Bank Generic Strategies Does Porter's Theory Apply in An International Banking Center PDF

International Business Review 8 (1999) 561590 www.elsevier.
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Bank generic strategies: does Porters theory apply in an international banking center
Ricky Yee-kwong Chan*, Y.H. Wong
Department of Business Studies, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong
Abstract This study examines banks competitive strategies and their relationship with performance in a highly internationalized banking center, Hong Kong. The factor analysis results have, by and large, provided support to Porters three strategy typology. Nevertheless, the empirical ndings from the cluster analysis and the subsequent inter-group comparison of performances have cast doubt on Porters stuck-in-the-middle proposition by demonstrating that banks adopting a multi-strategic approach did outperform other strategically monotonous rivals. While the stuck-in-the-middle proposition is grounded in the premise of inherent inconsistencies for pursuing more than one generic strategy simultaneously, the resource-based view and the present empirical ndings hint at the feasibility for well-resourced banks to combine apparently incompatible value creating activities in a synergistic way to achieve integrated exibility and consequently, a sustainable multi-strategic position. It is suggested that this feasibility very much depends on a banks organizing and coordinating capabilities that are developed and rened through managerial commitment, learning and experience, as well as a careful assessment of various organizational activities and its inter-relationships within the entire business system. 1999 Elsevier Science Ltd. All rights reserved.
Keywords: Generic strategy; The resource-based view; Performance; Hong Kong banking industry; Stuckin-the-middle; Integrated exibility
1. Introduction Recently, there has been a heightened recognition that the boundaries between goods and services have become increasingly blurred and that the majority of ser* Corresponding author. Tel.: +852-2766-7110; fax: +852-2765-0611. E-mail address: buricky@polyu.edu.hk (R.Y.-k. Chan)
0969-5931/99/$ - see front matter 1999 Elsevier Science Ltd. All rights reserved. PII: S 0 9 6 9 - 5 9 3 1 ( 9 9 ) 0 0 0 2 0 - 7
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R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590
vices, in fact, contain signicant tangible components or vice versa (Shostack, 1977; Quinn, Doorley & Paquette, 1990; Fahy, 1996). Apparently, this recognition points to the legitimacy of transplanting classical strategic theories that were developed for tangible product markets to service industries (Allen, 1988; Davidow & Uttal, 1990; Fahy, 1996). Alongside this, there is a growing trend for bank strategists to apply a variety of these classical theories (e.g. Metzger & Rau, 1992; Hayes, Spence & Marks, 1983; Sontheimer & Thorn, 1986; Carey, 1989; Ennew, Wright & Watkins, 1990; Jenning & Lumpkin, 1992; Ennew, Wright & Thwaites, 1993; Farrance, 1993) to analyze the increasingly competitive and internationalized banking industry (Kindleberger, 1984; Cho, 1985; Blumenthal, 1988; Capoglu, 1990; Goldberg, 1991). However, given the well-documented unique characteristics of banking offerings (Von Clemm, 1976; Dufey & Giddy, 1981; Cho, 1985; Meidan, 1996), whether these classical theories are really applicable to explain banks competitive behavior still remains unclear.
2. Purpose of the study Against these developments, this study is designed to investigate banks competitive behaviors in a highly internationalized banking center, namely Hong Kong. Specically, the present study aims to identify the major sources of advantage on which banks rely to develop their generic strategies, and to analyze the relationship between banks generic strategies and performance. Given the popularity of Porters strategic theory and the resource-based view of the rm in recent strategy literature (Reed & DeFillippi, 1990; Fahy, 1996), the empirical ndings from this study will be analyzed along with the premises of these theories to see how far they are able to explain banks strategic conduct. A point concerning the relevance of the present study to international business research warrants some further discussion. In view of the purpose of the present investigation, some may tend to think that it is more concerned with strategy than international business. However, one should note that strategy issues and internationalization issues could be, and probably often are, interconnected.1 Moreover, by examining different banking institutions strategies in a highly internationalized Asian banking center, the present investigation is believed to possess adequate international avor and be able to provide international service providers and particularly, international bankers, some useful insights into improving their operations. The blurred division between strategy and international business research is further reinforced by Caves (1998, p. 5) recent assertion that the eld of international business indeed slices across the grain of areas of study in business administration which encompasses strategy, nance, marketing, organizational behavior and human resource management. In short, while it is agreed that the present investigation
1 The authors would like to thank one of the anonymous reviewers for his valuable comments on this point.
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relates to the eld of strategy research, the internationalized setting involved in this investigation also makes it well t in the ambit of international business studies.
3. The Hong Kong banking industry Having compared the relevant nancial statistics of major international banking centers, Jao (1997) concludes that Hong Kong is the worlds fourth largest international banking center, surpassed only by New York, London and Tokyo. In terms of the presence of foreign banks alone, Hong Kong has outnumbered even New York and Tokyo and ranks second worldwide (Jao, 1997). Of the worlds top 100 banks, 81% are present in Hong Kong (Hong Kong Monetary Authority Annual Report, 1996). The presence of a large number of foreign banks has led to a high degree of internationalization and intense competition in the Hong Kong banking sector (Chan, 1994). Although some analysts were previously concerned about what would happen to Hong Kongs banking industry after it became a Special Administrative Region of China on July 1 1997 (Lieberthal, 1992; Moodys Sovereign Credit Report: Hong Kong, 1993), a more recent survey has indicated that bankers here are, in general, optimistic about the future of the banking industry (Chan, 1996). In addition, the recently released ofcial gures reveal that all of the worlds top 100 banks which operated in Hong Kong before the handover still continue their operations here and do not show any sign of withdrawal (Bankers Handbook for Asia 1996, 1997). These gures echo the Hong Kong central banks latest comment that the handover did not have any adverse effect on the [territorys] banking sector (Hong Kong Monetary Authority Annual Report, 1997). The continued internationalization of the Hong Kong banking industry thus warrants the appropriateness of conducting such kind of investigation in the territory before and beyond the change of sovereignty.
4. Internationalization of the banking industry The recent rapid expansion of international banking has had signicant impacts on the global economy and banks strategies (Auerbach, 1989). Alongside this development, a signicant volume of literature has theorized the reasons for the expansion of international banking (Cho, 1985; Goldberg & Johnson, 1990). Having referred to the theory of comparative advantage, some earlier scholars such as Lee (1974) and Aliber (1976) assert that banks which have comparative advantages (e.g. cheaper funds available at home country) in offering certain banking products for a particular foreign market are likely to serve that market. Based on the premises of the economics of industrial organization (IO) (cf. Hymer, 1960; Kindleberger, 1969), several bank researchers (Fieleke, 1977; Grubel, 1977; Allen & Giddy, 1979; Khoury, 1980; Gray & Gray, 1981; Goldberg & Saunders, 1981; Sabi, 1988) advocate that the major reason for banks to establish operations in foreign markets is their possession of some monopolistic advantages under the situation of market imperfections. These
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advantages are similar to multinational enterprises (MNEs) ownership advantages referred to by Dunnings (1980, 1988, 1993) eclectic theory.2 In this context, the works of IO economists like Caves (1971, 1974, 1982, 1984), Swedenborg (1979), Lall and Siddharthan (1982) and Kumar (1990) have sought to identify the kind of ownership advantages possessed by MNEs. In brief, the identied advantages include economies of scale, managerial and marketing expertise, capability in serving homebased MNEs, information advantage, research and technological competence, and product differentiation. Following the concepts of internalization that are enshrined in the eclectic theory in general and in the internalization theory (cf. Buckley & Casson, 1976; Beamish & Banks, 1987) in particular, Rugman (1981) construes foreign direct investment as an effective means for banks to internalize their monopolistic advantages under market imperfections. In reviewing the international expansion of US banks, Brimmer and Dahl (1975) and Kelly (1977) refer to the international investment theory and contend that government regulations on capital ows are the major motivation for internationalization. Moreover, Sagari (1986, 1990) and Blejer and Sagari (1988) also suggest protectionism and the regulatory framework of host countries as important factors in inuencing international banking activities. On the whole, while diverse in nature, the aforementioned theories seem to agree on the importance for banks to possess some form of monopolistic (competitive) advantage before they can engage in foreign direct investment competitively and capitalize on opportunities available in host countries protably. The emphasis on competitive advantages, in turn, echoes the basic thrust of Porters theory of generic strategies.
5. Porters theory of generic strategies The concept of competitive advantage has been treated extensively in recent strategy literature by Porter (Reed & DeFillippi, 1990; Hart, 1995). In his works in 1980 and 1985, Porter advocates low cost and differentiation as two important sources of competitive advantage for inuencing rms performances. Adding the dimension of commitment level (cf. Ghemawat, 1986), he further introduces three generic strategies, namely overall cost leadership, differentiation and focus, for competition (Porter 1980, 1985). Due to his perceived inherent incompatibility, Porter advances that a generic strategy should be pursued in a wholly single-minded way and that applying more than one generic strategy concurrently will result in poor performance unless under rare conditions. Porter (1996) recently asserted that one rare condition in which simultaneous improvement of cost and differentiation is possible [is] only when a company begins far behind the productivity frontier or when the frontier shifts outward. He calls this improvement the improvement in operational effectiveness and distinguishes it from the real success in strategy. Taken together, Porters
2 Indeed, Gray and Gray (1981), and Yannopoulos (1983) are among those who have most ably applied the eclectic theory to study international banking.
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concept of generic strategies is to remind strategists of the danger of being stuck in the middle and the importance of competing on the basis of low price, product uniqueness or tactful target marketing. A number of empirical studies have found support for Porters theory since its inception (Hambrick, 1983a,b; Dess & Davis, 1984; Miller & Friesen, 1986; White, 1986; Robinson & Pearce, 1988). Nevertheless, several subsequent works have revealed that Porters alleged generic strategies are not really generic but contingent upon the operating environment in question (Hill, 1988; Murray, 1988; Wright & Parsinia, 1988; Miller & Dess, 1993; Reitsperger, Daniel, Tallman & Chismar, 1993; Kean, Niemeyer & Miller, 1996).
6. The resource-based view of the rm Among those who cast doubt on Porters theory are ones who are particularly skeptical about his stuck-in-the-middle hypothesis (e.g. Miller & Toulose, 1986; Watkins, 1986; Miller & Dess, 1993; Kean et al., 1996). They are doubtful whether a uni-strategic approach can invariably lead to superior performance, or whether a tactfully implemented multi-strategic approach is, in fact, more desirable to cope with an increasingly dynamic and competitive operating environment (Ahmed et al., 1996). In addition to the aforementioned disconrming literature, the uni-strategy proposition also seems to be dubious when judged against a recently emerged strategic perspective, the resource-based view of the rm (called RBV hereafter). RBV owes much of its genesis to the classical works of Selznick (1957) and Penrose (1959) published four decades ago. Despite its long history, this perspective was overshadowed by other strategic theories (e.g. those based on neo-classical economics) until the end of the last decade when more and more empirical evidence pointed to inter-rm performance differences within the same industry (Cool & Schendel, 1987; Hansen & Wernerfelt, 1989; Wernerfelt & Montgomery, 1988; Nelson, 1991; Rumelt, 1991; Boxall, 1996). This evidence has eventually resulted in a conceptual swing-back and led to the emergence of a strategic perspective, now commonly known as RBV (cf. Nelson & Winter, 1982; Wernerfelt, 1984; Barney 1986a,b, 1991; Dierickx & Cool, 1989; Prahalad & Hamel, 1990; Conner, 1991; Grant, 1991; Mahoney & Pandian, 1992; Peteraf, 1993; Russo & Fouts, 1997). Put simply, RBV theorists argue that a rms sustainable competitive advantage stems from its unique bundles of resources (Wernerfelt, 1984; Barney, 1991). Being the main drivers of organizational performance, resources are dened as all assets, capabilities, organizational processes, rm attributes, information, knowledge, etc., controlled by a rm that enable a rm to conceive of and implement strategies that improve its efciency and effectiveness (Barney, 1991). Amit and Schoemaker (1993) further dene capabilities as capacities or competencies to deploy resources and regard them as resources as well. In Henderson and Cockburns (1994) term, it takes architectural competencies to deploy component competencies. Resources that are sources of sustainable competitive advantage and superior prots are called strategic assets (Barney, 1991; Amit & Schoemaker, 1993). Although terminology varies among RBV scholars (Peteraf, 1993), there appears to be a gen-
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eral consensus on the characteristics of strategic assets, namely they must be: (1) valuable (Dierickx & Cool, 1989), (2) rare (Reed & DeFillippi, 1990), (3) imperfectly mobile (Barney, 1991), and (4) imperfectly inimitable either because of causal ambiguity or social complexity (Teece, 1987; Winter, 1987). Causally ambiguous resources relate to a rms tacit attributes which comprise its skill-based and peopleintensive assets that are developed through accumulated experiences and rened by practices (Polanyi, 1962; Itami, 1987; Reed & DeFillippi, 1990). These resources enable managers to communicate, make decisions, and handle uncertain and complex business situations more efciently and effectively (Mata, Fuerst & Barney, 1995). Socially complex resources refer to a rms ability to manage a complex set of intraand inter-rm social relationships (e.g. with staff, customers and suppliers) that are essential to its productivity and protability (Klein, Crawford & Alchian, 1978; Barney 1986a, 1994). Should the premises advocated by RBV be valid, it is likely that rms possessing the appropriate resources (mainly relating to architectural competencies) will be able to adopt a viable multi-strategic approach. These resources should allow rms the leverage to mobilize their physical and human resources intelligently, and to coordinate their various value creating activities in a synergistic way (Johnson & Scholes, 1997; Michalisin, Smith & Kline, 1997). Although the development of these resources may not be overtly observable due to their causal ambiguity and social complexity, their presence certainly can help reconcile the alleged incompatibility pertinent to the pursuit of a complex strategy. While the RBV perspective hints at the feasibility of adopting a multi-strategic approach by possessing the appropriate resources, several strategy researchers recently have also pointed to the necessity to do so particularly under certain industry and operating settings. For instance, in the context of service industries such as banking, Fahy (1996) contends that the capability to integrate various value creating activities is a service rms most sustainable source of competitive advantage. His contention mainly revolves around the rare and inimitable nature of this capability (Stalk, Evans & Schulman, 1992). In addition, to cope with a dynamic and fast changing operating environment such as the one faced by todays international bankers (Dietrich, 1996; Jao, 1997), Ahmed et al. (1996) advance the importance of pursuing integrated exibility by being exible in a number of key critical resource areas.... and [being] able to integrate complex competitive strategies that go beyond earlier narrow strategies stressing either low cost or differentiation. Similarly, Pitelis and Taylor (1996) also argue for the necessity to apply the value for money strategy (i.e. overall cost leadership and differentiation combined) in a newly industrialized country (e.g. Hong Kong) where new competition emerges. To summarize, by pointing out the resource differences among rms within the same industry, RBV highlights the possibility for some well-resourced players to adopt a viable multi-strategic approach and outperform those less-endowed ones in a dynamic operating environment. Thus, although RBV and other related theories mentioned above do not provide any direct evidence to refute Porters stuck-in-middle hypothesis in the banking industry, they do offer some essential conceptual insights to question its validity.
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7. Method 7.1. Population of the survey The industry examined in this study comprises all the commercial banks in Hong Kong. The commercial banks have long been regarded as the backbone of the entire Hong Kong nancial industry by accounting for over 90% of its total assets and loans (Lee, 1986; Ho, 1991b; Hong Kong Monetary Authority Annual Report, 1996). Due to the governments positive non-intervention policy, the Hong Kong commercial banking sector is highly internationalized with the presence of 166 or 91% of foreign-owned banks (Jao, 1997). These foreign rivals originate mainly from West Europe (27%), Japan (25%), China (9.9%) and the US (7.7%) (Hong Kong Monetary Authority Annual Report, 1996). 7.2. Generation of major competitive methods In order to examine commercial banks competitive strategies, an inductive approach was used to obtain inputs from their CEOs who were believed to be the most important persons in strategy formulation (Pearce & Robinson, 1988). Specically, in-depth interviews with the CEOs of commercial banks were rst conducted to identify the main competitive methods being used in their wholesale banking business. This identication also helped to provide insights into what major sources of advantage were relied on by banks for competition. The reasons for conning the investigation to the wholesale banking business were three-fold. First, while only one third of the commercial banks in Hong Kong engage in retail banking, all of them have a signicant stake in the wholesale banking business (Jao, 1997). The selection of the wholesale banking business as the unit of analysis would thus enable the inclusion of all Hong Kong commercial banks in the population of investigation. Second, although the unavailability of a comprehensive set of ofcial statistics prohibits the researchers from making a thorough comparison between Hong Kongs wholesale and retail banking, some piecemeal gures still reect the dominance of its wholesale banking. For instance, it is estimated that around 70% of Hong Kongs total loan advancement are for corporate (wholesale) instead of individual (retail) borrowers (cf. Hong Kong Monetary Authority Annual Report, 1997). Third, as frequently asserted by strategy researchers, concentration on one line of business can help avoid the confusion that arise from different methods used in competing in multiple businesses (Rumelt, 1974; Dess & Davis, 1984). Despite the connement of the current study to the wholesale banking business, it is believed that the present ndings would, by and large, be generalizable to the retail banking sector. Such a belief is attributed to the fact that Hong Kongs retail bankers are also faced with the same highly competitive operating environment that their wholesale counterparts experience (Chan, 1997). In order to differentiate themselves from and outperform their rivals under the keen competition, it is expected that retail bankers would also need to resort to a more integrated but complex strategic approach.
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Sixteen in-depth interviews with banks from all major countries/regions of origin (i.e. West Europe, Japan, China (PRC), the US and Hong Kong) were successfully conducted. To ensure representativeness, at least three banks from each of the aforementioned major countries/regions of origin were interviewed. During the interview, each respondent was asked to describe his banks major competitive methods. All the 16 interviews were recorded in writing in detail according to Yins (1994) proposed guidelines. To enable the present study to combine the descriptive capability of eld research with the normative recommendations obtained from a panel of experts (cf. Harrigan, 1983; Dess & Davis, 1984), the interview records were analyzed according to the procedure as outlined below. The 16 interview records were content-analyzed by three strategy researchers and three senior commercial bankers not included in the interviews. These six analysts were rst requested to independently identify the major competitive methods adopted by the responding banks. Having completed this, the six analysts then met together to exchange views. The meeting was similar to a jury of expert opinion (cf. Crask, Fox & Stout, 1994) and an attempt to converge the opinions of the analysts to produce a concordant list of competitive methods. In other words, the foregoing approach made use of the collective wisdom to purify the ndings through the deletion of redundant or ambiguous items (competitive methods) and the combination of similar items. After a thorough discussion, four analysts concorded on a list of 15 competitive methods. However, three out of these 15 competitive methods were considered by the remaining two analysts to be either vague or duplicate. To avoid disagreement, the three disputed methods were discarded and a consensual list of 12 competitive methods was then generated. The number of competitive methods derived here is comparable with that of other studies concerning generic strategies (Kim & Lim, 1988; Parnell & Wright, 1993). To further assess the content validity of the list and to ensure that wordings being used to describe the competitive methods were reasonably clear, another senior banker and bank researcher were invited to comment independently on its appropriateness. As these two commentators both agreed to the list, it was adopted in the subsequent mail survey (cf. Appendix A, Part 1.2(a)(l)). By getting the involvement of more than 20 experienced bankers and scholars of the territory in deriving and purifying the major competitive methods, it was hoped that the expression being used to describe these methods could be reasonably clear among all the potential respondents. By taking a glance at the 12 derived competitive methods, it is apparent that availability of a large amount of surplus funding [1.2(c)], back-up by a resourceful parent/holding company [1.2(d)] and low nancing costs [1.2(j)] all concern banks cost leadership strategy (Short, 1978; Goldberg & Saunders, 1980; Aliber, 1984). On the other hand, the remaining nine competitive methods appear to refer to various modes for banks to differentiate themselves. To sum up, although more rigorous statistical validation procedure was denitely needed to assess the correspondence between these 12 inductively generated competitive methods and Porters proposed generic strategies (see below), the presence of both the cost-related and differentiation-related competitive methods did provide some preliminary support for
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his proposition that low cost and differentiation are two important sources of rms competitive advantage. 7.3. Mail survey A mail questionnaire was developed based on the 12 rened competitive methods. In addition to providing details of their banks performance and background, survey respondents were required to rate, on a ve point scale (1=least important; 5=most important), the emphasis their wholesale banking unit had attached to each of these 12 competitive methods within the past ve years. This self-reporting technique was considered to be appropriate in strategy research (Snow & Hambrick, 1980; Ginsberg, 1984; Hambrick, 1989). To avoid anomalies of the collected data, the questionnaire also incorporated a screening question to lter out those banks which had altered their major competitive methods within the past ve years from the survey. Having pilot-tested with four other senior bankers not included in the mail survey (cf. Dess & Davis, 1984), the nalized questionnaire was mailed to the CEOs of all the 182 commercial banks in Hong Kong, based on the particulars provided by the Hong Kong Interbank Directory 1996 and Bankers Handbook for Asia (1996). Telephone follow-ups were made at the end of the second week after the questionnaire had been mailed (cf. Zikmund, 1995). Eventually, 71 useful questionnaires were collected which constituted a response rate of 39%. This compares well with the response rate of other survey studies with similar objectives (Robinson & Pearce, 1988; Kotha & Vadlamani, 1995). On average, the sample had a recent assets size and pre-tax return on assets of US$5.8b and 0.76% respectively, and comprised 22 West European banks (31%), 14 Japanese banks (20%), 12 American banks (17%), 8 PRC banks (11%), 8 local Chinese banks (11%) and 7 banks originating from other countries (10%). The t-test showed that there was no signicant difference between the responding and non-responding banks in terms of the total bank assets, return on assets and number of employees. A copy of the mail questionnaire is provided in Appendix A for reference.
8. Results 8.1. Underlying constructs One major investigation involved in the present study is to identify what underlying constructs or major strategic approaches are in fact represented by the 12 competitive methods generated earlier. Alongside this, Joreskog (1974) notes that many investigations are to some extent both exploratory and conrmatory, since they involve some variables of known and other variables of unknown composition. This remark covers the investigation of the present study as well. To cope with this kind of investigations, methodologists often recommend the use of a statistical procedure which comprises: (1) exploratory factor analysis; (2) reliability test; and (3) conrmatory factor analysis for validating measures (Gerbing & Anderson, 1988; Hair,
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Anderson, Tatham & Black, 1995). Accordingly, this procedure was also adopted in the present study to identify and validate the underlying constructs. 8.2. Exploratory factor analysis and reliability test To examine whether there were any underlying constructs (factors) accounting for the 12 competitive methods, respondents relevant importance ratings were rst factor analyzed. Varimax rotation was subsequently performed to facilitate interpretation. In view of the general rules regarding the sample size (50), and the ratio between the sample size and number of variables to be factor analyzed (5), the present sample was considered to be suitable for factor analysis (Hair et al., 1995). By setting the cut-off eigenvalue value and factor loading at 1 and 0.5 respectively, three factors which explained 67.1% of the total variance were extracted in Table 1. This percentage was above the suggested satisfactory threshold of 60% for social science studies (Hair et al., 1995). In addition, the Cronbach reliability tests on the three extracted factors that are shown in Table 1 also rendered very satisfactory Alpha values (cf. Cronbach, 1951; Nunnally, 1978). 8.3. Conrmatory factor analysis While exploratory factor analysis and reliability test are able to derive some plausible constructs (Gerbing & Anderson, 1988), conrmatory factor analysis (CFA) is particularly useful in validating the measurement of these constructs (Anderson & Gerbing, 1988; Hair et al., 1995). Consistent with Anderson and Gerbings (1988) recommendation, the CFA was employed to assess the overall t, convergent validity
Table 1 Factor analysis of the 12 competitive methods (N=71)a Factor loading Factor 1: Broadly-targeted Differentiation (BTD) Professional banking services International network International image and reputation Ability in product innovation High caliber staff Narrowly-targeted Differentiation (NTD) Long establishment in Hong Kong Operating exibility Cultural proximity Ability in niche marketing Cost Leadership (CL) Availability of a large amount of surplus funding Back-up by a resourceful parent/holding company Low nancing costs Alpha reliability 0.85 0.8412 0.8366 0.7868 0.7664 0.5883 0.74 0.8504 0.6703 0.5740 0.5605 0.69 0.8415 0.7621 0.7001
Factor 2:
Factor 3:
The three extracted factors account for 67.1% of the total variance.
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and discriminant validity of the measurement of the three constructs (factors) extracted earlier. The CFA was performed by using the EQS Windows 5.4 (Bentler, 1995; Bentler & Wu, 1995). Due to its user-friendly nature and less stringent assumptions on the multivariate normality of data, EQS has long been regarded as one of the best alternatives for the more traditional LISREL software for performing the structural equation modeling (Anderson & Gerbing, 1988; Byrne, 1994; Hair et al., 1995). As shown in Table 2, the Chi Square statistic resulting from the CFA was 103.13
Table 2 Summarized results of the conrmatory factor analysis (N=71) Measurement model Path loadinga (convergent validity) Squared phi-value representing correlation estimate between constructsb (discriminant validity) Factor 1 Factor 2 0.72 0.69 0.94 0.61 0.81 Factor 2 Factor 3 0.52 0.57 0.88 0.72 Factor 1 Factor 3 0.10 0.19 0.31
Factor 1 Broadly-targeted Differentiation (BTD) Professional banking services International network International image and reputation Ability in product innovation High caliber staff Factor 2 Narrowly-targeted Differentiation (NTD) Long establishment in Hong Kong Operating exibility Cultural proximity Ability in niche marketing Factor 3 Cost Leadership (CL) Availability of a large amount of surplus funding Back-up by a resourceful parent/holding co. Low nancing costs Overall t indexes 2=103.13c, df=51d, 0.01 NFI=0.921e; CFI=0.918f
a b c d e f
0.73 0.86 0.60
All estimated path loadings are signicant at =0.05. All correlation estimates are signicantly different from 1 at =0.05. 2: The Chi square statistic from the conrmatory factor analysis. df: The degrees of freedom. NFI: Normed Fit Index. CFI: Comparative Fit Index.
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with 51 degrees of freedom (0.01) and the computed Normed Fit Index (NFI) was 0.921 (cf. Bentler & Wu, 1995). Given the sensitivity of the Chi Square statistic and NFI to sample size (Bagozzi & Yi, 1988; Hair et al., 1995), the more powerful comparative t index (CFI) was calculated as well (Bentler, 1995). The computed CFI was equal to 0.918 and exceeded the recommended threshold of 0.90 (Byrne, 1994). Overall, the present data set tted reasonably well with the hypothesized measurement model. As regards convergent validity, Table 2 indicates that all the competitive methods had signicant loadings on their corresponding constructs at =0.05. Coupled with the satisfactory reliability coefcients computed earlier, the present results demonstrated adequate convergent validity for the measurement of the constructs (cf. Gerbing & Anderson, 1988). According to Fornell and Larcker (1981) and Andersen and Kheam (1998), an assessment of discriminant validity involves the examination of whether the condence interval ( 2 standard errors) around the correlation estimate between two constructs includes 1.0. In Table 2, the relevant pairwise comparisons of the constructs based on this criterion showed that all the correlations were signicantly different from 1.0. These results indicated satisfactory discriminant validity of the hypothesized measurement model. To sum up, although due care was already taken to generate the 12 competitive methods and a consensus in the wordings being adopted was also reached among those involved in the generation process, the possibility for the existence of some ambiguities in the description of these methods still cannot be completely eliminated. These potential ambiguities may be perceived by some as even more apparent for such competitive methods as international network, professional banking services and operating exibility.3 Having regard to these circumstances, it is thus considered to be cautious to treat the potential ambiguities as a limitation of the present study. This consideration also warrants the performance of a posterior statistical validation to further assess the quality of the collected data. By demonstrating a reasonable degree of validity for the measurement of the relevant constructs, the statistical validation is believed to be able to provide some concrete evidence on the acceptable quality of the collected data and help lessen the worry about the expression ambiguities of the survey items. 8.4. Composition of the three constructs By examining the constituent variables of each factor (construct), it is apparent that factor 3, as what was inferred earlier, is more concerned with banks competitive
3 As interpreted by all the bankers and academics involved in the generation of the competitive methods, international network here refers to banks large international network; whereas professional banking services refer to banking staffs prompt responses to patrons requests, and reliable services provided to and empathetic attitudes toward customers. For operating exibility, it refers to banks capability to handle customers special requests without being prohibited or deterred by over-rigid or unnecessary corporate rules and regulations.
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moves through cost leadership (cf. Short, 1978; Goldberg & Saunders, 1980; Aliber, 1984). While factors 1 and 2 both hint at banks differentiation strategies, the interpretation and distinction of these factors require further elaboration. Specically, factor 1 comprises competitive methods on which large multinational banks are more likely to rely to appeal to the mass wholesale banking market. It is akin to differentiation at a broad scope referred to by Mintzberg, Quinn and Voyer (1995). As noted in Table 1, competitive methods international image and reputation and international network relate to the banks long history in the international banking industry (Lehntinen & Lehntinen, 1991; Isobe & Kearney, 1992). The banks professional banking services and ability in product innovation also connect to its possession of international banking experience and knowledge in advanced nancial instruments (Cho, 1985; Chan, 1994). Lastly, given that multinational banks are more resourceful in offering adequate training and attractive remuneration to improve their human capital (Tandon, 1984; Cho, 1985; Chan, 1997), it is also logical that they emphasize more on high caliber staff for competition. Factor 2 reasonably covers those competitive methods on which smaller indigenous banks are more likely to rely and is akin to Porters focus strategy. Alternatively, factor 2 can be interpreted as differentiation at a narrow scope (Mintzberg et al., 1995). Due to their longer history in the Hong Kong banking market, indigenous or local Chinese banks are, in general, more familiar with the local business environment, and thus are more capable of serving domestic clients (Chan, 1997). Starting out as small, family-owned money changers, most of the local Chinese banks have been operating in Hong Kong for at least half a century (Nyaw & Lau, 1991). When considering the fact that the Hong Kong banking industry only took off in the 1970s and many foreign banks only came here in the 1980s (Bankers Handbook for Asia, 1996), the local Chinese banks comparatively long establishment in Hong Kong is already adequate enough to put them at a unique competitive advantage. Local Chinese banks cultural proximity with indigenous customers is often seen as another major factor which places them at a competitive edge (Nyaw & Lau, 1991). For the past few decades, local Chinese banks have continued to provide strong support to many indigenous entrepreneurs. In hindsight, while these entrepreneurs were still too small to attract the attention of large multi-national banks, local Chinese banks were able and willing to offer many needed services (e.g. business advice, loans) to these then inexperienced businessmen. With their cultural proximity, these two parties were able to develop a rapport easily (Nyaw & Lau, 1991; Chan, 1997). Moreover, given Chinese peoples strong inclination towards building relationships within their kinship system (Hsu, 1968), it would seem natural for an indigenous bank to secure a group of loyal customers whose ethnic origin is the same as the banks founder. For instance, in the case of Liu Chong Hing Bank, a local Chinese bank whose founder originated from the Chou Zhou area of southern China, 50% of its customers are also of the same origin (Ming Pao Daily, 1991). The contention that smaller indigenous banks are more competent in serving small businessmen due to their ability in niche marketing and operating exibility also coincides with previous bank research (Robinson & Pearce, 1983; Kargar & Blumen-
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thal, 1994; Nakamura, 1994). The contention is also consistent with the situation in Hong Kong. For instance, as local Chinese banks continued to provide the needed advisory and nancial support to indigenous entrepreneurs, a number of successful local business ventures emerged (Chan, 1997). To express their great appreciation, most of these entrepreneurs (or their successors) have continued their relationship with their original bankers, thus constituting a unique market niche for the local Chinese banks. Given the long-established deep understanding and mutual trust between local Chinese banks and entrepreneurs, the former are also able to handle the latters loan requests and other service requirements more exibly but without jeopardizing their risk position (Chan, 1997). The capability to achieve this operating exibility is similar to the inside information advantage referred to by Diamond (1984) and Nakamura (1994). To conclude, the major competitive strategies identied in the Hong Kong commercial banking sector are, by and large, consistent with Porters three strategy typology. The only deviation is that factor 2 seems to place more emphasis on differentiation focus than on both versions of differentiation (differentiation focus and cost focus). In the following, an effort will be made to examine the relationship between a banks strategic approach and performance. 8.5. Strategic groups One possible way to analyze the relationship between strategic approach and performance is rst to see whether respondents can be classied into a number of distinct strategic groups based on their employed strategies (Dess & Davis, 1984; Kim & Lim, 1988). This can be achieved through cluster analysis of the three factors extracted above. If strategic groups can be identied, comparisons between their performances can be made to see if a particular strategic approach is superior to the others. Since factor scores and summated scales have their own advantages and disadvantages (Hair et al., 1995), cluster analysis was performed on both to examine whether there was any signicant difference between the two solutions. Following the approach of Hooley, Lynch and Jobber (1992), Wards method of hierarchical clustering was employed. As it is always difcult to determine how many clusters are appropriate (Saunders, 1980), a three cluster solution was initially chosen to facilitate comparison with Porters three strategy typology (Dess & Davis, 1984). A two cluster solution and a four cluster solution were also run to help determine the optimal number of clusters (Hooley et al., 1992). The cluster solutions generated were validated by commonly suggested validation methods such as ANOVA, Scheffes test and multiple discriminant analysis (Hair et al., 1995). On the whole, the three cluster solution was found to outperform the other solutions in all the validation tests. Table 3 below summarizes the results of the validation tests. Since the two three cluster solutions derived respectively from factor scores and summated scales are similar, Table 3 only shows the solution based on summated scales to ease interpretation (Hair et al., 1995). The three derived clusters were labeled differentiator, all-rounder and cost leader
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Table 3 Strategic groups derived from cluster analysis (N=71)a Strategic approach Cluster 1 (differentiator) 3.8937c Cluster 2 (all-rounder) 4.4833 Cluster 3 (cost leader) 2.8647 F valueb
Factor 1: Broadly-targeted Differentiation (BTD) Factor 2: Narrowly-targeted Differentiation (NTD) Factor 3: Cost Leadership (CL) Number (%) of cases Country/region of origin: number (%)e US West Europe China Japan Hong Kong Others (e.g. SE Asia, Canada, Middle East)
a
41.75***f
3.4062
4.0833
2.9118
18.08***
2.2500 21 (30%)d
4.1296 26 (37%)
3.3922 24 (34%)
47.31***
6 8 2 2 2 1
(29%)d (38%) (10%) (10%) (10%) (5%)
4 10 3 3 3 3
(15%) (38%) (12%) (12%) (12%) (12%)
2 4 3 9 3 3
(8%) (17%) (13%) (38%) (13%) (13%)
Multiple discriminant analysis for the 3-cluster solution shows that a very high % (94% by factor scores and 97% by summated scales) of the responding bands are correctly classied into their assigned clusters. b F-value derived from the one-way ANOVA test between the three clusters. Although it is not shown in the table, the follow-up Scheffes test also indicates a signicant difference in the mean BTD, NTD and CL values between all possible pairs of clusters at =0.05. c Mean summated scores with 1=least important and 5=most important. d Percentage rounded up to nearest integer. e Classied according to benecial ownership. f *** Signicant at =0.0000.
respectively (cf. Table 3). The nomenclature was given according to each clusters mean summated scores in broadly-targeted differentiation (BTD), narrowly-targeted differentiation (NTD) and cost leadership (CL). For instance, when examining the scores of cluster 1, it was observed that its BTD (3.8937) and NTD (3.4062) scores were considerably higher than its CL score (2.2500). On a 5-point measurement scale, its CL score was below the mid-value of 3.0. Given its heavy emphasis on differentiation, cluster 1 was thus named the differentiator. Conversely, cluster 3 was found to attach much heavier emphasis on CL than on BTD or NTD. Indeed, its BTD and NTD scores were below the mid-value of 3.0.
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These ndings suggested that banks in this cluster mainly competed on the basis of cost leadership but not differentiation. As such, it was called the cost leader. Cluster 2 was found to have signicantly higher BTD, NTD and CL scores than clusters 1 and 3 at =0.05. In other words, banks in cluster 2 resorted to both differentiation (BTD and NTD) and cost leadership to develop their competitive edges. This clearly distinguishes this cluster from the other two which relied heavily on either differentiation or cost leadership. By trying to adopt both differentiation and cost leadership simultaneously, cluster 2 was thus labeled the all-rounder. In summary, the derivation of the foregoing three clusters suggests that banks in Hong Kong are employing three distinct strategic approaches which may deviate from Porters theory in some respects. Most obviously, the presence of the allrounder can be seen as banks attempt to integrate both differentiation and cost leadership together. In addition, the absence of a cluster emphasizing solely on NTD suggests that there is no strategic group that uses a pure focus strategy. When banks intend to create differentiation for competition, as those within clusters 1 and 2, it is unlikely for them to rely solely on differentiation at a narrow scope (NTD). Instead, they tend to rely on both BTD and NTD.4 Such a phenomenon is probably attributed to the continued internationalization of Hong Kongs economy in general and its banking sector in particular (Ho, 1991a; Nontapunthawat, 1992). Alongside this development, many Hong Kong-based enterprises have already engaged in various overseas operations and numerous foreign MNEs have invested heavily in Hong Kong too. As such, while indigenous enterprises keep on demanding more and more international wholesale banking services (e.g. international payment arrangement) from their bankers, foreign MNEs are also growing in their need for more and more domestic wholesale banking supports (e.g. advice on local business environment). In order to better respond to the changing service requirements of their customers, banks operating here (be they indigenous or multinational banks) are thus under a strong pressure to develop and enhance their advantages in both BTD and NTD. Although it is not easy for banks to secure the needed resources to develop both the BTD and NTD advantages, anecdotal evidence shows that they may still be able to do so through any one of the following three routes. First, banks that were originally founded in Hong Kong a long time ago and have subsequently grown to be multinational banks (e.g. the Hong Kong and Shanghai Bank), are likely to be able to acquire these resources. Second, in the case of foreign multinational banks that have been operating in Hong Kong for a long time, such as Citibank and Chase Manhattan Bank, it is also probable that they possess some of the essential resources (e.g. familiarity with local business environment) to facilitate the acquisition of both kinds of differentiation advantages. The last route is concerned with the horizontal integration between a local and a foreign banking institutions (e.g. Bank of America with Security Pacic Bank) through acquisition or a merger. Due to synergistic
4 The authors would like to thank one of the anonymous reviewers for his valuable comments on this point.
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effects, the newly integrated entity is very likely to be able to adopt a dual differentiation strategic approach (Fung, 1994). In terms of a constituent banks country/region of origin, the composition of the three clusters also revealed an interesting pattern. Banks within cluster 1 (differentiator) mainly originated from West Europe (38%) and the US (29%); whereas banks from cluster 2 (all-rounder) were more diverse in their places of origin. Except for those from West Europe, no more than 15% of the banks in cluster 2 were from any single origin. Even the West European banks were scattered rather evenly across a number of countries such as the UK, France, Italy, and Germany. Finally, the composition of the cost leader (cluster 3) was a bit skewed toward banks of a Japanese origin (39%). The relative concentration of West European and American banks in cluster 1 is probably attributed to their richer experience in international banking which enables them to possess more proprietary information, managerial expertise and nancial know-how to differentiate themselves (Goldberg & Johnson, 1990; Canals, 1993; Chan, 1994). Similarly, the relative concentration of Japanese banks in cluster 3 is likely to be related to some home country specic advantages, such as Japans huge trade surpluses, and close cooperation between its banks and MNEs (Adam & Hoshii, 1972; De La Baume & Gupta, 1991). These factors have led to a more competitive cost structure for Japanese banks (Euromoney, 1979; Burton & Saelens, 1986; Chan, 1994). Besides, Japanese banks higher propensity to pursue cost leadership is also consistent with Japanese organizations traditional orientation toward long-term market share objectives for reaping scale economies and experience effect (Prestowitz, 1988; Doyle, Saunders & Wong, 1992). The more diverse origins of the all-rounders (cluster 2) seem to agree with the contention that strategies can be built upon country as well as rm specic resources (Dunning, 1993). As all-rounders try to bundle complex competitive strategies that go beyond a simple monotonous strategic approach, their managerial capabilities to attain integrated exibility become extremely crucial (Ahmed et al., 1996). Given the causally ambiguous and socially complex nature of these capabilities (Barney 1986a,b, 1991), it is thus likely that they are mainly derived from individual rms idiosyncratic resources rather than from the home countries factors of endowment (Wernerfelt, 1984; Prahalad & Hamel, 1990). 8.6. Performance among strategic groups Two popular performance indicators for strategy research, protability (return on assets) and change in market share, were used to measure banks performance here (cf. Hambrick, 1983b; Burke, 1984; Buckley, Pass & Prescott, 1988; Kotabe, 1990). The annual pre-tax return on assets (ROA) and annual change in market share (CMS) of the wholesale banking business for the past ve years were provided by the respondents with a guarantee of strict condence. After compiling the respective average ROA and CMS for the three strategic groups, an inter-group comparison was made accordingly. Owing to the relatively small size of each strategic group and the lack of knowl-
578
edge about the population pattern, non-parametric tests were mainly used to perform the inter-group comparison (Siegel & Castellan, 1988). Specically, the Kruskal Wallis (KW) test was employed to examine whether there was any signicant difference in average ROA and CMS values among the three strategic groups. In the case where a signicant difference was found at =0.05, the KolmogorovSmirnov (KS) test was then performed between all possible pairs of strategic groups to detect where the difference lay. For reference, the corresponding parametric methods (i.e. one-way ANOVA test and Scheffes test) were also performed. As Table 4 shows, results derived from the non-parametric and parametric tests are very similar to each other. The inter-group comparison of performance in Table 4 shows mixed ndings. Both the non-parametric (KW and KS tests) and parametric tests (ANOVA and Scheffes test) revealed that all-rounders signicantly outperformed differentiators and cost leaders in ROA at =0.05. This result cast doubt on Porters stuck-in-themiddle proposition and echoed some of the previous works (e.g. Miller & Dess, 1993; Reisperger et al., 1993; Parnell, 1997). However, as for CMS, no signicant difference was found among the three strategic groups at =0.05. In addition to what has been aforementioned, other important implications from the present study are presented below.
9. Implications On the whole, the factor analysis results of the present study support the existence of Porters three strategy typology. This result contributes to the existing literature concerning the external validity of Porters typology by testing it in an operating setting that is completely different to those used before (cf. McGee & Thomas, 1986; OFarrell, Hitchens & Moffat, 1993). Despite the recognized unique characteristics
Table 4 Comparison of performance among the three strategic groups (N=71) Performance Strategic group KW sig. measure Differentiator All-rounder Cost leader ANOVA sig. Signicantly different pairs detected by KS test and Scheffes test at =0.05 Allrounderdifferentiator; all-roundercost leader n.a.d
ROA***a,b
0.40
0.86
0.56
0.0002
0.0001
CMS c
a b c d
0.078
0.110
0.082
0.7637
0.2185
*** Signicant overall difference detected by both KW test and ANVOA test. ROA=Annual pre-tax return on assets (average of the past 5 years). CMS=Annual change in market share (average of the past 5 years). n.a.=Not applicable.
579
of banking offerings (Fahy, 1996; Lovelock, 1996), highly competitive market structures (Ahmed et al., 1996) and Asian business settings (Kotler, Ang, Leong & Tan, 1996), the three generic strategies are seen to remain reasonably generic when tested in an operating setting that possesses all these characteristics. Despite the overall similarity between Porters strategy typology and the factor analysis results, the narrowly-targeted differentiation extracted from the analysis is found to be biased toward Porters differentiation focus rather than covering both the differentiation and cost focuses. The bias may be attributed to the nature of todays banking operations which usually require a vast amount of investment in information technology to sustain banks proprietary information advantages and services delivery efciency (Cho, 1985; Banking World Hong Kong, 1997). If a bank merely focuses on a small market niche, it might be difcult for it to reap enough scale economies from its huge information technology investment. Consequently, its ability to adopt a cost focus would be constrained. This nding helps remind smaller banks of the potential infeasibility of pursuing a cost leadership within a tiny market niche. In short, despite the overall robustness of Porters strategy typology, the possible mediating effect of the operating environment still should not be ignored (Murray, 1988). The results from the cluster analysis and inter-group comparison show greater deviation from Porters theory. The inter-group comparison of protability highlights that all-rounders, or banks adopting a multi-strategic approach, have outperformed other single-minded strategic groups (differentiators and cost leaders). Although no signicant difference in market share among the three groups was detected at =0.05, the relevant descriptive statistics still suggest that the all-rounders (0.110) have performed better than the differentiators (0.078) and cost leaders (0.082). When interpreting the results, one should, of course, pay attention to Porters (1996) recent argument that rms superior performance may only reect an improvement in operational effectiveness. However, as Porter also contends that the improvement in operational effectiveness is unlikely to lead to sustainable protability in an intensely competitive environment, it is thus questionable whether the superior performance of the all-rounders within a ve-year period, as evidenced in the present study, can be solely attributed to the enhancement of operational effectiveness. Taken together, the present empirical results have at least cast doubt on Porters stuck-in-the-middle proposition and lent some support to Ahmed et al.s (1996) argument for the superiority of achieving integrated exibility that goes beyond a monotonous uni-strategic approach. The importance of achieving integrated exibility becomes even more apparent when considering the absence of a proper patent system in the banking industry (Dufey & Giddy, 1981) and the limited number of banking product attributes (Von Clemm, 1976). These lead to the difculty of developing sustainable competitive advantages via the banking offering itself (Cho, 1985). Instead, should banks be capable of integrating various value creating activities synergistically, they would be able to sustain their competitive position via effective service delivery (Davison, Watkins & Wright, 1989). To have this capability, bankers are rst required to examine the functional and process activities of the whole organization in order to identify
580
transparent and hidden inter-linkages within and between processes and sub-processes. In view of the nature of banking services, particular attention needs to be directed toward the interaction between information technology and human resources throughout the entire service delivery system along with customers increasingly sophisticated service requirements. While RBV theorists believe that these organizing and coordinating capabilities are a rms intellectual assets that can only be acquired and enhanced through learning and practice (Itami, 1987; Johnson & Scholes, 1997), their presence seems to be the key to a banks superior performance. For international bankers, they have to further consider how the location of operations may inuence their banks overall resource conguration and competitiveness. In this respect, Fahy (1996) suggests that service rms should not rely solely on the resources derived from either the headquarter or the host operation, but must seek to emphasize both and to facilitate bilateral resources transfer. In other words, when making foreign direct investments, international bankers should consider carefully how their banks may derive additional rm-specic resources from the host subsidiary (e.g. familiarity with the host and regional market), and how these newly added resources may effectively combine with their existing ones (e.g. international reputation and network) to attain a sustainable competitive position in the host as well as the global marketplace. Given the complexity of international business, the organizing and coordinating capabilities required for multinational banks to gain leverage over their resource pool across different nations become even more intricate and crucial, and thus should deserve far much more managerial attention and commitment from their corporate planners. Lastly, as far as the generalization of the present ndings is concerned, it is believed that non-bank multinational service rms are equally in need of well-equipping themselves with superb organizing and coordinating capabilities to enhance their global service delivery system. Given the competitive reality, such as the high level of mimetic behavior, intensifying rivalry and ever-changing customer requirements that multinational service providers face in the 1990s and beyond (Lovelock, 1996), it is likely that the old concerns such as quality and low costs should only be viewed as starting points in the struggle for survival rather than as bases for sustainable superior performance.
10. Conclusions This study examines banks competitive behaviors and their relationship with performance in an Asian international banking center, Hong Kong. By and large, the factor analysis results of the present study have provided evidence to support the external validity of Porters three strategy typology. The results have nevertheless suggested that cost focus might not be a viable strategy for niche players in the banking sector due to the difculty in reaping scale economies. In addition, the present survey has cast doubt on the alleged superiority of the single-minded strategic approach by demonstrating that banks adopting a multi-strategic approach did outperform other strategically monotonous rivals. While the sin-
581
gle-minded strategic proposition is grounded in the premise of inherent inconsistencies for pursuing more than one generic strategy simultaneously, RBV theories and the present empirical results hint at the feasibility for well-resourced banks to combine apparently incompatible value creating activities in a synergistic way to attain a sustainable multi-strategic position.5 This feasibility, in turn, very much depends on a banks organizing and coordinating capabilities that are developed and rened through managerial commitment, learning and experience. Using RBV theorists terminology, these capabilities are organizations valuable intangible resources or architectural competencies which are essential for an effective deployment of various organizational tangible resources (Amit & Schoemaker, 1993; Henderson & Cockburn, 1994). Given the causal ambiguity and social complexity of these competencies, they are also likely to be the most important source of sustainable competitive advantage for organizational success. Due to the complexity of international operations and the mimetic nature of banking offerings, these architectural competencies are believed to be even more crucial for banks operating in an internationalized environment to develop a viable competitive position. To acquire these competencies, bankers need to examine all the relevant organizational activities as well as their interactions thoroughly. This examination can denitely enhance banks capabilities to mobilize their technological, human and nancial resources on a global scale to congure a more effective service delivery system. Although the present ndings have highlighted that banks adopting a multi-strategic approach outperformed those employing a uni-strategic approach, one should not view a multi-strategic approach as a panacea for superior performance on all occasions. Indeed, whether it can lead to superior performance still greatly hinges on how well rms are able to create and manage their unique bundles of resources along with the ever-changing competitive environment.
Appendix A. A copy of the mail questionnaire Ref: A.1. Survey on banking strategies This questionnaire aims to investigate how banks in Hong Kong are competing for the wholesale banking business. The questionnaire comprises three parts and the rst part is concerned with the responding banks major competitive approaches. The second and third parts relate to the responding banks performance and background respectively.
5 In citing the airline industry as an example to defend his uni-strategy position, Porter has to admit that a situation where low cost and high quality are consistent with each other does exist (Porter, 1996, p. 69).
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Part 1 1. In developing the wholesale business in Hong Kong, did your bank alter its competitive approaches/methods signicantly within the last ve years? (Please check the appropriate box.) No (Please continue to question 2) Yes (End of the survey, thank you very much)
2. How important has each of the following factors been for your bank to develop its wholesale banking business in Hong Kong within the last ve years? (Please circle the appropriate number: 1=least important; 5=most important) a. b. c. d. e. f. g. h. i. j. k. l. #m. #n. #o. Ability in niche marketing Ability in product innovation Availability of a large amount of surplus funding Back-up by a resourceful parent/holding company Cultural proximity High caliber staff International image and reputation International network Long establishment in Hong Kong Low naning costs Operating exibility Professional banking services Expertise in a particular market segment A pool of qualied personnel Financial skills 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5
(# Deleted from the nal questionnaire on the basis of expert opinions) Part 2 This part is to collect data relating to your banks performance in the Hong Kong wholesale banking market. It is guaranteed that all the data so provided will be treated in strict condence and only be reported on a collective basis. 3. For your banks wholesale banking business, the annual pre-tax return on assets (ROA) in: 1996 Was 1995 was (%) (%)
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1994 was 1993 was 1992 was
(%) (%) (%)
4. For your banks wholesale banking business, the annual change in market share in: 1996 1995 1994 1993 1992 was was was was was (%) (%) (%) (%) (%) (increase/decrease*) (increase/decrease*) (increase/decrease*) (increase/decrease*) (increase/decrease*)
(*Please delete the appropriate one) Part 3 5. In which year did your bank establish its operation in Hong Kong?
6. In terms of benecial/majority ownership, how would you classify your bank? (Please check the appropriate box) A mainland Chinese bank A Japanese bank An American bank A local Chinese bank A West European bank Others, please specify:
7. What is the asset size of your bank?US$/HK$* (*Please delete the appropriate one) 8. How many staff members does your bank have in Hong Kong?
9. Would you like to have a summary of the survey ndings?(Please check the appropriate box.) No Yes
Thank you very much for your cooperation References

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Dr Ricky Yee-kwong Chan is associate professor at the Department of Business Studies of the Hong Kong Polytechnic University. His research interests lie in green marketing, behavioral aspects of Chinese consumers and bank strategies. He has contributed to such journals as Business Horizons, Journal of Business Ethics, Journal of Community and Applied Social Psychology, Journal of International Consumer Marketing, and Journal of International Marketing. Dr Y. H. Wong is assistant professor at the Hong Kong Polytechnic University. His research interests focus on international marketing and sales management. He has published book chapters, refereed conference papers and articles in a number of journals, including Industrial Marketing Management, Journal of Business Ethics, Journal of International Consumer Marketing and Journal of Managerial Issues, etc.

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International Business Review 8 (1999) 561590 www.elsevier.

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

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R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

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R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

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R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

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R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

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