International Expansion The Banking Industry May Encounter Essay

International Expansion The Banking Industry May Encounter Essay

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Topic: Discuss the advantages and disadvantages of international expansion the banking industry may encounter.

International development has become one main trend of commercial bank under globalization background, and more and more banks establish branches in foreign areas. International expansion both brings advantages and disadvantages, and banks should make a proper balance for promoting global expansion. To seek stable growth of revenues, more banks take great effort for promoting international expansion, so this paper makes a discussion on advantages and disadvantages.

Analysis and Discussion
For international development, the economies of scale and risk diversification are viewed as the primary motivation, and banks pursue the business expansion with risk reduction, because international operation can reduce the risk coming from single country. Choosing Japanese banking industry as case, the research by Qian and Delios (2008) indicates that bank choose international expansion as primary strategy when the domestic competition becomes serious and there is no more growth space. Because of the limited market scale of credit business, international expansion can seek new market for increasing credit scale and the global development also can hedge domestic country risk, so international expansion becomes a good choice. In another hand, international development can promote business innovation, enriching product line of the bank, because each country has different demands and bank can develop new product in foreign countries. In addition, international expansion largely promotes the innovation of exchange product and services, so banks also hope international development for promoting business innovation.

To obtain...

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...on also is extremely rapid, which causes large risk risk exposure (Cetorelli and Goldberg, 2011). Thus, the international risk deterioration is one big problem for international expansion.

In recent decades, international expansion is the main trend of banking industry and the large banks almost all have established branches in foreign countries, and the international revenues occupy a great proportion. Through international expansion, the banks can achieve economies of scale, risk diversification, product innovation, cheap capital and regulatory avoidance, so as to pursue new profit from foreign market. However, international expansion also has disadvantages and the bank has to effectively balance the cost, risk and return, because the operational and management cost of foreign business is high and there is also high difficulty for the risk management.

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