Taking Sides Citigroup

Citigroup Adaptability Paper

May 29, 2006

Citigroup Adaptability Paper

Citigroup has had an extensive history with China and the decision made within Citigroup's corporate office to expand its services signifies an important economic role. China is one of many Asian countries that have a higher competitive economic growth potential. Citigroup's entrance into post-WTO China, however, raises questions about the company's ability to use adaptability while trying to grow its operations in China.

Arguments for Success

Citigroup has been able to demonstrate its adaptability in its attempts to expand its operations in China through its ability to access capital, cash flow, and have qualified staff. Also, Citigroup has been able to acclimate to the Chinese government regulations.

Citigroup continues to display adaptability in its attempt to expand operations in China through outsourcing, increase technological advances, the internet, the market growth, and in efforts to increase its number of consumers and investors. Citigroup also offers foreign currency in the financial market to the local corporate companies and to its foreign investors.

As indicated by Citigroup's ability to adapt its services to meet the needs of consumers in China, the company has an advantage of pushing services such as automobile loans, home loans, and credit cards, so that consumers in China can also reap the benefits.

The biggest problem that Citigroup will have is their ability to work with a government that is very intent on ruling its people and basically making every decision for their people. However, as new international industry starts to come into China, the Chinese government also needs to learn how to adapt to the way these international companies conduct business.

While it is important for countries to feel that they are always in charge, it is the type of government that China represents that will be the biggest barrier for any international company to get involved. Where Citigroup has a strong advantage is the fact that it has done a lot of work with the PBOC in setting up different financial activities such as auditing and accounting. Since the premier bank in China has been used to keep an eye on new banks entering China, they have found themselves keeping an eye on the very people that have trained them, Citigroup.

While we believe that Citigroup can successfully integrate into a very large and prosperous business in China, there are still hurdles that they have to go over. In an article in the American Banker, it is stated that "The New York company was forced to scrap its proposal to buy a 40% stake for $3 billion after the Chinese government refused to waive regulations limiting investment in banks by any foreign company to 19.9%," (2006 ). It is this ongoing situation in which China feels that it can curb influence from other countries that is slowing the growth of Citigroup in China, but the stance that Citigroup has taken with gaining entrance through acquisition will ultimately, in my opinion win a place for Citigroup as the largest financial institute in China.

Arguments against success

In many people's opinion, Citigroup has not displayed environmental adaptability so far. Citibank has taken an aggressive approach to consolidating market share. This is possible because of its size and profitability. However, despite these competitive advantages, the economic situation in China is not yet right for Citigroup to really gain an advantage in the country.

As per the case study "Citigroup was significantly more international in scope than its international competitors...Within Citigroup, Citibank had a particularly long history of emerging market expertise". Citibank's strategy was to open new branches in major Chinese cities as soon as the government would allow and at the same time developing strong brand equity. However, while "the economy's high growth rate were attractive to investors, nevertheless, the average per capita income for the nation as a whole was so low that decades of growth would be necessary before mass marketing of consumer goods and services could be effective ".

The next point is that as per the case study holding inflation constraint was a very important goal for the Chinese government. "...If China was to maintain its exemplary rate of economic expansion, the national savings rate would have to be maintained. Encouraging borrowing - via credit cards, for example - would increase inflation and discourage savings". However, in 2002 Citigroup began offering the country's first dual currency credit card. This is a perfect example of how Citigroup