Transcript Capital One V1

Prof. Michael Segalla
« BEST IN FRANCE »
Jamie Brownlee (UK)
Daniela Sanchez Hernandez (Mexico)
Anne-Lynke Kikstra (Netherlands)
Jaeyoun You (Korea)
Monday 10th December, 2007
Agenda
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Introduction
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Analysis
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Why France
The French move
Pulling out of France
Recommendation
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Capital One
Advice for new companies
Advice for France
Conclusion
Introduction
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Analysis
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Recommendation
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Conclusion
Who is Capital One?
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Capital One Financial Corporation operates as the holding company for the
Capital One Bank and Capital One, F.S.B, which offers various commercial
banking services in the United States. The company is headquartered in McLean,
Virginia. It listed on the NYSE for the first time in 1994
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In less than 20 years it has managed to gain 40 million customers globally.
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Capital One provides:
- Home loans, healthcare finance, auto finance, commercial and consumer loans
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In addition, the company offers:
- Commercial credit cards, treasury management services, trust services, and
other banking related products ( e.g. insurance, brokerage services, merchant
services, and investment banking services.)
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It offers its products and services to:
- Consumer, commercial and small business customers.
What’s in your wallet?
Capital One: one of the America's largest consumer
franchises with almost 50 million customer accounts
worldwide
 One of America’s most recognised brands.
 Now, the fourth largest customer of the United States
Postal Service
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Capital One vs. Dow Jones and
NASDAQ
Capital One vs. Competitors
AXP: American Express Company
BAC: Bank of America Corporation
DFS: Discover Financial Services LLC
COF: Capital One
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Introduction
Analysis
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Recommendation
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Conclusion
Why the move to France (Major points)?
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France was the first country to be invested in after the UK
French wealth (disposable income)
Banking infrastructure
Population
History
French GNP $1,550 billion (2nd in EU Market)
EU 20% larger than the North-American market
Inflation remains very low, less than that of Germany, Italy or Spain
Falling interest rates
Highest rate of growth in Europe. In ten years, between 1985 and
1995, the number of foreign banks and financial institutions established
in Paris has increased from 260 to 420
Why the move to France (Minor points)?
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Only country with both a direct link and a frontier with the six largest European
markets (Germany, Italy, Spain, Benelux: Belgium, Luxembourg and the
Netherlands). This meant access to 370 million European consumers
Capital One wanted to open Southern Europe in terms of Credit cards
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Human capital, its motivation, quality and productivity. High level of education
encourages responsibility, responsiveness, the ability to adapt and show
initiative, competent and diversified public service which works
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The balance of trade for the last few years equalled 20.3 billion dollars, thus
creating an environment particularly favourable to buy in terms of shares
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Quality of life
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Specific company values around fairness, good corporate citizenship,
transparency seemed to fit with French culture
Reasons for moving to France
Frenc h wealth (G N P ) D is pos able wealth
Banking infras truc ture
P opulation
H is tory
E U - Franc e's dominant
pos ition
G eography of Franc e in
EU¡
I nflation and falling
interes t rates
H igh number of foreign
banks in Franc e
Competitors
• Egg Banking
• France 2002 - 2004 (ING, Netherlands)
• Barclaycard
• France 1998 (1 million selling spots)
The French move
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Sofinco (French credit card company) contacted Capital
One regarding a joint venture. Capital One had not
thought about France having only just entered the British
market
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Sofinco offered a company base in Paris, a great
customer base and infrastructure. As well as their own
bank branches, which Capital One could exploit
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The negotiation took 18 months
The French move
(2)
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Ready to sign contract……BUT Crédit Agricole
bought Sofinco
Capital One believed that to enter European market
effectively, they needed to enter the French or the
German market. Capital One chose the French
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Went alone, since they felt they had learnt enough from
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Sofinco about the French market (Risk management
in France, French customers, etc.)
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Moved in 1997
Pulled out in 2002
Why pull out of France?
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Long history of failures in France of Financial Services companies
from outside of France. Ancient usury laws created a perception
of closing of ranks against outsiders, they prohibited the wide
extension of credit across the credit spectrum
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One of the biggest perceived and actual constraints of anyone
coming to France is the labour laws. It is difficult to get rid of
employees if you need to move quickly (35 hour weeks!) Huge
redundancy costs created problems for speedy changes
Why pull out of France?
(2)
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Key constraint costs. Capital One’s key competitive
strength has been in its analytical abilities- its ability to lend
at the higher risk end of the market at a sensible price but
acceptable to the individual consumer. With usury laws
preventing Capital One going to that end of the market - its
market was limited
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Experienced lobbying by big French banks to change
French legislation to directly and adversely affect what
Capital One were doing (e.g. Limits on penalties for late
payments)
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Regulatory companies prohibited their actions
Why pull out of France?
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(3)
The Corporate and Usury laws of France are archaic.
France has an exceptionally introverted attitude to external
companies especially those from USA who could shake the
status quo and the French Banks effectively block
changes which would aid external companies.
There is no question that Capital One’s international
strategy was adversely impacted by the inflexibility
encountered in France.
Experienced discrimination, gender especially
Other locations: Italy, Spain, South Africa are much more
flexible and willing to try new ideas
France not willing to change
What Capital One think they did well in
France?
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Lived up to French expectations, culture, language, consumer
and law adaptation
Call centres were staffed by French people in France in the
initial stages with any new Financial product, explaining to the
customers how things work is a must. At the beginning it worked
They spent years looking at every aspect of the marketing mix
in any market, market-testing help a lot. (e.g. A mail shot where
Capital One changed the colour of an envelope or write ‘Top
Secret’ on it or change the credit limit or the interest rate)
In order to get their values ‘translated’ to be accepted in France,
they had a French office with as many French people as
possible; but also, blended other experienced Capital One
managers and gave great freedom - what they did was
‘Frenchified’
What Capital One think they did well in
France? (2)
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One key Value is fairness and reward. In the world of credit,
Capital One only wanted to give an appropriate amount of
credit to individuals. Once individuals ‘proved’ their
creditworthiness, an extension of amount of credit and deals
were offered in terms of interest payable, Cash-back rewards,
balance transfers etc. This did fit within the French culture.
Inclusion of French associates in as many international
courses/seminars was done in order to encourage absorption
of Capital’s One values.
In France, banks are under serious scrutiny especially when
dealing with foreign countries- Capital One was no exception.
Nevertheless for Capital One this was not as close as for other
companies, due to the fact, that FED and FSA were already
leading the scrutinising
Capital One’s views on similarities and differences in France
PROCESS
DIFFERENT
SAME
ADAPTABLE
Recruitment
X (need experience in and outside of France)
Compensation
X (flexibility to go for top quartile)
Management
Development
X (inclusion of French associates to learn Values
of Capital One)
Workforce
planning
X (working life)
Performance
Appraisal
X
Job design
X
Motivation
X (needed to communicate more)
Communication
policies
X (more formal but translators used)
International
Transfers
X (high calibre French nationals spent a year in
USA to prepare them)
Hiring
Real Estate
Language
X
X (cheaper
than London)
X (associates were usually bilingual)
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Introduction
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Analysis
Recommendation
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Conclusion
Advice: What would Capital One have
done differently?
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They would have looked at taking deposits to help them to fund the lending
on credit
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They would also have looked at Auto loans perhaps through a partnership
with one of the car manufacturers in France or the distributors
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They should not have gone alone. Should have found another consumer
finance house to merge with. With no other company, it was too risky
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Their main area for expansion would have been in identifying a partnership
with a French financial services company. (e.g. COFIDIS of COFINOGA or with one of
the big supermarket chains e.g. CASTORAMA where as in the UK with TESCO they would start their
own financial services company in partnership with us)
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If Capital One would not have left the French market, expansion would have
been into more and more credit cards with separation from instalment loans
Advice: What Capital One suggest for other
banking companies?
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It is important to be aware that France takes a highly protectionist
approach towards foreign companies. This is why there have not
been big external financial services companies from UK/USA working
in credit cards who have been successful in this country. Most
businesses must avoid France or at least not attempt to start a
Greenfield operation.
Advice: What Capital One suggest for
other banking companies? (2)
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No production of products in France – outsourcing
Instalment loans – special products used Instalment loans
on a credit card
(so Capital One gave someone e.g. 20,000 euros on loan over two years which with interest
might mean they repay 24,000 euros or 2,000 euros per capita monthly for two years.
So the customer got their loan upfront which they can use for anything – new kitchen,
holiday, etc. with a credit card on which they will have a small additional flexible credit
facility. Each month they repay the instalment loan set amount plus the amount on the
credit card. The idea is to get customers in France used to how a credit card works by
starting them with what they are used to)
Advice: What Capital One suggest for
other banking companies? (3)
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Design a Pan-European strategy
France is not flexible or liberal enough. Aim for Spain
or better still - Poland
Vary the interest rate charged dependant on the risk
profile of the individual consumer – that is true for all
markets
Before coming –understand the extent of the cultural
differences: work ethic, politics. There will be significant
financial investment which will grow out of all proportions
if you decide to get out - be very cautious regarding local
human investment
Advice: What Capital One suggest for
other banking companies? (4)
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Adaptation: be prepared to meet half way. Ideally have the
most senior manager to whom France reports as a French
speaker. Get him/her to communicate regularly in French and
in English. Consult internally on all perceived cultural
differences and get agreement on a clear path from both
external and French management then make it happen.
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Very different advertising. Nudity and sex accepted in France
but not in USA and UK
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At least 4 years testing at low volume levels in order to
understand the market. Must create a reliable risk
management model
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To avoid labour laws, base production outside of France
where employee can work longer hours
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Introduction
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Analysis
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Recommendation
Conclusion
Conclusion
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France offers a lot of benefits to foreign companies
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Foreign companies need to be conscious of and
adapt to the French culture, norms and values
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It is true that certain modifications should be made
(e.g. French Banks should be more accepting to
foreign banks entering the French Market)
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And last but not least, DO NOT ENTER THE
FRENCH MARKET ALONE!
With thanks to:
Alan Wolfson, Former Managing Director, Capital One
France
(7 Queen Alexandra Mansions,
3 Grape Street London WC28DX, UK)
Fergus Brownlee, Former Principal Managing
Director and Executive Vice President, Capital One
Europe
(Streatley House, Streatley-on-Thames, Berkshire,
RG89HY, UK)
Capital One