FIH’s choice can be examined by looking at growth-strategies due to the fact that it was concluded that FIH has to act – it needs to fight for its growth or it will just die out.
Ansoff puts up a model for the ”profit potential of alternative product-market strategies”, (Ansoff, 1957) and this will be utilized as the tool for strategy creation.
Figure 18: Ansoff’s “Product-Market Strategies for Business Growth Alternatives”
Source: (Ansoff, 1957) Present
Present New
New
Market Penetration Market Development
Product Development Diversification Products Markets
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The main thought behind Ansoff’s framework is that companies continuously have to develop their position in the market if they want to stay there – and thus, growth is a very important factor in obtaining that goal. (Ansoff, 1957)
With relation to FIH, this view implies that FIH in order to survive in the long-run has to take strategic decisions which can develop its position.
As it can be deduced from the matrix there are four different strategies which can be
perceived, but actually Ansoff states that several strategies can be pursued at the same time.
(1957)
5.1.1 Market Penetration
Market penetration infers that a company stays in the same market with its current product portfolio; growth can be achieved by gaining market shares in the form of more volume or more customers. (Ansoff, 1957)
In relation to FIH, market penetration would infer that it should aim at keeping its niche position in the short-term; it would mean taking over the part of the market that SEB and others own and is thus a rather offensive strategy since it involves protecting and strengthening the current position by taking back what’s lost.
This could be achieved by increased marketing efforts or price changes etc., but the disadvantage is that it takes resources and can be costly to do for a fight for increased market shares (Proctor, 2000). A prioritization of resources and the expected benefits are therefore necessary.
The problem with this strategy, though, is the competitive state; in a differentiated oligopoly, changing can spur a price war. (Barney & Hesterly, 2008)
What is further problematic is that FIH’s core competencies to a great extent are being imitated by for example SEB, and also that investment in increased competition is not necessarily a good idea, as the well-founded banks like SEB and Nordea would also be able to perceive the same strategy.
Porter has a contradicting strategy – he states that the firm does not have to be offensive; it can also be defensive by increasing the barriers for others and thus, invest to make the
“competitive advantage more sustainable”, (Porter, 2004, p. 482) but this is neither a good solution as the competitors have a strong resource base and cost advantages.
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In addition, setting up barriers is, as mentioned, demanding investments – and since FIH’s funding is so problematic, this clearly is a bad idea.
In brief, market penetration is my opinion not a successful choice, as I, based on the preceding analysis, believe that FIH needs to develop a more dynamic business model with fewer limitations.
5.1.2 Product Development
Product development entails that the strategy is still targeted at the current market, but with a focus on developing new products. (Ansoff, 1957)
In MFI, the technical development is crucial, but the ease at which financial knowledge can be shared over the internet, the fast-paced technological development and the fact that new products are not protected by patents means that the invention of new products can change the market, but not protect the inventor.
I will therefore argue that FIH does not stand a chance for successfully implementing the product development strategy.
5.1.3 Market Development
Another possibility is market development which basically means that FIH will go into a new market with its existing products which can be more or less modified. (Ansoff, 1957)
The strategy can be pursued through different channels; new geographical locations, new customer groups or distribution channels. (Proctor, 2000)
By expanding to another country or to several other countries, FIH could increase its customer base and profit potential considerably, but it is costly, because it would require development of distribution channels, marketing efforts and other related efforts.
FIH’s funding issues do not really make such a move easy. Heavy investments are needed.
However, FIH could form a strategic alliance with an already existing operator to lower the entry barriers. This could both be done so FIH could pay for the operator’s services or they could go together and help each other in each market.
Existing distribution channels could also be widened by creation of new branch offices, but due to the current customer groups, I do not think that such an option is helpful for reaching
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out to more customers. The existing 5 branch offices spread over Denmark are in my opnion good enough for the current customer type.
A place where FIH could put more effort into is its e-bank where the current customer segment could be expanded to other groups like for example consumers; small scale deposits at a favorable interest rate, but in great volume, could ease FIH’s funding issue. The problem though is the corporate brand which is limiting for the ability to reach new customer groups.
The main problem with market development is that it requires investments - especially if moving into completely new geographical locations, but it is also a very reasonable alternative as it provides scope and increased profit potential from the volume.
The e-bank solution, on the other hand is less costly, because FIH could just utilize its current resource base and make small adjustments to its product.
In brief, market development is thus, definitely a strategy for more thought.
5.1.4 Diversification
The diversification strategy is different from the other three because it puts focus on
”simultaneous departure from the present product line and the present market structure”.
(Ansoff, 1957, p. 114)
The drawback of this strategy is that it is very risky (Proctor, 2000). If linked to RBV, the problem with diversification is that the company will not have built up core competencies – and it takes time to just do that.
Diversification can also be done quickly by acquisitioning a foreign company, but the risk that such an action incurs and FIH’s financial difficulties means FIH does not have the space to make a takeover.
As earlier concluded, FIH does not necessarily have a choice of whether or not to extend its product line and market, because customers demand a product package. Also, globalization supports a move into new markets.
Consequently, diversification can very well be something that FIH can be forced into doing, and as such, not really be a choice – but this do not make it a bad strategy.
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