Bank generic strategies; does Porter's theory apply in an international banking center.pdf

8/22/2019 Bank generic strategies; does Porter's theory apply in an international banking center.pdf

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International Business Review 8 (1999) 561590www.elsevier.com/locate/ibusrev

Bank generic strategies: does Porters theoryapply in an international banking center

Ricky Yee-kwong Chan*, Y.H. Wong

Department of Business Studies, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

Abstract

This study examines banks competitive strategies and their relationship with performancein a highly internationalized banking center, Hong Kong. The factor analysis results have, byand large, provided support to Porters three strategy typology. Nevertheless, the empiricalfindings from the cluster analysis and the subsequent inter-group comparison of performances

have cast doubt on Porters stuck-in-the-middle proposition by demonstrating that banks adopt-ing a multi-strategic approach did outperform other strategically monotonous rivals. While thestuck-in-the-middle proposition is grounded in the premise of inherent inconsistencies for pur-suing more than one generic strategy simultaneously, the resource-based view and the presentempirical findings hint at the feasibility for well-resourced banks to combine apparently incom-patible value creating activities in a synergistic way to achieve integrated flexibility and conse-quently, a sustainable multi-strategic position. It is suggested that this feasibility very muchdepends on a banks organizing and coordinating capabilities that are developed and refinedthrough managerial commitment, learning and experience, as well as a careful assessment ofvarious organizational activities and its inter-relationships within the entire business system. 1999 Elsevier Science Ltd. All rights reserved.

Keywords: Generic strategy; The resource-based view; Performance; Hong Kong banking industry; Stuck-

in-the-middle; Integrated flexibility

1. Introduction

Recently, there has been a heightened recognition that the boundaries betweengoods and services have become increasingly blurred and that the majority of ser-

* Corresponding author. Tel.: +852-2766-7110; fax: +852-2765-0611.

E-mail address: [email protected] (R.Y.-k. Chan)

0969-5931/99/$ - see front matter 1999 Elsevier Science Ltd. All rights reserved.

PII: S 0 9 6 9 - 5 9 3 1 ( 9 9 ) 0 0 0 2 0 - 7


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562 R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

vices, in fact, contain significant tangible components or vice versa (Shostack, 1977;Quinn, Doorley & Paquette, 1990; Fahy, 1996). Apparently, this recognition pointsto the legitimacy of transplanting classical strategic theories that were developed fortangible product markets to service industries (Allen, 1988; Davidow & Uttal, 1990;Fahy, 1996). Alongside this, there is a growing trend for bank strategists to applya variety of these classical theories (e.g. Metzger & Rau, 1992; Hayes, Spence &Marks, 1983; Sontheimer & Thorn, 1986; Carey, 1989; Ennew, Wright & Watkins,1990; Jenning & Lumpkin, 1992; Ennew, Wright & Thwaites, 1993; Farrance, 1993)to analyze the increasingly competitive and internationalized banking industry(Kindleberger, 1984; Cho, 1985; Blumenthal, 1988; Capoglu, 1990; Goldberg, 1991).However, given the well-documented unique characteristics of banking offerings(Von Clemm, 1976; Dufey & Giddy, 1981; Cho, 1985; Meidan, 1996), whether theseclassical theories are really applicable to explain banks competitive behavior stillremains unclear.

2. Purpose of the study

Against these developments, this study is designed to investigate banks competi-tive behaviors in a highly internationalized banking center, namely Hong Kong.Specifically, the present study aims to identify the major sources of advantage onwhich banks rely to develop their generic strategies, and to analyze the relationship

between banks generic strategies and performance. Given the popularity of Portersstrategic theory and the resource-based view of the firm in recent strategy literature(Reed & DeFillippi, 1990; Fahy, 1996), the empirical findings from this study willbe analyzed along with the premises of these theories to see how far they are ableto explain banks strategic conduct.

A point concerning the relevance of the present study to international businessresearch warrants some further discussion. In view of the purpose of the presentinvestigation, some may tend to think that it is more concerned with strategy thaninternational business. However, one should note that strategy issues and inter-nationalization issues could be, and probably often are, interconnected.1 Moreover,

by examining different banking institutions strategies in a highly internationalizedAsian banking center, the present investigation is believed to possess adequate inter-national flavor and be able to provide international service providers and particularly,international bankers, some useful insights into improving their operations. Theblurred division between strategy and international business research is furtherreinforced by Caves (1998, p. 5) recent assertion that the field of international busi-ness indeed slices across the grain of areas of study in business administrationwhich encompasses strategy, finance, marketing, organizational behavior and humanresource management. In short, while it is agreed that the present investigation

1 The authors would like to thank one of the anonymous reviewers for his valuable comments on

this point.


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563R.Y.-k. Chan, Y.H. Wong / International Business Review 8 (1999) 561590

relates to the field of strategy research, the internationalized setting involved in thisinvestigation also makes it well fit in the ambit of international business studies.

3. The Hong Kong banking industry

Having compared the relevant financial statistics of major international bankingcenters, Jao (1997) concludes that Hong Kong is the worlds fourth largest inter-national banking center, surpassed only by New York, London and Tokyo. In termsof the presence of foreign banks alone, Hong Kong has outnumbered even NewYork and Tokyo and ranks second worldwide (Jao, 1997). Of the worlds top 100banks, 81% are present in Hong Kong (Hong Kong Monetary Authority AnnualReport, 1996). The presence of a large number of foreign banks has led to a highdegree of internationalization and intense competition in the Hong Kong bankingsector (Chan, 1994).

Although some analysts were previously concerned about what would happen toHong Kongs banking industry after it became a Special Administrative Region ofChina on July 1 1997 (Lieberthal, 1992; Moodys Sovereign Credit Report: HongKong, 1993), a more recent survey has indicated that bankers here are, in general,optimistic about the future of the banking industry (Chan, 1996). In addition, therecently released official figures reveal that all of the worlds top 100 banks whichoperated in Hong Kong before the handover still continue their operations here and

do not show any sign of withdrawal (Bankers Handbook for Asia 1996, 1997). Thesefigures echo the Hong Kong central banks latest comment that the handover didnot have any adverse effect on the [territorys] banking sector (Hong Kong MonetaryAuthority Annual Report, 1997). The continued internationalization of the HongKong banking industry thus warrants the appropriateness of conducting such kindof investigation in the territory before and beyond the change of sovereignty.

4. Internationalization of the banking industry

The recent rapid expansion of international banking has had significant impactson the global economy and banks strategies (Auerbach, 1989). Alongside this devel-opment, a significant volume of literature has theorized the reasons for the expansionof international banking (Cho, 1985; Goldberg & Johnson, 1990). Having referredto the theory of comparative advantage, some earlier scholars such as Lee (1974)and Aliber (1976) assert that banks which have comparative advantages (e.g. cheaperfunds available at home country) in offering certain banking products for a particularforeign market are likely to serve that market. Based on the premises of the econom-ics of industrial organization (IO) (cf. Hymer, 1960; Kindleberger, 1969), severalbank researchers (Fieleke, 1977; Grubel, 1977; Allen & Giddy, 1979; Khoury, 1980;

Gray & Gray, 1981; Goldberg & Saunders, 1981; Sabi, 1988) advocate that the majorreason for banks to establish operations in foreign markets is their possession ofsome monopolistic advantages under the situation of market imperfections. These


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advantages are similar to multinational enterprises (MNEs) ownership advantagesreferred to by Dunnings (1980, 1988, 1993) eclectic theory.2 In this context, theworks of IO economists like Caves (1971, 1974, 1982, 1984), Swedenborg (1979),Lall and Siddharthan (1982) and Kumar (1990) have sought to identify the kind ofownership advantages possessed by MNEs. In brief, the identified advantages includeeconomies of scale, managerial and marketing expertise, capability in serving home-based MNEs, information advantage, research and technological competence, andproduct differentiation. Following the concepts of internalization that are enshrinedin the eclectic theory in general and in the internalization theory (cf. Buckley &Casson, 1976; Beamish & Banks, 1987) in particular, Rugman (1981) construesforeign direct investment as an effective means for banks to internalize their monop-olistic advantages under market imperfections. In reviewing the international expan-sion of US banks, Brimmer and Dahl (1975) and Kelly (1977) refer to the inter-national investment theory and contend that government regulations on capital flowsare the major motivation for internationalization. Moreover, Sagari (1986, 1990) andBlejer and Sagari (1988) also suggest protectionism and the regulatory frameworkof host countries as important factors in influencing international banking activities.On the whole, while diverse in nature, the aforementioned theories seem to agreeon the importance for banks to possess some form of monopolistic (competitive)advantage before they can engage in foreign direct investment competitively andcapitalize on opportunities available in host countries profitably. The emphasis oncompetitive advantages, in turn, echoes the basic thrust of Porters theory of gen-

eric strategies.

5. Porters theory of generic strategies

The concept of competitive advantage has been treated extensively in recent strat-egy literature by Porter (Reed & DeFillippi, 1990; Hart, 1995). In his works in 1980and 1985, Porter advocates low cost and differentiation as two important sources ofcompetitive advantage for influencing firms performances. Adding the dimensionof commitment level (cf. Ghemawat, 1986), he further introduces three generic stra-

tegies, namely overall cost leadership, differentiation and focus, for competition(Porter 1980, 1985). Due to his perceived inherent incompatibility, Porter advancesthat a generic strategy should be pursued in a wholly single-minded way and thatapplying more than one generic strategy concurrently will result in poor performanceunless under rare conditions. Porter (1996) recently asserted that one rare conditionin which simultaneous improvement of cost and differentiation is possible [is] onlywhen a company begins far behind the productivity frontier or when the frontiershifts outward. He calls this improvement the improvement in operational effective-ness and distinguishes it from the real success in strategy. Taken together, Porters

2 Indeed, Gray and Gray (1981), and Yannopoulos (1983) are among those who have most ably applied

the eclectic theory to study international banking.


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concept of generic strategies is to remind strategists of the danger of being stuckin the middle and the importance of competing on the basis of low price, productuniqueness or tactful target marketing. A number of empirical studies have foundsupport for Porters theory since its inception (Hambrick, 1983a,b; Dess & Davis,1984; Miller & Friesen, 1986; White, 1986; Robinson & Pearce, 1988). Nevertheless,several subsequent works have revealed that Porters alleged generic strategies arenot really generic but contingent upon the operating environment in question (Hill,1988; Murray, 1988; Wright & Parsinia, 1988; Miller & Dess, 1993; Reitsperger,Daniel, Tallman & Chismar, 1993; Kean, Niemeyer & Miller, 1996).

6. The resource-based view of the firm

Among those who cast doubt on Porters theory are ones who are particularlyskeptical about his stuck-in-the-middle hypothesis (e.g. Miller & Toulose, 1986;Watkins, 1986; Miller & Dess, 1993; Kean et al., 1996). They are doubtful whethera uni-strategic approach can invariably lead to superior performance, or whether atactfully implemented multi-strategic approach is, in fact, more desirable to copewith an increasingly dynamic and competitive operating environment (Ahmed et al.,1996). In addition to the aforementioned disconfirming literature, the uni-strategyproposition also seems to be dubious when judged against a recently emerged stra-tegic perspective, the resource-based view of the firm (called RBV hereafter).

RBV owes much of its genesis to the classical works of Selznick (1957) andPenrose (1959) published four decades ago. Despite its long history, this perspectivewas overshadowed by other strategic theories (e.g. those based on neo-classicaleconomics) until the end of the last decade when more and more empirical evidencepointed to inter-firm performance differences within the same industry (Cool &Schendel, 1987; Hansen & Wernerfelt, 1989; Wernerfelt & Montgomery, 1988; Nel-son, 1991; Rumelt, 1991; Boxall, 1996). This evidence has eventually resulted in aconceptual swing-back and led to the emergence of a strategic perspective, nowcommonly known as RBV (cf. Nelson & Winter, 1982; Wernerfelt, 1984; Barney1986a,b, 1991; Dierickx & Cool, 1989; Prahalad & Hamel, 1990; Conner, 1991;

Grant, 1991; Mahoney & Pandian, 1992; Peteraf, 1993; Russo & Fouts, 1997).Put simply, RBV theorists argue that a firms sustainable competitive advantage

stems from its unique bundles of resources (Wernerfelt, 1984; Barney, 1991). Beingthe main drivers of organizational performance, resources are defined as all assets,capabilities, organizational processes, firm attributes, information, knowledge, etc.,controlled by a firm that enable a firm to conceive of and implement strategies thatimprove its efficiency and effectiveness (Barney, 1991). Amit and Schoemaker(1993) further define capabilities as capacities or competencies to deploy resourcesand regard them as resources as well. In Henderson and Cockburns (1994) term, ittakes architectural competencies to deploy component competencies.

Resources that are sources of sustainable competitive advantage and superior pro-fits are called strategic assets (Barney, 1991; Amit & Schoemaker, 1993). Althoughterminology varies among RBV scholars (Peteraf, 1993), there appears to be a gen-


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eral consensus on the characteristics of strategic assets, namely they must be: (1)valuable (Dierickx & Cool, 1989), (2) rare (Reed & DeFillippi, 1990), (3) imperfectlymobile (Barney, 1991), and (4) imperfectly inimitable either because of causal ambi-guity or social complexity (Teece, 1987; Winter, 1987). Causally ambiguousresources relate to a firms tacit attributes which comprise its skill-based and people-intensive assets that are developed through accumulated experiences and refined bypractices (Polanyi, 1962; Itami, 1987; Reed & DeFillippi, 1990). These resourcesenable managers to communicate, make decisions, and handle uncertain and complexbusiness situations more efficiently and effectively (Mata, Fuerst & Barney, 1995).Socially complex resources refer to a firms ability to manage a complex set of intra-and inter-firm social relationships (e.g. with staff, customers and suppliers) that areessential to its productivity and profitability (Klein, Crawford & Alchian, 1978; Bar-

ney 1986a, 1994).Should the premises advocated by RBV be valid, it is likely that firms possessingthe appropriate resources (mainly relating to architectural competencies) will be ableto adopt a viable multi-strategic approach. These resources should allow firms theleverage to mobilize their physical and human resources intelligently, and to coordi-nate their various value creating activities in a synergistic way (Johnson & Scholes,1997; Michalisin, Smith & Kline, 1997). Although the development of theseresources may not be overtly observable due to their causal ambiguity and socialcomplexity, their presence certainly can help reconcile the alleged incompatibilitypertinent to the pursuit of a complex strategy.

While the RBV perspective hints at the feasibility of adopting a multi-strategicapproach by possessing the appropriate resources, several strategy researchersrecently have also pointed to the necessity to do so particularly under certain industryand operating settings. For instance, in the context of service industries such as

banking, Fahy (1996) contends that the capability to integrate various value creatingactivities is a service firms most sustainable source of competitive advantage. Hiscontention mainly revolves around the rare and inimitable nature of this capability(Stalk, Evans & Schulman, 1992). In addition, to cope with a dynamic and fastchanging operating environment such as the one faced by todays international bank-

ers (Dietrich, 1996; Jao, 1997), Ahmed et al. (1996) advance the importance ofpursuing integrated flexibility by being flexible in a number of key critical resourceareas.... and [being] able to integrate complex competitive strategies that go beyondearlier narrow strategies stressing either low cost or differentiation. Similarly, Pitelisand Taylor (1996) also argue for the necessity to apply the value for money strategy(i.e. overall cost leadership and differentiation combined) in a newly industrializedcountry (e.g. Hong Kong) where new competition emerges. To summarize, by point-ing out the resource differences among firms within the same industry, RBV high-lights the possibility for some well-resourced players to adopt a viable multi-strategicapproach and outperform those less-endowed ones in a dynamic operating environ-

ment. Thus, although RBV and other related theories mentioned above do not provideany direct evidence to refute Porters stuck-in-middle hypothesis in the bankingindustry, they do offer some essential conceptual insights to question its validity.


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7. Method

7.1. Population of the survey

The industry examined in this study comprises all the commercial banks in HongKong. The commercial banks have long been regarded as the backbone of the entireHong Kong financial industry by accounting for over 90% of its total assets andloans (Lee, 1986; Ho, 1991b; Hong Kong Monetary Authority Annual Report, 1996).Due to the governments positive non-intervention policy, the Hong Kong commer-cial banking sector is highly internationalized with the presence of 166 or 91% offoreign-owned banks (Jao, 1997). These foreign rivals originate mainly from WestEurope (27%), Japan (25%), China (9.9%) and the US (7.7%) (Hong Kong MonetaryAuthority Annual Report, 1996).

7.2. Generation of major competitive methods

In order to examine commercial banks competitive strategies, an inductiveapproach was used to obtain inputs from their CEOs who were believed to be themost important persons in strategy formulation (Pearce & Robinson, 1988). Specifi-cally, in-depth interviews with the CEOs of commercial banks were first conductedto identify the main competitive methods being used in their wholesale bankingbusiness. This identification also helped to provide insights into what major sources

of advantage were relied on by banks for competition. The reasons for confining theinvestigation to the wholesale banking business were three-fold. First, while onlyone third of the commercial banks in Hong Kong engage in retail banking, all ofthem have a significant stake in the wholesale banking business (Jao, 1997). Theselection of the wholesale banking business as the unit of analysis would thus enablethe inclusion of all Hong Kong commercial banks in the population of investigation.Second, although the unavailability of a comprehensive set of official statistics pro-hibits the researchers from making a thorough comparison between Hong Kongswholesale and retail banking, some piecemeal figures still reflect the dominance ofits wholesale banking. For instance, it is estimated that around 70% of Hong Kongs

total loan advancement are for corporate (wholesale) instead of individual (retail)borrowers (cf. Hong Kong Monetary Authority Annual Report, 1997). Third, as fre-quently asserted by strategy researchers, concentration on one line of business canhelp avoid the confusion that arise from different methods used in competing inmultiple businesses (Rumelt, 1974; Dess & Davis, 1984).

Despite the confinement of the current study to the wholesale banking business,it is believed that the present findings would, by and large, be generalizable to theretail banking sector. Such a belief is attributed to the fact that Hong Kongs retailbankers are also faced with the same highly competitive operating environment thattheir wholesale counterparts experience (Chan, 1997). In order to differentiate them-

selves from and outperform their rivals under the keen competition, it is expectedthat retail bankers would also need to resort to a more integrated but complex stra-tegic approach.


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Sixteen in-depth interviews with banks from all major countries/regions of origin(i.e. West Europe, Japan, China (PRC), the US and Hong Kong) were successfullyconducted. To ensure representativeness, at least three banks from each of the afore-mentioned major countries/regions of origin were interviewed. During the interview,each respondent was asked to describe his banks major competitive methods. All the16 interviews were recorded in writing in detail according to Yins (1994) proposedguidelines. To enable the present study to combine the descriptive capability of fieldresearch with the normative recommendations obtained from a panel of experts (cf.Harrigan, 1983; Dess & Davis, 1984), the interview records were analyzed accordingto the procedure as outlined below.

The 16 interview records were content-analyzed by three strategy researchers andthree senior commercial bankers not included in the interviews. These six analystswere first requested to independently identify the major competitive methods adoptedby the responding banks. Having completed this, the six analysts then met togetherto exchange views. The meeting was similar to a jury of expert opinion (cf. Crask,Fox & Stout, 1994) and an attempt to converge the opinions of the analysts to pro-duce a concordant list of competitive methods. In other words, the foregoingapproach made use of the collective wisdom to purify the findings through thedeletion of redundant or ambiguous items (competitive methods) and the combinationof similar items.

After a thorough discussion, four analysts concorded on a list of 15 competitivemethods. However, three out of these 15 competitive methods were considered by

the remaining two analysts to be either vague or duplicate. To avoid disagreement,the three disputed methods were discarded and a consensual list of 12 competitivemethods was then generated. The number of competitive methods derived here iscomparable with that of other studies concerning generic strategies (Kim & Lim,1988; Parnell & Wright, 1993). To further assess the content validity of the list andto ensure that wordings being used to describe the competitive methods were reason-ably clear, another senior banker and bank researcher were invited to comment inde-pendently on its appropriateness. As these two commentators both agreed to the list,it was adopted in the subsequent mail survey (cf. Appendix A, Part 1.2(a)(l)). Bygetting the involvement of more than 20 experienced bankers and scholars of the

territory in deriving and purifying the major competitive methods, it was hoped thatthe expression being used to describe these methods could be reasonably clear amongall the potential respondents.

By taking a glance at the 12 derived competitive methods, it is apparent thatavailability of a large amount of surplus funding [1.2(c)], back-up by a resourcefulparent/holding company [1.2(d)] and low financing costs [1.2(j)] all concernbanks cost leadership strategy (Short, 1978; Goldberg & Saunders, 1980; Aliber,1984). On the other hand, the remaining nine competitive methods appear to referto various modes for banks to differentiate themselves. To sum up, although morerigorous statistical validation procedure was definitely needed to assess the corre-

spondence between these 12 inductively generated competitive methods and Portersproposed generic strategies (see below), the presence of both the cost-related anddifferentiation-related competitive methods did provide some preliminary support for


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his proposition that low cost and differentiation are two important sources of firmscompetitive advantage.

7.3. Mail survey

A mail questionnaire was developed based on the 12 refined competitive methods.In addition to providing details of their banks performance and background, surveyrespondents were required to rate, on a five point scale (1=least important; 5=mostimportant), the emphasis their wholesale banking unit had attached to each of these12 competitive methods within the past five years. This self-reporting technique wasconsidered to be appropriate in strategy research (Snow & Hambrick, 1980;Ginsberg, 1984; Hambrick, 1989). To avoid anomalies of the collected data, thequestionnaire also incorporated a screening question to filter out those banks whichhad altered their major competitive methods within the past five years from thesurvey. Having pilot-tested with four other senior bankers not included in the mailsurvey (cf. Dess & Davis, 1984), the finalized questionnaire was mailed to the CEOsof all the 182 commercial banks in Hong Kong, based on the particulars providedby the Hong Kong Interbank Directory 1996 and Bankers Handbook for Asia (1996).Telephone follow-ups were made at the end of the second week after the question-naire had been mailed (cf. Zikmund, 1995). Eventually, 71 useful questionnaireswere collected which constituted a response rate of 39%. This compares well withthe response rate of other survey studies with similar objectives (Robinson & Pearce,

1988; Kotha & Vadlamani, 1995). On average, the sample had a recent assets sizeand pre-tax return on assets of US$5.8b and 0.76% respectively, and comprised 22West European banks (31%), 14 Japanese banks (20%), 12 American banks (17%),8 PRC banks (11%), 8 local Chinese banks (11%) and 7 banks originating fromother countries (10%). The t-test showed that there was no significant differencebetween the responding and non-responding banks in terms of the total bank assets,return on assets and number of employees. A copy of the mail questionnaire isprovided in Appendix A for reference.

8. Results

8.1. Underlying constructs

One major investigation involved in the present study is to identify what underly-ing constructs or major strategic approaches are in fact represented by the 12 com-petitive methods generated earlier. Alongside this, Joreskog (1974) notes that manyinvestigations are to some extent both exploratory and confirmatory, since theyinvolve some variables of known and other variables of unknown composition. Thisremark covers the investigation of the present study as well. To cope with this kind

of investigations, methodologists often recommend the use of a statistical procedurewhich comprises: (1) exploratory factor analysis; (2) reliability test; and (3) con-firmatory factor analysis for validating measures (Gerbing & Anderson, 1988; Hair,


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Anderson, Tatham & Black, 1995). Accordingly, this procedure was also adoptedin the present study to identify and validate the underlying constructs.

8.2. Exploratory factor analysis and reliability test

To examine whether there were any underlying constructs (factors) accounting forthe 12 competitive methods, respondents relevant importance ratings were first fac-tor analyzed. Varimax rotation was subsequently performed to facilitate interpret-ation. In view of the general rules regarding the sample size (50), and the ratiobetween the sample size and number of variables to be factor analyzed (5), thepresent sample was considered to be suitable for factor analysis (Hair et al., 1995).By setting the cut-off eigenvalue value and factor loading at 1 and 0.5 respectively,three factors which explained 67.1% of the total variance were extracted in Table1. This percentage was above the suggested satisfactory threshold of 60% for socialscience studies (Hair et al., 1995). In addition, the Cronbach reliability tests on thethree extracted factors that are shown in Table 1 also rendered very satisfactoryAlpha values (cf. Cronbach, 1951; Nunnally, 1978).

8.3. Confirmatory factor analysis

While exploratory factor analysis and reliability test are able to derive some plaus-ible constructs (Gerbing & Anderson, 1988), confirmatory factor analysis (CFA) is

particularly useful in validating the measurement of these constructs (Anderson &Gerbing, 1988; Hair et al., 1995). Consistent with Anderson and Gerbings (1988)recommendation, the CFA was employed to assess the overall fit, convergent validity

Table 1

Factor analysis of the 12 competitive methods (N=71)a

Factor loading Alpha reliability

Factor 1: Broadly-targeted Differentiation (BTD) 0.85

Professional banking services 0.8412

International network 0.8366International image and reputation 0.7868

Ability in product innovation 0.7664

High caliber staff 0.5883

Factor 2: Narrowly-targeted Differentiation (NTD) 0.74

Long establishment in Hong Kong 0.8504

Operating flexibility 0.6703

Cultural proximity 0.5740

Ability in niche marketing 0.5605

Factor 3: Cost Leadership (CL) 0.69

Availability of a large amount of surplus funding 0.8415

Back-up by a resourceful parent/holding company 0.7621

Low financing costs 0.7001

a The three extracted factors account for 67.1% of the total variance.


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and discriminant validity of the measurement of the three constructs (factors)extracted earlier.

The CFA was performed by using the EQS Windows 5.4 (Bentler, 1995; Bentler &Wu, 1995). Due to its user-friendly nature and less stringent assumptions on themultivariate normality of data, EQS has long been regarded as one of the best alterna-tives for the more traditional LISREL software for performing the structural equationmodeling (Anderson & Gerbing, 1988; Byrne, 1994; Hair et al., 1995).

As shown in Table 2, the Chi Square statistic resulting from the CFA was 103.13

Table 2

Summarized results of the confirmatory factor analysis (N=71)

Measurement model Path loadinga

Squared phi-value representing(convergent validity) correlation estimate between

constructsb (discriminant

validity)

Factor 1

Broadly-targeted Differentiation Factor 1 Factor 2

(BTD)

Professional banking services 0.72 0.31

International network 0.69

International image and 0.94

reputation

Ability in product innovation 0.61High caliber staff 0.81

Factor 2

Narrowly-targeted Differentiation Factor 2 Factor 3

(NTD)

Long establishment in Hong 0.52 0.19

Kong

Operating flexibility 0.57

Cultural proximity 0.88

Ability in niche marketing 0.72

Factor 3

Cost Leadership (CL) Factor 1 Factor 3

Availability of a large amount of 0.73 0.10surplus funding

Back-up by a resourceful 0.86

parent/holding co.

Low financing costs 0.60

Overall fit indexes

2=103.13c, df=51d, 0.01

NFI=0.921e; CFI=0.918f

a All estimated path loadings are significant at =0.05.b All correlation estimates are significantly different from 1 at =0.05.c 2: The Chi square statistic from the confirmatory factor analysis.d df: The degrees of freedom.e NFI: Normed Fit Index.f CFI: Comparative Fit Index.


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with 51 degrees of freedom (0.01) and the computed Normed Fit Index (NFI)was 0.921 (cf. Bentler & Wu, 1995). Given the sensitivity of the Chi Square statisticand NFI to sample size (Bagozzi & Yi, 1988; Hair et al., 1995), the more powerfulcomparative fit index (CFI) was calculated as well (Bentler, 1995). The computedCFI was equal to 0.918 and exceeded the recommended threshold of 0.90 (Byrne,1994). Overall, the present data set fitted reasonably well with the hypothesizedmeasurement model.

As regards convergent validity, Table 2 indicates that all the competitive methodshad significant loadings on their corresponding constructs at =0.05. Coupled withthe satisfactory reliability coefficients computed earlier, the present results demon-strated adequate convergent validity for the measurement of the constructs (cf. Gerb-ing & Anderson, 1988).

According to Fornell and Larcker (1981) and Andersen and Kheam (1998), anassessment of discriminant validity involves the examination of whether the confi-dence interval ( 2 standard errors) around the correlation estimate between twoconstructs includes 1.0. In Table 2, the relevant pairwise comparisons of the con-structs based on this criterion showed that all the correlations were significantlydifferent from 1.0. These results indicated satisfactory discriminant validity of thehypothesized measurement model.

To sum up, although due care was already taken to generate the 12 competitivemethods and a consensus in the wordings being adopted was also reached amongthose involved in the generation process, the possibility for the existence of some

ambiguities in the description of these methods still cannot be completely eliminated.These potential ambiguities may be perceived by some as even more apparent forsuch competitive methods as international network, professional banking servicesand operating flexibility.3 Having regard to these circumstances, it is thus con-sidered to be cautious to treat the potential ambiguities as a limitation of the presentstudy. This consideration also warrants the performance of a posterior statisticalvalidation to further assess the quality of the collected data. By demonstrating areasonable degree of validity for the measurement of the relevant constructs, thestatistical validation is believed to be able to provide some concrete evidence on theacceptable quality of the collected data and help lessen the worry about the

expression ambiguities of the survey items.

8.4. Composition of the three constructs

By examining the constituent variables of each factor (construct), it is apparentthat factor 3, as what was inferred earlier, is more concerned with banks competitive

3 As interpreted by all the bankers and academics involved in the generation of the competitive

methods, international network here refers to banks large international network; whereas professional

banking services refer to banking staffs prompt responses to patrons requests, and reliable services

provided to and empathetic attitudes toward customers. For operating flexibility, it refers to banks

capability to handle customers special requests without being prohibited or deterred by over-rigid or

unnecessary corporate rules and regulations.


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moves through cost leadership (cf. Short, 1978; Goldberg & Saunders, 1980; Aliber,1984). While factors 1 and 2 both hint at banks differentiation strategies, theinterpretation and distinction of these factors require further elaboration.

Specifically, factor 1 comprises competitive methods on which large multinationalbanks are more likely to rely to appeal to the mass wholesale banking market. It isakin to differentiation at a broad scope referred to by Mintzberg, Quinn and Voyer(1995). As noted in Table 1, competitive methods international image and repu-tation and international network relate to the banks long history in the inter-national banking industry (Lehntinen & Lehntinen, 1991; Isobe & Kearney, 1992).The banks professional banking services and ability in product innovation alsoconnect to its possession of international banking experience and knowledge inadvanced financial instruments (Cho, 1985; Chan, 1994). Lastly, given that multi-national banks are more resourceful in offering adequate training and attractiveremuneration to improve their human capital (Tandon, 1984; Cho, 1985; Chan,1997), it is also logical that they emphasize more on high caliber staff for compe-tition.

Factor 2 reasonably covers those competitive methods on which smaller indigen-ous banks are more likely to rely and is akin to Porters focus strategy. Alternatively,factor 2 can be interpreted as differentiation at a narrow scope (Mintzberg et al.,1995). Due to their longer history in the Hong Kong banking market, indigenous orlocal Chinese banks are, in general, more familiar with the local business environ-ment, and thus are more capable of serving domestic clients (Chan, 1997). Starting

out as small, family-owned money changers, most of the local Chinese banks havebeen operating in Hong Kong for at least half a century (Nyaw & Lau, 1991). Whenconsidering the fact that the Hong Kong banking industry only took off in the 1970sand many foreign banks only came here in the 1980s (Bankers Handbook for Asia,1996), the local Chinese banks comparatively long establishment in Hong Kongis already adequate enough to put them at a unique competitive advantage.

Local Chinese banks cultural proximity with indigenous customers is often seenas another major factor which places them at a competitive edge (Nyaw & Lau,1991). For the past few decades, local Chinese banks have continued to providestrong support to many indigenous entrepreneurs. In hindsight, while these

entrepreneurs were still too small to attract the attention of large multi-national banks,local Chinese banks were able and willing to offer many needed services (e.g. busi-ness advice, loans) to these then inexperienced businessmen. With their cultural prox-imity, these two parties were able to develop a rapport easily (Nyaw & Lau, 1991;Chan, 1997). Moreover, given Chinese peoples strong inclination towards buildingrelationships within their kinship system (Hsu, 1968), it would seem natural for anindigenous bank to secure a group of loyal customers whose ethnic origin is thesame as the banks founder. For instance, in the case of Liu Chong Hing Bank, alocal Chinese bank whose founder originated from the Chou Zhou area of southernChina, 50% of its customers are also of the same origin (Ming Pao Daily, 1991).

The contention that smaller indigenous banks are more competent in serving smallbusinessmen due to their ability in niche marketing and operating flexibility alsocoincides with previous bank research (Robinson & Pearce, 1983; Kargar & Blumen-


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thal, 1994; Nakamura, 1994). The contention is also consistent with the situation inHong Kong. For instance, as local Chinese banks continued to provide the neededadvisory and financial support to indigenous entrepreneurs, a number of successfullocal business ventures emerged (Chan, 1997). To express their great appreciation,most of these entrepreneurs (or their successors) have continued their relationshipwith their original bankers, thus constituting a unique market niche for the localChinese banks. Given the long-established deep understanding and mutual trustbetween local Chinese banks and entrepreneurs, the former are also able to handlethe latters loan requests and other service requirements more flexibly but without

jeopardizing their risk position (Chan, 1997). The capability to achieve this operatingflexibility is similar to the inside information advantage referred to by Diamond(1984) and Nakamura (1994).

To conclude, the major competitive strategies identified in the Hong Kong com-mercial banking sector are, by and large, consistent with Porters three strategytypology. The only deviation is that factor 2 seems to place more emphasis on differ-entiation focus than on both versions of differentiation (differentiation focus and costfocus). In the following, an effort will be made to examine the relationship betweena banks strategic approach and performance.

8.5. Strategic groups

One possible way to analyze the relationship between strategic approach and per-

formance is first to see whether respondents can be classified into a number of distinctstrategic groups based on their employed strategies (Dess & Davis, 1984; Kim &Lim, 1988). This can be achieved through cluster analysis of the three factorsextracted above. If strategic groups can be identified, comparisons between theirperformances can be made to see if a particular strategic approach is superior tothe others.

Since factor scores and summated scales have their own advantages and disadvan-tages (Hair et al., 1995), cluster analysis was performed on both to examine whetherthere was any significant difference between the two solutions. Following theapproach of Hooley, Lynch and Jobber (1992), Wards method of hierarchical clus-

tering was employed. As it is always difficult to determine how many clusters areappropriate (Saunders, 1980), a three cluster solution was initially chosen to facilitatecomparison with Porters three strategy typology (Dess & Davis, 1984). A two clus-ter solution and a four cluster solution were also run to help determine the optimalnumber of clusters (Hooley et al., 1992).

The cluster solutions generated were validated by commonly suggested validationmethods such as ANOVA, Scheffes test and multiple discriminant analysis (Hairet al., 1995). On the whole, the three cluster solution was found to outperform theother solutions in all the validation tests. Table 3 below summarizes the results ofthe validation tests. Since the two three cluster solutions derived respectively from

factor scores and summated scales are similar, Table 3 only shows the solution basedon summated scales to ease interpretation (Hair et al., 1995).

The three derived clusters were labeled differentiator, all-rounder and cost leader


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Table 3

Strategic groups derived from cluster analysis (N=71)a

Strategic approach Cluster 1 Cluster 2 Cluster 3 F valueb

(differentiator) (all-rounder) (cost leader)

Factor 1: 3.8937c 4.4833 2.8647 41.75***f

Broadly-targeted

Differentiation

(BTD)

Factor 2: 3.4062 4.0833 2.9118 18.08***

Narrowly-targeted

Differentiation

(NTD)

Factor 3: Cost 2.2500 4.1296 3.3922 47.31***

Leadership (CL)Number (%) of 21 (30%)d 26 (37%) 24 (34%)

cases

Country/region of

origin: number

(%)e

US 6 (29%)d 4 (15%) 2 (8%)

West Europe 8 (38%) 10 (38%) 4 (17%)

China 2 (10%) 3 (12%) 3 (13%)

Japan 2 (10%) 3 (12%) 9 (38%)

Hong Kong 2 (10%) 3 (12%) 3 (13%)

Others (e.g. SE 1 (5%) 3 (12%) 3 (13%)

Asia, Canada,Middle East)

a Multiple discriminant analysis for the 3-cluster solution shows that a very high % (94% by factor

scores and 97% by summated scales) of the responding bands are correctly classified into their

assigned clusters.b F-value derived from the one-way ANOVA test between the three clusters. Although it is not shown

in the table, the follow-up Scheffes test also indicates a significant difference in the mean BTD, NTD

and CL values between all possible pairs of clusters at =0.05.c Mean summated scores with 1=least important and 5=most important.d Percentage rounded up to nearest integer.e Classified according to beneficial ownership.f *** Significant at =0.0000.

respectively (cf. Table 3). The nomenclature was given according to each clustersmean summated scores in broadly-targeted differentiation (BTD), narrowly-targeteddifferentiation (NTD) and cost leadership (CL). For instance, when examining thescores of cluster 1, it was observed that its BTD (3.8937) and NTD (3.4062) scoreswere considerably higher than its CL score (2.2500). On a 5-point measurementscale, its CL score was below the mid-value of 3.0. Given its heavy emphasis on

differentiation, cluster 1 was thus named the differentiator.Conversely, cluster 3 was found to attach much heavier emphasis on CL than on

BTD or NTD. Indeed, its BTD and NTD scores were below the mid-value of 3.0.


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These findings suggested that banks in this cluster mainly competed on the basis ofcost leadership but not differentiation. As such, it was called the cost leader.

Cluster 2 was found to have significantly higher BTD, NTD and CL scores thanclusters 1 and 3 at =0.05. In other words, banks in cluster 2 resorted to both differ-entiation (BTD and NTD) and cost leadership to develop their competitive edges.This clearly distinguishes this cluster from the other two which relied heavily oneither differentiation or cost leadership. By trying to adopt both differentiation andcost leadership simultaneously, cluster 2 was thus labeled the all-rounder.

In summary, the derivation of the foregoing three clusters suggests that banks inHong Kong are employing three distinct strategic approaches which may deviatefrom Porters theory in some respects. Most obviously, the presence of the all-rounder can be seen as banks attempt to integrate both differentiation and cost lead-ership together. In addition, the absence of a cluster emphasizing solely on NTDsuggests that there is no strategic group that uses a pure focus strategy. When banksintend to create differentiation for competition, as those within clusters 1 and 2, itis unlikely for them to rely solely on differentiation at a narrow scope (NTD).Instead, they tend to rely on both BTD and NTD.4 Such a phenomenon is probablyattributed to the continued internationalization of Hong Kongs economy in generaland its banking sector in particular (Ho, 1991a; Nontapunthawat, 1992). Alongsidethis development, many Hong Kong-based enterprises have already engaged in vari-ous overseas operations and numerous foreign MNEs have invested heavily in HongKong too. As such, while indigenous enterprises keep on demanding more and more

international wholesale banking services (e.g. international payment arrangement)from their bankers, foreign MNEs are also growing in their need for more and moredomestic wholesale banking supports (e.g. advice on local business environment).In order to better respond to the changing service requirements of their customers,banks operating here (be they indigenous or multinational banks) are thus under astrong pressure to develop and enhance their advantages in both BTD and NTD.

Although it is not easy for banks to secure the needed resources to develop boththe BTD and NTD advantages, anecdotal evidence shows that they may still be ableto do so through any one of the following three routes. First, banks that were orig-inally founded in Hong Kong a long time ago and have subsequently grown to be

multinational banks (e.g. the Hong Kong and Shanghai Bank), are likely to be ableto acquire these resources. Second, in the case of foreign multinational banks thathave been operating in Hong Kong for a long time, such as Citibank and ChaseManhattan Bank, it is also probable that they possess some of the essential resources(e.g. familiarity with local business environment) to facilitate the acquisition of bothkinds of differentiation advantages. The last route is concerned with the horizontalintegration between a local and a foreign banking institutions (e.g. Bank of Americawith Security Pacific Bank) through acquisition or a merger. Due to synergistic

4 The authors would like to thank one of the anonymous reviewers for his valuable comments on

this point.


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effects, the newly integrated entity is very likely to be able to adopt a dual differen-tiation strategic approach (Fung, 1994).

In terms of a constituent banks country/region of origin, the composition of thethree clusters also revealed an interesting pattern. Banks within cluster 1(differentiator) mainly originated from West Europe (38%) and the US (29%);whereas banks from cluster 2 (all-rounder) were more diverse in their places oforigin. Except for those from West Europe, no more than 15% of the banks in cluster2 were from any single origin. Even the West European banks were scattered ratherevenly across a number of countries such as the UK, France, Italy, and Germany.Finally, the composition of the cost leader (cluster 3) was a bit skewed toward banksof a Japanese origin (39%).

The relative concentration of West European and American banks in cluster 1 isprobably attributed to their richer experience in international banking which enablesthem to possess more proprietary information, managerial expertise and financialknow-how to differentiate themselves (Goldberg & Johnson, 1990; Canals, 1993;Chan, 1994). Similarly, the relative concentration of Japanese banks in cluster 3 islikely to be related to some home country specific advantages, such as Japans hugetrade surpluses, and close cooperation between its banks and MNEs (Adam & Hoshii,1972; De La Baume & Gupta, 1991). These factors have led to a more competitivecost structure for Japanese banks (Euromoney, 1979; Burton & Saelens, 1986; Chan,1994). Besides, Japanese banks higher propensity to pursue cost leadership is alsoconsistent with Japanese organizations traditional orientation toward long-term mar-

ket share objectives for reaping scale economies and experience effect (Prestowitz,1988; Doyle, Saunders & Wong, 1992).The more diverse origins of the all-rounders (cluster 2) seem to agree with the

contention that strategies can be built upon country as well as firm specific resources(Dunning, 1993). As all-rounders try to bundle complex competitive strategies thatgo beyond a simple monotonous strategic approach, their managerial capabilities toattain integrated flexibility become extremely crucial (Ahmed et al., 1996). Giventhe causally ambiguous and socially complex nature of these capabilities (Barney1986a,b, 1991), it is thus likely that they are mainly derived from individual firmsidiosyncratic resources rather than from the home countries factors of endowment

(Wernerfelt, 1984; Prahalad & Hamel, 1990).

8.6. Performance among strategic groups

Two popular performance indicators for strategy research, profitability (return onassets) and change in market share, were used to measure banks performance here(cf. Hambrick, 1983b; Burke, 1984; Buckley, Pass & Prescott, 1988; Kotabe, 1990).The annual pre-tax return on assets (ROA) and annual change in market share (CMS)of the wholesale banking business for the past five years were provided by therespondents with a guarantee of strict confidence. After compiling the respective

average ROA and CMS for the three strategic groups, an inter-group comparisonwas made accordingly.

Owing to the relatively small size of each strategic group and the lack of knowl-


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edge about the population pattern, non-parametric tests were mainly used to performthe inter-group comparison (Siegel & Castellan, 1988). Specifically, the KruskalWallis (KW) test was employed to examine whether there was any significant dif-ference in average ROA and CMS values among the three strategic groups. In thecase where a significant difference was found at =0.05, the KolmogorovSmirnov(KS) test was then performed between all possible pairs of strategic groups to detectwhere the difference lay. For reference, the corresponding parametric methods (i.e.one-way ANOVA test and Scheffes test) were also performed. As Table 4 shows,results derived from the non-parametric and parametric tests are very similar toeach other.

The inter-group comparison of performance in Table 4 shows mixed findings.Both the non-parametric (KW and KS tests) and parametric tests (ANOVA andScheffes test) revealed that all-rounders significantly outperformed differentiatorsand cost leaders in ROA at =0.05. This result cast doubt on Porters stuck-in-the-middle proposition and echoed some of the previous works (e.g. Miller & Dess,1993; Reisperger et al., 1993; Parnell, 1997). However, as for CMS, no significantdifference was found among the three strategic groups at =0.05. In addition to whathas been aforementioned, other important implications from the present study arepresented below.

9. Implications

On the whole, the factor analysis results of the present study support the existenceof Porters three strategy typology. This result contributes to the existing literatureconcerning the external validity of Porters typology by testing it in an operatingsetting that is completely different to those used before (cf. McGee & Thomas, 1986;OFarrell, Hitchens & Moffat, 1993). Despite the recognized unique characteristics

Table 4

Comparison of performance among the three strategic groups (N=71)

Performance Strategic group KW sig. ANOVA Significantly differentmeasure sig. pairs detected by KS

Differentiator All-rounder Cost leader test and Scheffes test

at =0.05

ROA***a,b 0.40 0.86 0.56 0.0002 0.0001 All-

rounderdifferentiator;

all-roundercost

leader

CMS c 0.078 0.110 0.082 0.7637 0.2185 n.a.d

a *** Significant overall difference detected by both KW test and ANVOA test.b ROA=Annual pre-tax return on assets (average of the past 5 years).c CMS=Annual change in market share (average of the past 5 years).d n.a.=Not applicable.


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of banking offerings (Fahy, 1996; Lovelock, 1996), highly competitive market struc-tures (Ahmed et al., 1996) and Asian business settings (Kotler, Ang, Leong & Tan,1996), the three generic strategies are seen to remain reasonably generic whentested in an operating setting that possesses all these characteristics.

Despite the overall similarity between Porters strategy typology and the factoranalysis results, the narrowly-targeted differentiation extracted from the analysis isfound to be biased toward Porters differentiation focus rather than covering boththe differentiation and cost focuses. The bias may be attributed to the nature oftodays banking operations which usually require a vast amount of investment ininformation technology to sustain banks proprietary information advantages and ser-vices delivery efficiency (Cho, 1985; Banking World Hong Kong, 1997). If a bankmerely focuses on a small market niche, it might be difficult for it to reap enoughscale economies from its huge information technology investment. Consequently, itsability to adopt a cost focus would be constrained. This finding helps remind smallerbanks of the potential infeasibility of pursuing a cost leadership within a tiny marketniche. In short, despite the overall robustness of Porters strategy typology, the poss-ible mediating effect of the operating environment still should not be ignored(Murray, 1988).

The results from the cluster analysis and inter-group comparison show greaterdeviation from Porters theory. The inter-group comparison of profitability highlightsthat all-rounders, or banks adopting a multi-strategic approach, have outperformedother single-minded strategic groups (differentiators and cost leaders). Although no

significant difference in market share among the three groups was detected at =0.05,the relevant descriptive statistics still suggest that the all-rounders (0.110) have per-formed better than the differentiators (0.078) and cost leaders (0.082). When inter-preting the results, one should, of course, pay attention to Porters (1996) recentargument that firms superior performance may only reflect an improvement in oper-ational effectiveness. However, as Porter also contends that the improvement in oper-ational effectiveness is unlikely to lead to sustainable profitability in an intenselycompetitive environment, it is thus questionable whether the superior performanceof the all-rounders within a five-year period, as evidenced in the present study, canbe solely attributed to the enhancement of operational effectiveness. Taken together,

the present empirical results have at least cast doubt on Porters stuck-in-the-middleproposition and lent some support to Ahmed et al.s (1996) argument for the superi-ority of achieving integrated flexibility that goes beyond a monotonous uni-stra-tegic approach.

The importance of achieving integrated flexibility becomes even more apparentwhen considering the absence of a proper patent system in the banking industry(Dufey & Giddy, 1981) and the limited number of banking product attributes (VonClemm, 1976). These lead to the difficulty of developing sustainable competitiveadvantages via the banking offering itself (Cho, 1985). Instead, should banks becapable of integrating various value creating activities synergistically, they would

be able to sustain their competitive position via effective service delivery (Davison,Watkins & Wright, 1989). To have this capability, bankers are first required to exam-ine the functional and process activities of the whole organization in order to identify


20/30


transparent and hidden inter-linkages within and between processes and sub-pro-cesses. In view of the nature of banking services, particular attention needs to bedirected toward the interaction between information technology and human resourcesthroughout the entire service delivery system along with customers increasinglysophisticated service requirements. While RBV theorists believe that these organizingand coordinating capabilities are a firms intellectual assets that can only be acquiredand enhanced through learning and practice (Itami, 1987; Johnson & Scholes, 1997),their presence seems to be the key to a banks superior performance.

For international bankers, they have to further consider how the location of oper-ations may influence their banks overall resource configuration and competitiveness.In this respect, Fahy (1996) suggests that service firms should not rely solely on theresources derived from either the headquarter or the host operation, but must seekto emphasize both and to facilitate bilateral resources transfer. In other words, whenmaking foreign direct investments, international bankers should consider carefullyhow their banks may derive additional firm-specific resources from the host subsidi-ary (e.g. familiarity with the host and regional market), and how these newly addedresources may effectively combine with their existing ones (e.g. international repu-tation and network) to attain a sustainable competitive position in the host as wellas the global marketplace. Given the complexity of international business, theorganizing and coordinating capabilities required for multinational banks to gainleverage over their resource pool across different nations become even more intricateand crucial, and thus should deserve far much more managerial attention and commit-

ment from their corporate planners.Lastly, as far as the generalization of the present findings is concerned, it isbelieved that non-bank multinational service firms are equally in need of well-equip-ping themselves with superb organizing and coordinating capabilities to enhance theirglobal service delivery system. Given the competitive reality, such as the high levelof mimetic behavior, intensifying rivalry and ever-changing customer requirementsthat multinational service providers face in the 1990s and beyond (Lovelock, 1996),it is likely that the old concerns such as quality and low costs should only be viewedas starting points in the struggle for survival rather than as bases for sustainablesuperior performance.

10. Conclusions

This study examines banks competitive behaviors and their relationship with per-formance in an Asian international banking center, Hong Kong. By and large, thefactor analysis results of the present study have provided evidence to support theexternal validity of Porters three strategy typology. The results have neverthelesssuggested that cost focus might not be a viable strategy for niche players in thebanking sector due to the difficulty in reaping scale economies.

In addition, the present survey has cast doubt on the alleged superiority of thesingle-minded strategic approach by demonstrating that banks adopting a multi-stra-tegic approach did outperform other strategically monotonous rivals. While the sin-


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gle-minded strategic proposition is grounded in the premise of inherent inconsist-encies for pursuing more than one generic strategy simultaneously, RBV theoriesand the present empirical results hint at the feasibility for well-resourced banks tocombine apparently incompatible value creating activities in a synergistic way toattain a sustainable multi-strategic position.5 This feasibility, in turn, very muchdepends on a banks organizing and coordinating capabilities that are developedand refined through managerial commitment, learning and experience. Using RBVtheorists terminology, these capabilities are organizations valuable intangibleresources or architectural competencies which are essential for an effective deploy-ment of various organizational tangible resources (Amit & Schoemaker, 1993; Hend-erson & Cockburn, 1994). Given the causal ambiguity and social complexity of thesecompetencies, they are also likely to be the most important source of sustainablecompetitive advantage for organizational success.

Due to the complexity of international operations and the mimetic nature of bank-ing offerings, these architectural competencies are believed to be even more crucialfor banks operating in an internationalized environment to develop a viable competi-tive position. To acquire these competencies, bankers need to examine all the relevantorganizational activities as well as their interactions thoroughly. This examinationcan definitely enhance banks capabilities to mobilize their technological, human andfinancial resources on a global scale to configure a more effective service deliverysystem.

Although the present findings have highlighted that banks adopting a multi-stra-

tegic approach outperformed those employing a uni-strategic approach, one shouldnot view a multi-strategic approach as a panacea for superior performance on alloccasions. Indeed, whether it can lead to superior performance still greatly hingeson how well firms are able to create and manage their unique bundles of resourcesalong with the ever-changing competitive environment.

Appendix A. A copy of the mail questionnaire

Ref:

A.1. Survey on banking strategies

This questionnaire aims to investigate how banks in Hong Kong are compet-

ing for the wholesale banking business. The questionnaire comprises three parts

and the first part is concerned with the responding banks major competitive

approaches. The second and third parts relate to the responding banks per-

formance and background respectively.

5 In citing the airline industry as an example to defend his uni-strategy position, Porter has to admit

that a situation where low cost and high quality are consistent with each other does exist (Porter, 1996,

p. 69).


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Part 1

1. In developing the wholesale business in Hong Kong, did your bank alter its com-

petitive approaches/methods significantly within the last five years? (Please checkthe appropriate box.)

No (Please continue to question 2) Yes (End of the survey, thank you very much)

2. How important has each of the following factors been for your bank to developits wholesale banking business in Hong Kong within the last five years? (Pleasecircle the appropriate number: 1=least important; 5=most important)

a. Ability in niche marketing 1 2 3 4 5

b. Ability in product innovation 1 2 3 4 5c. Availability of a large 1 2 3 4 5

amount of surplus fundingd. Back-up by a resourceful 1 2 3 4 5

parent/holding companye. Cultural proximity 1 2 3 4 5f. High caliber staff 1 2 3 4 5g. International image and 1 2 3 4 5

reputationh. International network 1 2 3 4 5

i. Long establishment in Hong 1 2 3 4 5Kong

j. Low finaning costs 1 2 3 4 5k. Operating flexibility 1 2 3 4 5l. Professional banking services 1 2 3 4 5#m. Expertise in a particular 1 2 3 4 5

market segment#n. A pool of qualified personnel 1 2 3 4 5#o. Financial skills 1 2 3 4 5

(# Deleted from the final questionnaire on the basis of expert opinions)

Part 2

This part is to collect data relating to your banks performance in the Hong Kongwholesale banking market. It is guaranteed that all the data so provided will betreated in strict confidence and only be reported on a collective basis.

3. For your banks wholesale banking business, the annual pre-tax return on assets

(ROA) in:1996 Was (%)1995 was (%)


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1994 was (%)1993 was (%)1992 was (%)

4. For your banks wholesale banking business, the annual change in market share in:

1996 was (%) (increase/decrease*)1995 was (%) (increase/decrease*)1994 was (%) (increase/decrease*)1993 was (%) (increase/decrease*)1992 was (%) (increase/decrease*)

(*Please delete the appropriate one)

Part 3

5. In which year did your bank establish its operation in Hong Kong?

6. In terms of beneficial/majority ownership, how would you classify your bank?(Please check the appropriate box)

A mainland Chinese bank A local Chinese bank A Japanese bank A West European bank An American bank Others, please

specify:

7. What is the asset size of your bank?US$/HK$*

(*Please delete the appropriate one)

8. How many staff members does your bank have in Hong Kong?

9. Would you like to have a summary of the survey findings?(Please check theappropriate box.)

No Yes

Thank you very much for your cooperation

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