Commonwealth Bank: Global Expansion Strategy & Market Analysis

This report assesses the international expansion strategy of the Commonwealth Bank of Australia into France, Brazil, and Korea. It begins with an executive summary and introduction to international expansion, highlighting its importance for modern businesses. The report details the structures of the markets in France, Brazil, and Korea, including their economic situations and banking sectors. Potential issues in each market, such as non-banking competition in France, loan recoveries in Brazil, and household debt in Korea, are discussed. The report also covers future developments, foreign exchange and trade implications, and cultural aspects impacting entry into these markets. It concludes with recommendations for the Commonwealth Bank based on the analysis, providing a comprehensive overview of the opportunities and challenges associated with expanding into these three countries.

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Executive Summary
International expansion of the business is considered as most important step in the modern
business world, and it becomes necessary for the organization to consider all the aspects of the
market in which they want to conduct the activities of the business. International expansion is
deemed as most important and this is the only reason because of which proper formulation of the
strategy is required. For framing this strategy, organization needs to conduct the market analysis
of all those countries in which they want to conduct their activities. In this report, international
expansion of the Commonwealth Bank of Australia is conducted and in this context markets of
France, Brazil, and Korea are analyzed.

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Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
About the bank............................................................................................................................................4
Structures of Market...................................................................................................................................5
France......................................................................................................................................................5
Brazil........................................................................................................................................................5
Korea.......................................................................................................................................................6
Potential Issues of each market...................................................................................................................6
France......................................................................................................................................................6
Brazil........................................................................................................................................................7
Korea.......................................................................................................................................................7
Future development in each market...........................................................................................................8
France......................................................................................................................................................8
Brazil........................................................................................................................................................8
Korea.......................................................................................................................................................8
Foreign Exchange and Trade Implication.....................................................................................................9
France......................................................................................................................................................9
Brazil........................................................................................................................................................9
Korea.......................................................................................................................................................9
Conclusion...................................................................................................................................................9
Recommendations.....................................................................................................................................10
References.................................................................................................................................................11

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Introduction
International expansion is the term which mainly includes the planned expansion of the business
activities of the organization in different countries and different regions across the globe. In other
words, it is the activity through which organization make the investments in those countries
which are outside the home country of the organization. This concept mainly includes the
maintenance of the business activities in those countries.
There are number of companies which invest and build capacity in context of creating the
economies of scale. Organization mainly targets the expansion in the new markets by using their
potential in effective manner and also by creating the opportunities which are related to the
additional sustainable income. In this context, there are number of opportunities in both
developed and developing countries, as developed countries reflect the larger demands and
developing countries reflect the increasing demands. It becomes necessary for the organizations
to target the markets and develop their plans for success of the organizations (Community
figures, no date).
International expansion strategies includes the market entry strategies which mainly focus on the
primary markets, determine the target customers, channel strategy, resource allocation, offering
related to the product and service value, brand positioning, and also the creation of the operating
model. The successful market penetration strategy helps the organization in ensuring the use of
resources of the organization in suitable and efficient manner.
In context of preparing this report, organization considers the market of three different countries
that are France, Brazil, and Korea. This report mainly discuss the implication of all three
markets, which means, potential size and profitability of each market, potential issues in terms of
selling and supporting of the market, future development of the market, foreign exchange and
trade implications, and cultural aspects which impact the entry, and at end brief conclusion and
recommendations. For preparing this report, the chosen bank is the Commonwealth bank of
Australia.
About the bank
Commonwealth Bank of Australia is defined as the leading provider of the integrated financial
services and this mainly includes the retail, premium, business and institutional banking, funds
management, superannuation, insurance, investment and share-broking products and services
(Commonwealth bank, 2018). International expansion is deemed as most important and this is
the only reason because of which proper formulation of the strategy is required. For framing this
strategy, organization needs to conduct the market analysis of all those countries in which they
want to conduct their activities. In similar manner, this bank of Australia wants to expand their
business in France, Brazil, and Korea and because of this market evaluation of all three countries
are stated below-

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Structures of Market
France
Economic situation of the France is improving in steady manner, as in 2017 GD of this country
shows the tremendous growth of the 2% in comparison of the 1.1% in 2016. In recent years,
domestic demand lays the important role in this growth, but the main reason of this growth in
2018 is the acceleration in exports and this is also accompanied by the strong external demand
and the enhancing dynamic industrial activity.
Investments done by both corporates and domestic sectors is dynamic in nature, supported by the
improvements in the activity, and employment prospects in terms of the low interest rates,
sufficient credit supply, and also the economic policy measures. The structure developed by the
government in this context covers wide range of areas that are labour law, training of the
education and employees’, regimes related to the pension and unemployment, public
expenditures and entities. This also contributes to the higher potential growth and this already
shown by the indicators of the stronger business climate. In 2018, government deficits and debts
are high and this is forecasted by the French government at -2.6% and also 96.8% respectively
(FBF, 2018).
Banking sector of the France is determined as one of the six important assets of the France and
this stated by the OECD. In January 2018, banking industry of the France includes almost 347
banks. As defined by the European Banking Authority (EBA), almost three banks of France are
among the seven euro area and fall in the Global Systemically Important Banks (G-SIBs).
Financial activities reported almost 4.1% of the total value added in the France and from this
almost 60% is contributed by the banking industry (FBF, 2018).
Brazil
Retail banking system of the Brazil is effective in nature, but still this industry uses the outdate
methods in context of providing the services to its customers. There are number of banks which
develop official websites and offer maximum of their products and services through their
websites. In this country, market is dominated by the state-owned banks working at both national
and state level. There are number branches of the bank, as each and every city holds the one
major branch of the bank. The five largest banks hold almost 15000 branches in the Brazil.
Operations conducted at international level are centralized at the headquarters of the bank, and
all major branches in the larger cities handle the normal operations related to the finance and this
also includes the trade finance. All the banks of Brazil possess the correspondent’s bank across
the globe.
There are various statistics which represents the number of branches of the leading banks in the
Brazil in the February 2018. At this point of time Banco Bradesco holds almost 4,746 branches
in the Brazil and Banco do Brasil holds almost 4,740 branches (Statista, 2017). These statistics
also represent the leadings banks for the period of June 2017 in terms of the total assets value. In

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this context, Banco do Brasil holds the ranking in terms of total assets value of more than 451.1
billion U.S. dollars, and this followed by the Itaú Unibanco with total assets worth over 410.2
billion dollars (Statista, 2017).
Korea
The Banking industry of Korea includes almost three groups that are a central bank (BOK),
deposit money banks, as this includes commercial and specialized banks, and nonbank financial
institutions (NBFIs). South Korea is deemed as the fourth largest economy in Asia and 12th
largest economy across the globe. This country includes the population of 50 million and also
reflects the growth of GD that is 4.5%. Economy of this country is fall under the G-20 major
economies and they are also the member of the OECD. Market of Korea is deemed as the 6th
largest export market of Asia. It must be noted that, more goods and services are exported by UK
to the Korea in comparison of the EU country bar Germany (Export. Gov, 2018).
With EU Korea, FTA is implemented from 1 July 2011 and this is the reason because of which
foreign investors are attracted towards the market. Korea is deemed as the highly developed and
profitable financial services sector and it also possess the largest insurance market and also the
third largest banking sector in the Asia. The stability of the banking sector is supported by strong
fundamentals (Amazon S3, 2012).
Potential Issues of each market
France
There are number of non-banking organizations which are not only entering in the retail
payments market in the euro area, but they are also entering into the lending business, and this is
considered as the big challenges for the banking industry of France. From last few years, there is
high trend of the capital market-based financing in the euro area and this is driven by both the
factors that are deleveraging among banks and the very low cost of the market finance. In future
the capital markets unions (CMU) projects the promises to ensure he more deep market in the
Europe, and this makes the things easier for the new firms to access the risk capital and small
organizations to issue the bonds in the market, and it also deepening the markets for the high
quality securitization (European Central Bank, 2015).
It must be noted that, in the long time period capital markets results in the more competition in
terms of the financial services and this weakens the market power of banks. This can be
understood with the help of example; research looking at the period of pre-crises stated that there
is very limited competition in the suggested markets.
Brazil
Loan recoveries are considered as the big challenge for the banking industry of Brazil and this is
accompanied with the continued tough macroeconomic environment in the year 2017. Another

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issue for the Brazil banking sector is the asset quality. Corporate organizations only focus on
improving the marginal cost but still there is continuous increase in the unemployment and also
the household in-debt. Asset quality and provisions trends in the year 2017 are not that much
negative as it was in the year 2016, especially in context of the high problematic cases in the
corporate sector last year (The World Bank, no date). However, in case of banking sector asset
quality trends are changing till the great evidences are present which shows recovery also the
strong growth trends in the economy of the Brazil. It is forecasted by the experts that economic
growth in the Brazil reflect the rise of 0.7% in the year of 2016 and this also followed by the
deep reductions in 2015-16 and this also reflect the negative look of Brazilian banking sector.
Gross of recoveries in the three largest private banks of Brazil have increased in significant
manner throughout the recession period in the year 2015-16, as this reached BRL58 billion in the
year 2015 in comparison of the BRL44 billion in 2014 which shows the increment of 32%.
In similar manner, renegotiation of the loans for this group of banks reached almost reached
BRL56 billion in 2016 and this clearly represents the increase of 38% from the pre-recession in
the year 2014. In historic time, increase in the revenue from loan recoveries is considered as an
important factor and it also strengthening the net interest margins, and it happens especially in
those situations when asset quality is weak and provisions expenses remains high. It must be
noted that, recovery revenues in 2016 were below the average, and averaging roughly 17% of
banks net income versus the 22% average recorded in the year 2008-2010 and this result in the
global financial crises (Reuters, 2017).
Korea
The biggest issue faced by Korean banking sector deals with the increasing household debt and
also with the mortgage-backed housing purchases. Debt related to the house continuously builds
up faster in comparison of the disposable income, and this shows the increase of 10.4% on yearly
basis by the end of the September 2015 (The Economist, 2016). Additionally, in September the
non-performing loan ratio is low that was 1.8%, but as highlighted by the Banking sector the
payment issues. These payment issues slow down the rates of economic expansion, especially as
there is increase in the wages and this directly affects the GDP growth. Whether it is possible for
the banking sector to increase its policy interest rates in the year 2017 in context of containing
the fast growing household leverage, and this also result in the financial instability and also big
risk (Ji & Park, no date).
Future development in each market
France
Banking industry of France holds immense potential and there are number of opportunities
which are present in the ambit of the banking industry for the new entrants of the market. Some
of the reasons which result in the future development of the banking sector of France is stated
below-

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 For the participants of market, introduction of the first European Payment Services
Directive (PSD1) in 2007 is considered as the opportunity to expand their services. Later,
this directive converted into law.
 Government also ease the license process, as before it is very difficult for the foreign
banks to get licence of banking in the France. However, new regulations make all these
things easy for the foreign banking organizations who want to expand their functions in
the France (Banking tech, 2018).
Brazil
Brazil stands for 35% of the Latin America’s GDP and it is deemed as the big market for the
start-ups. Banking industry of Brazil mainly includes those investors and entrepreneurs who do
not have any new idea and they hold number of inefficiencies. This is the biggest reason which
stated the need of the new players in the market, because through them competition in the market
increase. Following are the biggest reasons of the future developments of the Brazil banking
industry-
 Almost 84% loans of the Brazil are hold by the top five banks of this country, and this
mainly excludes the developmental banks.
 Brazil holds the one of the highest spread rates across the globe.
 It must be noted that, Brazilian People pay almost more than 300% per year in context of
the unsecured overdrafts.
 Traditional banking services are not used by almost more than 30% of the Brazilian
population.
 The more than 50 million brazilians without access to financial services represent a potential
market of about $169 billion as of July 2018.
Korea
There are number of reasons because of which future development of the banking sector of this
country can be imagined, and all these reasons are defined below-
 FTA is implemented from 1 July 2011 and this is the reason because of which foreign
investors are attracted towards the market.
 It also possesses the largest insurance market and also the third largest banking sector in
the Asia. The stability of the banking sector is supported by strong fundamentals.
Foreign Exchange and Trade Implication
France
In context of international efforts to battle the money laundering and also the financing of
terrorism, banking regulations of France reflect number of changes. New regulations mainly

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focus on reducing the anonymity of the financial transactions and also strengthen the norms
required by the financial community. Generally, all the financial transactions must be approved
by the authorized authority in banks (Export.GOV, 2017).
However, there are no restrictions or limitations are imposed on the foreign investors in context
of the converting, transferring, or repatriating funds which are associated with the assignment.
Those funds which are accompanied with the investments can be freely converted from euro to
U.S. dollars or any other world currency (Export.GOV, 2017).
Brazil
As defined by the legislation in the Brazil, concept of the international capital is classified into
two parts that are foreign capital in the country and Brazilian capital abroad. It is necessary that
foreign capital in the Brazil must be registered with the Central Bank of Brazil, and in this
context registration is done with the help of self- declaration in an individual manner in the
foreign or local currency. In other words, capital invested in Brazil by the foreign investors must
be declared to the BCB, and this obligation is stated by the present law and regulations (BCB,
2015).
Korea
Foreign exchange controls in Korea are much liberalized, and this happens in context with the
OECD benchmarks. Any foreign investors which invest their funds in lieu of the Foreign Capital
Promotion Act are allowed to dispatch the substantial part of their profits on the condition that
they submit the audited financial statement to their foreign exchange bank.
In situation of withdrawing the capital, a stock valuation report which is issued by the recognized
securities company or the Korean Appraisal Board must be shown (Export. Gov,2018).
Conclusion
After considering the facts of this report, it is clear that all three markets hold their own potential
capabilities and issue. It is necessary for the Commonwealth Bank of Australia to frame their
international expansion strategies on the basis of the market evaluation of all three countries that
are Korea, France, and Brazil.
Banking sector of the France is determined as one of the six important assets of the France and
this stated by the OECD. In recent years, domestic demand lays the important role in this growth,
but the main reason of this growth in 2018 is the acceleration in exports and this is also
accompanied by the strong external demand and the enhancing dynamic industrial activity.
Retail banking system of the Brazil is effective in nature, but still this industry uses the outdate
methods in context of providing the services to its customers. There are number branches of the
bank, as each and every city holds the one major branch of the bank. The five largest banks hold
almost 15000 branches in the Brazil.

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The Banking industry of Korea includes almost three groups that are a central bank (BOK),
deposit money banks, as this includes commercial and specialized banks, and nonbank financial
institutions (NBFIs). South Korea is deemed as the fourth largest economy in Asia and 12th
largest economy across the globe.
Recommendations
It is clear from the above facts that each and every market of the above stated countries holds the
potential to accelerate the growth of their banking industry. However, the most profitable
markets are France and Korea because both the markets provide number of future opportunities
to their players. Banking industry of France holds immense potential and there are number of
opportunities which are present in the ambit of the banking industry for the new entrants of the
market. On the other hand, FTA is implemented from 1 July 2011 and this is the reason because
of which foreign investors are attracted towards the market. In case of Brazil, all these
opportunities are present but this market is little unstable. Loan recoveries are considered as the
big challenge for the banking industry of Brazil and this is accompanied with the continued
tough macroeconomic environment in the year 2017. Another issue for the Brazil banking sector
is the asset quality. Therefore, it is recommended to the Commonwealth Bank of Australia to
focus on the markets of France and Korea.

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References
AmazonS3, (2012). Financial Services sector in South Korea. Available at
https://webcache.googleusercontent.com/search?q=cache:xk-2VO_hTIcJ:https://
s3.amazonaws.com/ProductionContentBucket/pdf/
20121202135316616.pdf+&cd=1&hl=en&ct=clnk&gl=in. Accessed on 27th September 2018.
BCB, (2015). International Capitals and Foreign Exchange Market in Brazil. Available at
https://www.bcb.gov.br/rex/legCE/Ingl/Ftp/International_Capitals_and_Foreign_Exchange_Mar
ket_at_Brazil.pdf. Accessed on 27th September 2018.
Commonwealth Bank of Australia, (no date). Our company. Available at
https://www.commbank.com.au/about-us/our-company.html#exec. Accessed on 27th September
2018.
Community Figures, (no date). Business Expansion: Expansion Strategies. Available at
https://www.cf-sn.ca/business/business_expansion/expansion.php. Accessed on 27th September
2018.
European Central Bank, (2015). Three challenges for the banking sector. Available at
https://www.ecb.europa.eu/press/key/date/2015/html/sp151112_1.en.html. Accessed on 27th
September 2018.
Export. Gov, (2018). Brazil - Financing/Banking Systems. Available at
https://www.export.gov/article?id=Brazil-Banking-Systems. Accessed on 27th September 2018.
Export.Gov, (2017). France - 6-Financial Sector. Available at https://www.export.gov/article?
id=France-Efficient-Capital-Markets. Accessed on 27th September 2018.
Export.Gov, (2017). France - Foreign Exchange Controls. Available at
https://www.export.gov/article?id=France-Foreign-Exchange-Controls. Accessed on 27th
September 2018.
Export.Gov, (2018). Korea - Banking Systems. Available at https://www.export.gov/article?
id=Korea-Banking-Systems. Accessed on 27th September 2018.
Export.Gov, (2018). Korea - Foreign Exchange Controls. Available at
https://www.export.gov/article?id=Korea-Foreign-Exchange-Controls. Accessed on 27th
September 2018.
FBF, (2018). France’s banking sector: Facts & Figures. Available at https://www.ebf.eu/france/.
Accessed on 27th September 2018.
FBF, (2018). The French banking sector - Facts and Figures. Available at
http://www.fbf.fr/en/files/AK3ELK/12072018_FACTS_AND_FIGURES_01.PDF. Accessed on
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Ji, D. & park, J. (no date. The Korean Banking Sector: Current Issues and Future Direction.
Available at https://aric.adb.org/pdf/aem/external/financial_market/Republic_of_Korea/
korea_bnk.pdf. Accessed on 27th September 2018.
Mar Ventures, (no date. Financial services in Brazil are primed for disruption. Here’s why.
Available at https://medium.com/marventures/financial-services-in-brazil-are-primed-for-
disruption-heres-why-69b7d11322a0.
Reuters, (2017). Fitch: Economy to Limit Brazil Banks' Problem Loan Recovery Rate. Available
at https://www.reuters.com/article/fitch-economy-to-limit-brazil-banks-prob-idUSFit996702.
Accessed on 27th September 2018.
Statista, (2017). Leading banks in Brazil in 2017, based on total assets (in billion U.S. dollars).
Available at https://www.statista.com/statistics/857454/leading-banks-brazil-total-assets/.
Accessed on 27th September 2018.
The Economist, (2016). South Korea financial services. Available at
http://www.eiu.com/industry/article/754045659/south-korea-banking-sector-risk/2016-03-10.
Accessed on 27th September 2018.
The World Bank, (no date). Brazil Faces the Challenge of Resuming Growth without
Backtracking on its Social Achievements. Available at
http://www.worldbank.org/en/country/brazil/publication/brazil-how-resume-growth-keep-social-
progress. Accessed on 27th September 2018.