Sunday, May 19, 2019
Japan Net Bank Case Analysis Essay
The banking commercialise, especially meshwork-only bank sector, in lacquer was going finished a period of rapid growth after the japanese government initiated the famous Big sleep with deregulation of the financial market. JNB, which began operation in October 2000, aimed at winning oneness million accounts and one meg yen deposits and becoming profitable by the financial year 2002. However, in order to achieve that long-run success, it demand to resolved a number of issues and strengthen its competitive position in reckon of hard cont destroyer from brick-and-mortar banks and new lucre-only banks.Therefore, this report focuses on the following three issues An judgement of the present situation in Japan regarding the mesh-only model of retail banking, An analysis of JNBs competitive advantages, Recommendations of what alliance strategies to develop to overcome competition from tralatitious and new(prenominal) online banks. The data in this report was collected by assessing the information of the case Japan Net brink Japan First Internet-only Bank by Vincent Mark and Pauline Ng chthonic the supervision of Dr. AH F.Farhoomand and studying relevant materials from the Internet. I have divided my report into three main sections. Firstly, we would assess the potential for Internet-only model of retail banking in Japan. Secondly, we present and analyze JNBs competitive advantages meticulously in this particular Japanese market. Finally, we would suggest or so viable propositions of what alliance strategies that JNB should develop to surpass and obtain the market leader. Internet banking in Japan. 4 Conservative consumer banking behavior 5 Low level of recognise peak practiseJapan did not use credit cards a great deal. By 2001, credit card purchases accounted for just eight per cent of consumer spending in Japan, compared with 14 percent in atomic number 63 and 21 percent in the US (The Economist, 2001). Borrowing was considered shameful in a culture a lot bound by traditional concept, so paying by credit card in popular could be an embarrassment. In many cases, credit card users could only repay in one-go or in fixed placements. Therefore, such the culture preferred repaying card debt s in one-go quickly if they could afford it. taunt companies lack of good marketing accentuated the problem although there were schemes involving credit cards points, customers could only use their points to deliver low-quality gifts. In contrast, the consumer loan market in Japan was doing much better since it was worth 7 jillion yen by early 2001, double the market size of credit card. 6 The availability of ATMs for capital withdrawals Japanese consumers generally preferred to pay by cash or money transfers. A survey conducted in summer 2000 asked respondents which Internet bank they would deposit their money in.The 3,825 respondents were intimatelyly in their 20s and 30s. Figure 1 illustrates the results the attr wide awakenes s of the online banks in Japan in 2000. pic The pie chart illustrates that the success of a Japanese bank relied severely on its ATM function. Determinant included whether the ATMs were conveniently located, whether they charged a small or no handling fee, whether they were open for long hours, etc. That leads to the wide distributions of ATMs services in Japan. We could recognize that the brand blondness also played an important role to attract the customers. 7 Internet usage in JapanOn-line banking with limited services-as an extension of traditional banking-was already available in Japan in 1997 with Sumitomo Bank. The check number of Internet accounts at major commercial banks reached 1. 4 million at that sequence. According to a Nielsen/NetRatings report, the Internet state in Japan was some 38 million in January 2001, and 41% of them were active users. However, a study by Yankee Group in early 2001 found step to the fore that some 20% of all Japanese households had a fi xed line Internet connection at the end of 2000, less than the 50% Internet penetration in the US.Low penetration of fixed line Internet connections had driven a lot of people to use i-mode, which could cost only or so several carbon yens a month. I-mode was a cellular Internet service offered by NTT DoCoMo, allowing emails and other Internet functions to be carried tabu via handsets. It had more than 22 million subscribers by April 2001. In fact, i-mode becomes so popular that Miyai, director of JNB, once express Internet banking is really cellular banking in Japan. 8 The competitive situation Competition from traditional banks JNB nevertheless had to face stiff competition with well-known bricks-and-mortar banks in a crowed banking market even though it was considered as the Japans first Internet bank without animal(prenominal) branches. Banking habits and conservative consumer culture in Japan facilitate traditional banks to gain competitive advantage in the market. Furthe rmore, traditional banks were making their services more convenient by installing more and more ATMs and providing a variety of value-added financial services.The most primary factors which make JNBs competitors pay attention to JNB seemed to be lower overheads, competitive rates, lower fees and firm alliance backing. 10 Competition from domestic Internet banks Sony Bank JNB also had to compete with new entrants that deliver the goodsd equal services, One of those competitors was Sony Bank, an Internet-only bank with 37. 5 one million million capital investment expected to start operation in mid-June 2001. Sony Banks strategy was similar to that of JNB in terms of higher interest rates, lower fees, a small workforce and no physical branches.In particular, the new banks care emphasise customized, one-to-one services. Sony bank took advantage of its strategical stakeholders to deliver high-quality services to consumer. For example, customers of Sony Banks could use SMBCs ATMs at am/pm convenience store chain as contact point, or J. P. Morgan Chase, one of its important stakeholders, would provide personal financial advice through the Web or Sony Bank obviously benefited from the Sony Empire by utilizing Sony Banks settlement service to purchase Sony products online. IY BankAnother Internet-only bank to enter the fray was IY bank, whose net was predominantly a sprawling ATM network although Internet-based transactions would also be possible. It was expected to install round-the-clock ATMs in 3659s Ito-Yokado supermarkets and Seven-Eleven convenient stores within two years of operation. It had already joined up with a combined network of nine city banks, including one of the Japans largest commercial banks Sanwa, and charged armorial bearing whenever a customer of another bank in the network withdrew money from an IY Bank ATM.IY Bank intend to be settlement-focused and would develop loan and card note and Internet-based services later. IY Bank planned to install 24-hour ATMs at 3650 stores under the group by spring 2002 and at 7150 stores within five years of operation. Its target seemed to be practical since it could take advantage of the Ito-Yokado groups existing customer base, which is 10 million customers per day, and its low-priced operation. 1 Competition from international Internet banks Another Internet-only bank, called eBank, was expected to start operation in June 2001.It would set apart in the settlement of payments for small-value online purchases worth up to atomic number 6,000 yens and would charge a lower commission than ordinary bank. eBANK was go bad by Japan Electronics Settlement Planning Inc and invested by Japan Telecom, Yamato Transport and Ericsson Holding International. Its capital was about US$37 million. Japan Net Banks competitive advantages JBN, one of the core Internet tunees of parent community SMBC, aimed to build up its independent, own brand name and aspired to become the de facto standard of the Japanese-style Internet Specialized Bank for 21st Centurys Internet community.Therefore, the bank adopted the customer-centric principle badly in order to survive and develop. JNB disparateiated its financial products and services from those of its competitors by its distinguished characteristics 3 24/7 availability JNB customers enjoyed seamless financial functions and 24/7 accessibility to their accounts through the Internet. They could carry out transactions or check their accounts through multiple access channels, including physical channels (ATMs or the passing game Office) and ready internet service (i-mode). The interfaces were designed to be very user-friendly.Moreover, JNB began to diversify into services other than raw material bank transactions such as ordinary and term deposits. For example, it allowed on-line payment for bills and services of capital of Japan Electric Power, Nomura Securities and Nifty Corp. s on-line shopping mall. 4 Competitive interest rate JNB offered attractive(a) interest rates and fees compared with courtly Japanese banks see Exhibit 3. Its deposit interest rates were more than in two ways that of the average rates offered by major Japanese banks, and its charges for fund transfer were less than half those of conventional banks. Customized services Every customer had his/her own specific information page on the Web. Customers would receive netmail notifications of transaction details such as receipt of fund transfers, expiration of term deposits, errors in mechanical account debits, etc. 6 Confidentiality of usage The confidentiality of JNB customers private information was strictly secured private information could not be used without customers agreement. Information transferred through the network was encrypted by 128-bit SSL (Secure Sockets Layer).The database and servers storing JNB customers information were protected by a firewall and an access-surveillance administration. All Internet banking transacti ons could not be processed without a password. Moreover, the last login date and time was always indicated at every login to a JNB account, so customers would know whether their accounts had been accessed illegally. 7 Flexible memorial tablet and IT system JNB maintained a flexible, flat, and team-like structure which had a very low cost base. Its management style was different from the top-down approach of traditional Japanese corporations.Its structure allowed for the contingency between different departments in the organization to coordinate and solve problems. JNB also adopted a flexible, open information technology system which is divided systematically and functionally. The building of JNBs IT application was quite innovative since it is mostly outsourced under the supervision of IT segment staff. Strategic alliances to develop In the face of fierce competition, JNB had the advantage of strong, broad, strategically important and multi- constancy alliances.An appropriate stra tegic alliance would increase its revenues and market share. The advantages of strategic alliance include Allowing each partner to concentrate on activities that best match their capabilities. Learning from partners and developing competences that may be more widely exploited elsewhere Adequacy a suitability of the resources and competencies of an organization for it to survive. 9 Shareholder alliance JNB has been forming alliances and coalitions with many blue-chip corporations possessing spacious customer bases.Since JNB could acquire customers through its shareholder alliances, it had relatively low reliance on mass-media marketing and hence had low marketing budget. In next five years, it should continue diversifying its alliances from different sectors of economy to broaden its business and utilize its alliances customer base. For instance, JNB might negotiate with ORIX Corporation RIX, one of the Japans largest leasing and diversified financial services conglomerate, to obtain equity strategic alliance.This alliance will enable the company to capture a larger share of the Japanese consumer finance market, and make consumer finance operations more efficient and responsive to the financing needs of creditworthy consumers. 10 Global strategic alliances SMBC, as a major stakeholder of JNB, signed a memorandum of mutual understanding (MOMU) on a strategic partnership with The Bank of East Asia (BEA) to co-develop their business potentials in Mainland China, Hong Kong, Japan and other countries. In China, SMBC established a whole owned subsidiary, Sumitomo Mitsui Banking Corporation (China) Limited, in April 2009.SMBC has formed alliances with Kookmin Bank in Korea, First Commercial Bank in Taiwan, The Bank of East Asia in Hong Kong, PT Bank Central Asia Tbk (BCA) in Indonesia and other Asian banks. With Barclays, a major British financial institution, the company is exploring venues of cooperation in wealth management, operations in South Africa and ot her business fields. JNB should take of advantage of this opportunity to establish its relationship with these foreign banks to market and expand its business to international. These strategic alliances would enable the company to expand its market hare and generate incremental revenues. 11 Non-shareholding alliances agedness race in Japan likely to increase demand for insurance and pension products The Japanese population is ageing fast. The 65 and over age group as a percentage of total population is expected to increase from an estimated 21% in 2005 to 35. 7% in 2050. Moreover pension assets under management in the Asia Pacific region are expected to grow from current E1, 100 billion to E2, 900 billion in 2015. Ageing population in Japan would boost demand for the pension products of the company.The bank should collaborate and offer pension plans services, through Japan Pension Navigator Company to gain a accredited advantage. Discerning that changing demographic profile of J apan profoundly therefore would increase demand for JNBs business. Conclusion Japan Net Bank (JNB), Japans first Internet bank without physical branches, began operation in October 2000. It attracted mainly young customers looking for convenient, round-the-clock bank services with much more competitive interest rates and transaction charges than traditional Japanese banks.Its access channels included the mobile Internet service i-mode and fixed-line Internet. JNB relied on flexible, open computer systems and a young workforce of only 100 people to minimize operational costs. Its stakeholders, including parent company Sumitomo Mitsui Banking Corporation (SMBC) and NTT DoCoMo (provider of i-mode), were all large companies from different industry sectors. This stakeholder base gave JNB market exposure and access to their established customer bases. By April 2001 JNB had 130,000 customers.It aimed at winning one million accounts and ? 1 trillion deposits and becoming profitable by the f inancial year 2002. But it needed to resolve a number of issues before it were able to achieve long-term success in the face of strong competition from bricks-and-mortar banks and new Internet-only banks. One of crucial issues was about how to meet with wide fluctuations in usage without over-investing the other was alliance management, how to co-operate with alliance partners to achieve competitive advantage.