Capital One V1.ppt by longze569

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									                                     Prof. Michael Segalla
                                     « BEST IN FRANCE »

                                           Jamie Brownlee (UK)
                             Daniela Sanchez Hernandez (Mexico)
                               Anne-Lynke Kikstra (Netherlands)
                                           Jaeyoun You (Korea)

Monday 10th December, 2007
   Introduction
          Capital One
   Analysis
          Why France
          The French move
          Pulling out of France
   Recommendation
          Advice for new companies
          Advice for France
   Conclusion
   Analysis

   Recommendation

   Conclusion
Who is Capital One?
   Capital One Financial Corporation operates as the holding company for the
    Capital One Bank and Capital One, F.S.B, which offers various commercial
    banking services in the United States. The company is headquartered in McLean,
    Virginia. It listed on the NYSE for the first time in 1994

   In less than 20 years it has managed to gain 40 million customers globally.

   Capital One provides:
    - Home loans, healthcare finance, auto finance, commercial and consumer loans

   In addition, the company offers:
    - Commercial credit cards, treasury management services, trust services, and
    other banking related products ( e.g. insurance, brokerage services, merchant
    services, and investment banking services.)

   It offers its products and services to:
    - Consumer, commercial and small business customers.
What’s in your wallet?
 Capital One: one of the America's largest consumer
franchises with almost 50 million customer accounts
 One of America’s most recognised brands.
 Now, the fourth largest customer of the United States
Postal Service
Capital One vs. Dow Jones and
                              AXP: American Express Company
                              BAC: Bank of America Corporation
Capital One vs. Competitors   DFS: Discover Financial Services LLC
                              COF: Capital One
   Introduction

   Recommendation

   Conclusion
Why the move to France (Major points)?

   France was the first country to be invested in after the UK
   French wealth (disposable income)
   Banking infrastructure
   Population
   History
   French GNP $1,550 billion (2nd in EU Market)
   EU 20% larger than the North-American market
   Inflation remains very low, less than that of Germany, Italy or Spain
   Falling interest rates
   Highest rate of growth in Europe. In ten years, between 1985 and
    1995, the number of foreign banks and financial institutions established
    in Paris has increased from 260 to 420
    Why the move to France (Minor points)?
   Only country with both a direct link and a frontier with the six largest European
    markets (Germany, Italy, Spain, Benelux: Belgium, Luxembourg and the
    Netherlands). This meant access to 370 million European consumers

    Capital One wanted to open Southern Europe in terms of Credit cards

   Human capital, its motivation, quality and productivity. High level of education
    encourages responsibility, responsiveness, the ability to adapt and show
    initiative, competent and diversified public service which works

   The balance of trade for the last few years equalled 20.3 billion dollars, thus
    creating an environment particularly favourable to buy in terms of shares

   Quality of life

   Specific company values around fairness, good corporate citizenship,
    transparency seemed to fit with French culture
Reasons for moving to France
                          French wealth (GNP) -
                          Disposable wealth
                          Banking infrastructure



                          EU-France's dominant
                          Geography of France in
                          Inflation and falling
                          interest rates
                          High number of foreign
                          banks in France

• Egg Banking
       • France 2002 - 2004 (ING, Netherlands)

• Barclaycard
     • France 1998 (1 million selling spots)
    The French move
   Sofinco (French credit card company) contacted Capital
    One regarding a joint venture. Capital One had not
    thought about France having only just entered the British

   Sofinco offered a company base in Paris, a great
    customer base and infrastructure. As well as their own
    bank branches, which Capital One could exploit

   The negotiation took 18 months
The French move                (2)

   Ready to sign contract……BUT Crédit Agricole
    bought Sofinco
   Capital One believed that to enter European market
    effectively, they needed to enter the French or the
    German market. Capital One chose the French
   Went alone, since they felt they had learnt enough from
    Sofinco about the French market (Risk management
    in France, French customers, etc.)
   Moved in 1997
   Pulled out in 2002
    Why pull out of France?
   Long history of failures in France of Financial Services companies
    from outside of France. Ancient usury laws created a perception
    of closing of ranks against outsiders, they prohibited the wide
    extension of credit across the credit spectrum

   One of the biggest perceived and actual constraints of anyone
    coming to France is the labour laws. It is difficult to get rid of
    employees if you need to move quickly (35 hour weeks!) Huge
    redundancy costs created problems for speedy changes
Why pull out of France?                           (2)

   Key constraint costs. Capital One’s key competitive
    strength has been in its analytical abilities- its ability to lend
    at the higher risk end of the market at a sensible price but
    acceptable to the individual consumer. With usury laws
    preventing Capital One going to that end of the market - its
    market was limited
   Experienced lobbying by big French banks to change
    French legislation to directly and adversely affect what
    Capital One were doing (e.g. Limits on penalties for late
   Regulatory companies prohibited their actions
Why pull out of France?                      (3)

   The Corporate and Usury laws of France are archaic.
    France has an exceptionally introverted attitude to external
    companies especially those from USA who could shake the
    status quo and the French Banks effectively block
    changes which would aid external companies.
   There is no question that Capital One’s international
    strategy was adversely impacted by the inflexibility
    encountered in France.
   Experienced discrimination, gender especially
   Other locations: Italy, Spain, South Africa are much more
    flexible and willing to try new ideas
   France not willing to change
    What Capital One think they did well in
   Lived up to French expectations, culture, language, consumer
    and law adaptation
   Call centres were staffed by French people in France in the
    initial stages with any new Financial product, explaining to the
    customers how things work is a must. At the beginning it worked
   They spent years looking at every aspect of the marketing mix
    in any market, market-testing help a lot. (e.g. A mail shot where
    Capital One changed the colour of an envelope or write ‘Top
    Secret’ on it or change the credit limit or the interest rate)
   In order to get their values ‘translated’ to be accepted in France,
    they had a French office with as many French people as
    possible; but also, blended other experienced Capital One
    managers and gave great freedom - what they did was
What Capital One think they did well in
France? (2)
   One key Value is fairness and reward. In the world of credit,
    Capital One only wanted to give an appropriate amount of
    credit to individuals. Once individuals ‘proved’ their
    creditworthiness, an extension of amount of credit and deals
    were offered in terms of interest payable, Cash-back rewards,
    balance transfers etc. This did fit within the French culture.
   Inclusion of French associates in as many international
    courses/seminars was done in order to encourage absorption
    of Capital’s One values.
   In France, banks are under serious scrutiny especially when
    dealing with foreign countries- Capital One was no exception.
    Nevertheless for Capital One this was not as close as for other
    companies, due to the fact, that FED and FSA were already
    leading the scrutinising
Capital One’s views on similarities and differences in France
  PROCESS         DIFFERENT         SAME                     ADAPTABLE
  Recruitment                               X (need experience in and outside of France)
 Compensation                                     X (flexibility to go for top quartile)
 Management                                X (inclusion of French associates to learn Values
 Development                                                 of Capital One)
  Workforce      X (working life)
 Performance                         X
  Job design                         X
  Motivation                                      X (needed to communicate more)
Communication                                    X (more formal but translators used)
 International                             X (high calibre French nationals spent a year in
   Transfers                                            USA to prepare them)
    Hiring                           X
  Real Estate     X (cheaper
                 than London)
   Language                                      X (associates were usually bilingual)
   Introduction

   Analysis

   Conclusion
Advice: What would Capital One have
done differently?
   They would have looked at taking deposits to help them to fund the lending
    on credit
   They would also have looked at Auto loans perhaps through a partnership
    with one of the car manufacturers in France or the distributors
   They should not have gone alone. Should have found another consumer
    finance house to merge with. With no other company, it was too risky
   Their main area for expansion would have been in identifying a partnership
    with a French financial services company. (e.g. COFIDIS of COFINOGA or with one of
    the big supermarket chains e.g. CASTORAMA where as in the UK with TESCO they would start their
    own financial services company in partnership with us)

   If Capital One would not have left the French market, expansion would have
    been into more and more credit cards with separation from instalment loans
Advice: What Capital One suggest for other
banking companies?

   It is important to be aware that France takes a highly protectionist
    approach towards foreign companies. This is why there have not
    been big external financial services companies from UK/USA working
    in credit cards who have been successful in this country. Most
    businesses must avoid France or at least not attempt to start a
    Greenfield operation.
Advice: What Capital One suggest for
other banking companies? (2)
   No production of products in France – outsourcing
   Instalment loans – special products used Instalment loans
    on a credit card

(so Capital One gave someone e.g. 20,000 euros on loan over two years which with interest
    might mean they repay 24,000 euros or 2,000 euros per capita monthly for two years.
    So the customer got their loan upfront which they can use for anything – new kitchen,
    holiday, etc. with a credit card on which they will have a small additional flexible credit
    facility. Each month they repay the instalment loan set amount plus the amount on the
    credit card. The idea is to get customers in France used to how a credit card works by
    starting them with what they are used to)
Advice: What Capital One suggest for
other banking companies? (3)
   Design a Pan-European strategy
   France is not flexible or liberal enough. Aim for Spain
    or better still - Poland
   Vary the interest rate charged dependant on the risk
    profile of the individual consumer – that is true for all
   Before coming –understand the extent of the cultural
    differences: work ethic, politics. There will be significant
    financial investment which will grow out of all proportions
    if you decide to get out - be very cautious regarding local
    human investment
Advice: What Capital One suggest for
other banking companies? (4)
   Adaptation: be prepared to meet half way. Ideally have the
    most senior manager to whom France reports as a French
    speaker. Get him/her to communicate regularly in French and
    in English. Consult internally on all perceived cultural
    differences and get agreement on a clear path from both
    external and French management then make it happen.
   Very different advertising. Nudity and sex accepted in France
    but not in USA and UK
   At least 4 years testing at low volume levels in order to
    understand the market. Must create a reliable risk
    management model
   To avoid labour laws, base production outside of France
    where employee can work longer hours
   Introduction

   Analysis

   Recommendation


   France offers a lot of benefits to foreign companies
   Foreign companies need to be conscious of and
    adapt to the French culture, norms and values
   It is true that certain modifications should be made
    (e.g. French Banks should be more accepting to
    foreign banks entering the French Market)
   And last but not least, DO NOT ENTER THE
With thanks to:
Alan Wolfson, Former Managing Director, Capital One
            (7 Queen Alexandra Mansions,
         3 Grape Street London WC28DX, UK)
   Fergus Brownlee, Former Principal Managing
    Director and Executive Vice President, Capital One
   (Streatley House, Streatley-on-Thames, Berkshire,
                      RG89HY, UK)
                    Capital One

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