SPACE Analysis
...w been solved. Both the citizens of Georgia and its government play an important role in ensuring the ecological stability of Georgia. • By focusing on the business environment as a whole, we will get an idea of the general situation for all kinds of businesses in Georgia. An important factor for business in Georgia is the level of technology available. Unfortunately, it is not possible to estimate the stability of technological change in the Georgian business environment. The main reason for this is the stagnation processes that occurred over recent years. Despite the introduction of new communication technologies, the Internet, “data transferring systems” etc, these technological changes were not successfully breaking through. In addition, there was no will and stimulus to finance technological projects and as a result most of the Georgian scientists migrated to countries where there was. However, the new authorities and business representatives will pay more attention to the need for technological improvements, though it will take time to match standards present in the EU or in the U.S.A. • The supply and demand-side in Georgia will now be described, whilst bearing in mind that supply is arguably more important to business. Demand varies in Georgia probably due to the nature of people. For instance, despite the high level of poverty, there has been an ever-increasing demand for secondary goods or luxuries. Rich people and the government itself mainly influence the demand for luxury goods, whereas most ordinary citizens satisfy themselves by the consumption of secondary goods despite their budget limitations. Georgian’s aspire to reach an equal standard of living to those who have more than them. We are not referring to primary goods here, because these concern the direct needs of the consumers and will always have priority. This is an especially significant consideration in Georgia where there are many citizens who can only buy the most basic consumer goods, and are forced to struggle just to feed their families. For instance, there are families who have the same poor quality bread cooked in the lowest quality meal oil for breakfast, lunch and dinner. Unfortunately, under the old government the number of poor households increased. Hopefully the new authorities will help overcome problems of poverty and enhance the quality of life for these families. For example, new aid programs have already been launched providing poor citizens with subsidies on tax or social payments, and with money. This may lead to an increased quantity of buyers, who have a greater variety of consumer demands. In conclusion Georgia has a demand for a great range of products starting from the lowest quality Turkish meal oil to palaces and the newest models of Mercedes or BMWs. • For now entry barriers to the whole business environment will be addressed, and they will be discussed more specifically to banking later on. Georgian businesses, in both private and public sectors, have started on the path to recovery and are operating in a more or less proper environment. But for now, business cannot benefit from economies of scale or scope, and therefore artificial barriers to prevent the entry of certain businesses are not yet possible. Additionally, there are no cartels or other business groups that could negotiate and take strategic actions in order to “defend” their business from new comers, especially from foreign companies. Furthermore, the government encourages new comers and offers almost barrier-free entries to foreign investors who may help to expand the market. The fact that their economic policies are mainly focused on the FDI indicates that barriers to entry, even those of strategic sectors, are at the bare minimum and in truth the entrance is open to all. • Now, we will focus on the banking industry itself and most importantly on the cost/price balance of the Georgian banking sector. It is common knowledge that this sector suffers from a lack of financial innovation, knowledge, technology and many more things besides. Competition is driven not by service differentiation or quality, but by price. The cost of borrowing and overheads are gradually increasing, which is as a result of the distrustful attitude of people to Georgian banks, but at the same time banks are forced to compete to have the lowest priced loans in order to attract new costumers or keep hold of existing ones. Margins are getting squeezed and therefore banks try to keep prices on credits at a certain level and to decrease interest on deposits. In our view, banks could get round this problem and make a profit if they concentrated on service differentiation and on non-interest incomes. But we will not discuss this in great depth until the analysis section later on. • The second most important issue is competition within the industry. Besides the fact that there are many local banks, only few of them offer a comprehensive range of products. As discussed earlier, banks only compete through their prices, and quality and diversification of services are not focused upon. Pressure from rivals is high, but foreign banks, which have proper resources, significant capabilities and relevant strategic visions, could easily overcome it. They would also benefit local banks by forcing them to differentiate and innovate. 5.2 Industry Attractiveness It is common knowledge that growth rates and other quantitative and qualitative indicators mainly determine industry attractiveness. But in this case, the key reason for the sector’s attractiveness is its inefficiency, which could be used by the foreign banks to its advantage. Rather than there being a lot of room for business growth, we are dealing more with a cannibalizing environment. It is hardly possible to speak about growth when banks are operating within the same customer base and their services have remained unchanged over the years. 80% of the money supply is out of the banking channels because people don’t trust the banks, therefore there are really huge opportunities for growth, but so far nobody has taken advantage of this. • Despite the fact that local banks are experiencing high competitive pressures and are therefore geared for competition, they still could not be viewed as a threat to the foreign financial institutions who are experienced in such situations. Local banks, (amongst there many other disadvantages), have less experience and knowledge and no proper information systems, whereas foreign newcomers, (amongst there many advantages), have much experience in the world market. Yet another indication of the local industry’s inefficiency is its lack of service/product differentiation. Whilst most of the international banks are focusing on quality and financial innovations, local banks in Georgia are still concentrating on interest on incomes and manipulating the interest margins between deposits and loans. Of course they have introduced internet banking, credit cards and other “new” services, but merely introducing these services are not enough, obviously there needs to be continuous improvement, proper control and huge efforts needs to be made. If something is offered to the clients and it does not give immediate benefit, than alternatives are immediately sought, this is a bad strategic tactic because immediate benefits are unrealistic in modern banking. This is yet another advantage foreign investors would have over local banks, and they are quite capable of taking it by accurately explaining and delivering a product to customers so that they will use it. There is a huge gap between the numbers of potential and existing customers. The local banks are only focused on customers who are either rich or have a particular history with particular banks. This is a mistaken attitude, because there are also great potential benefits of accepting new customers who may not necessarily have much money, but represent a large pool of clients. Appropriate risk evaluation techniques could reduce the fear of insolvency and debt failure. International businesses are using vast resources of time, money and effort to attract customers and are struggling due to limited numbers of clients, yet Georgia has many potential clients, but no proper strategy to attain them. In short, by concentrating on the entire potential client base customer numbers could be significantly expanded. Technology used in Georgian banking is simple compared to that of other countries` banking systems. This is due to a lack of financing and innovation and a failure to copy developed systems. Labor productivity is significantly increasing and this has more to do with efforts made by employees rather than those by companies. Since new business schools and other educational institutions have opened in Georgia many young people have been introduced to modern management methods, employees have became more literate and able to make good business decisions. But management are not using their employees` knowledge and are not giving them positions with any important decision making responsibilities, everything is still decided from the top. However, the newly educated workforce has managed to increase productivity despite this poor management from the top. Improvements can be attributed to the enthusiasm of employees rather than to the strategic vision of those in charge. There is a huge potential for profit in this sector, the only thing lacking is an appropriate strategy and a correct allocation of resources. With 80% of the market yet untapped, foreign banks (who will automatically have the trust of the people), should have much success in this sector. This will also increase the willingness of customers to utilize new, largely differentiated services 5.3 Competitive Advantage This following section will analyze the competitive positions of the Georgian banks in terms of their resources and capabilities and compare them to those of foreign banking institutions. • The borrowing capacity of Georgian banks and their internally generated funds are difficult to compare to foreign ones. This is mainly because there is no proper securities` market where companies can obtain substantial resources through financial instruments. Their borrowing capacity depends upon funds from existing customers and their deposits, Repo operation with national bank or equity investments from EBRD, World Bank and other international financial institutions. Internally generated resources, besides many of the local banks have positive net cash flows still it could not be compared with the net cash flows of foreign banks and of course it is reasonable due to the less trust and therefore more cash outside banks. Foreign banks also have the advantage of access to the worldwide capital markets, which is yet inaccessible to Georgian banks. • Referring to the physical tangible resources we could say that more or less Georgian banks posse good and liquid assets in those terms. Their buildings are quite high quality and with dedicated standards. The locations and size also could be stated as satisfactory and strategically appropriate. The probable advantage that foreign banks might have is the internalization of their assets in terms of locations and variety. Another advantage is also technological flexibility because of the superior knowledge and effective systems. • Hereafter let us explore intangible resources, which could be reputation, costumer loyalty, brand equity, patents etc. As of reputation, we have already mentioned that very small percentage of people trust the local banks, which makes bad influence on the overwhelming reputation of the ...