Internationalization may be considered one of the prominent ways to gain additional profits and find new clientele. Opening an overseas office as a bank is a challenging endeavor that requires preparation and situation analysis. For example, if a bank wants to be represented in Spain, it has to be aware of several instances, including cultural, legal, political system, financial, and economic issues. Thus, in this essay the key considerations of international business practices related to banks will be reviewed.
In terms of culture, Spain is a western country with unique traditions and historical heritage. One of the critical aspects of daily manifestations of cultural tradition is siesta or mid-day break time. In the banking sphere, the working hours are usually from 8 a.m. till 2 p.m. (Brias, 2017). Ethically, Spain is divided into two major groups such as Spanish and Catalonian which seem to be protective of their distinctive cultural heritage. Some social traits may include the value for family ties, hospitality, and civility. In terms of education, 80% of people have at least a secondary degree, while 40% have a post-secondary one (“Spain country profile,” 2019).
The legal system is a representative of a civil legal tradition. The courts are subdivided by the level of authority, each of which holds the country’s constitution as the source of legal practice. Politically, the country is a fully democratic one and is run by a prime minister whose decisions are influenced by a two-chamber parliament.
According to Brias (2017), Spain has a deregulated market economy with a low level of intervention from the government (“Spain country profile,” 2019). In general, Spain welcomes foreign capital as an investment in the country’s economy and an establishment of new ventures. Intervention into private sector also remains low, with elements of control being taxes, corporate law, and external audit. Since in the U.S. private sector is regulated in a similar fashion, the impact will be minimal as long, as the bank complies with all regulatory rules.
An economic system in Spain seems to be fully integrated into the global economy and functions in accord with information-age patterns. By GDP, the Spanish economy is ranked 13th (IMF, 2018). By type, the country is a mixed economy, with strong and vast freedoms for private sector and elements of a planning system as well as government regulations. Spain’s historical economy growth could be attributed to a colonial era and capitalist market followed by a period of pre-war political and economic decline that transitioned to joining the European Union and a period of growth.
Spanish international trade is centered on the import of raw materials, fuels, consumer goods, and so on. While export mostly consists of automobiles, car parts, medicine, food, and crops. Madrid is one of the financial capitals of Europe, which houses the largest banks from around the world such as J.P. Morgan, Banco Santander, HSBC, Barclays, Deutsche Bank, and others.
Despite its allegiance to fostering international trade and cooperation, the Spanish government is protective of its trade in the sphere of agriculture and bans the import of the U.S. modified seeds (International Trade Administration, 2018). The same situation can be observed in the commodity goods sector. Therefore, the government exercises protective policies in the key spheres of the Spanish economy and trade. Per se, this situation will unlikely affect the sphere of financial investments, as capital flows and investments are safe to traverse Spanish borders (International Trade Administration, 2018). In addition, according to the latest data provided by the U.S. Bureau of Economic and Business Affairs (2018), Spain is open to foreign investment to support its economic development, which suggests that banks are more than welcome there.
Having an office in Spain will doubtfully restrain the bank from investing in developing countries. In fact, the financial institution may even benefit from the fact of establishing an office in this country. An influx of local capital can increase the bank’s potential to use foreign direct investment or other instruments to finance prominent projects abroad. International banks are known to invest in a variety of activities throughout the globe, which suggests that opening an office in a foreign country does not diminish such financial entities’ capability to use the capital for allocating with companies.
According to the Spanish Ministry of Foreign Affairs, the European Union and Cooperation (n.d.), Spain is tied closely to the process of regional integration of African countries. Since the time when the majority of the African nations proclaimed their independence, they have been cooperating with major European countries in terms of economic, political, and social development. Spain is reported to have been an active investor in African economies, having the ninth largest FDI, and over 40 billion worth of exports in different countries on that continent (Zanon, 2017). Spain is engaged tightly in cooperating with the African Union, an organization that fosters the development of economic, political, and social unity among African countries. The Spanish contribution there is that of a financial investor and a foreign policy advisor. In addition to that, Spain is in good relationship with Economic Community of West African States (ECOWAS) which aims specifically at trade and economy affairs in a number of African nations (Ministry of Foreign Affairs, European Union and Cooperation, n.d.). Overall, Spain acts as an EU ambassador in Africa and partakes in peace negotiations, and stability initiatives.
Spain is an excellent location for a bank for a number of reasons. One advantage of choosing this country as a location for establishing an office is that it is one of the financial capitals of Europe. Madrid hosts dozens of European and American banks which ensures proper flow of capital and information. In addition, the culture of European nations is not radically dissimilar from one in the U.S. which allows for a smoother integration process. A third reason is that despite some trade protectionism noted above, Spain is open to capital investments and financial institutions entering its borders, which speaks to the favorable business climate (Howarth & Quaglia, 2016). In addition, this country has a strong economy, one of the largest human development index, GDP and good scores in other economic and social parameters.
In comparison to other major European countries such as France, Germany, or Italy, Spain has survived a large and costly banking sector restructuring facilitated by a series of mergers, which allowed to save them from collapse (Montijano, 2017). In light of this, it may be assumed that the system needs liquidity and that Spanish regulators possess sufficient expertise to successfully interfere and reform the sector when it is necessary. These two observations constitute another reason why Spain is a good location for opening a bank office. Overall, as a manager, I would assess Spain as a positive environment for foreign expansion due to the reasons listed above.
The financial risk in the form of the incomplete restructuring process and the need for the funds is worth taking. Spain is part of a European Union and other major financial powers may lend their financial support to further credit the country. In addition, one may assume that strengthening Spain’s financial state with an influx of funds in the face of a new bank will aid the global stability of a banking sector, which indirectly but sufficiently influences the wellbeing of the bank in question. It may be of concern to some stakeholders, such as owners of the bank or its customers, but in the long run, a priority for international prosperity and preservation of status quo is an ample reason for indeed opening an office in Madrid. Above that, in the wake of the recent financial instability of domestic banks, one may assume that investors and capital owners may turn their attention towards foreign banks, which may benefit the image of the bank under consideration. Therefore, the existing clients’ interests will be safeguarded by the increased liquidity influx from the new depositors, giving the bank further freedom in financial operations.
Since the goal of this regional bank is to ensure the prosperity of its clientele, measures that would allow the bank to strengthen its positions will automatically and positively contribute to it. Given that notion, the decision to become international and, moreover, establish an office in Madrid, one of the largest financial centers in Europe, is a step towards a more pronounced brand image. Thus, active growth and development could demonstrate stability and communicate depositors’ assurance in the future of the bank (Berger, El Ghoul, Guedhami, & Roman, 2016). In concordance with the brand image strengthening idea, the type of presence that would be the most suitable is the establishment of a universal branch. As opposed to an in-store branch, a universal office will signal the clients of the bank’s commitment to developing affairs in Europe as well as demonstrate its financial health.
In terms of financing, it should be taken from the official bank’s profits. Such a source will not undermine the bank’s operations and will keep clients’ interests intact. It may also try to attract investment to open an office from large-scale financial corporations in Spain that could be interested in working with this bank. Yet, the risks of this endeavor such as termination of the agreement, changes in the financial or geopolitical situation may sever the connection, and thus leave the bank vulnerable (Berger et al., 2016). Therefore, it could be deemed safer to use their own sources of funding to establish a foreign presence.
All things considered, Madrid, Spain is the final decision on the financial center fitting for the bank office. It appears to be suitable due to a variety of reasons. Spain has a strong economy, with steadily growing GDP, welcoming investment and business climate, reasonable and effective banking sector management, and a variety of firms that may be interested in depositing their money. There may be certain risks associated with this decision such as recent instability in the European financial sector, yet, the situation is now under control, which gives a reason for confidence in the Spanish banking domain. The positions of the bank’s present clients will be strengthened through the influx of new cash deposits and active usage of bank services in Madrid. A general branch financed from the bank’s profits could be the best decision as compared to the alternatives due to its safety and image benefits.
References
Berger, A. N., El Ghoul, S., Guedhami, O., & Roman, R. A. (2016). Internationalization and bank risk. Management Science, 63(7), 2283-2301.
Brias, M. A. P. (2017). Regulating Spanish banking, 1939–1975. London, UK: Routledge.
Howarth, D., & Quaglia, L. (2016). The political economy of a European banking union. Oxford, UK: Oxford University Press.
International Monetary Fund (IMF). (2018). Report for selected countries and subjects. Web.
International Trade Administration. (2018). Spain – Trade barriers. Web.
Ministry of Foreign Affairs, the European Union and Cooperation. (n.d.). Regional integration. Web.
Montijano, M. (2017). Spain to recoup bailout funds with the merger of rescued banks.Bloomberg. Web.
Spain country profile. (2019). Web.
Zanon, A. (2017). Spanish FDI in Africa: High returns, new risks. Web.