Barclays Caribbean Operations: Merger Strategy Analysis

Introduction: Barclays in the Caribbean

The strategy for Barclays in the Caribbean is to treat the region as a small share of the global commercial and investment banking market. Business units operating in the Caribbean or West Indies are viewed as offshore operations with emerging onshore business (Wood & Beamish, 2004). These units have also focused on reducing operational risk exposure as a means to drive revenue growth. Such a strategy is relatively conservative and represents a risk-free growth rate for Barclays' Caribbean operations.

Barclays' operations are extensive, spanning the globe with offices and accounts on six of seven continents. Corporate and business services are offered in all 14 Caribbean countries, and offshore banking services are offered in the Bahamas, Barbados, Cayman Islands, the British Virgin Islands (BVI), and Turks & Caicos. Corporate banking accounts for 45% of corporate income, personal banking for 27%, and offshore banking for 28% (Wood & Beamish, 2004).

The operation Barclays manages in the Caribbean is comparatively small relative to its total portfolio of $5.2 billion in assets under management (AUM). The $72.6 million managed throughout the Caribbean represents 1.92% of Barclays' total AUM — a small but strategically meaningful share (Wood & Beamish, 2004).

Barclays' competitive strategy in the Caribbean focuses primarily on its main rival, CIBC. New market entrants — most notably CitiGroup, a multinational powerhouse — are seeking to erode Barclays' regional market share. In the onshore retail and corporate segments, competition comes from large Canadian banks, principally CIBC, Royal Bank of Canada, and Scotiabank, as well as regional indigenous banks such as Republic Bank of Trinidad (Wood & Beamish, 2004).

The current strategy is working: assets in the Caribbean have grown as a percentage of total AUM. Going forward, offshore operations should become an even greater focus for Barclays' Caribbean division, with consideration given to divesting other units or selling them to competitors. As competition intensifies, the level of success achieved in offshore operations provides a compelling case for further expansion in that area.

Competitive Strategy and Market Dynamics

Barclays is at a mid-stage in the Caribbean market life cycle. The early stage was characterized by Barclays and CIBC competing for the lion's share of aggregate banking business. As additional banks now enter the market and compete for personal and commercial clients, the landscape has grown more dynamic. As noted in the source case, "the capital markets business in the West Indies is composed mainly of debt financing arrangements [and] is considered a new and emerging sector comprising eight players in this marketplace" (Wood & Beamish, 2004).

The emerging-market stage calls for a more aggressive posture than the quasi-dividend policy Barclays is currently employing. The region represents genuine opportunity for both personal and business clients, and new banking entrants are pursuing that opportunity aggressively. Barclays believes that the competitor achieving the best productivity while matching the highest customer service standards is most likely to succeed in the medium term — a belief that has led the bank to increase its focus on cost-effectiveness within its operating model (Wood & Beamish, 2004).

Barclays engages in corporate and business services, offshore banking, corporate banking, and personal banking accounts and services (Wood & Beamish, 2004). The core product offering encompasses money market account management and security-based transactions, as well as clearing house services for brokerage firms globally.

Barclays is a competitively priced bank offering exceptional customer service to clients seeking a banking partner in the Caribbean. Growth in deposits reflects the competitive pricing of certificates of deposit and other investment vehicles available through Barclays. The fact that aggregate deposits increased approximately 400% over the five-year period from 1997 to 2001 suggests the bank's pricing has been well-received by the market.

Marketing Mix Analysis

Deposits stood at $2.8 billion in 1997, rising to $3.28 billion in 1998, $6.01 billion in 1999, $6.71 billion in 2000, and $8.19 billion in 2001. Assets as a function of deposits also grew approximately 400% over the same period. The pricing of securities and brokerage services is a major attraction for investors seeking to enter the Caribbean market or establish regional operations.

The Caribbean is a haven for offshore investment from banks, bankers, and investors worldwide. The global reach of Caribbean banking has produced a highly profitable yet fully capable banking system that maintains private accounts for all of its banking partners. The Caribbean's geographic centrality among a grouping of islands has reinforced its role as a regional financial hub.

Banking in the Caribbean was established during the colonial era, which explains the region's unusual but entrenched banking infrastructure. Had it not been established as a colonial banking post to exchange currency and trade commodities, such a robust system — with Barclays enjoying a long-standing presence — might never have taken root.

Promotion of banking services throughout the Caribbean has focused on increasing the share of existing customers through improvement of consumer lending propositions, along with limited investment to rationalize the operating model through centralization initiatives and the closure of marginal branches (Wood & Beamish, 2004). Promotional efforts are most effective in the Bahamas, Barbados, British Virgin Islands, Cayman Islands, St. Lucia, and Turks and Caicos Islands.

The marketing strategy for Barclays should exceed its current level in order to avoid the need to merge with CIBC. The proposed merger would yield three major accounts — the Bahamas, Barbados, and the Cayman Islands — at a cost that might be avoided were an extensive, targeted marketing plan launched to attract those customers away from CIBC. To a lesser extent, the British Virgin Islands, St. Lucia, and Turks and Caicos also hold CIBC accounts worth pursuing. These accounts are primarily personal rather than business accounts, making them more accessible targets for a well-designed marketing campaign.

"FirstCaribbean, created in 2002 to combine the Caribbean operations of Barclays and CIBC, is the English-speaking Caribbean's largest bank, doing business on 26 islands and territories. Its pan-regional presence allows the bank to offer a one-stop approach for investors. It offers international mortgage loans, for example, for purchasers of residential real estate in Barbados, the Bahamas, Belize, the British Virgin Islands, the Cayman Islands, St. Kitts, St. Lucia, and the Turks & Caicos." (Platt, Hawser, Neville, & Green, 2005)