The aim of this essay is firstly to identify and explain an episode of international expansion for an organisation.

Santander Bank has been the company selected for this case of study. Due to the length and extension of Santander's international expansion, this work particularly focuses on a specific geographic expansion: Europe, and particularly in the last twenty years of expansion in European continent. Secondly to discuss and explain the motivations for this international expansion, and the strategy used to achieve the objectives of the expansion, discussing if this strategy was correct and if others could be more effective. Thirdly to define the challenges of the expansion in this period and determinate if they have been addressed or not and finally to elaborate a critic and own conclusion about all as noted above, explaining the effectiveness of Santander in this part of its geographic expansion. The choice of Santander bank is because, from my point of view Santander is a good example of how to make a successful international expansion and in a record time. Since the internationalization process started in 1947 the result is that sixty years later Santander is the eighth bank capitalization in the world with presence in 40 countries with 11,000 branches and 135,000 employees serving 69 million customers (Santander, 2012). Thus it is necessary now explain a bit of Santanders expansion history. Although from its creation, it has an international projection, it did not establish foreign operations for almost a century after its creation. Santander was established in 1857 in Santander. During the first ninety years of its creation, it focused on growth in Spain. In 1924 it established the first bank office outside of Santander, and continued to expand nationally through bank acquisitions or office openings. It is possible to divide the process of Santanders expansion in three areas or times, firstly Latin America, then Europe and later Asia. As was noted above this case of study focuses on the last twenty years in Europe, so only important events of others geographic expansions will be mentioned. It was not until the eighties when Santander focused its expansion in Europe. The entry of Spain into the European Economic Community (EEC) in 1986 and the transformation of the EEC into the European Union in 1992 induced to Santander, as well as other Spanish banks, to develop strategies to adapt to environmental change. While Spanish competitors of Santander bank focus on purchases and acquisitions of other banks in Spain to gain size and

face European competitors, Santander bank follows a different path, focusing first on establishing a presence in Europe. Thus in the mid eighties, Santander already had offices in the UK, France and Germany. In 1987 it bought the CCBank financial and credit card operations of BankAmerica in Germany. In 1988 it established an alliance with Cariplo in Italy. Also in 1988, Santander bought to Paribas its subsidiary in Belgium, Credit du Nord, and established an alliance with Royal Bank of Scotland. This partnership becomes a key for Santanders European strategy. The alliance started with the exchange of 5% of capital in 1988 and Santander increased its participation to 9.99% the same year. The alliance was strengthened with the creation of a joint venture in Gibraltar between Santander and Royal Bank of Scotland in 1988. This alliance in Europe was supplemented by acquisitions and new operations (Anon., 2008). In 1988 it bought 10% of the Bank of Commerce and Industry in Portugal, with increased participation in 1990 to 55% and 75% in 1993. In Switzerland, in 1988, the office affiliated was converted to a bank. Although initially Santander did not focus on growing in Spain, the intervention of the Bank of Spain in the Spanish Banco de Credito (Banesto) provided an opportunity for national expansion. In 1994, Santander acquired a controlling share in Banesto, buying the rest of the bank and integrating it with Santander in 1998. In the purchase of Banesto, Santander received Totta and Azores, controlling by Banesto in Portugal; by contrast, Banestos operations in Latin America are of little importance to Santander. In 1999, Banco Santander merged with Banco Central Hispano, which was created in 1991 following the merger of Banco Central and Banco Hispano Americano. Following the merger it was renamed Santander to Banco Santander Central Hispano (BSCH) and became the largest bank in Spain. Monetary Union in 1999 again created an incentive to redefine the position of Santander in the European market.Thus In 1999, despite opposition from the Portuguese government, it bought the participation of group Champalimaud in Totta and Azores. In 1999, in collaboration with the Royal Bank of Scotland it purchased NatWest, which made the Royal Bank of Scotland in the second largest bank in the United Kingdom. In 2000 Banco Santander created an alliance with Societe Generale of France, with exchange of shares, and a joint venture to buy pension fund in countries where they did not have as greater presence as the United States. In 2004, Santander bought Abbey National in the United Kingdom, which had the position of sixth largest bank and second largest

mortgage company in the country. In 2007, in collaboration with Royal Bank of Scotland and Fortis of the Netherlands it made the biggest banking takeover in the world with the purchase of ABN Amro in the Netherlands, dividing the operations of this bank in the world. In the next year, 2008, it completed the acquisition of Alliance & Leicester British through the exchange of one Santander share for three of A & L. In 2010 an agreement was reached whereby Santander acquired the branches outside Scotland of the Royal Bank of Scotland (RBS), in 2011 the retail banking business of the Scandinavian SEB group was acquired in Germany through Santander Consumer AG, and Polish bank Bank Zachodni WBK was also purchased. Thus, since the crisis began, the acquisition has not decayed, just the opposite. In two years, the institution has agreed operations by billions of euros in a strategy that, for some analysts, indicates the weakness of Spain. All these latest transactions demonstrate the financial strength of the Spanish bank, but it can be said as well that the constant trips outside of Santander illuminate signs of how difficult it is being played at home (Santander, 2012) and (Botn, E., 2002). According to the motivations of Santander to expand to Europe, it is obvious that minimizing costs, maximizing efficiency, optimizing competitiveness, obtaining more customers, or the desire to grow geographically are important reasons for any company. So the question is why Santander started its expansion in Latin America, geographically farther than Europe, and not in Europe, well a good explanation of this, can be that Santander started investing in Latin American countries first because they are culturally close to Spain, later continuing to invest in European countries where there is greater cultural distance, and finally it invested in U.S and Asian countries where the cultural distance is greater. Therefore, cultural distance and government behaviour in terms of regulations, appear to be the determinants of selected countries (Cardone-Riportella & Cazorla-Papis, 2001). Thus the first investments are not centered in near countries and subsequent investments are not made in distant countries. There are various reasons why Santander pursues this strategy: the cultural distance (different languages, different ethnicities, different religions or different social norms) has an importance in service sector that does not always exist in manufacturing. The service sector companies need to understand the cultural patterns and social tacit and explicit other cultural elements like language, to interact with consumers of

services and offer the same quality in the foreign country and the country of origin. In contrast, in manufacturing the company may not need to understand the cultural patterns (Dobson, Starkey & Richards, 2004). Second, the political distance will have more weight in the service industries because these industries are many highly regulated and require permits or licences to operate. As a result, the company must understand and build relationships with government, relations which are different depending on the country. Third, while industrial costs geographic of distance influence in the internationalization transport products exported, service

companies the geographic distance has a different importance due to often have to physically move to the country of destination to provide the services. As the motivations and the reason of Santanders European expansion have been explained, it is necessary now to describe what strategies Santander have chosen to complete it (Dobson, Starkey & Richards, 2004). Under the strategy of market development used by Santander, it is possible to distinguish some particular strategies depending on the cases: Correspondent Banks, correspondent banking implies a relationship between at least two banks, including those in differing countries. Multinational corporations (MNCs) may utilize these banks for conducting global business, in other words, one bank has limited access to certain financial markets and therefore must use the services of another bank to conduct certain transactions. In this case, Santander uses this method in specific countries where different causes cannot introduce, The European Union provides Santander with access to all European countries, so this method is used by Santander mainly in E.U or Asia. Foreign Branch Bank, A type of foreign bank that is obligated to follow the regulations of both the home and host countries. Banks often open a foreign branch in order to provide more services to their multinational corporation customers (Slager, 2004). However, operating a foreign branch bank may be considerably complicated because of the dual banking regulations that the foreign branch needs to follow. Subsidiaries and Affiliates, a subsidiary bank is incorporated in one country, but is either partially or completely owned by a parent bank in another country, an affiliate works in a similar manner except it is not wholly owned by a parent company and operates independently. The analysis of Cerutti, DellAriccia, and Martinez Peria, (2005) indicated that the likelihood that a bank will establish a branch as opposed to a subsidiary is driven by a number of factors including: home-

country regulations on how banks are allowed to operate overseas, entry restrictions and taxes in host countries, the desired degree of penetration in the host market, parent banks type of operations elsewhere (i.e., their past expansion strategies), and the type of risks that banks face in the host markets. Santander uses foreign branch bank only to ensure its presence in major economic and financial centers ( London, Paris, Rome). On the other hand the strategy of subsidiaries is most often used by Santander in farther markets such as Latino America or Asia. Acquisitions or mergers, the key of Santanders expansion, in Europe is the method more used to introduce in other countries (Italy, Netherlands, Germany, Portugal, etc). In Spain the merger with Central Hispano in 1999, provided Santander with the media and the size needed to continue its European and international expansion (Anon., 2006). Strategic alliance and joint venture, involves a potentially long term investment of funds, facilities and resources by two or more companies to a combined venture, which benefits all companies. All involved will have an equity stake in the new venture. In this case it is necessary to mention the joint venture with The Royal Bank of Scotland, examples of this collaboration can be easily seen, like the joint venture in Gibraltar or the several cases of mutual help, i.e: In 2000, in the purchase of Banespa, a Brazilian investment bank, Santander received support from its partner Royal Bank of Scotland in return for the assistance rendered from Santander to Royal Bank of Scotland in its purchase of NatWest in the UK (Rodrguez Inciarte, 2005). The likelihood is that without this collaboration Santander could have not achieved its objectives of expansion as fast as was achieved. To sum up it can be said that Santander has developed an accelerating internationalization: Firstly an expanding branch network in main financial, economic and off shore centers. Secondly a broad expansion, mainly by acquisitions, relatively smooth integration except capital market activities. Thirdly a focused expansion, a number of relatively large acquisitions and finally a consolidation or restructuring: integration activities in organization focus on internal growth. According to the question of what were the challenges of the expansion and when were they addressed, well after twenty years of expansion, Santander is the eurozones leading bank and is among the top 15 financial institutions worldwide in terms of market capitalisation. The bank is the leading financial institution in Spain and Latin America, and holds important positions in the United Kingdom, Portugal, Germany and Poland. In addition, its Consumer

Finance division operates through Scandinavia and other European countries. Its shares are listed on the stock markets of Spain, New York, London, Lisbon, Mexico, Sao Paulo, Buenos Aires, and Milan, and are featured on 62 different indices (Botn, E., 2002). Finally according the effectiveness of the expansions in terms of source and core competence utilisation, first it is necessary to define core competencies: are the collective learning in the organisation, especially how to coordinate diverse production skills and integrate multiple streams of technology Prahalad & Hamel (1990). Which is the agenda that Santander established, according to Prahalad & Hamel (1994) when the core competence and the market already exist, the question that is necessary to ask is: What is the opportunity to improve our position in existing markets by better leveraging our existing core competencies? Well, Santander has characteristics and strengths that others European banks do not have: Positioning and a brand known worldwide. Promotion through event sponsorships and other entities (Formula 1, football, etc). Strength, their results provide a stable balance. Better strategic leadership than the rest of the banks. Innovation, constant search for products and services that meet customers' needs. How has Santander been able to harmonise the technologies and skills that it already had before the expansion and the others that have been acquired? as Raven Cazurra, Maloney & Markham, (2007) said: The difficulties in internationalization in terms of the ability of the enterprise to transfer resources and to give an advantage in the country, are specific to each country, the firm may suffer a disadvantage in a country, quite another in another country, and none in a third country. In contrast, the company can use the same competitive advantage, that it has obtained in one country, in several operations in the world. This can be a good explanation of Santander success. Throughout this essay one of the most bank effective expansions in the world has been explained. It has been explained how one national bank has become in just 25 years the eighth bank in capitalization and the first in profits in the world, with presence in 40 countries with 11,000 branches and 135,000 employees serving 69 million customers (Botn, 2002). The motivations of this expansion have been outlined: Follow the client, increase earnings, exploit financial and economic developments of the home country, regulation,

market concentration, herding, efficiency, profitability. Santanders strategy has been explained, discussing if was or not more effective and explained how important specific alliances to conquest the European market were. It is clear that in the internationalization of Santander, cultural distance seems to be the only one that determines the selection of the countries where the company invests. Political and geographical distances, do not seem to determine Santanders investments. Thus it has been explain that the cultural distance is more important in the services sector, in contrast, the geographical distance has a more minor impact in the service than in the manufacturing sector. It has been clear as well that one of the most competitive advantages of Santander is that, by increasing the number of countries where it operates, the company develops knowledge about how to internationalize, how to compete abroad, and how to operate abroad that allows it to enter in countries that initially were very different to the country of origin. Finally it has been said that group results are increasingly diversified geographically: Continental Europe contributes 35% of the profit (commercial networks Spain, 15%), Latin America 43% (Brazil 25%), United Kingdom 18% and U.S. 4% (Santander, 2012).

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References

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