UniCredit is an internationally acclaimed financial institution which has its operations in 22 major European countries. This financial institution has its strategic position in Eastern and Western Europe and thus the company has largest market share. The operations of UniCredit group is found in Ukraine, Turkey, Slovenia, Serbia, Russia, Romania, Poland, Kyrgyzstan, Kazakhstan, Lithuania, Latvia, Hungary, Germany, Estonia, Czech Republic, Croatia, Bulgaria, Bosnia-Herzegovina, Azerbaijan, Austria. The origin of this group dates back to the establishment of an institution in the year 1473, called Rolo Banca. Several specialized business divisions are present in UniCredit Group. This includes investment banking and Corporate Banking division, private banking, families and SME banking. The group also has a CEE division that emphasizes on operations in 19 Central and Eastern Europe countries. Presently the chairman of the group is Giuseppe Vita and the CEO is Federico Ghizzoni (UnicreditGroup.eu 2018). This study is based on the assignment 1 and 2 which emphasizes on the early market entry strategy, merger of HVB Group and the UniCredit Group and the strategies taken up by these groups.
Benefits and drawbacks of the first mover market entry strategy in comparison to the follower or late market entry strategy.
First mover can be described as a competitive a business receives when it first tries to capture the market and brings a service or product in to the market before any other competitor does. Thus being the first in a market specifically increases the brand recognition and the loyalty of the customers before the other market competitors that are entering the market later. Another important benefit that a certain first mover company receives is the ample amount of time to improve the service and the product (Boldrin and Levine 2013).
The advantages of a company being the first mover are as follows: the company gains the benefit of establishing its product as an industry standard; a long lasting impression is created by the company along with the strong brand image that give boost to the brand image; coming first in to a market provide strategic advantage with respect to the hiring skilled employees, contracts with the vital suppliers, location benefits and resource control; other advantages include less cost of attached to the new product launches in comparison to the new entrants (Vecchiato 2015). The other benefits include: Technology leadership- the first movers get an opportunity to make technology used in the product harder to replicate or copy. The first mover company for example can reduce the cost of the product which will be hard for the late movers to follow. This effectively increases the first mover company to establish an advantageous position in terms of product costs. The other way includes securing the new products with patents by the first movers; Control of resources- the second benefits arises from the strategic control of resources; Buyer-switching costs- this is an exclusive benefit of the first movers, and the late movers pay a hefty price in order to make the reluctant customers choose their products (Markides and Sosa 2013).
Drawbacks of being the First Mover- Although there are several advantages for being a first mover, however there are certain drawbacks that do not guarantee advantage:
- The first movers have to make additional arrangements in order to persuade the customers to try a new product. Whereas, for the late movers it is easy to establish the business on the lines of the previous entrant because the customers are already informed about a specific product (Loschelder et al. 2014).
- The late movers make cautious decisions and try to avoid the mistakes made by the first mover.
- The late movers make use of the opportunity of capturing the market where the first mover has failed to capture the customer attention.
- There is always a chance of making better products through the reverse engineering. This option is truly lacked by the first movers.
- The late movers can take the advantage of improving on the sections and areas where the first mover entirely overlooked (Loschelder et al. 2014).
There are several examples of companies that were not the first movers and still are now considered to be market leaders: Google- before google came there were previous entrants like Infoseek and Yahoo. However, Google improved their search engine and effectively and Google now control 65% of the search in search engines; Southwest Airlines- this airline was a late mover in to the airline sector, still this company expanded fast and now they are the second largest airlines in the world (van Loon 2012).
Retail banking and its entry timing in to a foreign market as a first entrant in a foreign country
There are factors that play a major role in deciding the timing of a retail banking entry in to a foreign country. The several factors are listed as below:
The capabilities of a firm is decided by its competencies, what areas it is good at and what it does better than the other market rivals. Thus, for a banking company to become have all the better qualities than all its rivals takes time to build. Banks begin to earn a large margin of profit only after a certain period of time, and that too the profit is based on the number of customers it serves. Gaining popularity and faith of the customers as a reliable requires a lot of time. Thus, when a company decides to expand its branches into the foreign countries, its own capabilities must be at a peak position. This timing of foreign market entry comes only after it has gain ample confidence and success in its base country (Kotha, Zheng and George 2011).
Characteristics of the host country in to the retail banking firm will enter plays an important role. These characteristics include the market economy size, technological sophistication, industrial market structure. The host country must promote the options of foreign direct investment (FDI) so that foreign institutions can easily enter the foreign market without any hurdles. The timing here also plays a crucial role, the environment within the country that promotes a favorable foreign investment will attract the institutions like retail banks to enter in to a foreign country. Timing of such expansion is vital as it leads to an increase in higher profits by the banking entities. The other vital characteristics that are also important include institutional environment, political stability, taxation policies, price of the natural resources, employment and wage laws. All these factors influence business environment to a large extent and thus the decision of a retail banking entity to enter in to a foreign country will largely include the an assessment of these factors (Nielsen and Nielsen 2011).
Competition is a vital aspect of any business entity that wants to survive and competence with all the rivals in the same market environment. Entering in a foreign market also included a crucial assessment of the presence of the market competition in that country. The presence of the level of competition in foreign country will deter most of the companies to expand their branches. However, if that same country lack the market competition, then it will be easy for a new entrant to open a new branch and introduce new products that will attract the more customers.
Economic factors are the sole promoters that push a foreign business entity or a retail banking firm to invest in to a foreign country. If a country provides ample opportunities through its economic services, then the likeliness of investment by the retail banking firms will increase. This again depends on the timing of the economic condition of a country, if a country is willing to open its domestic market for the foreign direct investment. Then, such opportunities can be directly linked with the timing of market entry (Goldfarb and Xiao 2011).
Geographic proximity and whether it contributes to the success of market entry
Geographical proximity play a positive role in contributing to the success of market entry because close proximity helps in easy conduct and management of the whole business process. The increased availability of the geographic information related to the consumers provides an added advantage and scope for the companies to use such information for the purpose of marketing. It is known fact that the social influences are greater when there is a close geographical proximity. The lack of the social network data implies that the influence of the consumers that are in geographically in close proximity can be effectively distinguished from the social proximity. The geographical and the social proximity are much related concepts and thus for this reason the geographic proximity data can be used effectively when the social proximity is absent. Thus expansion of the business and companies to the regions that are in close proximity can lead to increased compatibility between the people (Meyners et al. 2017). It is seen that due to societal, cultural and legal differences the foreign market which is located geographically close often seem to psychologically distant. The two major issues related to the psychological difference are: it is easier for the firms to enter foreign markets when there exists a close psychological proximity; the perception of psychological differences is sometimes based on the false perceptions rather than realistic belief. Expanding in to countries that are in geographically close proximity helps in reducing the complexities that arise due to the societal and the cultural differences. This makes the management of the operation similar to the management operation in the home country. Considering the case of the UniCredit Group, the company expanded in to the neighboring European countries which was under the same economic group and had similar less cultural and societal differences (Thornton, Ribeiro-Soriano and Urbano 2011).
Expanding in to the neighboring country which is geographically in close proximity can be effective to a large extent. The effectiveness can be related to the understanding at the governmental level. Countries that are in close proximity often undergo in to promoting business environment that influences each other’s market. Due to the increased effect of the globalization, the market economies are open and thus countries often prefer to have foreign direct investment from the foreign institutions. Countries often open their market to increase their annual gross domestic product (GDP) from the foreign institutions that operate in a country. Countries often make special economic zones for the foreign entities and exempt them from the paying extra taxes and labor laws also are also made flexible for these foreign entities. When the neighboring governments are stable, it has a positive impact on all the governments that are geographically in close proximity. Stable governments promote a healthy growth environment for the domestic as well as the international players. Thus stable governments create opportunities for business and firm expansion which are otherwise detrimental (Autio and Fu 2015).
Firms increasingly depend on the knowledge sourced from the other funds in order to enrich their own capabilities and knowledge base. Thus, engaging into merging and collaborations increases the potentiality of accruing knowledge, which otherwise would not have been possible. More demanding customers, shorter life cycle of the products and the ever-increasing global competitions have made the firms realize that working or collaborating with the others can effectively solve their problem. These mergers and the collaborations effectively make the business entities and firms resilient to the rapid changes occurring in the domestic and the global market. Firms and the institutions frequently undergo collaborations for the purpose of having advantages from the other market rivals and competitors. Collaborations that occur are based on the reducing the time for the development of the innovations, gaining knowledge from the partners, resource and risk sharing, increase the diversified knowledge base. Inter firm mergers and collaboration are found to occur frequently between the companies that are geographically located in close proximity. The proximity can be broken down to two major types: non-spatial proximity and geographical proximity. The non-spatial proximity includes the organizational proximity, cognitive, technological, social, cultural and institutional proximity. The merger or collaboration generally occur between organizations are entirely based on the technology acquisition, knowledge transfer and knowledge sharing. These are often the primary goals of any merger of collaboration. According to some authors, the degree of geographical proximity is described as the geographical distance between two entities (Berchicci, King and Tucci 2011).
Thus, it is seen that geographical proximity is playing a major role in defining the success in relation to the market entry. Knowledge sharing and knowledge acquisition are the sole criteria that pushes firms to enter in to foreign markets that are geographically located in close proximity. It is often seen that when companies want to expand in to the neighboring countries, they often choose to move in to a joint venture or from a collaboration. These collaborations or joint ventures arise between business entities that belong from the same industry (Chetty and Michailova 2011). For example, if a bank wants to expand its branches in to the neighboring country, it will look to form a collaboration with a company which is also a financial institution or a bank. The same is true for the automobile firms. If a foreign company wants to launch it automobiles in to different country which previously do not have any manufacturing base, then it forms joint ventures with the domestic company of that country. Such collaboration are solely based on the technology transfer and also introduction of the product which would otherwise have costed more capital to set up its own manufacturing plant (Killing 2012).
Thus, from the above discussion it can be concluded that, UniCredit and HVB Group were leading banking institutions before the merger took place. After the merger in the year 2005 the company even soared to new heights made the UniCredit Group one of the best financial institutions in Europe. The study also focusses on the benefits arising from being first mover in to any market. Although there are certain benefits associated with first moving, there are certain drawbacks that tend to help the later movers tremendously.
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