Last Updated 28 Jan 2021

Western Union

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Western Union was founded in 1851 and started its history as a telegraph and wire services company. In 2006, Western Union discontinued its telegraph service and focused exclusively on money transfers (Pearce & Robinson, 2011). Jorge Ochoa, Vice President of Finance and Raul Duany, Director of Corporate Communication joined The Western Union Company (WU) in November 2008. The primary customers for money transfers were immigrants that were seeking better opportunities in richer countries away from their home.

When immigrants leave their home countries, they often leave behind family members who depend on them for financial support. This is most true in the case of poorer countries. Government regulators scrutinized the operations and fee-charging practices of money transfer businesses. Western Union is a leader in global money transfer, providing people with fast, reliable and convenient ways to send money around the world. The Western Union brand is globally recognized.

Their services are available through a network of over 375,000 agent locations in more than 200 countries and territories (Western, 2009). Their consumer-to-consumer money transfer service enables people to send money around the world in minutes. Their consumer-to-business service provides consumers with flexible and convenient options for making one-time or recurring bill payments. Western Union believes that the brand strength, size, and reach of their global network, along with the convenience and reliability to their consumers have been essential in the growth of the business.

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As they continue to meet the needs of their consumers for fast, reliable, and convenient money transfer services, they are also working to enhance their services and provide their consumers with access to an expanding portfolio of payment and other financial services. The federal law known as the Community Reinvestment Act (CRA) obligates federally insured banks and depository institutions to help meet the needs of communities in which they operate (Pearce, & Robinson, 2011). In March 2007, Federal Reserve chairman Ben Bernanke stated, “the CRA reaffirmed the long-standing principle that financial institutions must serve the convenience and needs of the communities in which they are charted” (Pearce & Robinson, 2011). Western Union serves many of the financial needs of immigrant populations, as a bank might, with a major presence in poor and racially diverse neighborhoods. Western Union is now being held up to the same standards as banks because they are both financial institutions. Western Union’s customers are mostly urban and poor.

The typical user of its remittance service is a low-wage immigrant worker who lives in Urban America, makes $15,600 annually and sends home $293 a month, almost 30% of his or her net monthly income (Pearce & Robinson, 2011). Heavy charges in the money transfer industry places economic burden on low-income immigrant families in the United States and in their communities of origin while creating and increased reputation risk for Western Union (Pearce & Robinson, 2011). Western Union has been facing numerous lawsuits, mainly because of their lack of social responsibility.

This has affected the company’s image and could potentially increase the risk that Western Union faces in the competitive market. Corporate Social Responsibility Corporate social responsibility is generally perceived as a positive business ideology in the 21st century, despite some challenges. A significant expansion of basic business ethics, CSR establishes guidelines for ethical and socially responsible behavior. It addresses how companies that want to satisfy government and societal requirements should treat key stakeholder groups, including customers, suppliers, employees and the community (Mal Warwick Associates, 2008).

Pros: One of the elements of CSR is that it causes companies such as Western Union to reason beyond basic ethics to consider the benefits of active involvement in communities. In the article "The 7 Principles of Business Integrity," business strategist Robert Moment argues that 21st-century companies must prove themselves to customers to build long-term relationships (Moment, 2004). Western Union involves itself in the community by giving back. Insinuates Western Union to the local markets in which they operate.

Cons: The main reason any company would object to participating in CSR is the associated costs. With CSR, companies have to pay for environmental programs, more employee training and efficient waste management programs. Proponents of CSR agree that any expenses to businesses are ultimately covered by stronger relationships with key customers. However, David Vogel indicates in his Forbes article "CSR Doesn't Pay" that investment in CSR programs may not necessary result in measurable financial results (Vogel, 2008).

* Corporate Citizenship. Western Union’s global corporate citizenship is their commitment to enrich the lives of global citizens by expanding economic opportunity. Through initiatives like the Western Union Our World, Our Family program, they are able to put their values into action (Western Union, 2011). Western Union corporate citizenship efforts focus on three primary areas: 1. Supporting Cultural Inclusion: Western Union recognizes the importance of helping individuals and families build strong communities, in which all members can contribute their distinctive talents and feel at home. . Creating Pathways to Opportunity: Western Union help diverse individuals and communities around the world realize their tremendous potential with scholarships supporting financial literacy, entrepreneurship, job training, and other skills necessary on the journey to a better life. 3. Fostering Hope in the Developing World: Western Union support economic development and opportunities with infrastructure development, community centers and access to technology (Western Union, 2011).

Western Union’s Current Strategy. Currently, Western Union is using the free cash flow that is generated to repurchase stock and acquire rival money transfer firms in order to expand. Along with the repurchasing of stocks and acquisitions, WU has donated millions of dollars to charitable organizations and other countries. Their current strategy is concentric diversification because they are acquiring firms that are related to them in terms of products and markets. They have pursued growth of their brand through international expansion and the growth in the worldwide immigration population was also driving growth in the money transfer business.

Although there is a higher risk associated with diversification, according to Pearce & Robinson (2011), the distinctive competencies of the diversifying firm are likely to facilitate a smooth expansion. Globalization There are about seven factors that make global strategic planning complex. These factors are economic factors, political factors, geographic factors, labor factors, tax factors, capital source factors, and business factors (Pearce and Robinson, 2011). When you look at the economic factors of a country, you need to look at the GNP for the country, and the foreign exchange rate.

You also need to consider the size of the market and the markets potential rate of growth. As far as the political factors are concerned, you have to determine whether the country is stable, as well as, the type of political structure in the country. It is also important to understand how foreign business is perceived in the country by the government, consumers and competitors. The geographic factors that you should be concerned with is the availability of raw materials, utilities, and the proximity to export markets.

Other globalization challenges you need to be aware of are the labor factors – whether you will have the necessary skills available in the people in the country, tax factors – whether there are any tax breaks for foreign investors or if there is a huge tax rate for the country, capital source factors – banking systems available in the country, and business factors – current industry information for competitors and competitive situation. Diversification There are also challenges inherent to diversification.

Companies often decide to diversify so that they can acquire a new company that will potentially balance the strengths and weaknesses of the two businesses (Pearce and Robinson, 2011). Companies use diversification as a grand strategy in order to increase stock value, increase growth rate, better use of investment funds, improve stability of the company, acquire needed resources quickly, and tax savings, and increase efficiency and profitability.

Trends in the Financial Services Industry. Current trends in the financial services industry is the use of a focus strategy. Focus strategy, involves concentrating on a particular customer, product line, geographical area, channel of distribution, stage in the production process, or market niche. The underlying premise of the focus strategy is that the firm is better able to serve its limited segment than competitors serving a broader range of customers. Firms using a focus strategy simply apply a cost-leader or differentiation strategy to a segment of the larger market.

Firms may be able to differentiate themselves based on meeting customer needs through differentiation or through low costs and competitive pricing for specialty goods. This strategy is often appropriate for small, aggressive businesses that do not have the ability or resources to engage in a nation-wide marketing effort. Such a strategy may also be appropriate if the target market is too small to support a large-scale operation. Many firms start small and expand into a national organization. The trend in the financial services industry is that consumers are working outside of their home countries.

Many of these consumers have families back in their home country that they periodically send money to in order to help them pay their bills. Western Union has a niche with this trend because they provide a means of easily getting the money to their family without having to have a checking account or if they have credit problems and owes the money elsewhere. Western Union guarantees that the money will be secure and delivered to the correct person. Internal Environment Financial Information In 2008, Western Union’s market share grew and delivered record levels of revenue and cash flow.

Revenue was $5. 3 billion; $1. 25 billion was generated in cash flow from operations and WU handled $67 billion in cross-border consumer-to-consumer remittances. They also delivered an operating income margin of 26% for the year. Western Union and its consumers are feeling the impact of the global economic recession. They have confidence in their strategy. Their plan is to focus on what they can control and influence. They have a brand that is recognized around the world. Their business generates significant cash flow.

They have created a business model that consistently delivers strong margins. They have built a distribution channel that is second to none and their global team is focused on a short list of priorities to drive growth. They provide vital services to consumers in more than 200 countries and territories. These services not only make a tremendous difference in the individual lives of their customers, but the volume of remittances sent through Western Union helps drive many national economies, paving the way for long-term growth.

They also have the advantage of a globally recognized brand and unmatched worldwide distribution. Western Union plans to continue investing in their brand even in these tough times. Their brand represents speed, trust and reliability to their consumers worldwide. WU has launched a comprehensive new global brand initiative that embodies an ambitious and forward-looking vision for the company. Their vision is of optimism for their customers, company, agents and, employees. This vision shows their commitment to help people who are on the move, pursuing their dreams.

At a time when there is so much pessimism in the world, it is believed that this Western Union message will serve as a source of positive energy in the marketplace, which should ultimately translate into mind share and market share for the company. They will increase their technology spend to further develop tools that allow them to perform deeper analysis on their customers. Western Union is sharpening their focus and directing investments to meet market share opportunities. They have demonstrated that their global team working together has helped them gain market share in 2008.

These employees were using Western Union’s four key strategies—strategies that will continue to drive their business forward: * Accelerate profitable growth in the global cash money transfer business * Expand and globalize the consumer-to-business payments business * Innovate new products and services for target customers * Improve profitability by leveraging scale, reducing costs and effectively using capital During 2009, Western Union will increase investment in technology and systems.

They want to update their systems in order to move traditional and new services from virtually anywhere in the world, with exceptional speed. Western Union has a proven business model with significant financial strength. Alternatives and Recommendations Strategic Alternatives In order to publicize their commitments to social responsibility, Western Union should consistently re-evaluate their operations and look for areas of improvement. They can also look at what other companies in the industry are doing to be socially responsible and implement such procedures to their company.

Because of the challenges inherent in globalization and diversification, it is important for Western Union to perform due diligence when entering foreign markets. One of the challenges when globalizing may be the exchange rate in different countries. Western Union may have to charge different fees depending on where they are and who their competition is. Recommended Strategy We believe that the company should stick with what they know and continue to repurchase shares and acquisitions. Repurchasing shares can generate a higher EPS and help use up excess cash.

It can also increase the ROE and raise demand for the stock on the open market. Their current strategy seems to be working for them and as long as they continue to re-evaluate their operations and remain socially responsible, their strategy will be a success. The bottom line is that Western Union wants to pursue mergers in order to make money for the company and for shareholders.


Pearce, J. A, & Robinson, B. R. (2011). Strategic Management- Formulation, Implementation, and Control. (12ed) New York, NY: McGraw-Hill/Irwin. Mal Warwick Associates, Initials. (2008). The Five Dimensions of CSR. Retrieved from http://www. malwarwick. com/ Moment, R. (2004). The 7 Principles of Business Integrity . Retrieved from http://www. webpronews. com/the-principles-of-business-integrity-2004-07 Vogel, D. (2008). CSR Doesn't Pay. Retrieved from http://www. forbes. com/2008/10/16/csr-doesnt-pay-lead-corprespons08-cx_dv_1016vogel. html Western Union. (2011). Corporate Citizenship. Retrieved from http://corporate. westernunion. com/corporate_responsibility. html

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