Business Organizations: Santander UK Expansion in a Global Context

This report analyzes Santander UK's potential expansion into Portugal, considering the financial and banking industry's significant global economic contribution. It explores Portugal's business environment through PESTLE analysis, highlighting political stability, economic growth, social factors, technological advancements, legal frameworks, and environmental concerns. The report also employs Porter's Five Forces to assess the competitive landscape, including the threat of new entrants and the bargaining power of suppliers. Ultimately, the analysis aims to provide insights into the opportunities and challenges Santander UK may face in the Portuguese market, emphasizing the importance of understanding the local business environment for successful expansion. Desklib offers more solved assignments for students.

Business Organizations and Environments in a Global
Context
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Table of Contents
Introduction................................................................................................................................3
Background to Business Organization.......................................................................................3
Business Environment................................................................................................................4
Conclusion................................................................................................................................10
Reference list............................................................................................................................11
Appendix..................................................................................................................................13
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Introduction
Finance and banking industry is one of the largest industries in the world with a huge
contribution in the global economy. The financial services make up 20 to 30 percent of the
GDP of global economy. The contribution of Banking and finance industry are not limited to
the enhancement of GDP, it also contributes immensely for creating job and bringing the
economies of nations to a single platform of global economy.
The following study would focus on the expansion strategy of the company, Santander UK.
This company would be expanding its market to a foreign land with the purpose of enhancing
its profit margin, customer base and above all competitive benefit. Portugal has found to be a
potential market for a financial and banking organization. However, it is important to have a
proper understanding of the business environment and some other associated factors of the
nation before entering to the market. The report, therefore would conduct an external
environmental analysis of Portugal and industry analysis of the banking industry in Portugal.
Background to Business Organization
With nearly about 14 million of active customers Santander UK is considered as a renowned
large size retail and commercial bank that is headquartered in London, UK. It is a wholly
owned subsidiary of the global bank Banco Santander (santander.co, 2018). The company has
a long history of successful activities and a strong customer base. Established in 2004, the
organization is developing and upgrading its services with the flow of time in order to adapt
the changing nature of consumer expectation and the increasing competitive market scenario.
The banking sector is a major contributor to the economy of Portugal. This sector contributes
to nearly 6 percent of the national Gross Value Added of the nation. This prolific nature of
the banking industry of the nation shows the fact that the company can be benefited
significantly by expanding in this nation. It is observed that, the economy of Portugal is
resilient to global economic changes and the financial crisis of 2008 did not impacted
severely on the total assets growth of the banking sector in Portugal (apb.pt, 2018).
Due to the banking and financial organizations, the interest of nations have become more or
less dependent on one another. However, due to the high profitability of this industry, several
organizations are joining to the market making it more competitive in nature. The high
competition has made it mandatory for organizations to initiate several strategic steps for
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ensuring profitability and maintaining growth. Market expansion has found to be one of the
most profitable strategy for enhancing growth and profit. This is one of the most applicable
ways for gaining a competitive edge over the rival organizations and having a firmer grip
over the market. For example, in the year 2017, the retail and commercial bank successfully
rolled out NeoCRM, a new type of management tool for customer relationship management.
In 2016 it launched a digital end to end mortgage application process; Investment Hub was
launched by the organization for enhancing its ability to satisfy the customers. The
organization has provided nearly 154.9 billion euro UK mortgage loans and 27.billion of UK
corporate loans in the year 2016 only (santander.co, (2018). Presently, the company has huge
customer base as large as 14 million active customers and more than a 1000 branches.
Business Environment
External environmental analysis
It is essential to analyze the factors of business environment that influences the business
activities of the company. Before entering into the market of Portugal, the company must
analyze the external environment as the external environment has significant influence on
activities, functionalities and decision making process of the company. The external
environmental analysis of the organization can be done with the help of using PESTLE
framework.
The external environmental analysis of Portugal and the way it can influence the
functionalities of the organization Santander UK are conducted with the help of PESTLE
framework in the following section.
PESTLE:
Political factor:
Being a developed nation and a part of the EU nations, Portugal political scenario shows a
stable and optimistic future. The government is collaborative with the organizations entering
to this nation. The stable and positive relation with nations can help Santander UK further
enhance its business.
The banking system of Portugal has seen remarkable structural changes within the last three
decades. It has seen a shift from government controlled system to a system that is chiefly
market driven environment. Several major government decisions like liberalization and
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harmonization in the late 1990s and some other relevant implemented legislation have bough
significant changes in the structure of banking industry and have bought the regulations of
Portuguese banking, in line with the legislative practices of EU.
However, some major political decision has resulted into bringing negative result into the
banking industry of Portugal. In the year 2016, the International Monetary Fund instructed
the government of Portugal to strengthen Portuguese banking system’s balance sheets so that
the nation can avoid negative impact and protect the interest of the tax payers (export.gov,
2018).
Economical factor
The Gross Domestic Product of Portugal was nearly Euro 173.796 billion in 2016. The
economy of Portuguese has grown by 0.7 percent on quarter over the last three months of
2017 (tradingeconomics.com, 2018). The GDP growth rate of the country has reached
significantly. It is expected that the economy of Portugal would witness a further rise. It is
estimated that the GDP growth rate of Portugal would trend around 0.40 percent in the year
2020.
Figure 1: GDP growth rate of Portugal
(Source: tradingeconomics.com, 2018)
In 2017 July the nation has 0.3 GDP growths Rate that has increased to 0.7 in January 2018
and this shows that the economy of this nation is on an upward journey. This fair economy
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scenario would facilitate profitability of Santander UK. Therefore it is expected that the
economic scenario would come as a major benefit for the company.
However, the organization has to be prepared to face tough situations as the economy of this
nation is highly integrated in the Eurozone and therefore and downfall or major negative
happenings in the economic and market of Eurozone may have adverse impact on the
economy of the nation which nay further impact on Santander UK as the profitability of a
Banking organization is chiefly connected with the economy of the nation (export.gov, 2018).
One such example is the Eurozone Debt crisis that affected the banking industry. The banks
in Portugal faced dilemmas regarding losses on financial assets and gaining financing in the
international wholesale markets.
Therefore, the company must be cautious of the negative sides too while mainly focusing on
adapting positive aspects of the economy of the nation.
Social factor
Portugal holds nineteenth-highest quality of life index rating in the world as of 2005
(economist.com, 2018). Due to the fair political and economical condition of the nation, the
residences of this nation live a quite wealthy life. Social forces have significant influence on
any origination in the banking industry. The changing nature of consumer behavior and the
trends in preferences of the customers can have considerable influence on success of
Santander UK. People’s habit of taking financial services has changes considerably over the
past years. For example, a few decades earlier the concept of using credit and debit cards was
a mere myth. It remained limited to upper class people for a long period of time and now has
become the mostly used type of transaction. People’s willingness to uplift lifestyle has
resulted into more dependency on banking organizations. The living style of people in
Portugal can prove to be beneficial for the organizations.
Technological factor
Technology has enabled organizations to improve its functionalities and performance.
Santander UK must utilize the bliss of technology for the purpose of improving customer
satisfaction and performances of every core and noncore functions. The company has already
adapted several technologies for enhancing its ability to reach to its customers. In back to
back two years, the company has adapted two new types of customer relationship
management tools that have helped the organization to boost up their performances to a
considerable extent. Portugal is a developed nation in terms of science and technology as.
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This nation now has more than 46,000 full time researchers belonging to various types of
fields (eeas.europa.eu, 2018).
The nation also encourages research and development which is essential for improving
technological advancement. It is expected that the company, Santander UK would be
benefited by expanding its services in this nation due to the advanced communication and
information technology of this country.
Figure 2: PESTLE
(Source: Created by author)
Legal
The banking organizations in Portugal have to abide by several banking regulations and rules
regulated and monitored under Banco de Portugal, the central bank of Portugal. The
Portuguese regulatory regime is imposed on the banking institutions in Portugal and the
financial organizations are subjected to “Legal Framework of Payment Institutions and
Payment Services, enacted by Decree-Law No. 317/2009, of 30 October” (thelawreviews,
2018).
Along with the banking regulations the organization would also has to have a clear
perceptions regarding the rules and regulations that may have significant influence on the
functionalities of the company. It has to comply with employment regulations, environmental
regulations are others while operating on the soil of Portugal. The organization must have
proper understanding of the regulations in order to avoid any unprecedented legal hassle. The
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Exter
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Social
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Legal
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legal factors sometime limit activities of the company and sometimes help in managing law
and order and avoid chances of fraudulent activities.
Environmental
With the fast growth of industrialization, climate change has become a major concern.
Human civilization is engulfing the environment that is the base of its existence. Companies
are bound with the task to reduce negative impact on nature. E-waste is a major
environmental concern in Portugal and the banking sector has a major contribution in this
(Yip and Bocken, 2018). Santander UK must restore to such practices that can have less
negative impact in environment and must initiate proper CSR strategies so that it can ensure
that it is concerned about the environmental aspects of Portugal.
Porter’s Five Forces
The Porter’s Five Forces Analysis helps organizations in assessing the factors that could have
a direct impact on the firm’s profitability. The different causes for such effects are
categorized into five different categories, each of which has been discussed below.
Figure 3: Porters Five Forces Framework
(Source: Insight, 2018)
Threat of new entrants: Since Portugal is still considered a developing country, with many
fluctuations in their economy, the prospect for new banks is always appealing. However, with
the introduction of new banks, there is a change in the ways of doing things. Reduced costs,
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newer and lower pricing strategies and new value propositions, are some of the factors that
Bank Santander will have to keep in mind for smooth functioning (Claessens and Horen,
2014). At the same time, they will also have to build effective barriers through correct market
study. Thus, for bank Santander’s functioning in Portugal, the threat of new entrants is high.
It should be kept in mind however, that Bank Santander is one of the largest international
banks in the world. To compete with them, the new entrants will either have to have similar
sizes of consumer bases or should have that extensive a reach. If these two factors are not in
play, it could be said that the threat of new entrants for Bank Santander in Portugal, is low.
Bargaining power of Suppliers: Bank Santander will have to pay high attention at getting all
of their raw materials through the various suppliers of Foreign Money Center Banks. Due to
such dependencies, suppliers tend to monopolize the market whilst lowering profit margins
for the commercial banks. However, there is enough scope for Bank Santander to make use
of its extensive reach to try and lower the impact of these suppliers on their business model.
Since the powerful suppliers are open to negotiations, and have shown trends in the past,
Bank Santander in Portugal will have to pay the required attention so that they are able to
extract deals that can maximize their profit margins. Although experts are of the view that the
suppliers have a high impact on the commercial banks’ profitability, it goes without saying
that Bank Santander will have to create efficient supply chains and manage them accordingly
in order to maintain competitive advantage. In conclusion however, the bargaining power of
suppliers in Portugal will be high.
Bargaining power of Buyers: The factor that determines the impact of the bargaining power
of buyers in Portugal is the number of customers that a firm caters to. If the consumer base is
small, the consumers tend to monopolize the market with very little scope of negotiation
(Mongelli et al., 2017). At the same time, this consumer base also demands top-of-the-line
products for as minimal prices as possible. From the perspectives of Bank Santander, their
initial starting years should see the consumers have a high power of bargaining.
However, as is logical, this power should deteriorate with time, as and when the consumer
base keeps getting larger. Bank Santander shall focus on not only proper management
decisions but try to include as many new services as possible. A lengthier product line could
help Bank Santander in optimizing the bargaining power of suppliers in Portugal. However,
as of now, this power is high.
Threat of substitute
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The existing and new firms in this industry can be considered as the substitute of this
company. Despite the major retail organizations, some payment banks are there that are
considered as substitute of the core banking organizations. However, the threat of substitute
is comparative lower in Portugal.
Rivalry among existing organizations
The banking sector in Portugal is quite prolific in nature and consists of some major banking
organizations. Some of the major companies that have firm grip over the Banking market of
Portugal are Banco Best, Banco BIC, Banco BPI, Banco Comercial Portugues, Banco
Espírito Santo e Comercial de Lisboa (BES), Banco Espirito Santo, Banco Santander Totta
and some others (www.ecbs.org, 2018).
Organizations like Banco Comercial Portugues, Banco Espírito Santo e Comercial de Lisboa
(BES), have high market share and therefore the company Santander UK may face a hard
competition from the existing market player in the banking industry of Portugal.
Conclusion
The above analysis provides a beneficial understanding of the business environment and
industry analysis for Bank Santander. The company would be expanding its business to the
market of Portugal and therefore needs to have proper understanding of the business
environment and the market scenario. The above discussion provides analysis of the major
factors that are going to influence the company. It is observed that the political, social,
technological scenario of the nation is quite optimistic, while the economic scenario may
sometime prove to be volatile and disadvantageous for the company. From the porter’s five
forces analysis, it is understood that the company may face tough competition from the
market payer while the threat of substitute would be lower.
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Reference list
apb.pt. (2018). PORTUGUESE BANKING SECTOR OVERVIEW. [online] Available at:
http://bo.apb.pt/content/files/Portuguese_Banking_Sector_Overview_2.pdf [Accessed 10
Mar. 2018].
Claessens, S. and Horen, N., 2014. Foreign banks: Trends and impact. Journal of Money,
Credit and Banking, 46(s1), pp.295-326.
economist.com. (2018). The Economist Intelligence Unit’s quality-of-life index. [online]
Available at: https://www.economist.com/media/pdf/QUALITY_OF_LIFE.pdf [Accessed 10
Mar. 2018].
eeas.europa.eu. (2018). PORTUGAL. [online] Available at:
http://eeas.europa.eu/archives/delegations/india/documents/snt_update_26_oct_12/
st_portugal.pdf [Accessed 10 Mar. 2018].
export.gov. (2018). Portugal- Banking. [online] Available at: https://www.export.gov/article?
id=Portugal-Banking-Systems [Accessed 10 Mar. 2018].
Insight, S. (2018). Strategic Management Insight. [online] Strategicmanagementinsight.com.
Available at: https://www.strategicmanagementinsight.com [Accessed 17 Mar. 2018].
Mongelli, F.P., Papadopoulos, G. and Reinhold, E., 2017. Are Euro Area Economic
Structures Changing?. In The Euro and the Crisis (pp. 47-72). Springer, Cham.
santander.co. (2018). about-santander-uk. [online] Available at:
https://www.santander.co.uk/uk/about-santander-uk/about-us/our-history [Accessed 10 Mar.
2018].
santander.co. (2018). santander. [online] Available at: https://www.santander.co.uk/uk/
[Accessed 10 Mar. 2018].
thelawreviews. (2018). The Banking Regulation Review - Edition 7 PORTUGAL. [online]
Available at: https://thelawreviews.co.uk/chapter/1136542/portugal [Accessed 10 Mar. 2018].
tradingeconomics.com. (2018). Portugal GDP Growth Rate - Forecast. [online] Available at:
https://tradingeconomics.com/portugal/gdp-growth/forecast [Accessed 10 Mar. 2018].
www.ecbs.org. (2018). BANKS IN COUNTRY PORTUGAL. [online] Available at:
https://www.ecbs.org/banks/portugal/ [Accessed 10 Mar. 2018].
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Yip, A.W. and Bocken, N.M., 2018. Sustainable business model archetypes for the banking
industry. Journal of Cleaner Production, 174, pp.150-169.
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