A Study On The Motives And Entry Mode Of Transnational Operations Of Chinese Commercial Banks

With the rapid growth of the share which the banking industry occupies in the cross-border activities and foreign direct investment (FDI), the financial service market is becoming more and more globalized. When the structure of global banking industry is now being strategically adjusted, Chinese commercial banks also take "international operations" as their development objectives of the next five to ten years in order to follow the situation. Since 2007, with the fully opening of Chinese banking market, the influx of foreign banks has increased the intensity of competition in the industry, and made Chinese commercial banks clearly understand the need to further accelerate the pace of their international operations and raise their degree of internationalization, thus enhancing their international competitiveness in the financial markets. Hence, it shows even more theoretical and practical significance to make further research on the transnational operations of Chinese commercial banks.This discourse is a study on the motives and entry mode of transnational operations of Chinese commercial banks. With a close observation on the transnational operations of Chinese commercial banks, it not only analyzes the reasons why Chinese commercial banks go abroad but also points out what entry mode and organizational form should they chose to implement their transnational operations. This research focuses on the logical way of thinking from theory to practice and from the entirety to the individual. In addition, the research method is a combination of qualitative analysis and quantitative analysis, empirical analysis and normative analysis.Through the study, this discourse found that the industry characteristics of commercial banks as a financial service business determine the specific impact factors of their transnational operations. The characteristics also make the banks not to adapt the same linear step-by-step mode as the manufacturing firms when entering the overseas market, but tend to directly select the entry modes with a high degree of control, such as Greenfield Investment and Cross-border Mergers and Acquisitions. This discourse makes empirical analysis on the main factors that influence the transnational operations of Chinese commercial banks, relying on Dunning's eclectic theory (OLI Model) as a framework to explain the motives of those banks when making such operations. Empirical results show that:the transnational operations of Chinese commercial banks are in all significantly influenced by the profitability and international experience of those banks, the non-financial direct investment abroad, the level of industrialization, and the income and banking regulatory environment of host country (region). So it can draw a conclusion that:the main drivers of transnational operations of Chinese commercial banks are "following the customers", expanding share of foreign market, diversification, and spreading the financial risk.At present, the transnational operations of Chinese commercial banks are still in the initial stage. They enter into the host country markets mainly through the Greenfield investment, during which it is extremely important for Chinese banks to select suitable organizational forms of its overseas institutions. Overseas branches and subsidiaries are the two main forms of foreign institution of multinational banks. They command diverse applications on the basis of the difference on the establishment costs, regulatory responsibility and the scope of business. This discourse makes an empirical analysis on the factors that affect the selection of organizational forms with the macro-economic data of the home country and host-countries. As a result, it shows that:1) overseas branches could be a more suitable form for Chinese banks in the primary stage of internationalization process; 2) however, due to the far-reaching impact of the international financial crisis, as well as the "sub-banks" trend of the national regulation to the foreign banks in future, the main form of Chinese banks'overseas institutions will inevitably change from the branches to the subsidiaries form.From the development process of cross-border banking, Greenfield Investment was the main mode for multinational banks to expand abroad in their early period. Since 1980's, facing the accelerated financial globalization, the large banks of western developed countries have set off a wave of Cross-border Mergers and Acquisitions again and again. Cross-border Mergers and Acquisitions can avoid the possible obstacles encountered by Greenfield Investment, and provide an effective way to enter a new market, which becomes an important mode for banks to expand abroad at present. So the discourse argues that the entry mode of transnational operations of Chinese commercial banks should be both focused on the Cross-border Mergers and Acquisitions and Greenfield Investment.Compared with the Cross-border Mergers and Acquisitions of international banking industry represented by HSBC Group's, there is still a big gap for Chinese commercial banks in the aspects of the scale and pattern of mergers and acquisitions, regional span, etc. Therefore, Chinese commercial banks should make earnest reference to the successful experience of the international banking and make full use of the favorable conditions brought by the financial crisis to accelerate their process of internationalization through effective acquisition and integration.Internationalization of the banks is a progressive process, in which there are different development strategies and behavioral characteristics in different stages. With the fact of the different development levels of Chinese commercial banks, the discourse argues that their transnational operations can not be generalized. The large commercial banks with a higher degree of internationalization should select the mild path of internationalization to further enhance its position in international financial markets through effective cross-border mergers and acquisitions; while the small and medium sized joint-stock commercial banks with a lower degree of internationalization should firstly focus on the domestic banking market, make themselves bigger and stronger to meet with the trends of international development, and then choose the right time and entry mode to expand abroad.