Strategies Adopted by International Banks Entering the German Market

Last Updated: 06 Jul 2021
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In a continually changing business environment, companies craft strategies to profitably meet market demands and needs. A strategy can consist of many competitive efforts and business approaches to meet market demands and achieve organizational objectives. A strategy can be view as a management’s response to successfully compete in the market. That is, it determines whether a firm will concentrate on a single business or build a diversified group of business. Thus, a firm’s strategy reflects the managerial choices among the different alternatives and market opportunities. It also signals organizational commitment to particular products, markets, competitive approaches, and ways of operating the enterprise (Thompson and Strickland, 2001).

A critical part of crafting strategies is the setting of organizational objectives and goals. Objectives defines the end in which a company sets itself in the future. Along with the firm’s objectives, managers would create specific game plan in achieving these goals. That is, it outlines hows of company strategy:

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  • how to grow the business,
  • how to satisfy customers,
  • how to outcompete rivals,
  • how to respond to changing market conditions, and
  • how to manage each functional piece of business and develop the needed organizational capabilities. To put it more succinctly, it outlines how a firm will realize its strategic mission and vision (Thompson and Strickland, 2001).

Strategy can be comprised of many levels of strategy – from corporate strategy to operating strategies. In this paper, the research focuses on corporate strategy. While business-level strategy is concerned mainly on matching the firm’s individual internal capabilities with its external environment, corporate strategy is concerned with it managing its portfolio of business to achieve market growth and earnings objectives for the conglomerate. Therefore, the emphasis of strategy is not on planning, visioning, or forecasting, rather the research looks at a particular analytical technique to understand better and influence a company’s position in its actual and potential marketplace.

A key emphasis of crafting a strategy is determining a firm’s competitive advantage and improving its competitiveness in the marketplace. The two popular perspectives on competitiveness are the resource-based view (Day 1994; Dierckx and Cool 1989) and the competitive forces of Michael Porter. The resource-based view describes that firms acquire its competitive advantage from its assets and capabilities (Dierckx and Cool 1989). Assets are “the resource endowments the business has cumulated over time (Dierckx and Cool, 1989)”, while capabilities are “embedded in the organizational routines and practices that cannot be traded or imitated (Dierckx and Cool, 1989).” Kay (1999) argues that sustainable competitive advantage is attained when a firm has a distinctive, hard-to-duplicate resources. On the other hand, Michael Porter describes that framework in assessing the market attractiveness of competing in a market segment. The competitive approach emphasizes the intensity of competition in the industry and market segment and its profit potential. Generally, it is advisable that firms seek market segments in which the firm has the necessary resources and capabilities to meet market needs and defend it against competitors (Porter, 1985).

Following the capabilities approach, management’s task is to determine how best to improve and exploit these firm-specific resource. In addition, management’s task is needs to identify and develop the requisite capabilities. What really matters is achieving a defensible cost and differentiation position in an attractive market and keeping rivals off balance through strategic investments, pricing strategies, and signals. The aim of both approaches is to determine sources of sustainable competitive advantage (Day, 1994).

Sustainable competitive advantage is only achieved if the company has distinctive capabilities or resources that its competitors do not have (Kay, 1999). One of the most common driving forces is the increasing globalization of the industries. The world economy in fact is globalizing at an accelerating pace as countries heretofore closed to foreign companies open up their markets. Market leaders, who are ambitious and growth-minded companies, race to stake out competitive positions in the markets of more and more countries. Globalization has indeed changed the market competitive landscape and redefines how companies can successfully maintain and sustain their competitive advantage (Thompson and Strickland, 2001).

Statement of the Problem

In this paper, we define the problem statements as follows:

1.      What are the current market trends and key developments in the banking and finance industry in Germany?

2.      Who are the current international market players in the market and its local competitors? Who are the market leaders and their competitive position in the market?

3.      What are different strategies in entering a foreign market? What are the benefits of entering a foreign market?

4.      How can foreign companies increase their chances of success in penetrating the new financial market? Why is this important in competing in the global marketplace?

Importance of the Study

To the company, the results of the study will provide critical information on how to enhance their business in the banking and finance market and enhance strategic initiatives in effectively entering a foreign market. The present macro environmental changes in the global marketplace make it necessary for them to customize these strategies that should be consistent and supportive of overall organizational goals.


The main method of researching and gathering information about the banking and finance industry in German and the five international financial institutions had been done via the internet and online data services. Materials on international companies, such as Citigroup, UBS, Satander, Barclays, and RDS, financial performance, mission and vision as well as strategies were readily available in the company’s website. News and press releases on new product introduction, recent partnership and alliances as well as company acquisitions were also available in the archives of general news sources such as the Wall Street Journal and CNN. Moreover, industry trade publications and website also provided good information on the industry size, growth, news, statistical trends, and future outlook.

Published materials such as financial reports and case studies are further analyzed to provide a clearer picture on the business environment in the tire industry and to create recommend strategies for the company. Financial analysis and the application of theories in strategic management such as SWOT analysis are also employed to give a clearer picture of the overall management’s outlook and strategy.

The major limitation of the methodology is that the group was unable to obtain industry expert’s or insider insights of the future outlook or trends in the global boutique hotel industry. The group believes that an interview with an industry expert would have provided deeper understanding on the industry dynamics in the tire business.

Review of Related Literature

The literature review will first give an overview of Germany’s economy in particular present an environmental analysis of the banking and finance market. This section will offer a summary on the country’s industry size and why foreign multinationals are attracted in investing in the banking and finance sector of the country. Then, the review will consist of three parts:

  • Strategies in expanding in foreign markets,
  • strategic partnership and alliances, joint ventures, and mergers, and acquisition, and
  • key success factors in competing in a foreign market. In the Strategic Management section, the research will discuss the why companies are expanding to foreign markets.

We further differentiate what it means to compete globally and compete internationally and describe the common pitfalls of cross-country differences. The research will briefly discuss the concepts of strategic partnership and alliances, joint ventures, and mergers and acquisitions as common strategies for international companies to enter a foreign market. In evaluating these strategies the researchers will provide examples of companies such as Citigroup, UBS, RDS, Satander, and Barclays as examples. Lastly, the research will discuss key success factors in competing in a foreign market and how can international companies achieve sustainable competitive advantage.

Germany’s Economy

Germany is a country located in central Europe, bordering the Baltic Sea and the North Sea, between the Netherlands and Poland, south of Denmark. It has a population of 82 million, with a land area of 356,910 sq. kilometers. Its current capital is Berlin. Germany has been known for its rich culture and dark history during the two World Wars. It has been a pivotal country in its power struggle between European countries between the two World Wars. While the country has been divided into Eastern and Western Germany after World War II, the fall of the Berlin wall has been a significant landmark in the country’s history. More importantly, the integration of the two sides and the growth economy has been progressing considerable in the past decade. Currently, Germany has taken steps in integrating its economy with other European countries by joining the European Union (online CIA World Fact Book).

It is currently Europe’s largest economy and it is the second most populous nation in Europe as well. Germany has the one of the most affluent and technologically advanced economy. It is also considered as powerful as it ranks 5th in the world in terms of Purchasing Power Partity or GDP of $2.63 trillion in 2006. Germany’s economy showed considerable improvement in 2006 with 2.2% growth as compared to an average growth of 0.7% growth rate in years between 2001 - 2005. The economy of Germany has also been plagued with high unemployment rate in the past decade because of macroeconomic stagnation, declining level of investment in plant and equipment, company restructuring, flat domestic consumption, structural rigidities in the labor market, lack of competition in the service sector, and high interest rates (online CIA World Fact Book).

Germany’s major economic sectors include agriculture (including forestry and fishing), mining, manufacturing, construction, and financial services. The Economic Intelligence Units (EUI) notes that despite agriculture (together with forestry and fishing) accounts for only 1.2% of GDP, it plays a significant role in the social fabric of parts of the country. Currently, EUI estimates that German food self-sufficiency is approximately 70%. In the mining industry, the country is very rich in coal and lignite and produces approximately 28.6 and 91.1 million tones in Hard coal and Brown lignite respectively. Manufacturing continues to be the backbone of the German economy; moreover, many service companies are in one way or another linked to manufacturing activity. “In 2000, manufacturing accounts for 23% of GDP and for 79% of exports of goods and services. Germany’s industrial strengths lie in capital goods, chemicals, automobiles, and household equipment,” EUI reports.

Banking and Finance Industry: Environmental Analysis

Characteristic features of banking in Germany have traditionally been, first, the large amount of long-term finance provided to business and, second, the regional or local focus of many credit institutions. However, companies are increasingly turning to the stock exchange, and banks are taking steps to divest themselves of large equity holdings. More importantly, there have recently been radical changes in banking through mergers, divestments and closures of bank branches, combined with greater commitment to international investment activity.

  Market Segment: Retail Savings and Investment

Typically, German banking is divided into three primary groupings such as private commercial banks, co-operative banks and the public sector banks. The savings banks are organized regionally and supervised and co-ordinated by the Landesbanken. Three commercial banks are traditionally the dominant players in Germany. These include Deutsche Bank, Dresdner Bank, and Commerzbank.

In recent years, a shake-up is taking place in banking. Together with increased competition as a result of the opening of EU financial markets, the banking sector faced with increased risks. Nonetheless, the German market for retail savings and investments is one of the most valuable in Europe, accounting for more than one-fifth of the regional market’s total investment balances.

Investment balances in the German retail savings and investment market totaled $3,198.3 billion in 2006. This represents a compound annual growth rate of 5.8% for the five-year period starting 2002 to 2006.

In the retail savings and investment market, the deposit segment was the market’s most lucrative in 2006. Total investments stood at $1,832.8 billion, equivalent to 57.3% of the market’s overall value. The next largest segment are the mutual funds, which contributed $703.7 billion in 2006, equating to 22.8% of the market’s aggregate investment balances.

Looking forward, the German retail savings and investment market is forecast to have a value of $3,817.2 billion in 2011, an increase of 19.4% since 2006. Economist expects a compound annual growth rate of 3.6% for the period pning 2006-2011.

Analysis of Competition

In his book Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael Porter discusses the five forces of competition in an industry. He illustrated the five competitive forces as:

  • Rivalry between competing sellers in an industry,
  • potential entry of new competitors,
  • the market attempts of companies in other industries to win customers over to their own substitute products,
  • the competitive pressures stemming from supplier-seller collaboration and bargaining, and
  • the competitive pressure stemming from seller-buyer collaboration and bargaining (Porter, 1985).
  • Porter’s five forces of competition is a widely used tool to determine the company’s current strengths and competitive position. Having a clear picture of the balance of power in a competitive industry will help in planning for a sustained growth in the industry. In the Figure 2, we analyzed and plot the competitive forces in the retail savings and investment industry in Germany (Porter 1985).

            Rivalry Among Sellers. The rivalry intensifies as the number of competitors increases and as competitors become more equal in size and capability. When rivals are nearly equal in size and capability, they can compete on a fairly even footing, making it harder for one or two firms to win the competitive battle and dominate the market (Porter 1985).

            Two facets of rivalry need to be underscored. First, a powerful, successful competitive strategy employed by one rival greatly intensifies the competitive pressures on other rivals. Second, the frequency and vigor with which rivals use any and all competitive weapons at their disposal are major determinants of whether the competitive pressures associated with rivalry are cutthroat, fierce, strong, moderate, or weak (Porter 1985).

            In the case of German Banking and Finance market, the rivalry among sellers can be considered as strong as the top four local competitors compete for consumer deposits. With the increased consumer deposits, a whole range of financial solutions are also offered to consumers with higher margins products such as consumer loans. With limited growth in the retail savings and investment in the next five years, the increasing deposits of consumers can increase the competitive rivalry among sellers.

            Potential Entry of New Competitors. New entrants to a market bring new production capacity, the desire to establish a secure place in the market, and sometimes substantial resources with which to compete (Porter 1979). Just how serious the competitive threat of entry is in a particular market depends on two classes of factors: barriers to entry and the expected reaction of incumbent firms to new entry. A barrier to entry exists whenever it is hard for a newcomer to break into the market or economic factors put a potential entrant at a disadvantage relative to its competitors.

            In banking and finance, the barriers to entry include regulatory policies and access to distribution channels. We discuss the barriers to entry more in detail in the latter portion of this paper.

 Buyer Bargaining Power. Whether seller-buyer relationships represent a weak or strong competitive force depends on whether buyers have sufficient bargaining power to influence the terms and conditions of sale in their favor, and the extent and competitive importance of seller-buyer strategic partnerships in the industry (Porter 1979).

            Buyers have substantial bargaining leverage in a number of situations. Typically, purchasing in large quantities gives a buyer enough leverage to obtain price concessions and other favorable terms. Such is true for institutional investors. Nonetheless, even retail investors can exert significant influence on the sellers as they can easily switch between competing banks and have discretion in whether and when they would purchase the specific financial product.

  Supplier Power. Whether the supplier-seller relationship represent a weak or strong competitive force depends on whether suppliers can exercise sufficient bargaining power to influence the terms and conditions of supply in their favor, and the extent of supplier-seller collaboration in the industry.

            For the banking and finance industry, the German government is the one of the key supplier of banks. The government exerts greater pressures for banks in their regulations and policies such as interest rates, capital adequacy, Basel II requirements and others. While governments determine the direction of the financial sector of the economy, other suppliers of banks include real estate investments, and technology firms. These suppliers are also important in delivering the retail banking service at cost efficient and convenient way to the consumers and institutional investors.

            Substitutes. Firms in one industry are quite often in close competition with firms in another industry because their respective products are good substitutes. Just how strong the competitive pressures are from substitute products depends on three factors:

(1) whether attractively priced substitutes are available;

(2) whether buyers view the substitutes as being satisfactory in terms of quality, performance, and other relevant attributes; and

(3) whether buyers can switch to substitutes easily.

In terms of deposits and investment substitutes, a number of other investment instruments exist in the market such as precious metals, real estate, precious stones, art work, and others. While these instruments exist, it is not readily accessible to retail investors and often requires very high capital outlay for consumers.

Barriers to Entry

Government Banking Regulations and Policies

Government agencies can limit or even bar entry by requiring licenses and permits. In international markets, host governments commonly limit foreign entry and must approve all foreign investment applications.

The beginning of banking regulation in Germany dates back to 1931, when licensing requirements and bank supervision were first introduced on a general scale and a supervisory authority was set up. Like in many other countries, bank regulation in Germany can be interpreted primarily as a response to the banking crises. The 1932 Banking Act was enforced as a form of bank regulation. In 1961, a new German Bank Act (Kerditwesengesetz) was passed and created the Federal Banking Supervisory Office. According to the Banking Act, the FBSO is required to draw up principles allowing it to assess whether a bank’s liquidity and capital is adequate. From 1961 onwards, German credit institutions were subject to requirements of holding an appropriate amount of capital relative to the sum of risk-weighted assets. A number of amendments introduced during the 1990s such as the Capital Adequacy Ratio, Basel II requirements, and the inclusion of European Union Laws into the German Banking Act.

Saunders and Walter (1994), Allen and Gale (2000), and Beck (2000) has in their studies highlighted that the German banking industry in the past has been stable but not very competitive. While the banking industry has been operating smoothly since the end of World War II to the early 2002, many observers believe that the lack of competitive pressure in Germany’s financial system was nothing less than the flip side of this medal. Bank regulation in Germany – so the argument goes – had achieved its stability goal mainly by restricting competition in the financial services sector and by sheltering Germany’s universal bank from competition with foreign banks and non-bank suppliers of financial services. Furthermore, regulators and politicians were believed to have fostered cartelization of the industry and to have favored national champions.

With the entry of Germany to the European Union, important measures towards deregulation of the banking industry were taken at the European level and adopted by Germany at its local level. Anti-competition regulations have been abolished and the remaining regulatory structure does more to directly address the primary goal of bank regulation, that is a reduction of risk of bank failures. As a consequence of deregulation, there is little doubt among industry observers that banking all over Europe, and in Germany as well, is in the move become significantly more competitive (Vives 1991; Cerasi et al 1998).

Established Strong Local Competitors.

            As in the case of consumer goods, a potential entrant may face the barrier of gaining adequate access to consumers. The more existing producers tie up present distribution channels, the tougher entry will be. To overcome the barrier, potential entrants may have to “buy” distribution access by offering better margins to dealers and distributors or by giving advertising allowances and other promotional incentives. As a consequence, a potential entrant’s profits may be squeezed unless and until its product gains enough acceptance that distributors and retailers want to carry it.

            In the case of banking and finance industry, German retail banking is controlled by top local banking companies such as Deutsche Bank, HVB Group, and Commerzbank AG. These companies have through years established its network of branches across Germany. Given this resource, the entry of new competitors can be difficult given the strong position of local competitors and their foothold of the distribution channel for retail banking and investments.

      Key Local Competitors

Deutsche Bank. Deutsche bank is one of the world’s leading banks, offering a range of financial services such as asset management; cash management; securities issuance and trading; and conventional banking. The bank is headquartered in Frankfurt, Germany, but has an international footprint with operations in European countries, North America, and the Asia Pacific. As of the fiscal year ending December 2005, the bank recorded revenues reaching $31.9 billion and a net profit of $4.4 billion (online Deutsche bank website).

HVB Group. Bayerische Hypo- und Vereinsbank AG (HVB Group) is engaged in the retail and corporate banking, real estate finance, the capital markets, and asset management. The company is a subsidiary of the Italy based UniCredit Group. The company is headquartered in Germany, but maintains it operations primarily in Germany, Austria, Central and Eastern Europe, ‘other Western Europe’, Americas and Asia. As of the year ending December 2005, the company registered $27 billion in revenues and $798 million net profit (online HVB Group website).

Dresdner Bank. Dresdner is Germany’s third-largest bank, in terms of revenue, providing lending services, securities and commodities brokerage and investment banking services. The bank has global operations and subsidiaries worldwide, and is one of the current leaders in European Asset Management. The bank is currently headquarted in Frankfurt, Germany. For the fiscal year 2005, the bank reported a net profit of $2.125 billion (online Dresdner website).

Commerzbank AG. Commerzbank AG is engaged in a range of services including corporate banking, retail banking, institutional banking and investment banking services. Commerzbank primarily operates within Europe and is headquarted in Frankfurt Germany as well. For the fiscal year 2005, the company reported a net profit of $1,448 million from its $20.8 billion in revenues (online Commerzbank).

Strategies in Entering a Foreign Market

Strategic Alliances and Joint Ventures

Strategic alliances and cooperative agreements of one kind or another with foreign companies area favorite and potentially fruitful means for entering a foreign market or strengthening a firm’s competitive position in world markets. Historically, export-minded firms in industrialized nations sought alliances with firms in less-developed countries to import and market their products locally – such arrangements are often necessary to win approval from the host country’s government to enter its market. More recently, companies from different parts of the world have formed strategic alliances and partnership agreements to strengthen their mutual ability to serve whole continents and move toward more global market participation.

Joint ventures between domestic and foreign companies have strategic appeal for reasons beside gaining wider access to attractive country markets. One is to capture economies of scale in production and/or marketing – the cost-reductions can be the difference that allows a company to be cost competitive. A second reason is to fill gaps in technical expertise and/or knowledge of local markets (buying habits and product preferences of consumers, local customs, and so on). Allies learn much from one another in performing joint research, sharing technical know-how, and others. A third reason is to share distribution facilities and dealer networks; thus, mutually strengthening their access to buyers. Fourth, allied companies direct their competitive energies toward mutual rivals and less toward one another. And, finally, alliances can be a particular useful way to gain agreement on important technical standards within the industry.

Mergers and Acquisitions

Mergers and acquisition has been a one of the attractive strategic options of corporations seeking to create sustainable competitive advantage. Mergers and acquisitions are attractive because of the fact it can fill in resource gaps that a company may need to remain in the market place. It can dramatically strengthen a company’s market position and open new opportunities for competitive advantage.

The literature on mergers and acquisitions generally focuses on the importance of insuring a good strategic fit between businesses. Strategic fit is defined as the degree to which the target firm augments or complements the parent’s strategy and thus makes identifiable contributions to the financial and non-financial goals of the parent. Past research has generally assumed that the acquiring firm has a clear, well-developed corporate strategy and argues that market, industry, customer, product, and financial analysis can provide definitive guidance for acquisition decision markers (Rappaport, 1979; Salter and Weinhold 1979). Successful merger and acquisition are frequently cited for their superior analysis of fundamental strategic and economic factors relating to the strategic fit of target companies, including how the distinctive competencies of the target could be combined with those of the suitor to create additional value.

In contrast to strategic fit, organizational fit is defined as the match between administrative practices, cultural practices, and personnel characteristics of the target and parent firms and may directly affect how the firms can be integrated with respect to day-to-day operations once the merger has been completed. In contrast to the emphasis typically placed on strategic fit, most merger and acquisition guidelines overlook the feasibility and costs of actually integrating the potential target based on organizational fit (Leighton and Tod, 1969). The literature on organizational fit is quite fragmented and typically addresses only those aspects of organizational fit that pertain to the specific problems encountered in a single case. Such aspects include the impact of acquisitions on individual motivation and productivity (Graves, 1981; Levinson, 1973; Marks, 1982) and the difficulties encountered in matching firm or CEO operating styles (Barrett 1973) or management control systems (Leighton and Tod 1969; Mace and Montgomery 1962).


As industries move toward globalization for several reasons, many prominent firms may launch aggressive long-term strategies to win a globally dominant market position and precipitate a race for world leadership among the industry’s major rivals. As the recent development such as the creation of European Union, countries are reducing trade tariffs, opening up once-closed markets to foreign competitors. Tariff reductions, deregulation, and privatization of government-owned enterprises bring local competitors eyeball-to-eyeball with ambitious global competitors.

Nonetheless, as competitions increases, local players are crafting competitive strategies to defend against global competitors using home-field advantages. Many local players are revisiting their strategic strengths and capabilities and re-focusing their energies to compete with the entry of global competitors. On the other hand, international companies are eyeing strategies to enter a foreign market. Their goal is to gain access to new customers, to achieve lower costs and enhance the firm’s competitiveness, to capitalize on their core competencies, and to spread its business risk across a wider market base.

As international banks enter the German retail savings and investment market, we described the current market structure and define the five forces of competitive pressures that affect local players. While local players have established their network of branches and clientele, the entry of new competitors pose a significant threat for local players as they have the capital, technical know-how, and infrastructure to compete.

As for the international banks, the common strategies in entering the German market is to sign a partnership or joint venture agreement with local players, or merge and acquire one local competitor to gain a foothold of its existing distribution network and clients.

Strategic alliances and cooperative agreements of one kind or another with foreign companies area favorite and potentially fruitful means for entering a foreign market. It also foreign companies to capture economies of scale in production and/or marketing, and it also fill gaps in technical expertise and/or knowledge of local markets such the buying habits and product preferences of consumers, local customs and so on.

On the other hand, merger and acquisition can also a viable strategic option. Merger and acquisition also allow a company to fill in gaps in technical expertise and allows foreign companies to enter the market; however, the only difference is that strategic alliances and joint venture is only lasts as long as the venture is mutually beneficial for both parties. Merger and acquisition is more permanent and requires the rationalization of the companies operation to create economies of scale and transfer technical know-how across borders.


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Strategies Adopted by International Banks Entering the German Market. (2018, Sep 23). Retrieved from

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