 1, 2006, Bank of America Corporation (BAC) has become the largest credit card issuer in the United States in terms of credit card balances. However, strong competitors in the American credit card market such as JP Morgan Chase and Citigroup have pushed BAC to go abroad (see Exhibit 1 for a list of top bank credit card issuers in the USA). Among all of BAC’s foreign opportunities, China has been the most attractive target since its credit market has massive potential (see Exhibit 2 for an overview of China’s credit growth), and the Chinese government has opened its banking sector to foreign investors. Therefore, BAC entered China by acquiring 9% of the shares in the China Construction Bank (CCB) for $3 billion in June 2005 and was hoping to explore the Chinese credit card market by establishing a joint venture with CCB.
In order to gain early-mover advantage and operate successfully in the Chinese credit card market, BAC has to overcome problems such as the host country’s government regulations, institutional voids, and cultural differences.
Host Country’s Government Regulations
Even though the Chinese government has started permitting foreign investment in China’s banking sector after it became a member of the WTO in 2001, China’s banking sector is still under tight control by the Chinese government. Besides the fact that 60% of China’s national banking assets are controlled by four of China’s biggest state-owned banks, which are regulated by the China Banking Regulatory Commission (CBRC), each foreign investor can only have a maximum of 19.9% ownership of a Chinese banks. With only 19.9% of equity control in CCB, BAC is unlikely to have significant influence over CCB’s decision making.
Institutional Voids in China
Introduction & Problems Identification
With its double-digit growth in revenue and net income in 2005, and successful merger with MBNA Corporation (MBNA) on January 1, 2006, Bank of America Corporation (BAC) has become the largest credit card issuer in the United States in terms of credit card balances. However, strong competitors in the American credit card market such as JP Morgan Chase and Citigroup have pushed BAC to go abroad (see Exhibit 1 for a list of top bank credit card issuers in the USA). Among all of BAC’s foreign opportunities, China has been the most attractive target since its credit market has massive potential (see Exhibit 2 for an overview of China’s credit growth), and the Chinese government has opened its banking sector to foreign investors. Therefore, BAC entered China by acquiring 9% of the shares in the China Construction Bank (CCB) for $3 billion in June 2005 and was hoping to explore the Chinese credit card market by establishing a joint venture with CCB.
In order to gain early-mover advantage and operate successfully in the Chinese credit card market, BAC has to overcome problems such as the host country’s government regulations, institutional voids, and cultural differences.
Host Country’s Government Regulations
Even though the Chinese government has started permitting foreign investment in China’s banking sector after it became a member of the WTO in 2001, China’s banking sector is still under tight control by the Chinese government. Besides the fact that 60% of China’s national banking assets are controlled by four of China’s biggest state-owned banks, which are regulated by the China Banking Regulatory Commission (CBRC), each foreign investor can only have a maximum of 19.9% ownership of a Chinese banks. With only 19.9% of equity control in CCB, BAC is unlikely to have significant influence over CCB’s decision making.
Institutional Voids in China