Economic sciences/1. Banks and bank system

Obukh N. Y.

Ivan Franko Lviv National University, Ukraine

Types of competitive strategies of international banks in Ukraine’s economy

Since the 1990s, the number of banks with foreign capital continues to increase. Over the last 5 years to this register has joined nineteen banks. Thus, foreign capital takes increasingly significant place in the bank system of Ukraine. In general, its increasing positively affect at the development of the bank system as a whole due to increased interbank competition.

Growing competition in the bank system stimulates both international and domestic banks to introduce new management methods. Developing competitive strategies is one of the most important aspects of the bank activity. First of all bank institution determines the priority strategic areas that are classified according to the following parameters:

- profitability of bank’s products, their dynamics;

- the demand for bank services and the growth of their sales;

- the possibility of emergencies in the region or country;

- the features of competition with other banks [2].

In the economic literature Porter defines the competitive strategy as the offensive and protective actions directed on creation a permanent position of firm in its industry in order to withstand the onslaught of the forces that determine the competition. Kotler in his paper under competitive strategies proposed to understand strategies that allow companies to take a strong position against competitors and provide the strongest possible strategic advantage over competitors. Ansoff defines competitive strategy in every sphere of business as a way to achieve own goals in competition [1].

In modern scientific literature four levels of bank competitive strategies are defined:

1) corporate – general strategy of bank, which defines segments, where the bank operates, areas of its activity and scope of clients, on which it is focused;

2) business – is developed by the bank for each area of its operations separately;

3) functional – is developed separately for each direction of the bank (services, finance, marketing, etc.);

4) operational – is developed for each of the functional departments, branches, representative offices separately [2].

One of the most well-known classifications of competitive strategies is the identification of three basic competitive strategies of behavior that scientists consider from various aspects:

1. Management: M. Porter identified three basic strategies: the strategy of cost leadership, differentiation strategy of bank products, the strategy of focusing on a single market segment.

2. Biology: A. Yudanov identified such strategies of behavior: violent strategy – price leadership; patient strategy – product differentiation, explerent strategy – creating innovations; commutant strategy – focusing on unoccupied market segments.

3. Evolutionary: Schumpeter based evolutionary approach that identified strategies coexistence of banks with different competitive behavior in the same market conditions (conservative and innovative strategy) [2].

An effective competitive strategy of the bank should:

- reflect the effect of competition on a particular segment of the bank market and make a plan for implementing the bank’s competitive advantage;

- be aimed at achieving the goals of the subject of competition in the long period;

- take into account the features of activity of the subject of competition and ensure the achievement of the target level of competitive position in each market segment in the long period;

- establish the basic criteria of the bank activity;

- take into account the existing competitive potential of the bank to implement the chosen competitive strategy and to increase it in the future;

- provide adaptation of subject of competition to changes in environmental conditions and predict attacking or protective actions to overcome the competition [1].

Developing the competitive strategy for the bank in the bank market, the following factors that influence management decisions should be taken into account:

1) industry specific of bank sector. This factor determines the flexibility of competition strategy which represents instability of modern financial markets, dependence on the policy of the state and central bank, changes of macroeconomic situation;

2) specific of domestic economy on the whole. Developing the strategy it is necessary to take into account such limitations, as impossibility of development of long-term competition strategy through instability of macroenvironment, limited scale of strategic goals through insufficiency of long-term resources;

3) conditions of a competitive bank. Competitive strategy of bank that has long been on the market is focused on the maintenance of existing positions and prevention new competitors entrance the market, while new banks – to conquer new market segments, increase the competitive potential;

4) the level of risks of bank operations and measures of minimizing the bank’s losses. Practice shows that improper management of bank risks can lead to significant losses of the bank and, consequently, to its bankruptcy [1].

The process of development of competitive strategy of the bank in the bank market can be represented in such sequence of stages:

- definition of the mission and goals of competitive bank;

- analysis of the competitive environment of the bank and identify existing competitors;

- development of portfolio of alternative competitive strategies of the bank that should take into account the possible scenarios under certain circumstances;

- selection and implementation of a competitive strategy of the bank;

- analysis of the results of the realization of the competitive strategy [1].

Consequently, in the process of selection of competitive strategy it is necessary to take into account existing competitive position of the bank at the market of bank services, available competitive potential and competitive advantages, and also changes of external operating conditions which may lead to deviation of the results from plans.

References

1. Vovk V. Features of formation of the competitive strategy of the bank in the bank market / V. Vovk // Bulletin of the NBU. – 2011. – №9. – P.20–26.

2. Yaroshenko A. Approaches of the development of the competitive strategy of commercial banks in unstable market [Electronic resource]. – Mode of access: http://www.nbuv.gov.ua/portal/Soc_Gum/inek/2010_5/224.pdf