2. Literature Review
2.4 Strategy of Entry in China by Taiwanese Banks
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synergy if both parties were in a similar degree of interest rate and foreign exchange risk exposures. Conversely, companies with unequal size and risk exposures would tend to have positive corporate synergy.
Regarding the researches on financial institutions M&A or reinvestment, Moore (1997) adopted Multinomial logistic regression analysis to investigate the relevance between financial performance and M&A probability on US banks. The result showed that banks did not perform as well caused the lending business restricted had higher possibility to be merged. Besides those small banks mainly concentrated on SME financing did not prove to have synergy on M&A, most other banks often show positive results. Houston et al. (2001) examined major bank merger cases during 1985 to 1996 and found both acquirers and acquirees had positive impact on stock prices after merging. Another issue would like to be stated is surplus mainly coming from cost down instead of profit earned. Zollo and Singh (2004) noted having sufficient knowledge on M&A could perform better than having past experience, on the premise that the senior management of acquirees would maintain during the M&A process.
2.4 Strategy of Entry in China by Taiwanese Banks
The timing for Taiwan's banking industry to expand into Chinese market is behind foreign financial institutions as they had layout in mainland China for a period of time. Especially, most Taiwanese enterprises have working with the local Chinese banking since the early time. Although, it is difficult for Taiwan's banks to operate and compete with the advanced foreign banks in Chinese market, we can utilize the advantages on language and culture similarities to expand the market by providing professional services, successful SME business experience, and well-appointed risk management systems to build our completed strengths. With positive political interaction and the increasingly frequent contact on economic and trade, Taiwanese banks can definitely find the self niche advantages in the market.
For Taiwan's banking industry to expand it foothold to China, it first needs to obtain the approval from the competent authority domestically, then in accordance with the China norms and accords signed to apply and getting the approval from China. A report, Foreign Banks in China, published by PwC Taiwan (2010) supposed EFCA would stimulate the business contact between Taiwan and China. In the one way, lager-sized Chinese banks could expand their business territory by establishing branches in Taiwan. Furthermore, Taiwanese banking could also enter the market, start the RMB business and acquire equity stakes in Chinese banks more rapidly on the other way. Ultimately, a substantial increase in numbers of foreign investors could
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help to reach perfect competition among foreign investors when entering the mainland market. Chang (2001) believed Taiwan's banking industry has a sound financial system and regulations to facilitate using own advantages and selecting specialty skills developing and competing in the Chinese market. Meanwhile, Taiwanese banks can carefully choose complementary peers when proceeding mergers and strategic alliances to make up shortfall of their own the business.
The exiting processes to enter the mainland Chinese financial market for foreign financial institutions include establishing a representative office, a branch, a wholly-owned subsidiary bank, acquiring equity stakes in Chinese banks, and forming strategic partnership. Foreign institutions will decide the right processes according to their business development strategies and operating conditions to enter the market and expand to overseas. Taiwan banks establish footholds in the Chinese market in succession as table four listed. The establishment procedure is mainly followed the ECFA which is after the representative office established for one year and transformed to a branch to operate the business as the main mode for Taiwan banks.
Simultaneously, Taiwan banks can apply to operate the RMB business for Taiwanese-funded enterprises in China after running the branch for a year with surplus earnings.
Lee (2009) noted Taiwanese banks could enter the mainland market through the coordination of non-governmental organizations from both sides, and then choose Hong Kong branch, if available, as the bridge of cross-strait cooperation to build a financial supervision unit under the structure of WTO eventually. Lee (2002) believed Taiwanese banks have inherent advantages on language, culture and practice compared with other developed western investors. Even with the advantages on relative modern financial dealing ability than Chinese banks and having many Taiwanese companies that have invested in China, Taiwanese bank still face a challenge market with unfamiliar financial system and thus should be cautious with the plans to avoid potential risks and then create the maximum value of effort.
For the business location in China, most of Taiwanese banks choose the Yangtze River Delta as first priority such as Shanghai, Soochow and Zhejiang in the consideration of continuing the Taiwan local customers’ service and higher economic development around coastal cities. Ju et al. (2007) pointed out although Taiwanese banks focused on providing the service of small merchant enterprises in Taiwan under customer-following theory, they should apply the present infrastructure and management of financial holdings into the China banking sector on the base of mixed operation in China in the near future. Additionally, besides of the policy inducement
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of green channel under ECFA, Haixi Economic Zone was seemed to have more advantage for Taiwanese banks to develop because of its similarity in language, climate and culture, and neighboring location. Lin (2010) also showed Taiwanese banks should play a complementary role in the economic growth and local financial development to acquire the important position in this district when Haixi Economic Zone is getting more attention from China government.
As the main target for entry of Taiwanese banking industry is on the developing the local business, how to precisely satisfy the customer demand, go deep in the regional financial service and obtain better beneficial investment is worthy to discuss in depth. Jen (2007) believed the entry of Taiwanese banks in China would be helpful for raising quality of service in SME of Taiwan, but not direct rewarding in credit risk management. Taiwan government should be responsible for the realization of realistic circumstance among Taiwanese businessman to reduce the operating risk exposure with the business association and policy propaganda. Nieh (2010) shown the finance of SME is the principal business for Taiwanese banks for a long period and reach certain level in framework and accumulative experience. Therefore, Taiwanese banks should adopt this advantage to help grow of SME successfully in China and expand to local business further under the win-win strategy. They also suggested the market of retail finance and wealth management could be paid more attention, and developed and elaborated in the near future besides the RMB quoted loan finance.
Ju (2007) also believed that it was inevitable to have moderate open attitude toward to the mainland market for Taiwan as the Chinese authority implemented the WTO commitments on financial market fully, and many foreign financial institutions were gearing up to accelerate the layout. Taiwanese banks, otherwise, would be less competitive with constraint control on laws and policies internally. IBM (2009) also summarized the challenges that Taiwan’s banking industry would be facing when going to China. The challenges included the level of understanding on the Chinese norms of laws, accounting methods and taxation. In addition, other challenges include the competition among local Chinese banks and foreign financial institutions, the abilities to create sales and servicing innovation, establishment on talented management mechanism, risk evaluation and so on. Banks also need to come up plans to have customer segmentation and utilizing technology to create different services with the support of latest technology when expanding the business and making decision.
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In summary, Taiwanese banks shall take into consideration on its relative motive when enter the China vast financial market and make the suitable plan and strategy thereafter. Furthermore, it is definitely necessary to be good at China domestic regulation and limitation and establish the comported extent of close and confident relationship with government. The ability of product innovation and expanding business scope shall be strengthened finally.