First Abu Dhabi Bank (FAB) Merger

First Abu Dhabi Bank (FAB) Merger

The case study highlights that First Abu Dhabi Bank (FAB) creation was to strengthen the economy and the banking industry of the United Arab Emirates (UAE), and it is the largest bank in UAE. The headquarter of FAB is based in Abu Dhabi, with an international operational presence.  It is one of the largest and safest financial institutions in the world, offering a wide range of unique and customized products, services, solutions tailored to provide a customized experience to the clients. FAB is strategically designed to satisfy the banking needs of clients worldwide through investment, corporate, and personal banking franchise markets. Technology and human resource are at the heart of the FAB’s operations, ensuring clients satisfaction and improvement in the banking industry.

The mergers were a strategic move targeting to solve challenges in the banking industry and boots the economic performance of the UAE. The mergers of the banks to form FAB provided an opportunity to combine the strengths, minimize the weaknesses, and exploit a competitive advantage of more business growth opportunity in the market to grow stronger. The merger was a way of accessing and expanding market segment by leveraging on the bank’s significant financial strength in terms of assets to realize its mission.

The bank offers customized financial products and services to its customers, describing its customer-friendly motto. FAB’s mission is to empower the communities by creating a positive impact through investing in people and utilizing user-friendly technology to improve their services. The mission of FAB is to motivate, inspire, and educate clients to realize their goals and objectives using technology and innovations. The bank endeavours to deliver the best banking and financial support to global, regional, and local corporations, investments, businesses, and individuals. Putting the client first in its operation forms the vision of FAB that has helped the bank to succeed since its formation from FGB and NBAD merger. The target of FAB was to grow stronger and improve the UAE banking industry.

Strategic Issue

FAB operates in the financial market offering banking and financial services to investors, individuals, corporates, private and government businesses. FAB strategy explains the reasons for its existence in the market place covering aspects of goals, mission, vision, and the driving force the ensure daily operation of the company. The focus is on creating a value proposition for the customer and improving the banking and financial industry, both locally and internationally. The economic and banking industry operating environment is on the spotlight of changes due to technological changes requiring the company to integrate technology to keep up with changes in the market. The business strategy of FAB is rooted in sustainability as a foundation for the long term and business strategy development. FAB’s strategic situation revolve around sustainability framework, which comprises of four strategic pillars that channel our activities: Strong governance; positive social impact; responsible banking; responsible employment; and integrity and risk management. The company develops a strategy that promotes a close relationship between the company and its stakeholders, aiming at fostering steady development and growth in business activities. Fab is committed to carrying out responsive business operations, integrating progressive practices, and firm sustainability policy across the institutions productive future.

Banking and financial industry, business, economy, and entities face increasing environmental and social challenges that strategic intent to solve. The problems at FAB are coupled with growing public and investor expectations for action on crucial issues such as climate change, and global poverty means we all need to adapt and do more to help shape a truly sustainable economy and world. At FAB, strategic issue seek to solutions to the question: what can FAB do to help make progress on strategic issues?

External Environment of Banking Industry

The industry refers to a group of companies offering services and products that are close substitutes satisfying similar needs of customers. For instance, the banking industry refers to financial and banking institutions that provide financial services and products to clients across different levels. The external environment or macro-environment describe the forces that affect the general economic health of the industry’s ability to generate adequate return and performance. The most outstanding macroeconomic factors entail factors that affect the organization, and the company have no direct control. Macro forces that affect the banking industry revolve around economic growth, currency exchange rates, interest rates, and price inflation of products in the market. The company FAB operates in the banking industry in different economies across the world. Economic growth promotes the expansion of customer expenditures, trends to produce to easy the pressure in the competitive banking industry. The level of interest rates influences the demand in the market.

Macroenvironment is a broad concept that covers economic, global, technological, demographic, political, and social context in which the banking industry operates or is embedded. Technological forces influence the banking industry in different ways. Changes in technology impact the economic, social, financial, and management of the companies that constitute the banking industry across the world. For instance, the FAB merger was a strategic move to empower the members to handle the changing environment technologically to strengthen operations and resources to succeed. Technological development and advancement are influencing the way consumers feel the funds. For instance, the bank industry activities such as fund transfer, cheque scanning, debit card technology, among others, have changed the banking services across the industry globally. Techniques are the challenging force in the banking industry and business models and how banks interact with stakeholders and other sectors in the economy. Technology forms a driving force in the external environment is the pace of technological change which encompass new technologies that change how and what products and services are in demand. In this section, an analysis of the external environment in shaping the banking industry is discussed in detail.

Porters 5 Forces Analysis

the five forces model forms a necessary tool employed in evaluating the strengths of competitive forces that influence the industry’s attractiveness. The five-force model is critical in assessing the strength and competitive effects in the banking industry in light of external environment forces shaping operations and attractiveness of the industry in the market. The five forces include the following buyer bargaining power, power of substitute products, supplier bargaining power, threats of new entrants, and rivalry competition in the market.

Competitive Force of Buyer bargaining power

The seller-buyer relationships represent a force in the banking industry that influence profitability based on the buyer’s ability to bargain for leverage. The external environment forces such as technology play a role in shaping the power of buyers to negotiate for better deals in the banking industry. Technology through the internet and digital banking have the potential to change the competitive structure of the banking industry because it allows buyers to switch at a reduced cost. In the banking industry, buyers gain bargaining power or leverage when buyers have large size influencing the demand concessions, low switching costs to competitors or substitute competitors. Also, when they have control to market access because of their few numbers meaning they are essential to the seller or companies offering financial services and products in the market (Hill, & Jones, 2011). the weak buyer demand creates a buyers’ market. Technological changes and advancement providers bank clients and customers access to informative information about the bank and financial institution products and services in the market concerning costs and prices that influence decision making of buyers. This makes buyers in the banking industry to pose a credible threat of integrating backward into the sellers (Banks) business.

Buyer empowerment promoted by technological advancement determines the strength of the buyer bargaining power force in the banking industry. Technology fosters the ability of buyers to reduce switching cost to competing and substitute companies, the large size of buyers with the ability to demand concession, a large volume of transactions, and quantity of buyer add on that strengthen buyer bargaining power and seller (bunks) collaboration. Banking institutions value their clients because of the level of competition and client awareness among other variables that portray a reliable buyer bargaining power in the banking and financial market sector of any economy.

The Competitive Force of Substitute Products

The factor is built around the influence of availability and attractiveness of substitute products and services, buyers’ perception of substitutes in terms of performance, price, quality, and relevance, cost of buyer switching to substitute products shapes the competitive force of substitute products in the banking industry. Thanks to technology and the internet, buyers and substitute product and services have access to a global platform for information concerning banking services and products. The influence technology has on the bank industry is significant; for instance, FAB merger exists because of an effort to adapt and cope with current forces in the market. The banking industry player has to engage in intensive marketing to overcome the pressure in demand posed by the presence of substitute products and services in the form of cooperatives, money markets, investments financial institutions scattered across the planet. Some of the factors in the banking sector that shapes the strength of substitute products and services encompass availability of quality substitute services and products in financial institutions, attractive pricing of substitutes, performance comparison of alternatives, and low-cost end-user to switch to the substitutes. The banking industry, according to the case study and research, shows that the substitute products in the banking sector with globalization and growing technology is strong.

The Competitive Force of Supplier Bargaining Power

Banking industry suppliers and investors exert substantial bargaining forces and leverage because of the uniqueness industry. The inability and process of banks to switch suppliers empowers the suppliers. Information and communication system are influential in shaping the bargaining forces of suppliers in the banking industry. The external variables, such as technology, economic, social, and demographic forces, influence the strength and power of suppliers in the banking industry (Hill, & Jones, 2011). the quality of products and services delivered by the supplier and shortage of supply of differentiated inputs shapes the say and bargaining power of suppliers. The stability of the supplier bargaining power is influenced by high cist of switching suppliers, limited supply of needed inputs, differentiated inputs the supplier delivers, and a limited number of suppliers of a particular contribution in the banking industry makes the supplier bargaining power stronger.

The Competitive Force of Potential New Entrants

Threats of new entrants into the marketplace of banking industry present significant competitive pressure on banks. The size of potential entrants and resources they command help in shaping the influence and quality of services clients’ consumers of banking industry services and products received. The impact of technological changes in the banking sector entails disrupting barriers to entry and hence reshaping the banking industry structure. Technology is an external force that offers vital information that changes the competitive structure of many industries. It lowers the barriers to entry that affect the competition in the banking industry due to new competitors entering the market. The barriers to entry affected by macroeconomic variables include the presence of economies of scale, cost and resource disadvantages, strong brand presence such as FAB in the banking industry to minimize competition. The presence of technology, innovation, demographic, and economic information have strengthened the entry threat in the banking industry. The other variables promoting the entry threat strength encompass growing buyer demand, barriers are low, and pool entry is large with sufficient resources.

Rivalry in the Banking industry Market

Competition is prominent in the market with evolution and technological presence. The rival companies in the banking industry launch actions to improve their market standings and performance from time to time. The many competitors in this industry must aggressively battle for market share in this slow-growth market.  They each have considerable investments in the physical plant, which makes it difficult to leave the banking industry.  The products are difficult to distinguish from one another, so banking companies must focus on aggressive, marketing programs to win customers away from their competitors.  All these factors contributed to a healthy rivalry and continued downward pressure on profit margins in the banking industry.

Key success factors

These are strategic elements, product and service attributes, competitive capabilities or intangible assets with significant impact on the future success in the banking industry market.  the three critical success factors include:

Technology related key success factors

Expertise in the technological application is needed in the banking industry to promote effectiveness and efficiency in operations. The management and technology integration in the banking sector improve the rate of performance in the market. Companies’ in the banking industry, like FAB, deploy technology in its operation as a competitive strength to stay ahead of the competition. The use of proven ability and skills in technology in the banking industry promote productivity, profitability, and performance in the financial market.

Marketing related Key Success factors

Marketing aims at creating awareness of banking industry products and service to attract clients to the industry. Marketing factors help in promoting a brand name, assistance accuracy and speed of assistance to clients to improve customer satisfaction (Hill, & Jones, 2011). banking industry such as FAB specializes in courteous, and customized products and services as a marketing strategy and effort to attract more clients. The other factors include clever advertising and promotion of banking service and products, customer warranties and guarantees and accurate filling of clients’ orders and transactions to improve the present and future operations to boost competitiveness.

Skills-and capability-related Key Success Factors

The banking industry seeks a talented and skilled workforce with expertise in financial management and professional services on investment and accounting banking. The relevance of the skills and capability should be distributed locally, regionally, and global market setting. Other areas include financial and banking product and service innovations, design abilities, stable economic evaluation. The company depending on the success factors to promote the future direction of the company in the banking industry.

Industry profile Attractiveness

The features captured in the banking industry encompass changing banking habits. Financial Services in the changing technology provides significant opportunities and differentiation in the banking industry services. Technologies in the bunking industry can be disruptive for banks that cannot adapt to the changing e3nvironemnt. Technology is at the heart of the banking industry development. The marketing development and success factors help in building a stable market for financial institutions.

Company Situation

The company situation aims at incorporating technology and consolidating the strengths of merging firms to overcome the competitive forces in the banking industry. FAB merger allows combining strengths to overcome the weakness and take advantage of more growth opportunities in the market. The analysis entails computing of the sales growth rate from the historical data of FAB and determining the industry lifecycle stage of the banking industry. The interest revenue of FAB bank for 2017 was AED.16,332, and 2018 was AED.21,836 taking 2017 as the base year. The sales growth rate is computed by taking income of 2018 divide by revenue of 2017; therefore, the sales growth rate was 21,836/16,332, resulting 1.3370. This is a growth rate of 33.70% in interest rate revenue for FAB between 2017 and 2018 (Case study). Based on this rate, the industry is in the growth stage of the banking industry lifecycle.

Financial analysis

FGB= Calculate Ratio Analysis

The financial status of this company is stable based on its profitability, liquidity, and leverage ratios computed in the appendix. FGB company is financial health as depicted by its ability to cater to short-term obligations in the liquidity analysis. This company is making profits over the years from 2012 to 2016; it describes a growing trend in its profitability as reflected in the FGB= Calculate Ratio Analysis table in the appendix. The companies financial leveraging is significantly low showing that the company have smaller debt liabilities in its capital structure. On the overall financial permanence of the FGB company is financially healthy.

SWOT Analysis

The SWOT analysis explores the attributes of the company that promotes its success in the financial market. It covers the strengths, weakness, opportunities, and threats in the market.

Strengths

The company have generated significant advantages in the banking industry after the merger. FAB has emerged as the leading bank in both the Middle East and among other world-leading banks, merger. Combining the strengths of FGB and NBAD in creating FAB helped in eliminating the weaknesses and empower this bank in the financial market and gain stability. The efficient management system achieved through the integration of management and staff talents and skills from the two banks promotes efficiency and effective functioning and management of FAB assets and resources. Other strengths encompass an extensive distribution network, economies of scale, and improved credit rating in the financial market.

Weakness

The weakness captures the challenges and short-comings of the FAB merger in the market. One of the predominant faults is redundancy in operations as a result of merging requiring reorganizing, restructuring, and policy formulation of the company. The company boast of its largest size but it has a limited global presence in the market is FAB has a presence in only 19 countries worldwide. The bank should reflect a full operation in the worldwide market by having branches in more countries across the globe. The management and strategic management need to look into this to improve the competitiveness and attractiveness to clients.

Opportunities

Merging increased the prospects of the company in the market, including chances to grow into new markets opportunities. FAB will expand and shift the balance of power in GCC and global market to be the largest bank in the region and possibly on the planet. New opportunities emerged in the Islamic market that FAB would exploit to grow its assets and value base. Other possibilities include a chance to grow into Asian economies like Singapore, and Shift of investments to non-US and non-Europe economies due to Eurozone crisis.

Threats

The leading threat to the banking industry is competition from other banks both in the local, regional, and global banks. Increasing technological application and digitalization of the banking industry have exposed FAB to increased competition in the market. The other threat is the fluctuation in oil prices which affects the economic activities and business operations in the Middle East where FAB has a strong operational presence. Also, the pressure from the changing environmental variables such as legal, technology, political, economic, and social forces in the banking sector.

Recommendations

The recommendation provides the directions the company need to take to improve the operations, efficiency, performance in the market.

Strategic issue

Banking and financial industry, business, economy, and entities face increasing environmental and social challenges that strategic intent to solve. The problems at FAB are coupled with growing public and investor expectations for action on crucial issues such as climate change, and global poverty means we all need to adapt and do more to help shape a truly sustainable economy and world. At FAB, strategic issue seek to solutions to the question: what can FAB do to help make progress on strategic issues?

Strategy recommendations

FAB should target to increase its international presence beyond the 19 countries to help open up opportunities in other countries. FAB bank could expand into regions that are not exploited by competitors in the banking sector such as African nations, north America, Europe, among other areas. Expansion geographically will offer FAB a vast market to attract and increase its customer base to beat the competition from other global players such as IMF and World bank. Also, to increase the size of market share and client base, FAB should engage in an intensive marketing campaign using different economic strategies. For instance, deploying technology in marketing campaign such as online marketing campaign, online advertisement of its products and services, mobile marketing, and using mobile app technology to improve customer service and promote online money transfer through the bank’s platforms. This will improve FABs competitiveness, attractiveness to clients in the market, and gain market share over a short period.

The company should streamline and adopt positive management and governance system to promote efficiency and effectiveness in the operations of the company. Merging posses the challenge and effective governance strategies are needed to present redundancy from setting in which affects the performance of the company. This, along with effective marketing, propels the brand name and image of FAB high in the banking industry.

To counter competition, the company should have an efficient administrative structure to promote efficient communication between the bank and its stakeholders such as shareholders, investors, clients and suppliers. Building the brand image of the company is the most effective way of attracting more clients and success. Marketing, human resource, and operating systems of the bank help in improving the quality of the company’s services, thus eliminating competition. The company should target to become the market leader to shun competition in the banking industry.

Strategy objectives

The objectives of the strategy are to improve the performance of FAB in all departments. For instance, marketing and effective administration aim at boosting the financial performance of the company in the market. To overcome competition and expanding to a broader market by making a presence in more international markets. The performance indicators to look for include financial performance through financial analysis tools, industry performance measured through industry analysis, market size using market share, among other signs. The profitability and sales goals are to increase the profitability of the company by at least 3% by the end of the second year. The management and governance performance evaluation form the nonfinancial indicators.

Strategic justifications

The recommendations are practical and directly address the challenges facing the FAB company. Strategic proposals advanced in this paper are in line with the analysis and target the weakness, and threats facing the company in the market. Unlike other recommendations, expanding into new markets in the unexploited markets will result in more customers utilizing the company products and services which improves the companies market share, customer base, company size in terms of asset base, performance in terms of profitability and management performance.

Conclusively, a recommendation has a favourable implication to the company if implemented accordingly. The intensive marketing of FAB products and services creates public awareness and influence customer and potential customer decisions to use the services. Technology is vital in the modern banking sector, integrating technology will improve both internal and external interaction in terms of information and communication flow hence enhancing the performance of the company as a whole.

References

Hill, C. W., & Jones, G. R. (2011). Essentials of strategic management. Nelson Education.

Case study

Class Notes

Appendix

Porter’s Five Forces Analysis diagram

SWOT Analysis of FAB

Financial Ratio Analysis of FGB= Calculate Ratio Analysis