GLOBAL MARKETING RESEARCH PAPER

“BANK MANDIRI ENTRY STRATEGIES TO MEXICO”

Agung Rizky Wirawan 3104001

Alex Chandra 3104009

Anastasia Ariani Santoso 3114701

Eka Darmadi 3094802

Julian Giovanni 3104812

Masaki Iwabuchi 3122736

Faculty of Business and Economics

International Business Networking

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1. Company Profile

Bank Mandiri was established on 2 October 1998, as part of the bank

restructuring program of the Government of Indonesia. In July 1999, four state-owned

banks - Bank Bumi Daya, Bank Dagang Negara, Bank Exim and Bapindo - were

amalgamated into Bank Mandiri. The history of these four banks can be traced back to

over 140 years, and together they had contributed to the beginning of the Indonesian

banking sector.

1.1 Consolidation and Integration

Following the merger, Bank Mandiri immediately embarked on a comprehensive

consolidation process - beginning with the closure of 194 overlapping branches and a

reduction of redundant staff, bringing the combined workforce of 26,600 down to

17,620. A single brand - Bank Mandiri was rolled out throughout the national network

and across all of advertising and promotional activities. One of Bank Mandiri's most

significant early achievements was the complete overhaul of its technology platform.

The Bank inherited a total of nine different core banking systems from its four legacy

banks. After an initial investment to consolidate the systems around the strongest

inherited platform, the Bank undertook a 3-year USD 200 million program to replace the

core banking platform with one that was specifically geared towards retail banking.

Today, Bank Mandiri's IT infrastructure provides straight through processing and a

unified interface for our customers. In line with the bank's vision, Bank Mandiri tapped

into profitable business segments with growth potential so as to enable us to offer a

comprehensive range of banking services. Bank Mandiri chose to focus on key segments

including corporate, commercial, micro, retail and consumer finance - with distinctive

strategies for each business while leveraging on synergies across these different market

segments. Bank Mandiri emerged as a Domestic Multispecialist Bank in Indonesia, and

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embarked on specific initiatives that enable us to grow and achieve dominant market

share of revenue in our focus segments. In addition, Bank Mandiri aims to be a Regional

Champion Bank - a public-listed bank that would be measured by market capitalization

and ranked high amongst other blue chip public-listed banks in South East Asia.

1.2 Transformation Program - Stage 2 (2010 - 2014)

Bank Mandiri are now embarking on the second stage of Bank Mandiri

transformation process for the 2010-2014 period by revitalizing Bank Mandiri vision "To

be Indonesia's Most Admired and Progressive Financial Institution". By 2014, Bank

Mandiri intends to achieve a market capitalization of Rp 225 trillion, a market revenue

share of 16%, an ROA of around 2.5%, and an ROE of around 25%, while at the same

time maintaining an asset quality in a gross NPL ratio of under 4%. And by end 2014,

Bank Mandiri are determined to reach the ranks of the Top 5 Banks in ASEAN.

The Bank has set its sights to be among the Top 3 in ASEAN by 2020, in terms of

market capitalization, and to be a major regional player. In order to realize this vision,

Bank Mandiri's business transformation during the 2010-2014 period will focus on the

following three business areas:

1.2.1 Wholesale Transactions

Bank Mandiri are consolidating Bank Mandiri leadership position by offering

comprehensive financial transaction solutions and developing a holistic relationship

approach in serving Bank Mandiri corporate and commercial customers in Indonesia.

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1.2.2 Retail Deposits & Payments

Bank Mandiri are determined to become the bank of choice for consumers in the

retail deposit market by providing a unique and superior banking experience.

1.2.3 Retail Financing

Bank Mandiri goal is to become the No. 1 or 2 bank in the retail financing

segment by leading in the mortgage, personal loan, and credit card markets, and by

becoming a major player in the micro banking segment. Besides focusing on these three

strategic areas, Bank Mandiri are also strengthening Bank Mandiri organizational

structure and infrastructure (branch, IT, operations, risk management) to provide more

integrated service solutions. To successfully achieve Bank Mandiri goals, Bank Mandiri

will leverage on the critical support of Bank Mandiri human resources, technology,

prudential risk management, and good corporate governance.

1.3 Achievements to Date

As of December 2011, Bank Mandiri's total assets have reached Rp 551.9 trillion

(equivalent to USD 60.86 billion), more than double of that in 2006 (Rp 267 trillion) -

which is a growth of 15.6% (CAGR); making us the largest bank in Indonesia. Bank

Mandiri loans also grew by 22% (CAGR) to Rp 314.4 trillion (equivalent to USD 34.67

billion) from Rp 118 trillion in 2006 while Bank Mandiri net profit grew by 38.3% (CAGR)

to Rp 12.2 trillion (equivalent to USD 1.35 billion) from Rp 2.4 trillion in 2006. Besides

being the nation's largest lender (on a consolidated basis), Bank Mandiri is also the

largest depository in the country with Rp 422.3 trillion (equivalent to USD 46.57 billion)

in third party funds. In terms of asset quality, Bank Mandiri gross and net NPL ratios

stand at 2.21% and 0.52% respectively.

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One of the key milestones towards realizing Bank Mandiri's vision during the

second stage of the transformation process was the successful completion of a rights

issue in February 2011 that strengthened Bank Mandiri capital base. With this, Bank

Mandiri's capital has reached Rp 62.7 trillion (equivalent to USD 6.9 billion),

representing an increase of 48.9% year-on-year. Hence, Bank Mandiri became the first

bank in Indonesia to achieve the status of an international bank according to the

Indonesian Banking Architecture (Arsitektur Perbankan Indonesia/API).

Bank Mandiri are also supported by Bank Mandiri subsidiaries which contribute

significant income of approximately 12% to the total consolidated net profit of the Bank.

Today, Bank Mandiri has the largest ATM network with 10,000 units throughout

Indonesia. Bank Mandiri have earned the distinction of being a most trusted company in

Indonesia for corporate governance for 5 consecutive years. Bank Mandiri are ready to

become an anchor bank in Indonesia as Bank Mandiri have fulfilled the criteria set by

Bank Indonesia, and propelled ahead by Bank Mandiri vision to be Indonesia's Most

Admired and Progressive Financial Institution.

2. Overall strengths and weaknesses of Bank Mandiri

Strengths:

140 years tradition in banking industry from 4 different banks which 14 years ago

collaborated into Bank Mandiri as Bank Mandiri know now in Indonesia

Introducing new core banking system to be more efficient

Using straight-through service to all customer

Bank Mandiri customers hold major economic and industry in Indonesia such as food

and beverage manufacturers, construction, chemistry, textile, etc.

Strong management team and good corporate governance

Growing asset for more than Rp 319 trillion, with more than 21 thousand employee

in 1000 domestic offices and 6 overseas offices.

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Weaknesses:

Hard to find competent workers who have knowledge, good service, and the ability

to use their soft skill in the office

The ATM is not widely spread throughout Indonesia

Does not have big branches in small city

It is not easy to fully implement the management information system in banking

industry

Does not have variety of product and services

3. Marketing Strategy

3.1 Main Focus

Wholesale Transaction: Bank Mandiri is consolidating its leadership position by

offering comprehensive financial transaction solutions and developing a holistic

relationship approach in serving its corporate and commercial customers in

Indonesia.

Retail Deposit & Payment: Bank Mandiri is determined to become the

consumer's bank of choice in the retail deposit market by providing a unique and

superior banking experience.

Retail Financing: Bank Mandiri's goal is to become the No. 1 or 2 banks in the

retail financing segment by leading in the mortgage, personal loan, and credit

card markets, and by becoming a major player in the micro banking segment.

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3.2 Targeting

Multi-segment targeting: Corporate, Retail and Micro

Bank Mandiri has different business division that covers the entire segment in

Banking Industry almost equally. Unlike any other competitor that focuses only on single

segment only, Bank Mandiri had almost equal attention to its entire potential consumer

as a niche market that can be exploited as profit center.

For example: BCA that focuses on its retail consumer and BRI on its micro finance sector.

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3.2.1 Positioning:

Bank Mandiri has a positioning of a national local bank.

3.2.2 Product:

From Corporate and Retail, and as the government vision to support micro industry, it

had been reaching micro industry using “KTA” Kredit Tanpa Agunan

3.2.3 Price:

Lower Interest for Micro Industry

3.2.4 Place

As one of largest Banking Chain in Indonesia, Bank Mandiri had a nationwide coverage

of its banking service. Through 8,996 ATMs and brand offices across Indonesia, Bank

Mandiri provide a high customer contact to gain higher share on both retail and

corporate banking.

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3.2.5 Promotion

3.2.5.1 Micro Finance Campaign

Inline with governmental vision to increase the economic capability of Small and

Medium Enterprise (SMEs), Bank Mandiri has a comprehensive campaign to increase

the number of Micro Funding using their “Kredit Tanpa Agunan” which doesn’t require

any collateral.

3.2.5.2 Seasonal Event

Seasonal Promotion to boost the deposit or loan allocation activity that’s undergone in

special occassion such as Christmas, Idul Fitri, New Year, etc.

3.2.5.3 Customer Satisfaction Improvement

The usage of IT to increase the customer service level and customer contact such as e-

banking, m-banking, Mandiri PraBayar, etc.

4. Mexico Environment and Opportunities

4.1 Country information of Mexico

Location

Mexico is located in southern North AmericaIt is bounded on the north by the

United States; on the east by the U.S., the Gulf of Mexico, and the Caribbean Sea; on the

south by Belize and Guatemala; and on the west by the Pacific Ocean. Mexican federal

jurisdiction extends, in addition to Mexico proper, over a number of offshore islands.

The area of the country is 1,972,547 sq km, (761,604 sq mi).

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The Land of Mexico

Mexico has two major peninsulas, the Yucatan in the southeast and Baja

California in the northwest. The high Mexican Plateau forms the core of the country and

is enclosed by mountain ranges. Central Mexico is an elevated plateau dominated by

volcanic high mountains. In the Central Highlands region, there are many volcanoes, two

of which, Popocatépetl and Ixtacíhuatl, can be seen from Mexico City. Both of these are

essentially dormant, although Popocatépetl sends up steam and smoke occasionally. In

the north the central plateau drops steeply to the wide valley of the Río Grande (called

the Río Bravo in Mexico). The east coast is low and flat, though the lofty coastal

mountains in the state of Veracruz dominate its landscape.The northwestern part of the

country is predominantly low, sandy shoreline, with the plateau rising sharply behind it.

The northern Pacific slope and its interior region receive little rainfall, prompting

irrigation, though rainfall is heavy along the Gulf coast.

Natural Resources in Mexico

The mineral resources of Mexico are extremely rich and varied. Almost every

known mineral is found, including coal, iron ore, phosphates, uranium, silver, gold,

copper, lead, and zinc. Proven petroleum and natural-gas reserves are enormous, with

some of the world's largest deposits located offshore, in the Bay of Campeche. Forests

and woodland, which cover about 23% of the land, contain such valuable woods as

mahogany, ebony, walnut, and rosewood. About 13% of the land is suitable for

agriculture, but less than 10% receives enough rainfall for raising crops without

irrigation.

Population (and people, culture, language)

The Mexican population is composed of three main groups: the people of

Spanish descent, the Indians, and the people of mixed Spanish and Indian ancestry, or

mestizos. Of these groups, the mestizos are by far the largest, constituting about 60% of

the population. The Indians total about 30%. The society is semi-industrialized.

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The population of Mexico at the 2011 census (preliminary) was 108,396,000. The

estimated population density in 1990 was 41 persons per sq km (107 per sq mi). About

73 percent of Mexicans lived in urban areas (around Mexico City).

People in Mexico uses Spanish as a official language, but more than 50 Indian

languages are spoken. Religion mostly Christian (predominantly Roman Catholic; also

protestant)

Economy

Mexico has a mixed economy based on agriculture, manufacturing, and the

extraction of ptroleum and natural gas. About one-eighth of the land is arable; major

crops include corn, wheat, rice, beans, coffe, cotton, furuits, and vegetables.

Mexico is the world's leargest producer of silver, bismuth, and celestite. It has

significant reserves of oil and natural gas.

Manufactures include processed foods, chemicals, transport vehicles, and

electrical machinery.

GNP at market prices (2005): 8 374 348.5 million pesos

(2011): $1,661 trillion

GNP per capita (2005): 78,668.1 pesos per inhabitant

(2011): $14,609

Real annual GNP growth rate (2005): 3.0%

Government

It is a federal republic with two legislative houses; its head of state and

government is the president. Mexico consists of 32 administrative divisions -- 31 states

and the Distrito Federal (federal district), which is the seat of the federal administration.

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4.2 Opportunities and Threats

Following the data and resources that Bank Mandiri collect or know, Bank

Mandiri found some opportunities that Bank Mandiri can take some advantage of them.

In the other hand Bank Mandiri also found some threats that can endangered Bank

Mandiri future also.

Opportunities

Low barrier to open new branches in Mexico

Only few retail banking in Mexico

Only need relative low funding

Good human resources in Mexico compared to Indonesia

Threats

Trust from the local people

Competitors have better technology

Variety of product from the other banks

Can’t sell Syariah products due to few number of Muslim in Mexico

5. Porter Five Forces Analysis - Banking Mexico

In the mid-1980s Mexico started to liberalize its trade; and, since the signing of the

North American Free Trade Agreement (NAFTA) in early 1994, Mexico has followed an

aggressive globalization strategy, placing about 90 percent of its trade flows under free

trade agreements with over 40 countries. These polices have made Mexico the country with

the most free trade agreements in the world.1 Mexico’s liberalization strategy has also

included its financial sector and, in particular, the banking industry.

Mexico’s experience with financial liberalization provides an interesting case study

for at least two reasons. First, economic theory suggests that financial liberalization bolsters

economic growth. Mexico’s path toward financial liberalization has been an arduous one

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and includes several failed attempts, which, until recently, prevented the development of

its banking sector and limited the growth of financial credit to the private sector, which is

necessary for economic development.

5.1 Threat of new competition

Important issue that presents a barrier to entry for new competitor is trust; because

the nature of the business requires institutions to deal with other people’s money and

financial information, customer prefer well-known trustworthy institutions in order to open

a bank account.

That the barrier to entry in the banking industry are medium to low, because it is

difficult to enter the industry as a bank with the full range of products and service but it is

relatively easy as open a local or regional bank with limited product and offering.

Economic of scale

Although the concept of scale economies is frequently associated with manufacturing, it

is also applicable to R&D, general administration, marketing, and other business

functions. Honda’s efficiency at engine R&D, for example, results from the wide range of

products it produces that feature gasoline-powered engines. When existing firms in an

industry achieve significant economies of scale, it becomes difficult for potential new

entrants to be competitive.

Economies of product differences

Differentiation can be achieved as a result of unique product attributes or effective

marketing communications, or both. Product differentiation and brand loyalty “raise the

bar” for would-be industry entrants who would be required to make substantial

investments in R&D or advertising.

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Capital requirements

Capital is required not only for manufacturing facilities (fixed capital) but also for

financing R&D, advertising, field sales and service, customer credit, and inventories

(working capital). The enormous capital requirements in such industries as

pharmaceuticals, mainframe computers, chemicals, and mineral extraction present

formidable entry barriers.

Access to distribution

If channels are full, or unavailable, the cost of entry is substantially increased

because a new entrant must invest time and money to gain access to existing

channels or to establish new channels.

Government Policy

Frequently a major entry barrier. In some cases, the government will restrict

competitive entry. This is true in a number of industries, especially those outside the

United States that have been designated as “national” industries by their respective

governments. Japan’s postwar industrialization strategy was based on a policy of

preserving and protecting national industries in their development and growth phases.

The result was a market that proved difficult for non-Japanese competitors.

Competitor response

New entrants expect existing competitors to respond strongly to entry, their

expectations about the rewards of entry will certainly be affected. A potential

competitor’s belief that entry into an industry or market will be an unpleasant

experience may serve as a strong deterrent. Bruce Henderson, former president of the

Boston Consulting Group, used the term “brinkmanship” to describe a recommended

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approach for deterring competitive entry. Brinkmanship occurs when industry leaders

convince potential competitors that any market entry effort will be countered with

vigorous and unpleasant responses. This is an approach that Microsoft has used many

times to maintain its dominance in software operating systems and applications.

5.2 Threat of substitute products or services

In Mexico Banking Sector, banking sector had been adapted the technology that can

allow new entrants in an in industry and banking is no exception, one of many example

are worth looking in payment systems.

For example trails include more than 440 McDonalds as a payment card, and the new

feature was added enabling the customers to link their shop card (credit card or Flazz)

and automatically get discount.

For example, Mandiri can produce such as a card that allow the customer to fill their

fuel by tap the card to the machine, this feature can increase the payment speed.

Based on the information, presented above, the threat of substitutes is high for

particular service such as payment system but low for banking services as a whole.

Buyer propensity to substitute

Relative price performance of substitute

Buyer switching cost

Perceived level of product differentiation

Number of substitute products available in the market

Ease of substitution. Information-based products are more prone to substitution, as

online product can easily replace material product.

Substandard product

Quality depreciation

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5.3 Bargaining power of customers (buyers)

There are three factors that should be considered when assessing the bargaining power

of bank customers, first: the same base of products is offered by most players in the

industry, second customer are now recognize that their deposits or loans are not the

only important things, but also the trustworthy bank, third internet technologies have

reduced the cost of comparing the price of holding an account in several banks before.

When analyzing, the advantage the internet gives to customers by enabling them to

“Shop” for the cheapest provider of financial services with “a click of the mouse”, one

would deduce that buyer bargaining is high; there are important security and privacy

consideration that increase the bargaining power of banks.

Because banking is about managing people’s wealth and information, customers look

for a trustworthy institution that will provide them with a secure platform to manage

their accounts and will not sell lease or otherwise share their personal information with

undesired third party. This reason why aspects such as brand and track record become

relevant for customers reducing their willingness to open an account with the cheapest

and rather choose the cheapest among the safest.

The bargaining power of customers is also described as the market of outputs: the

ability of customers to put the firm under pressure, which also affects the customer's

sensitivity to price changes.

5.4 Bargaining power of suppliers

Consider about the raw material for a bank is money there are four main sources of

money for banks, first customer deposits, second the scale of mortgages and other

loans, third issuance of mortgage backed securities (MBS) and four loans from other

financial institution.

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By using these four sources of money, the banks insure the necessary resources to serve

customers borrowing needs while providing the availability of funds for depositor

withdrawals.

The first source of money of a bank is the customer deposits and the analysis and

relationship with clients at this end of the value chain is the same of that at the opposite

end, that is clients that ask for a loan usually also have a saving account or a checking

account and choose a bank to have this deposits on mainly the same basis of discounted

above, therefore have the same bargaining power.

The next two sources of money are closely related the sale of mortgages and mortgage

backed securities, Mortgages that comply with the guidelines for credit worthless and

repayment likelihoods and are smaller than the set threshold (Approx. $300,000), are

sold on the secondary market mainly to two organizations.

Banks sometime also need to look for financing from other banks or support funds such

as the import-export bank and other that provide cheap resources to finance operation

from particular industries or with particular condition. This source of financing have a

high bargaining power.

Because these sources of funds are strongly dependent on the market, the bargaining

power of suppliers is medium high, signaling that banks depend on take the market to

price their mortgage and securities but this pricing is influenced by the type and size of

the bank as well as the credit worthiness of the mortgage portfolio.

5.5 Intensity of competitive rivalry

With about approx. 3000 and more bank, it is not hard to say that Mexico has a very

fragmented industry compared to the banking system. In other developed country,

reveals that the banking system has gone through significant consolidation, this

consolidation had three main purpose, first increase the bank geographic coverage,

second increase the number of products and service offered to their clients, three

leverage on the economies of scale that the size providers.

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In several information, large banks not only spread their fixed cost across a wider

number of markets but can also test a service in a distant but relevant market. The

knowledge acquired and therefore increasing the probabilities of success such as:

Mandiri can deploy a new mobile banking system in Mexico, and test their product in

Mexico.

For most industries, the intensity of competitive rivalry is the major determinant of the

competitiveness of the industry.

Sustainable competitive advantage through innovation

Competition between online and offline companies

Level of advertising expense

Powerful competitive strategy

Flexibility through customization, volume and variety

6. Proposed Entrant Strategy

Core Value: Maximizing Retail Banking

As Bank Mandiri would have started their operation in Mexico using low amount of

resources and market knowledge, it wouldn’t be a wise strategy to conduct a head-to-head

competition to existing giant banking company that currently own a massive market share.

Besides lack in capital ownership, their weak brand awareness would be their main

weakness in competing in whole Mexican market. Therefore, Bank Mandiri should focus on

niche market that hasn’t been entered by banking giant in Mexico.

The key advantages that Bank Mandiri acquire is the strong presence in Micro Finance

that represents its vision and long experience to have a better impact to local economic

society while maintaining its profitability. Since Mexico had a relatively similar characteristic

as Indonesia, applying micro financing scheme in Mexico would likely experience a same

success as it had in Indonesia.

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As the income structure of Mexico represents a higher piece in their middle to low

income, the brand awareness would be less sensitive matter in determining market

penetration success. Moreover, the core value and pricing emphasize would be a better

approach to penetrate even more applicant regardless demographic area.

In Brief, Mexican market demands a banking service that focuses on the strong

existence in retail banking especially in micro funding scheme. For this reason, Bank Mandiri

should maximize its competitive advantage in form of knowledge and experience in

empowering Indonesian small and medium enterprises (SMEs) and apply it to Mexican

market that had a similar economic environment with Indonesia.

Joint Venture Strategy

Considering Bank Mandiri low experience in Mexican industry, building brand from

scratch would be an unwise decision through several reasons:

High Initial Investment

o As Banking Industry require high amount of initial asset or capital expenditure

Regulation and Political Risk

o Moving abroad in unfamiliar environment would present a risky circumstances

to foreign company, especially in emerging country such as mexico, due to its

unstable political environment.

o As political environment highly correlated with the regulation beneath

operational of an industry. The higher the uncertainties would reflect higher risk

of regulation changes that would lead to operation disruption.

Low brand awareness

o Brand awareness had become a significant measure in retail market. Building a

good awareness would take high amount of cost and time.

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Cultural Differences Risk

o Different country reflects different economy and also different culture.

Therefore, it would be risky to conduct a banking business that had higher

consumer contact without any cooperation with other company.

Therefore, the proposed strategy gathered in this reports is to apply joint venture with

local banking company to build a micro finance oriented company to provide a lower

experience and capital requirements. Through this strategy, Bank Mandiri could exploit its

expertise in applying microfinance in Indonesia while adopting its strategy using assistance

from the local partner in term of local wisdom and knowledge. Using Joint Venture, Bank

Mandiri could minimize the risk explained above and therefore put a better utilization of its

competitive advantage and expand with less possible risk of being failure especially due to the

weak brand awareness. It’s caused by using Joint Venture, it could have an extension from Bank

Mandiri’s partner previous brand and therefore absorb current market’s potential that had

already taken by its partner.

Several local banks that focus on micro finance and could be a partner for Mandiri

are:

Compartamos Banco, founded in 1990 as the biggest micro finance bank that

seeks to serve South American Small and Medium Enterprise through several

products including, Woman Credit, Grow Your Business Credit and Merchant

Credit

Inter American Development Bank (IADB), largest development bank in South

America, including Mexico, that differentiate itself as a Bank with great

empowerment to local community.