The Royal Bank of Canada had first tried to venture the financial market in Thailand in 1980. The bank’s ability to survive in third world country economy was limited. The authorities were skeptical about foreign bankers. Nonetheless, the interest rates were high, and the populations’ ability to pay was relatively small. In 1986, the bank had to close shop. The conditions were unbearable, and the bank could not cover the operating costs. The institution had not even become a fully-fledged firm before the unfortunate thing happened. They had been operating as a marketing outlet, an idea that had failed to take root.
RBC in Thailand and Recruiting New Staff
The bank, however, returned to Thailand in 1997. Since the eighties, the country’s economy had grown by leaps and bounds. The mining, energy, and the financial markets had expanded. RBC main aim was to continue from where they had started. Before packing up to leave for Canada, the bank had created a strong marketing base with the locals. Despite not having customers the populations had grown fond the new information that was being offered. It started with a group of ten employees. The managing director would be an expatriate while the rest were locals. As business grew, the bank would embark on employing university graduates from local schools. However, the graduates would be trained in Canada. The total cost of staffing was $255, 500 in the first year. The package included expatriate compensation amounting to $159,000 in the first financial year. Marketing manager and operations managers were also to be involved in the managing team of the initial subsidy.
Four Business Lines and BIBF Licenses
The bank majored on four sectors of activity including financial institutions and trade that included all the commercial lending services which were both trade and non-trade, global financial lending across all the subsidiary banks in Asia Pacific, offering treasury services, and international private banking. The bank relied on qualified staff; it is strong branding, centralized costing system and secure communication with the business relationships. The reduction of cost via centralized system offered a competitive edge for the bank. BIBF is a program provided by most Asian countries to control the entry of foreign banks into the financial market. The banks intending to reap long-term benefits had to obtain the BIBF licenses that allowed the international bank to allow banks to give loans to the locals and foreigners using the foreign money. The downside of the banking system was that the market failed to grow as fast as it had been expected to increase.
Branch Advantage and Major Exports
The initial plan in 1980 was to establish an international branch in Thailand. The bank’s leadership had reasoned that an office would create a strong relationship with the local business community. The companies would then receive lending at attractive interest rates alongside sophisticated banking products that would reflect the bank’s specialized expertise in credit. Also, the bank foresaw that it would be in a position to transfer technology knowledge to the Thai employees thus boost the country’s competition grounds. Thailand’s major exports are agricultural and manufacturing products. Most of the populations have been participating actively in agricultural activities. The nation has exported an average of ten percent across Asian countries. The crops available for exchange are rice, cassava, maize, sugar and tobacco. The manufacturing products constitute eighty percent of total exports. The country manages to sell clothing, electronic spare parts, jewelry and exquisite furniture. The export of manufacturing products has triggered economic growth and development.
Current Situation and IMF
The present case in Thailand is such that the export success has lost luster. The investors have become skeptical about the once promising economic growth and development. Most local business people had fallen into debts that they were not in a position to recover from since the interest rates became overburdening. Furthermore, the current debt ratio for the country has continued to be alarming as bad debts increased intensity. The situation has deteriorated to such lengths due to massive borrowing and a semi-fixed exchange rate. The baht is partially tied to the USD thus slowing down the decisions of the Thailand Central Bank. The government went into agreements with the International Monetary Fund (IMF) to heal the current malaise ailing the economy. The deal led to closing down of sixteen banking institutions on top of the forty financial institutions that had been suspended. As a result, IMF required that the Central Bank would have reserves of 24 million USD and give reserves reports fortnightly in exchange for a bailout.
After analyzing the current economic situation, RBC should stay in the country to take losses for an extended period since the economy has a promising future for growth and development. Since the authorities have learned a valuable lesson to control the country’s lending through the Central Bank, it will be more vigilant to maintain high economic growth. Additionally, the bank has a strong international reputation. Therefore, it can survive losses made in Thailand. Besides, staying for the long haul would create trust between the bank and the Nationals seeing that the foreign bank stuck with the declining economy.
Works Cited
Gaétan Breton, Louise Côté. "Profit and the legitimacy of the Canadian banking industry." Accounting, Auditing & Accountability Journal, Vol. 19 Iss: 4 (2005): 512 - 539.
RichardIveySchoolofBusiness. "Royal Bank of Canada in Thailand." Journal of Management Services (2010): 1-23.
