Royal Bank of Canada in Thailand

Royal Bank of Canada in Thailand

TABLE OF CONTENT

RBC long-term Market entry strategy        

The issues that RBC faced in Thailand        

Government limitations        

Organizational & HR issues        

The financial crisis        

Recommendations        

A crisis to nuance        

Potential opportunities that outweigh costs        

Defining a course of actions: adopting a proactive strategy and accessing local market        

ANNEXES        

Annex 1: PESTLE        

Annex 2: PORTER’s FIVE FORCES        

Annex 3: SWOT ANALYSIS        

Annex 4: HOFSTEDE        

Annex 5: BENCHMARK        

As the largest financial institution in Canada, the Royal Bank of Canada needed to expand its activity to new markets in order to remain competitive, especially in developing countries. It’s in this perspective that RBC entered Thailand in 1980. After withdrawing in 1986 because of the lack of financial openness and market reform, RBC decided to came back to Thailand in 1997. However, the recent financial crisis, institutional and cultural issues put RBC’s interest at risk. This report attempts at analyzing whether RBC should stay in Thailand, before discussing the strategical approaches RBC should adopt to grow RBC’s presence in Thailand.

RBC long-term Market entry strategy

Entering Thailand and more generally the Asian market was part of a long-term strategy that aimed at developing RBC’s services in developing countries. RBC was increasingly present in Asia from 1975 (Exhibit1, Royal Bank Asian Timelines), especially in Hong Kong, Singapore, Korea and China. It now has 300 clients in Asia and keeps expanding as Asian needs for financial services are skyrocketing because of its high GDP growth. In Asia, RBC focuses on four business lines that include financial institutions and trade, multinational lending, treasury services and global private banking.

After a first attempt in 1980, RBC came back to Thailand. This decision was made after careful considerations. The several market analyses that were conducted, that included economic, political and socio-cultural factors, proved that Thailand was promised to a bright future. The most important facts that were considered by RBC to enter a developing country was firstly economic stability and development of the country (GDP growth, inflation rate, private sector development, and structure of the economy among others). The institutions, political stability and enforcement of the rule of law were also decisive factors (government policies towards business, market control, corruption). Finally, RBC also had to take into account social aspects such as the size of the market or labor costs. To consider all of these data, we used a PESTLE, Porter’s five forces and SWOT analysis (Annex 1, 2 and 3) and inferred from it that RBC should expand in Thailand as numerous opportunities can be seen. In fact, Thailand has proven to be an economy of a great potential over the past years, as shown by the fact that its economy grew by an average of 10% between 1990 and 1995, the second fastest rate of growth in Asia over this period behind China (Exhibit 5). Thailand also has a higher GDP per capita than countries like Philippines or Vietnam, while being a way larger market (59 million inhabitants) than developed Asian economies like Hong Kong and Singapore. Thai companies are expected to grow fast in the coming years, with already 50 companies above the turnover of US$ 100 million and 10 to 15 companies expected to join this group every year as planned privatization is implemented (Exhibit 7). Moreover, the business friendly reforms and the strategic location of Thailand in Asia proved that Thailand represents a promising market for RBC to develop the multinational lending and global private banking activities it already operates at the international level.

The issues that RBC faced in Thailand

Even if Thailand is a promising market, entering it has been difficult and costly for RBC that has faced several issues, firstly because of government control and market limitations, but also cultural differences impacting human resources and more recently because of economic instability and the financial crisis.  

Government limitations: In 1986, RBC had to leave the Thai market because the banking sector didn’t open as quickly as expected. Even if some reforms have been implemented, penetrating the banking market in Thailand still is complicated. In the long-term, RBC wants to have a branch status that will permit the bank to access larger range of business (on-shore lending in the local currency i.e.). However, leaving the country in 1986 had negative consequences on RBC’s reputation in Thailand as it was seen as a lack of commitment towards the country. For the moment, RBC has a BIBF license that only allows certain transactions and reduces the bank’s ability to expand its activities.