Strategies Used By Dubai Islamic bank In International Business Expansion
Strategies Used By Dubai Islamic bank In International Business Expansion
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Table of Contents
TOC o “1-3” h z u HYPERLINK l “_Toc370651144″CHAPTER 1 PAGEREF _Toc370651144 h 3
HYPERLINK l “_Toc370651145″INTRODUCTION PAGEREF _Toc370651145 h 3
HYPERLINK l “_Toc370651146″The Problem and Its Background PAGEREF _Toc370651146 h 3
HYPERLINK l “_Toc370651147″Conceptual Framework (Research Paradigm) PAGEREF _Toc370651147 h 4
HYPERLINK l “_Toc370651148″Statement of the Problem PAGEREF _Toc370651148 h 5
HYPERLINK l “_Toc370651149″Hypotheses of the Study PAGEREF _Toc370651149 h 5
HYPERLINK l “_Toc370651150″Significance of the Study PAGEREF _Toc370651150 h 6
HYPERLINK l “_Toc370651151″Scope and Delimitations of the Study PAGEREF _Toc370651151 h 7
HYPERLINK l “_Toc370651152″Definitions of Terms PAGEREF _Toc370651152 h 7
HYPERLINK l “_Toc370651153″Chapter II PAGEREF _Toc370651153 h 8
HYPERLINK l “_Toc370651154″Review of Related Literature PAGEREF _Toc370651154 h 8
HYPERLINK l “_Toc370651155″Chapter III PAGEREF _Toc370651155 h 9
HYPERLINK l “_Toc370651156″Methodology PAGEREF _Toc370651156 h 9
HYPERLINK l “_Toc370651157″Research Design PAGEREF _Toc370651157 h 9
HYPERLINK l “_Toc370651158″Population Frame and Sampling Technique PAGEREF _Toc370651158 h 9
HYPERLINK l “_Toc370651159″Description of Respondents PAGEREF _Toc370651159 h 9
HYPERLINK l “_Toc370651160″Data Gathering Instruments PAGEREF _Toc370651160 h 9
HYPERLINK l “_Toc370651161″Statistical Treatment of Data PAGEREF _Toc370651161 h 10
HYPERLINK l “_Toc370651162″Bibliography PAGEREF _Toc370651162 h 11
HYPERLINK l “_Toc370651163″APPENDICES PAGEREF _Toc370651163 h 12
CHAPTER 1INTRODUCTIONThe Problem and Its BackgroundThe last five years have seen rapid growth in the operations of banks in UAE especially in the move to establish units in the UAE region. This is in spite of the much proclaimed economic crunch that hit most western banking and other financial institutions. The period has seen banks such as Dubai Islamic bank. The Impetus for the growth and strategies used in this expansion has left many questions unanswered. For example, was it really an economic meltdown or was it a paradigm shift of economic development to the UAE country? Has the UAE continent finally awakened to take over economic development from the western hold?
The trend has bought an end to the assumption that banks are meant for the upper classes in society. The inclusion of low income earners in the banks is seen as the main stimulant to the rapid expansion of banks in UAE like Dubai Islamic bank. The move has forced other leading banks to rethink their stance and develop products and services for the lower market in order to keep up with the competition. In so doing, the rate at which financial assistance has hit the market in the country has brought about a business boom never experienced in the region before.
Conceptual Framework (Research Paradigm)Given the saturation in the domestic markets, the urge to internationalize the banking operations is something that is bound to happen sooner or later for many banks and the service industry. In order to survive, banks are forced to seek and make use of opportunities in newer markets. The process of gaining penetration to these new markets is the challenge that most of these banks experience. It is laborious and entails a lot of research. Laborious for the fact that they have to get a lot of information concerning the new markets they are entering. What is more, there are no sales to base their decisions on and no marketing infrastructure. They also have little knowledge concerning the markets they are looking to dive in.
Major entry modes are found in the product industry. These include exporting, licensing/franchising, full ownership and joint ventures. The mode of exporting entails a company selling its physical products which are usually manufactured outside the intended country to a foreign country (Tallman, & Shenkar, 2004). On the other hand, licensing and franchising entails an arrangement where technology or some information systems are transferred to the host party (Shane, 2004). Joint venture is an arrangement where the firm is required to share the equity and control with the host. There is another alternative to this, called full ownership where the parent company takes 100 percent equity stake in the operation in the foreign country. It can take two forms: one is acquiring the existing business and secondly is bringing in new facilities to the company. In evaluating the entry mode that a firm should take, there are options that should be considered. One is the level of control that the firm will have in the overall operation. Control is the ability to influence systems, methods and decisions (Anderson, & Gatigno, 2006). In a general note, when a firm moves from licensing/franchising to joint venture to full ownership, the level of control increase. When Dubai islamic bank preferred full ownership of UAE Microfinance, there must have been some benefits that they would get over if they had licensed. They even went ahead to rebrand the microfinance. There is no way that we are going to compare exporting mode of entry and full ownership. Exporting deals more with the product industry while licensing and franchising deals with service industry. In this report, therefore, I will not delve so much on exporting as a market entry mode that is used by Dubai Islamic bank in their expansion.
Statement of the ProblemThe main aim of the research is to find out the ways Dubai islamic bank uses in their market expansion endeavors. There is competition in the banking industry with banks making sure that they get a share of the market. There is a lot that has been said concerning strategies used by Dubai islamic bank in their business operations but less has been researched on the mode of entry in gaining new markets by this bank. There are two researches that have been done about Dubai islamic bank so far which include that done by Munga (2005) about the resistance to change and its management in the banking industry and then one by Abishua (2010) which dealt on strategies that Dubai islamic bank to counter competition. Other similar researches include that done by Ohaga (2004) which dealt on Strategic responses of commercial banks in changing environments and Karambu (2004) which dealt on strategic responses to change of environment by the Bank. The research that I am doing is different from the researches above because it delves more on the market entry strategies used by Dubai Islamic bank to gain share across the borders.
Hypotheses of the Study
The objective of the study is to find out the international market entry strategies that are used by Dubai islamic bank. It will also look at the rationale for these strategies.
Significance of the StudyThere are many beneficiaries for this research and include government regulators, Islamic bank, other banks, researchers, academia, and investors.
The government regulators of both the parent and the host country will stand to benefit from this research. Taking Central Bank for example, research shows that in the year 2008, 4.5 million UAE had bank accounts and of all these, Equity accounted for 3 million accounts (CBK, 2008b). With this information, Central bank stands to benefit from the statistics. Another research finding is that in , there are 500,000 UAE banks account holders. Of all these, 200000 are Dubai islamic bank account holders (CBK, 2008). There is therefore a need to control these account holders and the Central banks of both countries will stand to benefit from this report. Other government regulators include UAE Bankers Association, UAE Security Market, and the Capitals Market Authority.
The research will also be useful to potential and existing investors. It is so because most investors are going offshore in a bid to diversify their risks. Having a stake in a UAE company located abroad bring that needed diversification that is required thereof.
The research will also help Dubai islamic bank a great deal as it will help to expose faults in their market entry strategy. If the fault is solved on time, then it will have helped to solve many unseen problems and also help to improve the market entry mode.
Chapter II: Review of Related LiteratureFor the last couple of years, companies and corporations have gained vast experience in expanding their operations to the neighboring countries. Others have expanded to geographical areas that are far and wide. For this case, the literature on emerging markets and global strategy has proportionately grown. Although this is the case, most literature has focused on multinational corporations (MNC’s) investments and how they target developed countries. Our case is that of banks, and specifically Dubai islamic bank which is targeting developing countries. This has not received any recommendable attention from researchers. For this reason, there has been bias in doing research on these developments because less has been found a new trend where banks in developing countries are targeting the masses which are not banked and are located in neighboring countries; this is seen in East and Central UAE.
2.2 Internationalization Models2.2.1 Own, Localise and Internalise (OLI) ModelThis theory has become the centerpiece of the literature on banks and multinational corporations and it suggests that it optimal for an organization to take some of its centers of production outside the home country if three conditions are met (Eithier, 1986). The first is that the firm should have sufficient knowledge concerning the product and processes that endow it with advantage over the competitors within that industry. For the caser of Islamic bank, this seems to be the case. Dubai islamic bank has advantage of clientele. Dunning (1993) argues that ownership are the advantages that an organization holds and are the assets that they use specifically. The measurement of assets is confirmed using the size of the firm and the multinational experience it possesses; they exhibit this by their ability to develop products which are differentiated. The ownership advantages should be both unique and sustainable so that the firm will have a competitive advantage when it comes to selecting the entry mode (Brouthers and Brouthers, 2003). The choice of Acquisition of Dubai islamic bank in UAE indicates the use of this strategy where the market in UAE seemed to be competitive for the bank. UAE is an established market and acquisition proved to be the best option for Dubai islamic bank.
The OLI paradigm gives the reasons why firms make the decision to invest, what the advantages are for the firm, the place they invest (where they get the most advantages) and the reason they go for Foreign Direct Investment (FDI) from a pool of many foreign entry modes. One important aspect with OLI is that the location and ownership advantages are necessary but they are not sufficient condition for FDI. Internalization should be used to complement this. There is a theory that was proposed by Buckley and Casson (2003) on how corporations intending to have long term investments in the foreign countries. The two researchers focused on market imperfections which bring about benefits of internationalization and came up with four sets of parameters that should be used make internalization decision:
Factors which are related to the industry and the nature of the product that is being sold and also the structure of the external market.
Factors that are specific to regions
Factors that are related to the government which could include government policies.
Factors that is internal to the organization and the ability of the management to organize an internal market.
Rugman and Verbeke (2003) attribute the role of MNC as an “international intelligence systems for the gaining of knowledge that are relevant to R&D and for the exploitation of knowledge that is available for use in from R&D”. It is also worth noting that these researchers stress the need for R&D to be decentralized and located as close as possible to sources of new information, especially research institutions and also debugging of new products. They also stress the point that it should adapt to the new market conditions which require proximate contacts with markers and production people.
Dunning (1988) notes that there are three main types of international production are market seeking, resource seeking and efficiency seeking. Market seeking can be made use of in the host country so that one can gain access to some specific market whereas resource seeking motivation for FDI will take into consideration the size of the market. Efficiency seeking on the other hand will consider the economies of scale, risk reduction through product diversification and taxation. There is also one addition by Dunning (1988) which is strategic asset seeking. This is a motivation for sequential FDI. The main aim of strategic asset seeking is for the investing organization to gain resources which will enhance the capabilities of the investor thus giving it advantages.
CHAPTER THREE: RESEARCH METHODOLOGY
The main aim of the research was to identify the modes of entry and strategies for Dubai Islamic bank in UAE. Qualitative research methodology was believed to address the research problem. The use of qualitative tools of research is preferable than traditional research methods which are empirical in nature. Qualitative methods of research is particularly useful when carrying out a research that will require implicit assumptions, looking at new relationships, abstract concepts and making operational definitions (London, & Hart, 2004). The study will also use quantitative methods, where questionnaires will be involved.
There is also an argument that qualitative research methods does not offer the researcher a chance to look at the cause-and-effect but rather give a description of actions which have a specific setting. It is also clear that quantitative research had a tendency of controlling variables which is not the case with qualitative research where it s seen to be open minded and facilitated research opportunities that will lead the researcher to areas of discovery which was hitherto unseen (Welman, & Kruger, 2001).
The purpose of qualitative research is as follows:
A description of the true nature of situations and relationships
It has interpretation that are handily to the research because they enable the researcher to understand more about the phenomenon, have a description of new theoretical perspectives about the phenomenon, or get new challenges that are found in the phenomenon.
It is allowed for the verification of the assumptions that the researcher will make in the field.
It provided the researcher the means of judging the effectiveness of a particular policy and practice.
The approach that was taken in the research is very similar to that which was taken by Johansson, and Wiedersheim (1975) in their study of the strategies that Swedish firms used in internationalization. Perry (2001) came up with the idea of using interview guide where the questions formed the major part.
Questionnaires to be used
Instruction: please respond to each statement on scale provided where 1= strongly disagree, 2 = disagree, 3 = Neutral, 4 = Agree, 5 = Strongly Agree.
Unit Management Audit Checklist Degree
1 2 3 4 5
1 The firm use strategic management concepts 2 The objectives/goals are measurable? And well Communicated. 3 The managers at all levels plan effectively. 4 The managers delegate well. 5 The organization’s structure is appropriate? 6 Job descriptions are clear? 7 Job specifications are clear? 8 Employee morale is high? 9 Employee absenteeism is low? 10 Employee turnover is low? 11 The reward mechanisms are effective? (HR audit) 12 The organization’s control mechanisms effective? The second questionnaire
Instruction: please respond to each statement on scale provided where 1= strongly disagree, 2 = disagree, 3 = Neutral, 4 = Agree, 5 = Strongly Agree.
Unit
Finance/Accounting
Marketing Audit
Degree
1 2 3 4 5
1 Departments are segmented effectively. 2 The organization is positioned well among competitors. 3 The firm’s market share is increasing. 4 The organization ensures conformity of purchased products from specification through to acceptance. 5 The marketing force is effective. 6 The firm conducts market research. 7 The customer service is good. 8 The firm’s service is priced appropriately. 9 The firm has effective promotion, advertising, and publicity strategies. 10 The marketing, planning, and budgeting are effective. 11 The firm’s marketing managers have adequate experience and training. 12 The firm’s internet presence is excellent as compared to rivals. 3.1 Research objectiveThe main aim of the research was to conduct an analysis of the entry mode strategies that are used by Dubai islamic bank to do business in foreign countries. The study would help in building theoretical frameworks on how banks and other firms in UAE would enter foreign markets in their operations. Specifically, this included getting data on the background and success of the bank on foreign market entry strategies. It includes knowledge transfer and sharing with locals in the countries that the bank has started their operations. Naturally, the challenges that are experienced in the operations would be highlighted in the paper.
3.2 Population of relevanceThe main people to be interviewed are the managerial team of Dubai Islamic bank in UAE. More specifically, the managers are drawn from various Dubai Islamic bank branches from the Western part of UAE. The various interviews with the executive director of Dubai Islamic bank by research organizations will also be useful.
3.3 Size and nature of the sampleWelman and Kruger (2001), state that the probability that any element (unit of analysis) will be included in a sample which is not part of probability cannot be specified. There are some cases where some elements will not have the chance of being included in such a sample. One advantage of using the non-probability samples is the fact that it is easier to use and is economical both in time and finance. What is more, non-probability samples may find their use in studies which require preliminary questionnaires to be tested (Welman, & Kruger, 2001).
The data that was collected consisted of opinions, insights which included operational experiences of Dubai Islamic bank branches in UAE. This data was got by interviews which were semi-structured and the discussions with the executives of Dubai Islamic bank branches operating in UAE and . Very important and useful insights were also obtained from Executive Director of Dubai islamic bank and Central Bank of UAE officials.
3.4 Research methodThe data that was used in this research was obtained from semi-structured interview questions on a one-on-one, face-to-face with the interviewees. The rationale of using the semi-structured interviews was due to the fact that respondents came from different backgrounds and also due to the fact that they held different managerial positions. The use of semi-structured interviews also offer the researcher a versatile way of collecting data as it allows the use of probes by the researcher in clearing vague responses and what is more, the researcher will always have a chance of asking for more elaboration from the interviewee in case there is an incomplete answer (Welman, & Kruger, 2001).
3.5 Interview guideThe interview guide which is found in Appendix I will be used in semi-structured interviews. The interview guide was constructed around the research propositions that were supposed to be answered in this research. The questions delved on theme(s) and even though the same questions will be asked for all the respondents, the researcher will adapt formulation and also terminology so that it will fit the background and flow of the process of the interview. The order that the researcher will use to broach the themes will vary from one person to another. This depends entirely on the way in which the interview developed (Welman, & Kruger, 2001).
3.6 The Interview processThe interviews and discussions will be held in Dubai islamic bank branches operating in UAE and . The data was got through one-on-one interviews with the managers working in these branches. The following steps were involved while setting up the interview:
The researcher will search for the contacts of the banks in these locations and hopes to get invaluable assistance from the supervisor.
The researcher will then go ahead and negotiates with the executives on the need to speak to the senior management justifying the reasons given. This will end in getting a Personal Assistant and further discussion will end in an interview time being scheduled.
On reaching an agreement, a GIBS letter which will serve as an introductory remark to the researcher and also authenticate the need to conduct the interview. Basing on the experience of other researchers who have done this research on the bank for various research topics, it is rare that the request will be turned down. It is also expected that the executives will not need the interview questions in advance.
The interview duration is expected to last one hour and is also expected that there will be no interruptions. In the interview process the researcher will be taking the notes with the aim of writing more comprehensive materials afterwards.
At the end of the interview process, the researcher will thank the participant for his/her time. It is expected that the final copy of the research will be given to the interviewees, if requested.
3.7 Data analysisIt has been stated by Welman and Kruger (2001) that the application of content analysis is in systematic observations of personal documents and also in mass media material. The application of content analysis is not applied only to personal documents but to semi-structured interviews as well. The content analysis will be by way of systematically examining the contents of the interviews so that the frequencies of responses to the guide questions can be recorded. Also to be recorded will be the ways in which the themes will be portrayed.3.8 Potential limitationsSecuring data from Dubai islamic bank branches operating in foreign markets will be a challenge as the data is confidential. Given the competition that is found in the banking market, the bank executives are keen on keeping their tools of trade from their competitors.
As much as the researcher is trained on data collection, the areas of consistency in question formulation is not augured well.
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