Cross Cultural Challenges to Banking Management Book Report

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Management Issues Facing Australian Banks in Asia Today

Today, the Australian banking industry enjoys a high level of confidence among domestic and international investors alike, and the nation has managed to weather the fallout from the Asian financial crisis and Great Recession far better than many of its neighbors, and continues to grow economically. This economic development is due in large part to Australia's increasing commercial trade and cultural exchanges with its largest trading partner, China (Chinese economy, 2016). Not surprisingly, the Australian banking industry has taken advantage of these opportunities to establish an ever-increasing number of branches in China, which have largely experienced positive returns on their investment. Nevertheless, given the fundamental cultural differences and worldviews that exist between consumers in Australia and China, it is the argument of this paper that there are also a number of significant management issues facing Australian banks in Asia in general and China in particular today. To determine the facts, this case report focuses on the management issue of Australian banks in Asia today, followed by a summary of the research and important findings concerning these issues in the conclusion.

2.0 Issue Identification

All multinational organizations are confronted with many of the same types of challenges when it comes to overcoming cross-cultural differences and effectively managing diverse workgroups and this is certainly the case with Australian banks competing in Asia. At present, Australia's banking sector is well matured and well regulated, and has experienced sustained profitability in recent years (Australia's banking industry, 2011). Moreover, the Australian banking sector is increasingly expending into regional and global markets, including most especially those in Asia in general and China in particular (Australia's banking industry, 2011). This issue is worthy of study because the financial contributions of the Australian banking industry to the national economy are enormous. For instance, industry analysts report that, "The financial sector is the largest contributor to Australia's national output, around 11 per cent of Australian output or A$135 billion of real gross value added in 2010" (Australia's banking industry, 2011, p. 5). The research to date confirms that similarly situated banks in other countries that have failed to take cross-cultural differences into account in their business operations have suffered compared to those that have (Anbari & Khilkhanova, 2009).

In addition, the 2010 World Economic Forum Financial Development report rated Australia fifth among the world's leading financial systems and capital markets (Australia's banking industry, 2011). Defined as Authorized Deposit-taking Institutions, the total assets of Australia's banks were A$2.7 trillion as of 2010 (Australia's banking industry, 2011). Known as "the four pillars," Australia's four largest domestic banks are Australia and New Zealand Bank (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Westpac Banking Corporation (WBC) (Australia's banking industry, 2011). All of these financial institutions are rated AA by Standard & Poor's (S&P) and Australia is the only country that has 9 of the top 100 banks globally with an S&P AA or higher today (Australia's banking industry, 2011).

3.0 Critical Discussion

According to Cravens (2001), a strengths, weaknesses, opportunities, and threats (SWOT) analysis can provide valuable insights concerning the competitive environment of interest. To this end, a SWOT analysis of Australian banks in Asia is provided in Table 1 below.

Table 1

SWOT Analysis of Australian Banks in Asia

Strengths

Weaknesses

1. The Australian banking industry has the lowest risk among the Asia-Pacific financial systems (Thompson & Chan, 2009).

2. The Australian banking sector is placed in S&P's lowest potential gross problematical assets (GPA) range, indicating that the system has relatively low economic volatility and proven abilities to maintain manageable levels of problem loans even through recessions, compared with most other systems (Thompson & Chan, 2009). In this regard, Thompson and Chan note that, "Problematic assets, in this context, include overdue loans, restructured assets (where the original terms have been altered), foreclosed assets and non-performing assets sold to special purpose vehicles" (2009, p. 6).

3. The four major Australian banks ("the four pillars") are among the only eight global banks with AA ratings (Allen & Powell, 2011).

4. There is a high level of confidence in the international community concerning Australian banks. For instance, Hand (2010) reports that, "If an Australian bank experienced financial difficulties, both the Reserve Bank and the Australian Prudential Regulation Authority (APRA) would be involved in a rescue program.

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This support underpins investor confidence in the banks. What other industry could claim that favourable government intervention is inevitable?" (p. 272).

5. Finally, industry risk for the Australian banking sector is "mitigated by prudent banking regulation and transparent and well-developed accounting standards and reporting practices" (Thompson & Chan, 2009, p. 7).

1. According to "Australia banks in Asia" (n.d.), "[T]he Chinese market remains a challenging one for the Australian financial sector due to stringent regulatory limitations in many areas and a cultural and business environment considerably different from Australia" (p. 1).

2. In addition, despite managing the impact of the Asian fiscal crisis more effectively than some of its Asian Pacific neighbors, Australia remains inextricably linked with the global economy in general and the Asian economy in particular. In this regard, Thompson and Chan (2009) caution that the Australian economy "nevertheless remains susceptible to external shocks because of a private-sector savings deficiency, which is reflected in a high current account deficit" (p. 5).

3. and Poor's ranks China's GPA risk at very high (Thompson & Chan, 2009).

4. Likewise, Tan and Christos (2014) emphasize that, "There is a relatively large volume of non-performing loans in Chinese banking sector which indicates that the risk of Chinese banks is still high and the profitability of Chinese banks is still below the international standards" (p. 304).

Opportunities

Threats

1. The Bank of China represents a potential partner with a better-than-average reputation for Australian banks (Platt, 2007).

2. Financial reforms implemented during the period between 2003 and 2009 are intended to improve the performance of the Chinese banking industry (Tan & Christos, 2014).

3. Chinese banks are encouraged by the Chinese government to list on stock exchanges in order to provide greater external monitoring and a more competitive environment in the Chinese banking sector (Tan & Christos, 2014).

1. The asset quality risk of state-owned banks in China remains very high based on the residual level of loans extended on a non-commercial basis. In this regard, Thompson and Chan report that, "The state-owned banks in China are seeking to correct this by becoming more commercial; [however], as banks are highly-leveraged entities, the capital bases of such banks do not permit a rapid resolution of non-performing loans by way of write-offs" (2009, p. 5).

2. In addition, Mott (2010) points out that "[Australian] bank chiefs have been at pains to emphasize that the costs of funding their loan books are rising, especially in offshore wholesale credit markets which the banks increasingly use to secure long-term funds" (p. 37).

Beyond the foregoing weaknesses and threats, Australian banks are also faced with some profound cross-cultural management issues in their Asian operations. Although each Asian nation differs in cultural dimension terms, a general assessment can be discerned from a comparison of Australian and China as shown in Table 2 and depicted graphically in Figure 1 below.

Table 2

Comparison of Australia and China: Geert Hofstede's five cultural dimensions

Dimension

Australia

China

Power-Distance

36

80

Individualism

90

20

Masculinity

61

66

Uncertainty Avoidance

51

30

Long-Term Orientation

21

87

Source: Taken from bar graph in Geert Hofstede (2016) at http://geert-hofstede.com / australia.html

Figure 1. Comparison of Australia and China: Geert Hofstede's Five Cultural Dimensions

Source: Based on graph in Geert Hofstede (2016) at http://geert-hofstede.com / australia.html

As can be readily seen in Table 2 and Figure 1 above, Australia and China differ significantly on all but one cultural dimension (masculinity), and it is clear that Australian expatriate managers in Asian banks will inevitably experience interpersonal communications problems that are related to the other four dimensions. For example, in contrast to China's sky-high rating for power-distance (defined as "the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally") of 80, Australia's score for this dimension is just 36 (Hofstede, 2016, para. 3). This difference translates into a workplace in China where superiors are less accessible, and where employees' opinions and concerns as well as information sharing practices are of less importance than Australia (Hofstede, 2016).

Likewise, Australia's high score of 90 on the individualism dimension (defined as "the degree of interdependence a society maintains among its members") versus China's score of 20 also translates into management challenges for Australian expatriate.....

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