Internation Business Case Study
Bank of Amerian and
The Chinese Credit Card Market
1. How important is China to Bank of America? Did BOA do the right thing by taking a minority position in CCB?
We considered that Bank of America’s taking minority position in CCB (9 percent, as stated from the case) is an adequate decision. Looking at the situation from the perspective of a firm in search for successful overseas expansion, we considered that CCB - one of the largest commercial banks in China - could serve as a profitable business partner. A big advantage is that CCB has relationships with many of the largest business groups and leading companies in industries strategically important ...view middle of the document...
Of course, the credit card industry is not all in favor of its promising future. The biggest problem is the deeply-rooted savings culture, which was the result of tradition, fiscal discipline and personal experience. It is expected to take time for the Chinese to become more comfortable with borrowing money. Another challenging fact was that more than half the Chinese cardholders were unprofitable and financing themselves outside the formal financial systems which hinder the profitability of the credit card business. Other issues include falling transfer fees due to pressure from the merchants and retailers, government corruption, higher propensity to switch banks, and lack of adequate infrastructure.
The current market situation yields both edges of the knife; very promising in the sense that it is an emerging opportunity to seize hold of a beneficial business, but also proves to be dangerous in both cultural and political aspects of the country, especially considering the fact that BCA may not be so familiar with the market situation as it is not a local business. Considering both the potential promising aspects and the challenges that BCA faces in entering further into the Chinese credit card industry, its decision to take minority position in CCB at current status seems to be a reasonable one.
2. What is your assessment of the credit card business in China? Given the unique Chinese saving traits, what is your prognosis on the viability of this business?
In China, a credit card, called The Great Wall Card, was first introduced by Bank of China in 1985. In 1987, The Great Wall Card joined Visa’s network and Bank of China started issuing its first international credit cards in China in 1988. By 2003, three million credit cards had been issued in China showing a rapid growth in use of credit cards and the number is expected to reach 50 million in 2006. China’s credit card market is still in a growing phase having high potential to grow further, but a huge risk also exists.
There are three main key factors that make the credit card market enticing. Firstly, Chinese economy has a sustainable growth and GDP per capita keeps increasing. These factors would lead to an increase in credit card usage as well. Since 2001, it has experienced average 10% of economic growth and rise in GDP per capita which resulted in disposable personal income. A big opportunity exists in China as number of credit card per capita is much smaller than other countries like U.S.A and South Korea.
Another attractive element is some changes in the Chinese government policy. Until late 1990s before privatization of housing ownership, China’s banking industry was restrained to corporate banking. After the private ownership was allowed, China’s personal banking sector has been developed along with a huge increase in housing loans and car loans. Moreover, after 2003, the Chinese government has set up a policy to use consumption as an economic growth engine. As a...