Posted: October 17th, 2013
Santander Consumer Finance
1. Please describe and evaluate the Country/Political Risk faced by this organization and describe its successes and failures
Santander consumer finance operates in different countries spread out in the whole of Europe, thus different political risks are posed by different countries depending on the individual political climate of these countries. In Eastern Europe, the company has not had significant hold of the market because of the different cultural perceptions about loans. Moreover, the presence of stringent regulations due to political authoritativeness in such countries makes it difficult to conduct business. However, in parts of central Europe such as Germany, France, Spain, Italy the company has had exceptional success and entry in the markets due to the growth in spending power and motor vehicle users (Trumbull, Corsi, & Barron, 3).
2. What has been the lending strategy followed by Santander? Are lending decisions based on the credit background of the borrower, or on the riskiness of the venture? How do they manage risk? How do they finance their loans? Why is there so little cross-border borrowing?
Increase of consumption of goods in Europe has taken on an identical trend similar that of the United States where consumers purchase many goods, more so credit using credit cards. Information about the credit worthiness of customers in Europe was not sufficient to enable the company assess if the customers of the European countries were risky customers or on the contrary. Lending by Santander is based on the risk of a customer by evaluating their credit worthiness using different internal risk models. The different countries that Santander has operations have different methods of evaluating credit worthiness thus the company is able to mitigate the risks of having the loan seekers defaulting on their payments. Cross-border credit has been minimal because of the presence of natural, cultural and regulatory bureaucracies (Trumbull, Corsi, & Barron, 12).
3. How is the lending strategy different to US commercial banks?
The banks in the United States lending strategy are different because the consumers in the United States reflect higher spending and consumption of goods. Consumer Finance Groups and banks in the United States issue loans at prices in related to the risk of the loan. In addition, the business models available in the United States are formed based on a particular segment of risk to enable the company to understand things like possibility of default, repossession and re-entry of the repossessed products into the market (Trumbull, Corsi, & Barron, 19).
4. As a consultant to the CEO, what would you suggest Magda Salarich do now? Please obtain, identify and evaluate the data and conduct a multi-perspective analysis of the evidence to make a logical recommendation for solving the problem with a global perspective. Defend your recommendation and communicate your beliefs clearly and accurately.
Different options are available to Magda Salarich in terms of what market or new products the company should invest in. New investments ensure that the company is able to keep its competitive edge in the finance market while keeping its stronghold in the consumer finance market. Diversification of investments by new products such as personalized credit, banking options such as savings and entry into new markets is a risky affair; however, the diverse markets will enable the company to spread out its risk to the different markets, which react differently to global market conditions (Trumbull, Corsi, & Barron, 22).
I would recommend that due to the annual constant rises in the spending power of emerging economies the company should seek a share of the banking and credit market Russia, India, Brazil are among the merging economies that have seen a steady increase in the spending power. This could be interpreted as a potential market that Santander consumer finance could offer automotive insurance, personalized credit and banking services. The increase in spending power means that the people are either looking for somewhere to invest their money such as purchases of vehicles by loans at constant rates. China on the other hand provides one of the largest markets due to the vast populations. This means that the population available by using the right channels could offer a lucrative automotive, market in relation to records showing that the country had car ownership of an estimated 200 million (Trumbull, Corsi, & Barron, 24). Thus if the company can be able to penetrate the automotive insurance, then it could acquire at least five percent of the market share which is 10 million vehicles sold via credit in China alone, this is quite significant for the company and should not be ignored. I think that Salarich should pursue entry into these new markets because they are not crowded. This can also be strengthened by introduction of new products that are lucrative to potential consumers in the different countries. In addition, the company can also bring aboard experienced and competent local managers, as they are knowledgeable in these new markets and will accrue significant benefits to the company in terms of understanding the consumer needs.
Trumbull, Gunnar, Elena Corsi, & Andrew Barron. “Santander Consumer Finance” Harvard Business School: 9-711-015. (December 13 2010). Print.
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