GLOBAL MARKETING RESEARCH PAPER

BANK MANDIRI ENTRY STRATEGIES TO MEXICO

Agung Rizky Wirawan 3104001 Alex Chandra 3104009 Anastasia Ariani Santoso 3114701 Eka Darmadi 3094802 Julian Giovanni 3104812 Masaki Iwabuchi 3122736 Faculty of Business and Economics International Business Networking

1. Company Profile Bank Mandiri was established on 2 October 1998, as part of the bank restructuring program of the Government of Indonesia. In July 1999, four state-owned banks - Bank Bumi Daya, Bank Dagang Negara, Bank Exim and Bapindo - were amalgamated into Bank Mandiri. The history of these four banks can be traced back to over 140 years, and together they had contributed to the beginning of the Indonesian banking sector.

1.1 Consolidation and Integration Following the merger, Bank Mandiri immediately embarked on a comprehensive consolidation process - beginning with the closure of 194 overlapping branches and a reduction of redundant staff, bringing the combined workforce of 26,600 down to 17,620. A single brand - Bank Mandiri was rolled out throughout the national network and across all of advertising and promotional activities. One of Bank Mandiri's most significant early achievements was the complete overhaul of its technology platform. The Bank inherited a total of nine different core banking systems from its four legacy banks. After an initial investment to consolidate the systems around the strongest inherited platform, the Bank undertook a 3-year USD 200 million program to replace the core banking platform with one that was specifically geared towards retail banking. Today, Bank Mandiri's IT infrastructure provides straight through processing and a unified interface for our customers. In line with the bank's vision, Bank Mandiri tapped into profitable business segments with growth potential so as to enable us to offer a comprehensive range of banking services. Bank Mandiri chose to focus on key segments including corporate, commercial, micro, retail and consumer finance - with distinctive strategies for each business while leveraging on synergies across these different market segments. Bank Mandiri emerged as a Domestic Multispecialist Bank in Indonesia, and

embarked on specific initiatives that enable us to grow and achieve dominant market share of revenue in our focus segments. In addition, Bank Mandiri aims to be a Regional Champion Bank - a public-listed bank that would be measured by market capitalization and ranked high amongst other blue chip public-listed banks in South East Asia. 1.2 Transformation Program - Stage 2 (2010 - 2014) Bank Mandiri are now embarking on the second stage of Bank Mandiri transformation process for the 2010-2014 period by revitalizing Bank Mandiri vision "To be Indonesia's Most Admired and Progressive Financial Institution". By 2014, Bank Mandiri intends to achieve a market capitalization of Rp 225 trillion, a market revenue share of 16%, an ROA of around 2.5%, and an ROE of around 25%, while at the same time maintaining an asset quality in a gross NPL ratio of under 4%. And by end 2014, Bank Mandiri are determined to reach the ranks of the Top 5 Banks in ASEAN.

The Bank has set its sights to be among the Top 3 in ASEAN by 2020, in terms of market capitalization, and to be a major regional player. In order to realize this vision, Bank Mandiri's business transformation during the 2010-2014 period will focus on the following three business areas:

1.2.1 Wholesale Transactions Bank Mandiri are consolidating Bank Mandiri leadership position by offering comprehensive financial transaction solutions and developing a holistic relationship approach in serving Bank Mandiri corporate and commercial customers in Indonesia.

1.2.2 Retail Deposits & Payments Bank Mandiri are determined to become the bank of choice for consumers in the retail deposit market by providing a unique and superior banking experience. 1.2.3 Retail Financing Bank Mandiri goal is to become the No. 1 or 2 bank in the retail financing segment by leading in the mortgage, personal loan, and credit card markets, and by becoming a major player in the micro banking segment. Besides focusing on these three strategic areas, Bank Mandiri are also strengthening Bank Mandiri organizational structure and infrastructure (branch, IT, operations, risk management) to provide more integrated service solutions. To successfully achieve Bank Mandiri goals, Bank Mandiri will leverage on the critical support of Bank Mandiri human resources, technology, prudential risk management, and good corporate governance.

1.3 Achievements to Date As of December 2011, Bank Mandiri's total assets have reached Rp 551.9 trillion (equivalent to USD 60.86 billion), more than double of that in 2006 (Rp 267 trillion) which is a growth of 15.6% (CAGR); making us the largest bank in Indonesia. Bank Mandiri loans also grew by 22% (CAGR) to Rp 314.4 trillion (equivalent to USD 34.67 billion) from Rp 118 trillion in 2006 while Bank Mandiri net profit grew by 38.3% (CAGR) to Rp 12.2 trillion (equivalent to USD 1.35 billion) from Rp 2.4 trillion in 2006. Besides being the nation's largest lender (on a consolidated basis), Bank Mandiri is also the largest depository in the country with Rp 422.3 trillion (equivalent to USD 46.57 billion) in third party funds. In terms of asset quality, Bank Mandiri gross and net NPL ratios stand at 2.21% and 0.52% respectively.

One of the key milestones towards realizing Bank Mandiri's vision during the second stage of the transformation process was the successful completion of a rights issue in February 2011 that strengthened Bank Mandiri capital base. With this, Bank Mandiri's capital has reached Rp 62.7 trillion (equivalent to USD 6.9 billion), representing an increase of 48.9% year-on-year. Hence, Bank Mandiri became the first bank in Indonesia to achieve the status of an international bank according to the Indonesian Banking Architecture (Arsitektur Perbankan Indonesia/API).

Bank Mandiri are also supported by Bank Mandiri subsidiaries which contribute significant income of approximately 12% to the total consolidated net profit of the Bank. Today, Bank Mandiri has the largest ATM network with 10,000 units throughout Indonesia. Bank Mandiri have earned the distinction of being a most trusted company in Indonesia for corporate governance for 5 consecutive years. Bank Mandiri are ready to become an anchor bank in Indonesia as Bank Mandiri have fulfilled the criteria set by Bank Indonesia, and propelled ahead by Bank Mandiri vision to be Indonesia's Most Admired and Progressive Financial Institution. 2. Overall strengths and weaknesses of Bank Mandiri Strengths: 140 years tradition in banking industry from 4 different banks which 14 years ago collaborated into Bank Mandiri as Bank Mandiri know now in Indonesia Introducing new core banking system to be more efficient Using straight-through service to all customer Bank Mandiri customers hold major economic and industry in Indonesia such as food and beverage manufacturers, construction, chemistry, textile, etc. Strong management team and good corporate governance Growing asset for more than Rp 319 trillion, with more than 21 thousand employee in 1000 domestic offices and 6 overseas offices.
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Weaknesses: Hard to find competent workers who have knowledge, good service, and the ability to use their soft skill in the office The ATM is not widely spread throughout Indonesia Does not have big branches in small city It is not easy to fully implement the management information system in banking industry Does not have variety of product and services

3. Marketing Strategy 3.1 Main Focus Wholesale Transaction: Bank Mandiri is consolidating its leadership position by offering comprehensive financial transaction solutions and developing a holistic relationship approach in serving its corporate and commercial customers in Indonesia.

Retail Deposit & Payment: Bank Mandiri is determined to become the consumer's bank of choice in the retail deposit market by providing a unique and superior banking experience.

Retail Financing: Bank Mandiri's goal is to become the No. 1 or 2 banks in the retail financing segment by leading in the mortgage, personal loan, and credit card markets, and by becoming a major player in the micro banking segment.

3.2 Targeting Multi-segment targeting: Corporate, Retail and Micro Bank Mandiri has different business division that covers the entire segment in Banking Industry almost equally. Unlike any other competitor that focuses only on single segment only, Bank Mandiri had almost equal attention to its entire potential consumer as a niche market that can be exploited as profit center. For example: BCA that focuses on its retail consumer and BRI on its micro finance sector.

3.2.1 Positioning: Bank Mandiri has a positioning of a national local bank. 3.2.2 Product: From Corporate and Retail, and as the government vision to support micro industry, it had been reaching micro industry using KTA Kredit Tanpa Agunan 3.2.3 Price: Lower Interest for Micro Industry

3.2.4 Place As one of largest Banking Chain in Indonesia, Bank Mandiri had a nationwide coverage of its banking service. Through 8,996 ATMs and brand offices across Indonesia, Bank Mandiri provide a high customer contact to gain higher share on both retail and corporate banking.

3.2.5 Promotion 3.2.5.1 Micro Finance Campaign Inline with governmental vision to increase the economic capability of Small and Medium Enterprise (SMEs), Bank Mandiri has a comprehensive campaign to increase the number of Micro Funding using their Kredit Tanpa Agunan which doesnt require any collateral. 3.2.5.2 Seasonal Event Seasonal Promotion to boost the deposit or loan allocation activity thats undergone in special occassion such as Christmas, Idul Fitri, New Year, etc. 3.2.5.3 Customer Satisfaction Improvement The usage of IT to increase the customer service level and customer contact such as ebanking, m-banking, Mandiri PraBayar, etc.

4. Mexico Environment and Opportunities

4.1 Country information of Mexico Location Mexico is located in southern North AmericaIt is bounded on the north by the United States; on the east by the U.S., the Gulf of Mexico, and the Caribbean Sea; on the south by Belize and Guatemala; and on the west by the Pacific Ocean. Mexican federal jurisdiction extends, in addition to Mexico proper, over a number of offshore islands. The area of the country is 1,972,547 sq km, (761,604 sq mi).

The Land of Mexico Mexico has two major peninsulas, the Yucatan in the southeast and Baja California in the northwest. The high Mexican Plateau forms the core of the country and is enclosed by mountain ranges. Central Mexico is an elevated plateau dominated by volcanic high mountains. In the Central Highlands region, there are many volcanoes, two of which, Popocatpetl and Ixtachuatl, can be seen from Mexico City. Both of these are essentially dormant, although Popocatpetl sends up steam and smoke occasionally. In the north the central plateau drops steeply to the wide valley of the Ro Grande (called the Ro Bravo in Mexico). The east coast is low and flat, though the lofty coastal mountains in the state of Veracruz dominate its landscape.The northwestern part of the country is predominantly low, sandy shoreline, with the plateau rising sharply behind it. The northern Pacific slope and its interior region receive little rainfall, prompting irrigation, though rainfall is heavy along the Gulf coast. Natural Resources in Mexico The mineral resources of Mexico are extremely rich and varied. Almost every known mineral is found, including coal, iron ore, phosphates, uranium, silver, gold, copper, lead, and zinc. Proven petroleum and natural-gas reserves are enormous, with some of the world's largest deposits located offshore, in the Bay of Campeche. Forests and woodland, which cover about 23% of the land, contain such valuable woods as mahogany, ebony, walnut, and rosewood. About 13% of the land is suitable for agriculture, but less than 10% receives enough rainfall for raising crops without irrigation. Population (and people, culture, language) The Mexican population is composed of three main groups: the people of Spanish descent, the Indians, and the people of mixed Spanish and Indian ancestry, or mestizos. Of these groups, the mestizos are by far the largest, constituting about 60% of the population. The Indians total about 30%. The society is semi-industrialized.
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The population of Mexico at the 2011 census (preliminary) was 108,396,000. The estimated population density in 1990 was 41 persons per sq km (107 per sq mi). About 73 percent of Mexicans lived in urban areas (around Mexico City). People in Mexico uses Spanish as a official language, but more than 50 Indian languages are spoken. Religion mostly Christian (predominantly Roman Catholic; also protestant) Economy Mexico has a mixed economy based on agriculture, manufacturing, and the extraction of ptroleum and natural gas. About one-eighth of the land is arable; major crops include corn, wheat, rice, beans, coffe, cotton, furuits, and vegetables. Mexico is the world's leargest producer of silver, bismuth, and celestite. It has significant reserves of oil and natural gas. Manufactures include processed foods, chemicals, transport vehicles, and electrical machinery. GNP at market prices (2005): 8 374 348.5 million pesos (2011): $1,661 trillion GNP per capita (2005): 78,668.1 pesos per inhabitant (2011): $14,609 Real annual GNP growth rate (2005): 3.0% Government It is a federal republic with two legislative houses; its head of state and government is the president. Mexico consists of 32 administrative divisions -- 31 states and the Distrito Federal (federal district), which is the seat of the federal administration.

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4.2 Opportunities and Threats Following the data and resources that Bank Mandiri collect or know, Bank Mandiri found some opportunities that Bank Mandiri can take some advantage of them. In the other hand Bank Mandiri also found some threats that can endangered Bank Mandiri future also. Opportunities Low barrier to open new branches in Mexico Only few retail banking in Mexico Only need relative low funding Good human resources in Mexico compared to Indonesia

Threats Trust from the local people Competitors have better technology Variety of product from the other banks Cant sell Syariah products due to few number of Muslim in Mexico

5. Porter Five Forces Analysis - Banking Mexico In the mid-1980s Mexico started to liberalize its trade; and, since the signing of the North American Free Trade Agreement (NAFTA) in early 1994, Mexico has followed an aggressive globalization strategy, placing about 90 percent of its trade flows under free trade agreements with over 40 countries. These polices have made Mexico the country with the most free trade agreements in the world.1 Mexicos liberalization strategy has also included its financial sector and, in particular, the banking industry. Mexicos experience with financial liberalization provides an interesting case study for at least two reasons. First, economic theory suggests that financial liberalization bolsters economic growth. Mexicos path toward financial liberalization has been an arduous one
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and includes several failed attempts, which, until recently, prevented the development of its banking sector and limited the growth of financial credit to the private sector, which is necessary for economic development. 5.1 Threat of new competition Important issue that presents a barrier to entry for new competitor is trust; because the nature of the business requires institutions to deal with other peoples money and financial information, customer prefer well-known trustworthy institutions in order to open a bank account. That the barrier to entry in the banking industry are medium to low, because it is difficult to enter the industry as a bank with the full range of products and service but it is relatively easy as open a local or regional bank with limited product and offering.

Economic of scale Although the concept of scale economies is frequently associated with manufacturing, it is also applicable to R&D, general administration, marketing, and other business functions. Hondas efficiency at engine R&D, for example, results from the wide range of products it produces that feature gasoline-powered engines. When existing firms in an industry achieve significant economies of scale, it becomes difficult for potential new entrants to be competitive.

Economies of product differences Differentiation can be achieved as a result of unique product attributes or effective marketing communications, or both. Product differentiation and brand loyalty raise the bar for would-be industry entrants who would be required to make substantial investments in R&D or advertising.
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Capital requirements Capital is required not only for manufacturing facilities (fixed capital) but also for financing R&D, advertising, field sales and service, customer credit, and inventories (working capital). The enormous capital requirements in such industries as pharmaceuticals, mainframe computers, chemicals, and mineral extraction present formidable entry barriers.

Access to distribution If channels are full, or unavailable, the cost of entry is substantially increased because a new entrant must invest time and money to gain access to existing channels or to establish new channels.

Government Policy Frequently a major entry barrier. In some cases, the government will restrict competitive entry. This is true in a number of industries, especially those outside the United States that have been designated as national industries by their respective governments. Japans postwar industrialization strategy was based on a policy of preserving and protecting national industries in their development and growth phases. The result was a market that proved difficult for non-Japanese competitors. Competitor response New entrants expect existing competitors to respond strongly to entry, their expectations about the rewards of entry will certainly be affected. A potential competitors belief that entry into an industry or market will be an unpleasant experience may serve as a strong deterrent. Bruce Henderson, former president of the Boston Consulting Group, used the term brinkmanship to describe a recommended
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approach for deterring competitive entry. Brinkmanship occurs when industry leaders convince potential competitors that any market entry effort will be countered with vigorous and unpleasant responses. This is an approach that Microsoft has used many times to maintain its dominance in software operating systems and applications. 5.2 Threat of substitute products or services In Mexico Banking Sector, banking sector had been adapted the technology that can allow new entrants in an in industry and banking is no exception, one of many example are worth looking in payment systems. For example trails include more than 440 McDonalds as a payment card, and the new feature was added enabling the customers to link their shop card (credit card or Flazz) and automatically get discount.

For example, Mandiri can produce such as a card that allow the customer to fill their fuel by tap the card to the machine, this feature can increase the payment speed. Based on the information, presented above, the threat of substitutes is high for particular service such as payment system but low for banking services as a whole. Buyer propensity to substitute Relative price performance of substitute Buyer switching cost Perceived level of product differentiation Number of substitute products available in the market Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product. Substandard product Quality depreciation

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5.3 Bargaining power of customers (buyers) There are three factors that should be considered when assessing the bargaining power of bank customers, first: the same base of products is offered by most players in the industry, second customer are now recognize that their deposits or loans are not the only important things, but also the trustworthy bank, third internet technologies have reduced the cost of comparing the price of holding an account in several banks before. When analyzing, the advantage the internet gives to customers by enabling them to Shop for the cheapest provider of financial services with a click of the mouse, one would deduce that buyer bargaining is high; there are important security and privacy consideration that increase the bargaining power of banks. Because banking is about managing peoples wealth and information, customers look for a trustworthy institution that will provide them with a secure platform to manage their accounts and will not sell lease or otherwise share their personal information with undesired third party. This reason why aspects such as brand and track record become relevant for customers reducing their willingness to open an account with the cheapest and rather choose the cheapest among the safest. The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. 5.4 Bargaining power of suppliers Consider about the raw material for a bank is money there are four main sources of money for banks, first customer deposits, second the scale of mortgages and other loans, third issuance of mortgage backed securities (MBS) and four loans from other financial institution.

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By using these four sources of money, the banks insure the necessary resources to serve customers borrowing needs while providing the availability of funds for depositor withdrawals. The first source of money of a bank is the customer deposits and the analysis and relationship with clients at this end of the value chain is the same of that at the opposite end, that is clients that ask for a loan usually also have a saving account or a checking account and choose a bank to have this deposits on mainly the same basis of discounted above, therefore have the same bargaining power. The next two sources of money are closely related the sale of mortgages and mortgage backed securities, Mortgages that comply with the guidelines for credit worthless and repayment likelihoods and are smaller than the set threshold (Approx. $300,000), are sold on the secondary market mainly to two organizations. Banks sometime also need to look for financing from other banks or support funds such as the import-export bank and other that provide cheap resources to finance operation from particular industries or with particular condition. This source of financing have a high bargaining power. Because these sources of funds are strongly dependent on the market, the bargaining power of suppliers is medium high, signaling that banks depend on take the market to price their mortgage and securities but this pricing is influenced by the type and size of the bank as well as the credit worthiness of the mortgage portfolio. 5.5 Intensity of competitive rivalry With about approx. 3000 and more bank, it is not hard to say that Mexico has a very fragmented industry compared to the banking system. In other developed country, reveals that the banking system has gone through significant consolidation, this consolidation had three main purpose, first increase the bank geographic coverage, second increase the number of products and service offered to their clients, three leverage on the economies of scale that the size providers.
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In several information, large banks not only spread their fixed cost across a wider number of markets but can also test a service in a distant but relevant market. The knowledge acquired and therefore increasing the probabilities of success such as: Mandiri can deploy a new mobile banking system in Mexico, and test their product in Mexico. For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Sustainable competitive advantage through innovation Competition between online and offline companies Level of advertising expense Powerful competitive strategy Flexibility through customization, volume and variety

6. Proposed Entrant Strategy Core Value: Maximizing Retail Banking As Bank Mandiri would have started their operation in Mexico using low amount of resources and market knowledge, it wouldnt be a wise strategy to conduct a head -to-head competition to existing giant banking company that currently own a massive market share. Besides lack in capital ownership, their weak brand awareness would be their main weakness in competing in whole Mexican market. Therefore, Bank Mandiri should focus on niche market that hasnt been entered by banking giant in Mexico. The key advantages that Bank Mandiri acquire is the strong presence in Micro Finance that represents its vision and long experience to have a better impact to local economic society while maintaining its profitability. Since Mexico had a relatively similar characteristic as Indonesia, applying micro financing scheme in Mexico would likely experience a same success as it had in Indonesia.

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As the income structure of Mexico represents a higher piece in their middle to low income, the brand awareness would be less sensitive matter in determining market penetration success. Moreover, the core value and pricing emphasize would be a better approach to penetrate even more applicant regardless demographic area. In Brief, Mexican market demands a banking service that focuses on the strong existence in retail banking especially in micro funding scheme. For this reason, Bank Mandiri should maximize its competitive advantage in form of knowledge and experience in empowering Indonesian small and medium enterprises (SMEs) and apply it to Mexican market that had a similar economic environment with Indonesia. Joint Venture Strategy Considering Bank Mandiri low experience in Mexican industry, building brand from scratch would be an unwise decision through several reasons: High Initial Investment o As Banking Industry require high amount of initial asset or capital expenditure

Regulation and Political Risk o Moving abroad in unfamiliar environment would present a risky circumstances to foreign company, especially in emerging country such as mexico, due to its unstable political environment. o As political environment highly correlated with the regulation beneath operational of an industry. The higher the uncertainties would reflect higher risk of regulation changes that would lead to operation disruption.

Low brand awareness o Brand awareness had become a significant measure in retail market. Building a good awareness would take high amount of cost and time.

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Cultural Differences Risk o Different country reflects different economy and also different culture. Therefore, it would be risky to conduct a banking business that had higher consumer contact without any cooperation with other company.

Therefore, the proposed strategy gathered in this reports is to apply joint venture with local banking company to build a micro finance oriented company to provide a lower experience and capital requirements. Through this strategy, Bank Mandiri could exploit its expertise in applying microfinance in Indonesia while adopting its strategy using assistance from the local partner in term of local wisdom and knowledge. Using Joint Venture, Bank Mandiri could minimize the risk explained above and therefore put a better utilization of its competitive advantage and expand with less possible risk of being failure especially due to the weak brand awareness. Its caused by using Joint Venture, it could have an extension from Bank Mandiris partner previous brand and therefore absorb current markets potential tha t had already taken by its partner. Several local banks that focus on micro finance and could be a partner for Mandiri are: Compartamos Banco, founded in 1990 as the biggest micro finance bank that seeks to serve South American Small and Medium Enterprise through several products including, Woman Credit, Grow Your Business Credit and Merchant Credit Inter American Development Bank (IADB), largest development bank in South America, including Mexico, that differentiate itself as a Bank with great empowerment to local community.

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