The relationship of the roles of “strategic leader” & “black hole” and

According to the generic role model of Bartlett and Ghoshal (1986) with the proxies we selected and estimated, we drew ten graphs which respectively represents the strategic-role profile of their overseas branches (to see Appendix 4). By analyzing the ten graphs and cross-examining with the evidence of financial innovation (to see Appendix 3), we composed an analysis chart as Table 4.1, suggesting that most of the banks with more than 50% of overseas branches in roles of “strategic leader” and

“black hole” are more likely to have better financial innovation performance for winning at least five or more innovation prizes. The results above confirm the correlation of overseas branch’s strategic roles and the innovation performance suggested in proposition 1.

However, in Table 4.1, there are three outliers that fail to respond to the correlation suggested by proposition 1. The three banks are state-owned banks. Their operation styles seem to be very different from the privately owned banks. That is to say, through the result of the cross examination of generic role models and the evidence of innovation, we found that there are two types of banks. One is the banks that have many strategic-leaders and black-holes as their overseas branches, and also

won prizes of innovation. Namely, those strategic-leader and black-hole branches help the bank with innovation adoption. Usually, those are the privately owned banks.

While there are the other banks which have many strategic-leader and black-hole branches but won few or none prizes of product innovation. Mostly, these are the government own banks. Therefore, to explore the reason, we conducted a face to face interview with one of the state-owned banks’ representative, the chief of Great China Division of Hua Nan Bank. The interview result is as follow:

4.1.1 Interview result of Hua Nan Bank

Most of the bankers believe innovation could solve the problem of overbanking, so do those state-owned banks, including Hua Nan Bank. According to their chief of Great China Division, Sam Chen, Hua Nan Bank prefers to set up overseas branches either in international financial centers, including Hong Kong, Singapore, London, New York and Los Angeles, or countries congregated with Taiwanese firms, like Vietnam and east China.

Those international financial centers could have been served as a window of innovation accession, for in those places, there are full of the most various and advanced financial products and services. Although Hua Nan Bank has fewer clients in those financial centers, which leads to the lack of bank deposit, the overseas branches there are set as a whole-sale bank by operating loans mainly. In addition, they gain the deposit by inter-bank borrowing, for in those international financial centers, inter-bank borrowing is easy. The facts above reveal the reason why they don’t need the branches in financial centers to adopt innovation.

On the other hand, the branches in Vietnam and east China focus more on the

retail business, for they are imbedded in local laws and regulations. For instance, the Vietnamese government forbids those foreign financial institutions to operate loans in large amount. Therefore, to better serve those Taiwanese-company clients, the branches prefer to do the retail financial services. They could only exploit the original relationships of these firms.

With the two differentiated strategies of location choice, the branches of Hua Nan Bank in international financial centers had access to many innovative financial products. Their attitude toward innovation adoption is always to answer passively to customers’ needs. Hua Nan Bank knows the frequency of innovation of them is less than the other privately owned banks, for a state-owned bank like Hua Nan Bank, they need to be extra cautious to the risk.

Furthermore, in Hong Kong, their branch was the first branch of Taiwanese bank, so they gathered more customers than the other Taiwanese branches. As a result, the Hong Kong branch of Hua Nan Bank might not be as aggressive about innovation as the others. Even setting branches in those global financial centers, state-owned banks like Hua Nan Bank, prefer to exploit their existing client relationship but rather than to spend efforts and money to explore the market and to win the first mover benefit.

In the case of Hua Nan Bank, they are lacking the motivation of innovation because of their special ownership structure results in the risk-aversion style of management and the sufficient customer source. For state-owned banks, exploitation is always the preferred strategy in overseas market. Therefore, that is the reason for those state-owned banks that they seldom win the prize of innovation even though they have set many branches in those global financial centers and in roles of strategic leaders or black holes.

Table 4.1 Analysis of Ten Selected Banks Oversea-branch Generic Roles and Financial InnovationPerformance

4.2 The role “black hole” is dynamic

The interview result of Shanghai Commercial & Savings Bank reveals the process of how a black-hole branch gradually shifted its role into “strategic leader” by improving its competence.

4.2.1 Interview result of Shanghai Commercial & Savings Bank

SCSB Hong Kong branch has undergone a dynamic growing process. According to the interview with Manager Hsieh, at the beginning two years, the branch is facing loss, for SCSB set its first overseas branch with lower competence. The local financial environment in Hong Kong is comparitively strategically improtant with the highest score of Economic Freedom 2014 index (to see Appendix 2). Without doubt that Hong Kong is a financial centor of Asia consisting with many international bankers and investers.

Nevertheless, the branch was asked to offer only the basic services and be forbidden to operate the Syndication Loan. Due to the fact that their headquarters were afraid that loans in mass amount would demage the equilibrium of debits and credits. The SCSB’s headquarters planned to let their Hong Kong branch be localized and do business with local people. However, for a brand new branch in different country, it is impossible to have stable client resource at the first few years. Therefore, when the local manager convinced the headqueater, they changed their direction and started to process the Syndication Loan and other new products, like off-shore loan against domestic guarantee.

Although SCSB’s Hong Kong branch was not easy to breakeven on the spread sheet in the fisrt few years, the branch offered the headquarters lots of new opportunities, new products, and chances to join the associated loan cases in great scale. It is those chances of innovation that accelerated the growth of the branch, and gradually pushed it into the “stategic leader”. At that time their efforts on remodeling their Hong Kong branch even won them the 2007 Best International Development Award from TABF for being the first to process the remitting of RMB and NTD.

Base on the interview result and the official information we compose the two different graphs of different times of SCSB and also a table of the category variables of SCSB Hong Kong branch in different years as following:

Figure 4.1 The overseas-branch profile of SCSB in 2008 Figure 4.2 The overseas-branch profile of SCSB in 2014

Source: Bartlett & Ghoshal (1986); This research composed.

Table 4.2 Category variables of SCSB Hong Kong branch in different years

Source: This research calculated.

In Table 4.2, it reveals SCSB Hong Kong branch’s category variables in different years. In 2008, when the branch was first set in Hong Kong, the product and service providing in the branch is much fewer than the present time. Therefore, the category variable of variety of product and service ranked low. And also their ROA/ROE performance and the website evaluation are worse than nowadays.

However, in 2014, SCSB Hong Kong branch has improved its product and service providing. They are allowed to operate most of the kinds of the products and services except financial management. Hence, they are now ranked high in the category variable of product and service variety. Furthermore, their ROA/ROE performance is great and they made a wonderful website of the Hong Kong branch.

The category-variable ranks of ROA/ROE performance and website evaluation are both improved. Therefore, the role of SCSB Hong Kong branch has gradually turned into a black-hole but strategic-leader to be.

Category variables of SCSB Hong Kong branch in different years

Branch’s

The story of SCSB Hong Kong branch confirms my second proposition suggested that a “black hole” could be turned into “strategic leader” after an improvement of competence.

Chapter 5: Discussions & Implications

In this chapter, there are three sections. In the first section, we would discuss the findings in this research. In the second section, we would explain the limitation to this study. The last section is about the contributions and implications of this research.