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The entry of foreign banks into emerging markets: an application of the eclectic theory
Abstract
In the current paper we discuss the applicability of the eclectic theory in explaining the entry of foreign banks into the Central and Eastern European (CEE) markets. We modify the Dunning's eclectic model by adding the special case of financial liberalization and timing of foreign entry for emerging markets. In the empirical analysis we use a survey based study to analyze the entry process of foreign banks. Bank level data from Bankscope database is also used to analyze the financial advantages of foreign banks. The empirical analysis showed that the eclectic paradigm with modifications to ownership and location-specific advantages is applicable to explain the entry of foreign banks into transition markets. The analysis also indicated that the entry of foreign banks is more intensive during banking crises in the CEE countries.
... Yabancı banka aynı dil ve kültüre sahip bir banka ile birleşirse, birleşmeden sonra verilen hizmetlerde aynı ya da benzer olanlar üzerinde bir değişiklik talep etmezken, mevcut sistem üzerinde etkinlik sağlamaya yöneldiğini ifade etmektedirler. Uiboupin ve Sörg (2006), finansal serbestleşmenin bankacılık sektörü üzerine etkilerine yönelik yaptıkları araştırmada; yabancı bankanın varlığının yerel bankacılık sisteminin maliyetlerinin azaltılmasına, karlılığının arttırılmasına ve bankaların kurumsallaşması süreçlerine katkı sağladığı sonucuna ulaşmışlardır. Yabancı bankaların alan ekonomisinden faydalanmak üzere yerel sistemlere dâhil olmaları bankacılık sektörünü güçlendirmekte, aynı zamanda sektörde rekabetçi bir yapının oluşmasına katkı sağlamakta, oluşan rekabetçi yapı ise birleşmeleri daha cazip bir hale getirmektedir. ...
Küreselleşme finansal sistemin ana unsurunu oluşturan bankacılık sektörünü derinden etkileyerek, sınır ötesi birleşmelerin yaygınlaşması ile birlikte bankacılık sektörü açısından dünyanın büyük bir pazar haline dönüşmesini sağlamıştır. Bazı ülkelerde meydana gelen sınır ötesi birleşmeler ise ülkenin bankacılık sektörünün yarısından fazlasının yabancı bankaların eline geçmesi ile sonuçlanmış ve o ülkelerde bankacılık sektörünü yabancı bankalar kontrol eder hale gelmiştir. Bu çalışmada belirlenen kriterlere göre Thomson Reuters Datastream veri tabanından alınan veriler doğrultusunda yapılan tüm banka satın alma ve birleşmeleri incelenmiş, gelinen nokta ise global ölçekte değerlendirilerek bankacılık sektörünün bazı ülkelerin gayri safi milli hasılalarından bile büyük ölçekli bankalar ortaya çıkararak tüm dünyada sektörü daha değerli bir hale getirdiği gözlenmiştir. Ortaya çıkan bu devasa büyüklüğe sahip finansal yapıları bünyesinde bulunduran ya da bu fonlardan yararlanan ülkeler avantajlı olurken, dışa açık ve genelde gelişmekte olan ekonomilerin ise sektörde yapısal değişikler yaparak bu fonları ülkelerine çekme yarışı içerisine girdikleri sonucuna varılmıştır.
... ??????, ???? ? ?????? ??? ???? ??? ??? ?????? ?? ???????? ??? ?? ??????? ??? ?????????????? ??? ????? ????????, ?????????? ????????? ??? ??? ???????? ??? ???????????? ??????? ??? ??? ???????????? ??? ?????? ??? ?????? ?? ????? ????????? ??? ??????????????? ???? ????? ???????? (Uiboupin ??? Sorg, 2006 (Swoboda, 1990) ??? ??? ???????? ?????? (Guillen and Tschoegl, 1999). ??????????, ? ...
Turkey is an example of economic development and restructuring that took place during the decade 2001-2011. During the same period, the net foreign direct investment which has been injected in the country exceeded 110 billion dollars. This study provides initially the broader background, and, in comparison with other regional markets, examines and presents the issue of FDI in Turkey. In this context summarizes the main directions of academic literature relating exclusively to the case of FDI in Turkey. It presents the long and deepening compound approach of the country towards the EU and considers its continuation more as a critical condition, and less as an advantage, in attracting FDI in the future. Through a questionnaire survey analyzes the anatomy, the determinants and prospects of the Greek direct investments in Turkey. The lack of academic research renders additional value to the subject, particularly in a period characterized by critical efforts of rapprochement between the two countries. Finally, through a new approach which is proposed (TIP Model©), quantifies the prospects and the potential size of future FDI inflows in Turkey during the period 2011-2015 on the basis of the growth potential offered by the banking sector and estimates the inflows at 70 billion dollars. At last, after having presented the great potential of the country in attracting FDI, the thesis emphasizes the critical importance and necessity of deepening geopolitical stability in the wider region of Turkey for these prospects to be materialized in the medium term.
... In the OLI paradigm, as analyzed below, multinational banking is determined by the combination of ownership (O), location (L), and internalization (I) advantages for a bank as a result of its international expansion. However, this theory alone cannot explain all the motives of foreign banks' activities, especially since it does not cover structural and market liberalization changes in the host countries (Uiboupin and Sorg, 2006). ...
The chapter provides an overview of Mergers and Acquisitions' regulation in the European Union and the United States. Merger control in the EU is twofold, at the national and European level. The study focuses on legal provisions and control procedure at the European level. With regard to US, the main legal instruments and the supervising authorities are presented. The chapter concludes with a comparison between the two regimes, identifying similarities and differences, as well as a comment on approximation efforts.
... The increase of the international capital flows into the emerging markets of South-Eastern European countries has been accompanied by the active development of foreign banking occurred at the same time. In all these emerging economies the appearance of foreign banking occurred only after a considerable restructuring of the political environment and the liberalisation of the financial sector (Uiboupin and Sörg, 2006). Wisniwski (2003) categorised the basic motives from the banker's perspective of internationalisation patterns in new emerging South-Eastern European markets: • all of these countries constituted virgin markets with low level of competitive rivalry and high interest margins • there are good opportunities for creating a new broad client-base due to the limited personal banking services and products offered in these markets • the limitations and the restrictions for the foreign banks are eliminated and the liberalisation process of the financial sector has commenced • these countries are characterised as extremely under banked and rely heavily on efficient financial intermediation. ...
This study aims to examine how Greek banks internationally behave before and during the financial crisis, focusing in South-Eastern European (SEE) countries, in relation of aspects as business commitment and political dimensions. Empirical data were collected by using primary data sources. Primary data sources included semi-structured interviews with managers from the banks' headquarters as well as managers of their activities in the region. The theoretical view relies on the firms' internationalisation and business network theories and the varieties in the behaviour are explained by the degree of business commitment and knowledge. The analysis of the Greek banks' international behaviour reveals that commitment and knowledge also have political dimensions, which complement business commitment and knowledge. Based on the findings, the outcomes of this paper add new knowledge to the Greek banks' internationalisation, for the better understanding of market entry and expansion, offering managerial implications for management of political relationships.
... The increase of the international capital flows into the emerging markets of South Eastern European countries has been accompanied by the active development of foreign banking occurred at the same time. In all these emerging economies, the appearance of foreign banking occurred only after a considerable restructuring of the political environment and the liberalisation of the financial sector (Uiboupin and Sörg, 2006). At present, foreign banks already have the majority of the market in South Eastern European economies. ...
This research aims to examine how Greek banks penetrate and expand into new emerging South Eastern European markets. Empirical data were collected by using secondary and primary data sources. Primary data sources included semi-structured interviews with managers from the banks' headquarters as well as managers of their activities in the region. The theoretical view relies on the firms' internationalisation and business network theories and the varieties in the behaviour are explained by the degree of business commitment and knowledge. The analysis of the Greek banks' behaviour, concerning their penetration and expansion in the region, reveals that commitment and knowledge also have political dimensions, which complement business commitment and knowledge. Based on the findings, the outcomes of this paper add new knowledge to the Greek banks' internationalisation, for the better understanding of market entry and expansion, offering managerial implications for management of political relationships.
... The last motivation, the access or control on factor markets, can be considered, in the bank sector, as the desire to create a stable client base, risk diversified (in many countries, in more currencies), in order to face the potential shocks on domestic market. A research conducted between 2001 and 2002 (Uiboupin, Sorg, 2006) reveals the following main reasons for foreign banks' entry in Central and Eastern Europe: looking for new business opportunities (a score of 4.58 on a scale from 5 – the most important reason to 1 – the less important reason), local clients' support (3.68), following the existent clients (3.33), international trade finance (3.3), competition prevention (3.18). As we will notice, in time there were many important changes: even initially foreign banks were focused more on existing clients' support and follow, later they have more and more targeting the local clients, expressing more availability and interest for local economies. ...
The transformation process in the Central and Eastern Europe economies after 1989 has generated considerable changes in the bank sector. In all emerging economies in the region, the foreign capital involvement took place first by the way of cross-border flows, and then by direct investments, e.g. foreign banks implantation. The motivations and forms of their penetration change over time, toward a more local involvement of these banks. Nowadays, the expansion is achieved more and more by taking over existing banks threw the privatisation process or acquisitions of smaller private banks.
Foreign direct investment ( FDI ) is an integral and indispensable source of foreign capital for both the developed and developing countries aside its catalytic economic growth accompanying it. Hence, the competition to court more to maximizing its positives by countries is intensified in the contemporary world and eclectic theory offers significant insights on the tripartite and interrelated platforms of ownership, location, and internalization advantages to the appropriation of FDI to an economy. Therefore, this article main objective is to examine Nigeria’s experience in this regard. The case study research method is adopted to carry out a contextual assessment of Nigeria’s FDI position within the eclectic theory framework using secondary data sources. The findings reveal that Nigeria’s location advantages are not too conducive for FDI attraction and optimum exploitation of the internalization advantages by firms which consequently deprived the country of its benefits of export-driven economy objective and employment generation amongst others. The study recommends diversification of her economy and recalibration of the country’s political, economic and policy environment to enable positive predictability, FDI attraction, and its inherent returns appropriation.
Розкрито зміст глобалізаційних процесів у фінансовій сфері. Висвітлено як позитивні, так і негативні наслідки фінансової глобалізації для національних банківських систем. Зіставлено інтерналізаційну та еклектичну парадигми створення транснаціональних корпорацій. Виявлено тенденції розвитку банківського сектору в умовах глобалізаційних процесів. Показано діалектичну єдність і протиріччя інтересів глобальних господарських суб’єктів і держав. Дано оцінку впливу процесів транснаціоналізації банківського капіталу на національні банківські системи.
With the evolving patterns of information technology and cross-border bilateral and multilateral trade treaties, the importance of internationalisation cannot be undermined. These treaties open opportunities for enterprises to exploit hitherto closed markets. It is an opportunity not only to widen their customer base, but also to upgrade, make competitive and integrate their value chains into the global market. The focus of this paper is to describe how enterprises from the developing economies, especially enterprises from Africa, can internationalise their value chains and respond to global competitiveness. By examining and drawing inferences from some smart enterprises, an approach on how enterprises from the developing economies can gradually and successfully internationalised their value chains was developed. It is argued that, enterprises poised to competing successfully in the global market must look beyond their indigenous markets or else they will be forced out by competitors from other countries.
Purpose
The aim of this paper is to analyse and examine the factors affecting the international expansion and market entry of foreign multinational banks (MNBs) in Malaysia. While relevance of the theoretical perspectives is highlighted, the purpose of this paper is to contribute to the understanding of the present‐day phenomenon of emerging multinational banks.
Design/methodology/approach
The paper employs multi‐method approaches combining both questionnaires survey data and qualitative interviews.
Findings
The findings reveal the fact that profitability, trade financing, following the customers, diversifying the risk and pursuing new market opportunities are among important factors for the presence of foreign banks in the country.
Research limitations/implications
The paper highlights relevance of further research on multinational banking and outlines research avenues.
Practical implications
The paper offers important insight and practical implications for local regulators and policy makers and bankers to understand the behaviour of foreign multinational banking in emerging markets.
Originality/value
The objective of this paper is to fill in some gaps in the literature regarding this research area. The paper provides preliminary research evidence and a framework to suggest hypotheses for further research.
Myanmar highly appreciates foreign direct investment (FDI) as a key solution reducing the development gap with leading ASEAN countries. Accordingly, it is welcomed by the government. Myanmar's Foreign Investment Law was enacted in 1988 soon after the adoption of a market-oriented economic system to boost the flow of FDI into the country. Foreign investors positively responded to these measures in the early years and FDI inflow into Myanmar gradually increased during the period from 1989 to 1996. However, after 1997, FDI inflow was dramatically reduced and markedly declined until 2004. In 2005, FDI inflow increased at an unprecedented rate and reached the highest level in the country's history. However, this growth was not sustainable in the subsequent years, as it declined again and turned stagnant at the previous level. In terms of source regions, ASEAN is a major investor in Myanmar, which investment is significantly exceeds the combined investment of other regions of the world. Among top ten countries, Thailand's investment alone is significantly more than combined total investments of the other nine countries. Next to Thailand in terms of investments in Myanmar are Singapore and Malaysia among ASEAN, at second and third places, respectively. The combined total FDI inflows into the power and oil and gas sector represent about 65 percent of the total investment. There are many opportunities for foreign investment in other sectors, which are not, yet exploited. ASEAN countries will certainly be source countries of Myanmar FDI in the future, and Myanmar should expand to other Asian countries like Japan, India, China, Korea, and Hong Kong where its FDI portfolio is concerned. To effectively attract FDI into the country, Myanmar needs to minimize the effect of policy while opening and encouraging other potential sectors of FDI to foreign investors in ASEAN and Asian countries.
A collection of articles on key questions and problems facing the transitional economies in the sphere of monetary policy and the financial sector. Looks at types of reforms considered, why these proved necessary, and the implications of the actual developments in the initial stages of the transition. Major themes include the effect of state desertion on liquidity and credit, the failure of credit markets, the role of property rights and bankruptcy procedures, and the effects of the separation of central banking and commercial lending functions.
Earlier studies of the internationalization of manufacturing firms have shown that they tend to start their foreign operations in countries that are culturally close to their own and then gradually move to more alien ground. If banks follow their customers abroad, we would expect their internationalization to assume a similar pattern. Their penetration of foreign markets could also be expected to be related to direct foreign investments and exports. An empirical test in the case of major Swedish banks did not support this hypothesis. Instead these banks tended to concentrate their internationalization efforts to important financial centres. Thus they have not only chosen to establish themselves in places where many international banks are already working, but they have also tended to follow each other in a pattern of tit for tat. The nature of this process supports the idea suggested in earlier studies that internationalization is generally a gradual process, starting with minor commitments which are developed over time.
This paper aims at analyzing the recent experience of foreign bank entry in Argentina and Brazil, focusing in its determinants and effects. It shows that the experience of foreign bank entry in Argentina and Brazil has not contributed effectively to the improvement of the macroeconomic efficiency of the financial system. The expected results of foreign bank entry-more diversified portfolio with predominance of credit operations, greater efficiency and enhancement of the soundness of the financial system- did not materialize in Argentina and Brazil. In both countries foreign banks behavior was similar to domestic private banks, in terms of portfolio allocation, credit policy, etc., although in Argentina there issome evidence that in tranquil times foreign bank entry contributed to the enhancement of the financial system. Argentina's case also illustrates that the presence of international banks is not enough to prevent local banking crises and sizable losses for depositors. In the case of Brazil, contrasting with Argentinean experience, domestic private banks reacted positively to foreign bank penetration, expanding their activities organically or by mergers and acquisitions, as they accumulated capabilities to survive in an environment of macroeconomic instability and were less affected by the 1994-1995 crisis than domestic banks in Argentina.
This paper reviews the theoretical literature explaining financial FDI, as well as the empirical results on the determinants of financial FDI and its potential effects for the home country. From this revision, we conclude that, at the present stage, the existing theoretical paradigms need to be adapted to explain the recent surge in international banks¿ local operations in emerging countries financial sectors. Macroeconomic and risk diversification theories would seem particularly well suited to explain this reality. The empirical literature on financial FDI has concentrated on bank specific factors and much less so on macroeconomic determinants, particularly push factors where generally only general FDI literature is available. The survey draws on this literature in those cases where no specific results for financial FDI exist. Finally, the effects of financial FDI on the home country are virtually unknown. The literature on general FDI has focused on employment, trade and investment effects, yet the consequences on the profitability and systemic risk of home¿s financial system remain a topic for debate
We use accounting data for Philippine commercial banks over the period covering 1990 through 1998 to investigate how the relaxation of foreign entry regulations affects domestic banks. As part of this analysis, we control for features of ownership structure that are common in many developing economies, namely group affiliation and ownership concentration. We find evidence that foreign bank entry is associated with a reduction in interest rate spreads and bank profits, but only for those domestic banks that are affiliated to a family business group. Foreign entry corresponds more generally with improvements in operating efficiencies, but a deterioration of loan portfolios. Meanwhile, increases in the percentage of foreign ownership of domestic banks reduce these improvements in operating efficiencies and result in less emphasis given to earning income from nontraditional banking sources. Overall, we conclude that foreign competition compels domestic banks to be more efficient, to focus operations due to increased risk, and to become less dependent on relationship-based banking practices. We propose further policy reforms aimed at fully realizing the benefits and reducing the social costs associated with the increased foreign bank presence in the Philippine domestic commercial banking sector.
Part of the Polish transformation process has been an opening of the domestic financial market to foreign entrants. While the number of multinational banks (MNBs) has risen from zero to 15 within six years, the ratio of bank credit to private and public enterprises relative to GDP decreased continuously after 1991. In this paper, I develop an argument as to why these two trends may be connected. Further, using monthly data provided by the weekly Polish publication Gazeta Bankowa, the National Bank of Poland, the Central Statistical Office, the BIS and the IMF, I test the hypothesis that more MNB entry may lead to a declining credit supply during the early stages of the transition process. Multivariate regression results indicate that more MNB entry results in a lower credit supply by Polish banks during the early transition phase. This result holds regardless of the measurement of international financial competition, and regardless of a bank's history, and it is only partially affected by a bank's location. More importantly, the overall impact of increased international financial competition on the credit supply of Polish banks is strong enough to lower the total credit supply in the Polish economy. Since an earlier study has found that Polish industries operate under hard budget constraints and are finance constrained during the early stages of the transition process, a reduction in the credit supply has adverse effects on business investments (Cornelli et al., 1996;Weller, 1999).
The paper distinguishes between the classic or traditional foreign banks with their emphasis on corporate and wholesale banking, and the innovators responding to transition, deregulation or crisis in emerging markets. The innovators come in three varieties—bettors, prospectors and restructurers—with their role depending on their type. The paper argues, on the basis of 12 short national or regional case studies, that foreign banks have had little effect in evitting crisis, in great part because generally they were not present in any scale before the crisis. In the recovery phase foreign banks can act as rehabilitators of weak or failed banks, and can help ward off future crises by taking banks out of government or family ownership. The paper’s most controversial argument is that to the degree that reform succeeds, the conditions that attracted the foreign banks may disappear and the domestic banks are able to grow more rapidly. In subsequent decades many of the foreigner owners are likely to sell their subsidiaries to local banks and investors. Thus in succeeding decades, the ratio of assets in foreign- owned banks to total banking system assets should decline, even in the absence of government policies that aim for that result.
Combining foreign direct investment theory with data on 32 countries from the Federal Reserve Board, the study examines U.S. banks' patterns of foreign operations, including their levels of banking services and choice of organizational forms in host countries. Results generally supported predictions, but only in developed countries. The lack of support in rapidly growing markets of Asia and Latin America raises serious theoretical concerns, and presents fresh research opportunities into the global banking industry.© 1998 JIBS. Journal of International Business Studies (1998) 29, 359–388
We address the causes, consequences, and implications of the cross-border consolidation of financial institutions by reviewing several hundred studies, providing comparative international data, and estimating cross-border banking efficiency in France, Germany, Spain, the U.K., and the U.S. during the 1990s. We find that, on average, domestic banks have higher profit efficiency than foreign banks. However, banks from at least one country (the U.S.) appear to operate with relatively high efficiency both at home and abroad. If these results continue to hold, they do not preclude successful international expansion by some financial firms, but they do suggest limits to global consolidation.
This paper analyzes the impacts of financial liberalization and foreign bank entry on competitiveness and soundness of domestic banking system as well as credit growth in association with financial sector development, focusing on MENA region's comparative benchmarking performances with those of middle-income countries. We find that financial sector development is positively related to foreign bank presence and financial depth has been driven mainly by expansion of domestic credit to private sector, rather than to public sector. The underlying factor of MENA's slow opening-up domestic financial market may be due to the dominance of state-owned banks and the protection by a safeguard scheme of regulation on banking ownership in some countries. Thus, a prerequisite for encouraging foreign entry will be to privatize domestic banks first, based on establishment of stronger institutions. Econometric evidences for the MENA banking sector suggest that financial liberalization, accelerated by foreign bank entry and privatization of domestic state-owned banks, contributes to net profitability and better capitalization for domestic banks. In terms of scale economies as a good indicator of overall banking efficiency, our empirical results also confirm that a more efficient financial market underpinned by well-balanced development of financial sectors induces a higher banking efficiency. 1 This was prepared as a background paper for the MENA Trade Intensification Study. The author is grateful to Aristomene Varoudakis, Claessens Stijn, Grais Wafik for helpful suggestions and comments. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author and do not necessarily reflect the view of the World Bank, its Executive, or the countries they represent.
The paper examines the internationalization of Finnish banks and insurance companies. Emphasis is put on the phenomena of "customer following" and "market seeking". The results suggest that financial service companies differ from manufacturing companies in that their internationalization did not start out in countries that were culturally close to their own and then gradually move further away, as is often the case with manufacturing companies. Moreover, banks tended to move to international banking centers, whereas the internationalization patterns of insurance companies followed more closely the internationalization of manufacturing companies. The most dominant feature in the internationalization of Finnish financial service companies, however, was the fact that both banks and insurance companies, respectively, tended to follow one another.
This study considers the impact of foreign bank entry on banking efficiency in Australia during the post-deregulation period 1988–2001. Using Data Envelopment Analysis, Malmquist Indices and stochastic frontier analysis, we find foreign banks more efficient than domestic banks, which however did not result in superior profits. Major Australian banks have used size as a barrier to entry to new entrants. Furthermore, bank efficiency has increased post-deregulation and the competition resulting from diversity in bank types was important to prompt efficiency improvements. Finally, the recession of the early 1990s resulted in a distinct shift in the process of efficiency changes.
Analysing the key problems facing the transition countries in Central and Eastern Europe, this accessible book describes the legacy of the central planners, the progress achieved so far and the need for further reforms. It documents the outstanding successes and failures, and analyses why certain approaches to transition have worked and others have not. It tests where transition is over and shows how some countries have graduated from ‘transition’ to ‘integration’ through their efforts to join the European Union (EU). It discusses the costs and benefits of the eastern enlargement of the EU. The specific experiences of German unification, the Soviet Union’s disintegration, and Russia’s complex reforms are examined, as are the specific issues that need to be addressed in the Balkans. The book concludes by indicating how the expanding EU could help the poor performers through inclusion in a continent-wide integrated economic area.
Using data from 1996 to 2000, we investigate the effects of ownership, especially by a strategic foreign owner, on bank efficiency for eleven transition countries in an unbalanced panel consisting of 225 banks and 856 observations. Applying stochastic frontier estimation procedures, we compute profit and cost efficiency taking account of both time and country effects directly. In second-stage regressions, we use the efficiency measures along with return on assets to investigate the influence of ownership type. With respect to the impact of ownership, we conclude that privatization by itself is not sufficient to increase bank efficiency as government-owned banks are not appreciably less efficient than domestic private banks. We find that foreign-owned banks are more cost-efficient than other banks and that they also provide better service, in particular if they have a strategic foreign owner. The remaining government-owned banks are less efficient in providing services, which is consistent with the hypothesis that the better banks were privatized first in transition countries.
Economic theory has suffered in the past from a failure to state clearly its assumptions. Economists in building up a theory have often omitted to examine the foundations on which it was erected. This examination is, however, essential not only to prevent the misunderstanding and needless controversy which arise from a lack of knowledge of the assumptions on which a theory is based, but also because of the extreme importance for economics of good judgment in choosing between rival sets of assumptions. For instance, it is suggested that the use of the word “firm” in economics may be different from the use of the term by the “plain man.” Since there is apparently a trend in economic theory towards starting analysis with the individual firm and not with the industry, it is all the more necessary not only that a clear definition of the word “firm” should be given but that its difference from a firm in the “real world,” if it exists, should be made clear. Mrs. Robinson has said that “the two questions to be asked of a set of assumptions in economics are: Are they tractable? and: Do they correspond with the real world?” Though, as Mrs. Robinson points out, “more often one set will be manageable and the other realistic,” yet there may well be branches of theory where assumptions may be both manageable and realistic.
This article presents some theoretical issues of multinational banking and their application to the pattern of foreign banks' operations in three selected Central European countries: Poland, Hungary and the Czech Republic, using postal survey results and an OLS/logit model of entry determinants. Additionally, the effects of foreign banks' entry in these countries are discussed. A detailed review of foreign banks' activities is presented in the Appendix. Foreign banks appear to be one of the most important factors influencing the shape of banking sectors in the countries analysed. However, banks' profiles differ, depending on the individual host country's level of development and privatisation progress. Generally, their activities tend to focus mostly on corporate services, while the perceived need for support of the client base is the most important reason for expansion. Although the direct benefits from entry are limited, indirect ones are quite evident, especially in the areas of corporate finance and foreign trade services.
The paper investigates the factors crucial in the locational decisions of multinational German banks in selected emerging markets of central and eastern Europe, Latin America and Asia between 1994 and 2001. Emphasis is placed on testing variables of macroeconomic and financial sector risk along with measures of bank-client integration and host country market characteristics. Results indicate that FDI by non-banks exerted a strong pull effect on banking FDI flows, as did highly developed financial markets and a low country risk. No particularly meaningful effects are found in the sample for per capita GDP or trade linkages. A strong case can be made for a variable taken from the “early warning indicators” literature which measures the backing of short-term banking deposits by international currency reserves. In almost all regressions, this financial crisis variable turns out be highly negatively correlated with FDI flows. Disaggregation of the sample by region illustrates that the factors which are at work differ between the continents. Comparing pre- and post-Asian-crisis time periods, it is found that both variables of country riskiness gain significance in the later sub-sample, with the result being especially pronounced for the measure of financial vulnerability.
Over the last decade, Hungary has experienced more foreign bank entry than any country in world, starting with foreign greenfield operations and then followed by the privatization of four of its largest banks to strategic foreign owners. Currently about two thirds of all banking assets in Hungary are foreign owned; the only major bank without a foreign owner is Országos Takarékpénztár és Kereskedelmi Bank (OTP). During a decade in which lending to households declined in real terms until recently and household deposits remained relatively steady at around 20% of GDP, OTP lost its monopoly in retail banking to foreign-owned banks. By the end of the decade, OTP held shares of just over 50% in both household deposit and credit markets. In the last half of the decade, foreign banks increased substantially their market shares and currently hold more than 40% of all household deposits and about 40% of all loans to households. In this paper, we identify the important role played by foreign greenfield operations in intermediation within the household sector, especially from 1997. We provide evidence that, once they take control of formerly state-owned banks, strategic foreign investors move aggressively into retail banking. As the decade came to a close, retail banking was a growth industry in Hungary and foreign-owned banks were actively participating in both markets. Foreign entry provided healthy competition to OTP and prodded this widely held domestically controlled bank to develop new products and better services for Hungarian households. Over the last half of the decade, bank cards have been introduced to Hungarian households and transactions using these cards have grown by a factor of more than five. Over half of the population uses bank cards twice a month on average, almost exclusively for cash withdrawals from their current accounts. By investing heavily in information technology and using its extensive branch network, OTP has become the market leader in this new, growing business with more than 40% of all ATMs and bank cards issued in Hungary and more than 70% of all bank card transactions. Our analysis of OTP's behavior indicates that domestically controlled banks with local expertise may have a significant role to play in retail banking in small, open transition (or emerging) economies.
The paper critically deals with the electric theory of the multinational enterprise. It examines, firstly, the theoretical redundancy of the ‘ownership advantage’; secondly, the inseparability of the ‘ownership advantage’ from the ‘location advantage’; thirdly, the conceptual ambiguity of the ‘location advantage’; and, lastly, possible methodological dangers of a multi-factor analysis under the three headings of the eclectic theory.© 1991 JIBS. Journal of International Business Studies (1991) 22, 445–460
This article reviews some of the criticisms directed towards the eclectic paradigm of international production over the past decade, and restates its main tenets. The second part of the article considers a number of possible extensions of the paradigm and concludes by asserting that it remains “a robust general framework for explaining and analysing not only the economic rationale of economic production but many organisational and impact issues in relation to MNE activity as well.”© 1988 JIBS. Journal of International Business Studies (1988) 19, 1–31
and as vehicles for the transference of new skills and technologies, they are no less pertinent to the theory of economic development. The sharing of the costs and benefits of their activities between the countries in which they operate raises complex and fascinating issues for the welfare economist. The geographical flexibility of their procurement, production, and marketing strategies adds a new dimension to the theories of industrial relations and collective bargaining; while their operations are not only influenced by, but help to fashion, a whole range of monetary and fiscal policies used by national governments to advance economic and social goals. I make these observations by way of introduction, because, in interpreting the various explanations of the origin and growth of international business, one is very conscious of the particular interests of the researcher. This is shown both in the type of questions asked, and the approach and techniques used to answer them. The questions 'why do firms invest overseas?', 'where do firms locate their foreign operations?' and 'what determines the amount and composition of international production?' pose similar, but not identical issues. Each is concerned with the behaviour of firms, but while the first draws on the techniques of micro-investment theory, the second is of interest to the location theorist, and the third needs a knowledge of international trade and industrial organization theory. Moreover, each of the questions may be tackled from a positive or a normative viewpoint; and with sectoral, national, or cosmopolitan interests in mind.
Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal response to the credit spread is ambiguous given the financial market structure in theoretically derived STR, and (3) there, a commitment policy is effective in narrowing the credit spread when the central bank hits the zero lower bound constraint of the policy rate.
The choice of an appropriate paradigm to consider banks' motivation to enter a new market and their subsequent performance is an important issue in multinational banking. This paper discusses this issue within the context of two competing theories of the multinational enterprise and the special theories of banking as applied to the multinational enterprise. The conclusion of this paper is that while it may not be possible to empirically distinguish between the propositions of Eclectic theory and Internalisation theory, Internalisation theory offers a framework with greater internal consistency for the study of the multinational bank. Further, any empirical studies must be conducted within the framework of the appropriate special theories consistent with internalisation theory. These special theories have developed over time in an unstructured fashion, and the application of internalisation theory provides a cohesive framework within which to analyse these theories. Copyright 1997 by Blackwell Publishers Ltd
Although the theory of multinational banking has pointed out the importance of local profit opportunities, the empirical evidence is still poor and deserves further investigation. To this end, we analyse entry decisions and activity levels of foreign banks operating in Italy between 1983 and 1998. We consider 22 OECD countries, 10 of which had at least one bank (branch or subsidiary) in Italy. Entries and activity levels were related to the degree of economic integration as well as to the financial market features of the home country relative to Italy.
Analyses of the optimal timing of foreign direct investment (FDI) decisions have been curiously lacking in the general literature on multinational enterprises (see Chapter 1). Although comparative static analyses exist, comparing exporting to the host country with market servicing from a production unit sited in the host country (Horst, 1971; Hirsh, 1976) the only attempt to predict the timing of the switch from exporting to foreign-based production is that of Aliber (1970) (although Vernon, 1966, gives a cost-based rationale for the switch). This chapter attempts to fill this gap in the theory of FDI. Section 5.2 outlines and criticises previous attempts to deal with the problem, Sections 5.3–5.5 present a simple model, which ignores set-up costs, and Sections 5.6 and 5.7 give a more detailed analysis including such costs. Further extensions of the theory are considered in Section 5.8 and the conclusions are summarised in Section 5.9. The problem emerges as being more complex than had previously been appreciated.
relate only to the restructuring and recapitalization of the financial system. Moreover, we are not able to include the burden borne by depositors and borrowers in the form of wider interest rate spreads resulting from bad loans left on banks' balance sheets. Finally, most of the data on costs do not include costs resulting from indirect methods of bailing out banks. For example, a government may subsidize a borrower by granting it monopoly privilege or other means to improve profits and so repay loans. Algeria 1990--92 Share of nonperforming loans in the banking system reached 50 percent. Benin All three commercial banks collapsed; 80 percent of banks' loan portfolios were nonperforming. CFA 95 billion, equivalent to 17 percent of GDP. Burkina Faso 1988--94 Banking system nonperforming loans estimated at 34 percent. Burundi 1994--? Banking system nonperforming loans estimated at 25 percent in 1995; one bank was liquidated. Cameroon In 1989 banking system nonperforming loans
Banking in Transition Economies: Developing Market Oriented Banking Sectors in Eastern Europe
- J Bonin
- K Miszei
- I Szekely
- P Wachtel
Bonin, J., Miszei, K., Szekely, I. and Wachtel, P. (1998), Banking in Transition
Economies: Developing Market Oriented Banking Sectors in Eastern Europe.
Edward Elgar, Brookfield, Vermont.
The Globalization of Business
- J H Dunning
Dunning, J. H. The Globalization of Business. New Fetter Line, London, 1993,
467 pp.
The Impact of Foreign Banks on the Croatian Banking Market. Paper presented at the 6th European Association of Comparative Economic Systems
- E Kraft
- T Galac
Kraft, E. and Galac, T. (2000), The Impact of Foreign Banks on the Croatian
Banking Market. Paper presented at the 6th European Association of Comparative
Economic Systems, Barcelona, September 7-9, 2000.
What Do Foreign Banks Do in Emerging Markets? An Institutional Study. Paper presented at the World Bank, IMF, and Brookings Institution 3rd Annual Financial Markets and Development Conference
- M Pomerleano
- G J Vojta
Pomerleano, M. and G. J. Vojta. (2001), What Do Foreign Banks Do in
Emerging Markets? An Institutional Study. Paper presented at the World Bank,
IMF, and Brookings Institution 3rd Annual Financial Markets and Development
Conference, 19-21 April 2001, New York, 51 p.
International Diversification and Multinational Banking in Recent Developments
- A M Rugman
- S J Kamath
Rugman, A. M., Kamath, S. J. (1987), International Diversification and Multinational Banking in Recent Developments, In: International Banking and Finance.
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