Overview
The American International Bank is a multinational corporation specializing in wholesale banking services. The bank has numerous of its subsidiaries in many parts of the world. Its core business is to meet the requirements of its customers overseas by offering a full range of banking and investment banking services. Since its inception, the bank has managed to build a cordial relationship with its internationally varied clients. The cordial relationship is premised on a close link between the management of the bank and its subsidies management and client management. The credibility of the bank has emanated from the way it treats and deals with its customers. For instance, the fact that each of the branch managers, flanked by an account representative, met with officers representing the bank’s client companies. This was done every month and concerned business status and vital requirements for banking. This kind of engagement was healthy for the bank’s financial performance and its capital base.
It is important to mention that the company has over the past several years enjoyed a wide customer base, and this has served to enable the company to expand and enhance its international and global operations. The success of the American International Bank has also been facilitated by the fact that every branch manager, both locally and abroad, has been empowered to work semi-autonomously; the branches operate with minimum interference from the main office. This implies that the branches can implement varied strategies that may be different from those of the main office but within set policy frameworks.
The almost total independent operation of the branches might have made it easier for the bank as a whole to utilize the knowledge and innovative skills of branch managers which has seen an increased client base of the company. Definitely, this strategy must have made it also easy for the foreign subsidiaries to comply with laws and business policies of the host countries; besides, the strategy is also beneficial in that it enabled the bank to come up with quick solutions to different clients situated all over the world. In addition, it is evident that the managers have been able to solve clients’ problems and challenges related to banking services without necessarily seeking opinion or related information from the head office; this has also reduced the red tapes that may hinder the process of resolving any challenge that may arise at within a subsidiary branch, whether in the domestic industry or overseas.
Key business issues and opportunities
Due to the current challenges facing the bank now, the top management is deeply concerned with how they can maintain the operations of the company. The key business issues of the American International Bank are to secure the bank’s investments in Portugal. The coup d’etat that took place in Portugal had significant effects on the business landscape and completely changed the way business activities were being conducted. Most significantly, the coup d’etat led to a freezing of all foreign owned assets and investments by the coup d’etat leaders. The American International Bank had already made many investments in Portugal and hence was one of the many multinational corporations affected by the directive that was issued ordering the foreign-owned assets and investments frozen and also imposed strict control on currencies to ensure all the capital assets remained in Portugal.
Unfortunately, the information regarding the exposure of the American International Bank in Portugal had not been known at the time of the coup and subsequent directive by the military dictator. This placed the bank in an awkward position. It became difficult for the bank officials to find relevant information regarding the bank’s complete activities in Portugal before the coup took place. This is an indication that the subsidiary branch of the bank in Portugal never kept in formation about the bank’s exposure in Portugal both in terms of country and currency. In the cases of exposure, some factors determine the exposure of a business entity or multinational corporation; in this case, it is the American International Bank.
Amongst these factors are revenue sources, production facilities and risk management products. Probably the overseas subsidiary managers might have assumed that the issues of such exposure were to be handled by the bank’s headquarters. Seemingly, the manager of foreign operations never had any information regarding the American International Bank’s exposure in Portugal; this is the reason she had to make phone calls to every overseas branch manager. The consequence of this is great; the process of making the international calls might have been relatively cheap, given that it was the only way to gather vital information about the bank’s exposure, but the corporation as a whole used a lot of money which definitely caused a reduction in its capital asset or rather had negative financial effects in the bank’s books of account.
Moreover, the information that was gathered manually from all the subsidiaries in the country in question was reported not to be accurate. The implication of this is that there is a serious weakness in terms of keeping the records of information about the whole of the American International Bank fraternity. This is rather a failure of the whole system than individual overseas subsidiaries. The consequences of this failure are that the bank stands a potential chance of losing revenues earned from Portugal plus all the assets whose values are not accurately known to the bank. Further, the bank was at risk of experiencing defaults on loans repayment due to the freeze and currency controls imposed by the dictator who used a coup to take power in Portugal. The bank also risks incurring losses related to its real estate assets of fixed assets already acquired in Portugal by the time of the unexpected coup and subsequent directives regarding the freeze of foreign investments in the country and currency controls. This is worsened by manual keeping of records which is a big hindrance to the tabulation of proper records relating to the bank’s activities in Portugal and other parts of the world where the bank has established its subsidiaries.
Selling loans is part of a banks business whether operating at local or at a global level [2]. In most cases, loans are secured or backed up by collateral such as land, buildings, vehicles and other real estate property. In such cases as presented by the coup in Portugal, the American International Bank was bound to lose revenues since it would be unable to either recover its funds or attach the collaterals; this would be due to freezing imposed on foreign-owned assets which also affected the collaterals. It means the bank might have lost a large amount of money in terms of loans default and also failed payment of periodical interest as per agreement between the subsidiary branches and their clients.
In every business undertaking, there must be a concern with risks and consequences that can potentially arise from such risks. The need for mitigating either possible or potentially existing risks necessitates the need to establish some risk management strategies. Without such strategies in place, a business entity is bound to lose in business, especially a multinational national corporation like the American International Bank. It is important to note that the risks that the bank ran into, might have greatly been aggravated by the possible absence of proper risk management strategies in place both in Portugal subsidiaries and subsidiaries in other parts of the globe. Critical is the fact that the bank may experience a similar scenario in other countries especially where the political environment is volatile. As much as the lack of proper risk management strategies was an issue in Portugal, in other countries where the bank operates, it remains a disaster in waiting.
The poor or inefficient recording system also led to a shocking revelation about the banks unintended level of transactions. Was it not for the need to compile reports about the bank’s exposure in Portugal, the bank might have experienced a lot of losses resulting from just a single transaction? In brief, the transaction was between the bank and one of the main manufacturers of automobiles in Europe; the manufacturer was one of the major clients of the bank. Surprisingly, the company was able to withdraw more than $50 loan that was to be advanced by the bank. The withdrawals took place in different subsidiary branches. This implies the automobile company might have been aware of some weaknesses within the whole of the system in which the American International Bank operates. Conducting more scrutiny on the operations of the subsidiaries in Portugal and also an extension of the same to other subsidiaries spread all over the world may reveal more of such dealings.
Looking at the underlying reasons for such a scenario, it can be deduced that the whole problem might have stemmed from the fact that all the bank’s subsidiary branches were allowed to operate almost autonomously. This was facilitated by a lack of coordination amongst the bank’s European branches. That was amongst the indicators of lack of proper risk strategies put in place to cab incidences such as the one the bank and the European automobile manufacturer found themselves in. the fact here is that the bank could have had more funds at its disposal to advance loans to its other clients and expect more revenues from charged as interest. It can therefore be safely argued that the transaction reduced the bank’s capacity to pursue more business interest. Besides, without the coup that necessitated audit of all branches of the bank, the bank might have lost a lot of opportunities due to such incidents or related factors from the same region and or other parts of the world where the bank’s branches operate.
It is important to note that when a company or a corporation starts, it operates on a small scale and does not meet big challenges; it means that the corporation’s operations can still be termed as simple. However, it must be acknowledged that as it grows and expands its operations until it goes global, it becomes complex in terms of operations and management. As the corporation expands its services and penetrates more market segments through establishing subsidiaries, it becomes more and more important to have proper coordination amongst the subsidiaries. The coordination should entail sharing vital information about the clients; in fact, the information should be shared from a centre so that any branch can easily and effectively access information from all other branches. The bank failed concerning this.
Allowing the branches to operate independently was the main cause of the lack of coordination in the bank’s system of operations. Going back to the issue of the European automobile manufacturer, each of the European branches never had information regarding transactions in other branches; and because the automobile manufacturer was a critical client to the American International Bank the branch managers never questioned the company’s withdrawals. Logically, the information about the transaction was not circulated amongst the branches and this was coupled with the fact that the branch managers couldn’t know whether similar transactions were being processed.
Clearly, the American International Bank ignored the importance of interlinking all its subsidiaries in the world to the headquarters through an internet system. The American International Bank is a unit in spite of its many branches spread across the globe. Therefore, allowing its branches to operate autonomously without proper coordination could be deemed as a crucial mistake that was bound to cost the bank in terms of business, especially in the case of the Portugal coup and the subsequent decree of the ruling dictator. The information-sharing only happened within each subsidiary branch facilitated by computers owned by each. But, evidently, the whole system of the bank had no Local Area Network or Wide Area Network leaving it to the peril of lack of effective coordination between the larger group of the bank’s branches and the main headquarter. This is also indicative of a weak link between the managements both working at the headquarters and the subsidiary branches.
Addressing the Issues
The management of the bank can take several measures to tackle these challenges. First, the American International Bank needs to have in place an effective and efficient risk management system. It is important to note that risks faced by businesses increase as the business expands. Therefore, the best time to come up with proper risk management strategies is when business plans are being formulated. The bank must identify some of the risk factors it faces in every of its business adventure, especially in the international business arena. A proper risk management system should be able to assist the bank officials in identifying the potential risks. Over the past decades, risk management has formed part of the core business of every multinational organization (and also small and medium organization); and this brings the understanding that having a good risk management system is a fundamental part of being and staying in business.
Given this, the company should have a well-established risk management department that should be charged with the responsibility of assessing the risks of every bank’s new business ventures. In the process, the department should constantly use risk identification tools and prescribe quick action plans for any identifiable risk factor. Were the bank to have this in place, it would have been possible that the bank’s branches in Portugal would not have experienced the consequences arising from the order to freeze the foreign owned assets and also from restrictions placed on currencies by the new dictatorial regime [8].
The risk management department should involve other departments in the whole process. The company should identify and rank risks that are intrinsic in the strategies, overall goals, and objectives of the bank taking into account, also, the bank’s appetite for risks. The risk management department should identify what risks the bank cannot take and give appropriate directions. Besides, it will be important for the management to monitor and evaluate how effective risk management strategies put into place are with a view of constantly improving them. Most importantly, the bank should learn from the recent experience and design appropriate interventions to avoid possible reoccurrence of the same scenario. The risk management department so established should conduct a thorough investigation of all the branches all over the world to determine whether the bank’s clients might have repeated similar transactions in other branches without the notice of the branch managers. This may also reveal other loopholes through which the bank might have been losing funds or may stand a chance of losing funds.
Today’s multinational corporations require very reliable and efficient network connectivity and also access to corporate resources from any part of the globe. One of the causes of the issues discussed above is the lack of a Wide Area Network to interlink all the international subsidiaries and headquarter of the American International Bank. To improve coordination amongst the subsidiaries and the head office, it will be important for the bank to introduce a strong system of Wide Area Network to facilitate sharing of information across the whole world within the system of the bank. The Wide Area Network should utilize the most current Information technological know-how [9].
The importance of information technology to the American International Bank is emphasized by its multinational status. The bank needs to ensure firm business, strategy for continuity and efficiency in its international operations. In order to achieve all these, the bank must consider having redundancy technologies. In order to keep the needed continuity, it will be important for the company to use information technologies like Wi-Fi networks and also can consider getting some products from SOHO vendors. The idea here is to ensure that proper information technology is put in place within the company system to interlink all the branches worldwide and also to the head office of the American International Bank.
Interlink between the head office and the branches and with the clients, via the internet, should be accompanied with strong backups so that should the main link experience failure, the backup is automated to take over hence ensuring continuity of the system. This means the American International Bank needs to have an information technology team that is composed of highly experienced and professional individuals; the team should be kept permanently and be charged with the responsibility of designing computer systems that work for all the branches in both the domestic market and the global market [5].
As much as the software part of the system is very important [7] for the functioning of the bank’s operations, they cannot operate in a vacuum. The software will go hand in hand with the hardware part of the information technology system. For components like system servers, running is ensured through the use of necessary gadgets. In this case, if a drive fails, the data is protected and is not lost. This implies the system data can continue to be accessed.
Once the system is complete and ready for work, it will be crucial that the information technology team should be conducting frequent system risk assessments in order to detect any identifiable potential system failure. Besides, the worn out components should be replaced as soon as possible to avoid any form of risk associated with wear and tear. However, an alternative connection should be sought in case both fail. The whole system should be supplied with constant power; there should be generators on standby so that in case of power blackout the generators go on automatically thereby ensuring uninterrupted bank operations.
Again, it is important to note the potential failure of allowing subsidiaries to operate almost independently. One of the main causes of the problems that faced the American International bank was due to the fact that each subsidiary in the overseas market operated as if it was independent. The branch managers made decisions and implemented them in their own capacities. This led to improper coordination with the other subsidiaries and head office. In order to avoid the re-occurrence of such a scenario, all the international and domestic subsidiaries should be managed from the head office with only limited devolved planning activities. After a proper information technology system is put into place, the branches should be in constant touch with the head office and besides, the branches should be mandated to provide information regarding their daily operations periodically. This should be followed by a frequent visit by the manager in charge of international operations. It will also be important for the company to ensure the branch managers are transferred to other branches to improve the operations of the branches.
Each branch of the bank should not operate with its own policies. All policies adopted by each branch should be approved by the head office before being put into operations. In fact, before any decision is affected consultations with the head office should be made to ensure the operations of the subsidiary branches are in harmony with the bank’s mission and vision statement and that they are able to achieve the set bank’s goals and objectives. Ideally, the management at the head office should provide directions on major decisions that should be made by the management at the bank’s branches spread all over the globe. To make all these effects, there should be annual and semi-annual meetings for the managers of the branches and the head office in order to deliberate on the status of the bank’s performance both locally and internationally.
Another contributory solution to the challenges is the need to do PEST and SWOT analysis periodically for the company. Noteworthy is the fact that risks are always dynamic and keep on changing with time. For that reason, the management should conduct PEST and or SWOT analysis in order to know the new threats or challenges facing the bank and new opportunities arising locally and abroad. The analyses should be carried out with lots of precision because it is really very important for the survival of the American International Bank. It can be noted that with proper information about the exposure of the bank in Portugal coupled with through PEST and SWOT analysis, the American International Bank would not have experienced the challenges; the risks would have been detected long before they happened and certain precautionary measures would have been taken. However, these analyses will serve to expose any detectable future potential challenges and opportunities [6].
In order to also avoid the scenario of Portugal, the bank must conduct a thorough audit on the political environment of every region it is planning to expand its operations too; this should be done by sending representatives to such regions to stay for a while as they monitor the political environment and factors that may be of the business concern to the bank. Also, the representations can be sent to have a talk with political leaders of the countries of interest to seek assurance of security to the bank’s business operations should be established in such countries. This will help the bank to realize the real risks it faces and any viable opportunity it is able to utilize; besides, this will offer the representative a true picture of the business environment in the regions of interest.
The business processes and real-world industry vendor product and technology solutions that will address the issues and opportunities
One of the most important industry vendor products is the eGov Risk Portfolio Manager. This eGov Risk Portfolio Manager will offer quick, cheap ways for managers to seamlessly manage the bank’s branches abroad and locally. They will be able to also manage all the programs of the bank and any other programme that may relate to the bank’s potential risks. This product is provided by an e-Management firm. This requires that the bank partners with the industry where Information Technology capital is leveraged. For sustained functioning of the interlinkages amongst the bank’s branches, the bank should purchase multiple information technology products. These products should be ensuring that the data is securely transferred into and out of the network (LAN). For Local Area Network, there is a requirement for a router that will pass data traffic between the Local Area Network and internet, a firewall to protect the system from harm, TI lines and or services of Frame Relays to sustain access to the head office and appliances for a network in order to support remote users connecting through Virtual Private Network [3].
There are also fundamental requirements for Wide Area Network. Flexibility and scalability is a requirement; this safeguards the future of the bank’s network. The scalability and flexibility of the internet devices will increase and enhance the business performance of the American International Bank. WAN also requires a Modular Interface device to allow a singular platform on which a broad variance in internet connectivity solutions is based on the company’s needs concerning Wide Area Network and Local Area Network. Another important device is Standard Based devices such as IEEE which is mainly used for data networking and IETF charged with internet protocols. Other devices are Remote Authentication which provides centralized authentication services. This is achieved with either a TACACS or by the use of RADIUS servers which will store all the user passwords and username combinations; this can be parsed by the device within the network when a particular user needs access to the system’s database. Form Factor and Easy Upgrade Path are also part of the fundamental requirements for the bank’s Wide Area Network [3].
The kind of headquarter-subsidiary relationship for the bank should be in search of a way that the subsidiary is not allowed to operate independently but enable them to appropriately operate within the policy framework of the bank. Besides, the policies should allow the subsidiaries to adapt to local culture and other factors vital for their operations. During the past several decades, the headquarter-subsidiary relationships have been in such a way that the head office decided and planned for everything done by the subsidiaries. This has been found to pose some challenges arising from varied geographical business environments some of which the headquarter-generated policies may not be applicable. This, in short, means the subsidiaries have been controlled from the centre. To ensure the efficient performance of the subsidiaries, the American International Bank should formulate varied policies that suit different business environments for the subsidiaries.
The company should also adopt the strategy of partnership or joint ventures with other banks, especially those belonging to the regions where its subsidiaries are established. Besides, it should pursue the opportunities of mergers and takeovers. This kind of strategy will shield the bank from any potential risk especially financial risks that may arise due to events like illegal over-withdrawals by the bank’s major clients. Through these strategies, the bank will be able to diversify its risks and also ensure that its assets are spread all over the world thereby providing it with the opportunity to continue with its normal operation even if one or more of its subsidiaries become victims of circumstances like those in Portugal.
To take advantage of the new market segment and gain more competitive advantage, the American International Bank needs to be very innovative. It should constantly come up with new banking solutions to customers through innovations; the bank can improve on its existing products or introduce new products into the market. This may also mean the company should come up with marketing strategies that will reposition its products in the world market. This includes having an appropriate market communication mix and product promotion mix that should be varied according to regional diversities. In order to succeed at this, the bank requires decentralizing its marketing communication strategies and has marketing managers in every subsidiary abroad to facilitate the entire process of introducing new products in the market. Again, it may be necessary for the bank to re-brand its existing products in order to give them new looks in the global market segments.
It is not contestable that the American International Bank stands to lose a lot of revenues and property in Portugal after the new dictatorial government issued a directive that froze all foreign owned assets and further imposed control on currencies to ensure capital products never left the country. The top executive leadership of the bank should find ways of travelling to Portugal to seek the audience of the government about the frozen assets. The management should try to convince the government of Portugal to release the frozen assets of the bank and subsequently allow the transfer of funds to the head office or to other parts of the world where the bank’s subsidiaries are operational. Alternatively, the American International Bank, together with other American multinational corporations which might have been victims, should collaborate with the government’s secretary for foreign affairs to negotiate with the government of Portugal to release all the assets frozen after the coup. Should all these not work, the American International Bank should consider negotiating for sales of its assets to the government of Portugal or any other Portuguese owned corporation that is ready to buy the assets or take over the control of the bank’s businesses in Portugal.
The American International Bank should float its shares to various investors in the regions of its operations. This will give the members of those regions some level of ownership of the bank. This will mean that the bank is not exclusively foreign owned. The advantage of this is that it will partially shield the bank from the risks of losing all its investments like in the case of after coop de tat in Portugal. This means that should any loss occur, a loss is shared amongst other shareholders too, hence the bank stands to lose less than what it stands to lose in Portugal [4]. This will also serve as a precautionary measure against future risks related to the Portugal scenario.
Specific business, financial and technology benefits of the proposed solutions
If implemented, the proposed solutions will have a lot of benefits to the American International Bank. One of the major benefits is that they will have automated customer information both in the domestic market and markets abroad. The management, especially the manager in charge of international affairs, will be able to pull up electronic files of each of the clients of the bank and be able to establish the current account balances of every customer, outstanding loans, the position of the bank’s foreign exchange and other vital data that may be required for the smooth running of the bank’s operation. The well-established internet system linking all the subsidiaries will enable access to information in a given branch from any part of the world.
Moreover, the application of modern technology will enable faster and efficient communication amongst the subsidiary branches abroad. The international branch managers will be able to track a client’s information relating to previous transactions with the bank in any of its international branches; this will happen in real-time and its benefit is that it will prevent clients from seeking bank services beyond negotiated level. Like in the case of the European automobiles manufacturing company that withdrew more than the amount advanced to it in form of loans. As a result of this, the company will safeguard its finance from any unscrupulous deals.
This will also be important to the head office since it will be able to track the activities of the subsidiary branches established overseas. Further, more, it will be able to get data and other related information from all the branches within a very short time (at the mouse click).
Putting in place a proper risk management system and using the right and appropriate risk detection tools will enable the bank to identify potential risks in time; this will allow the risk management department to design appropriate interventions to cab any loss that may be incurred. Early risk detection will help the company to reorganize its business strategies and decide on the appropriate action. If this were the case, the bank would have sensed the political environment in Portugal and very fast engaged on strategies to protect its assets and finance. However, this can still be mitigated in future should a similar case happen, but this will depend on the preparedness of the bank’s risk management systems, especially after the experience.
When the bank partially controls the subsidiaries, it will be able to keep track of what the branches are planning to do; in this case, the head office will be able to vet every strategy and plan of all the branches. The head office will determine the risks associated with any opportunity the branches will be seeking to venture in. it will also be able to guide how the branches should formulate different policies that will not put the entire bank at the risk of collapse as was the case in Portugal. Moreover, the top executive management of the bank will be able to scrutinize the budgets of every branch of the bank. This will help in detecting and preventing possible fraud that the branches may be involved in; besides, it will also determine whether the budgets are unnecessarily inflated or not.
Another benefit that will arise from the proposed solution is that the bank will be able to identify factors affecting the operations of the bank both locally and internationally. Through SWOT analysis the bank will be able to identify the internal (SW) and external factors (OT) of the company. PEST analysis will be of great benefit to the bank in terms of knowing how its operations are influenced or affected by political, economic, social and technological factors; these are macro-factors that may influence the business operations of the bank [1]
It has also been recommended that the company should have frequent meetings between the executive management, board of directors and all the branch managers. This will ensure all the operations of the bank are harmonized with one another. The branches managers will also be able to give brief statements on how their branches are performing to keep the whole of the management abreast will the bank’s activities and hence allow for further deliberations of how to make the activities more effective and efficient. Besides, the meeting will provide a chance for the company managers to come up with the actual financial position of the bank in its entirety. And lastly, the management will be able to formulate a strategic plan for the bank with the input of the different branch managers; the branch managers will be able to give their ideas based on their experiences in different countries.
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