Research On Core Competitiveness Of State-owned Commercial Bank

With the integration of world economy and the development of financial innovation, current world economy and financial development pattern have witnessed significant changes; economic competition speaks loud in demonstrating comprehensive national strength in the21st century. It is an important task for our country to seize opportunities, face challenges, and win competitive advantages in the world economic stage. As the core of modern economic system, finance plays an important role in all equities. Economically powerful countries must have strong financial systems, a sound financial system strongly support its economic competition. Major developed countries and emerging market economies are making efforts to improve their competitiveness of financial systems in hopes of prospering their nations.The financial sector is becoming increasingly important in the modern economy. As the financial system could work to promote or restrict the long-term development of the economy, its size and efficiency straightly impact the country's competitive advantage, thus finance is known as the core of modern economy. The banking sector that dominating the financial system is the basis of a country's financial system, its core competencies directly affect the country's bargaining power in the world economy's competition. Modern commercial banks are financial enterprises which make use of advanced technologies to promote financial intermediation, provide monetary credit intermediary, create circulation means, and conduct a variety of derivatives transactions while maximizing equity value in modern economic life.At present, depressing international economic and financial situation and the domestic economic downturn together put pressure on economic development. Internationally, the global economy is up to further adjustment and transition. The world economic growth is slowing down, incremental international trade continues to decline, European debt crisis remains a threat to global financial stability. Major developed countries have adopted ultra-loose monetary policy to address the complex and challenging situation. However, this initiative exacerbated the instability of international financial markets, leaving them volatile. Domestically, with the implications of global economic and financial crisis as well as domestic profound structuring, our national economy faces severe challenges internally and externally. Since Q4of2011, impacted by the European debt crisis, China's economy faced some difficulties, whereas our central government took timely macroeconomic measures, resulting with stabilized macroeconomic data. Since2012, Chinese central bank has adjusted the deposit and lending rates for several times. The interest rate liberalization put a huge challenge to China's commercial banks which are stepping toward marketization. The marketization process requires China's commercial banks to perform better when they participate in market competition, change the operation mode and improve market pricing ability.Under current complicated internal and external economic and financial circumstances, commercial banks, as the core of China's financial industry, must think how to grow healthily and win the competition from a long term perspective. Appropriately addressing these issues will improve the core competencies of the state-owned commercial banks. China's state-owned commercial banks must develop and enhance their core competencies, and strengthen competitive advantages considering eroding market share and new challenges from financial institutions reform.Conclusions:Core competencies are current theoretical research focus, different types of enterprises have different core competencies and different driving forces of core competencies. As special financial enterprises, commercial banks not only exhibit common characteristics like manufacturing enterprises, but also have distinct aspects. Guided by Prahalad's enterprises core competenciesstrategic theory, Porter's competitive advantage theory and other mainstream academic views, the core competencies of commercial banks is defined as, in this article, dynamic intrinsic capabilities that commercial banks could bring exceptional value to their customers compared to competitors, hard for whom to follow, and integrated intrinsic capabilities for commercial banks to maintain a stable and sustained growth, under certain technologies, economic system, social system and comprehensive social development. Therefore, in this article, the inherent meaning of core competencies of commercial banks is summarized as dynamic capabilities for commercial banks to expand existing markets, create future opportunities and win competition in the long term by exploring own resources and external environments, with the consideration of social responsibility. The dynamic capabilities can be divided into three levels, from micro to macro respectively: business competencies, strategic management capabilities and sustainable competitiveness.When clarifying the core competencies of commercial banks, this article has established the internal and external value chain of China's commercial banks via Porter's value chain. It deeply discussed the constituents of core competencies of commercial banks in terms of value chain, and analyzed the key factors to commercial banks in regards of resources, internal capabilities, and environment. Based on the identification of the meaning, characteristics and key factors of the core competencies of commercial banks, this article established the evaluation system for the core competencies of state-owned commercial banks, according to its contents and feature, satisfying4criteria strategically, securely, organizationally and innovatively,9indicators and supplemental indicators.Based on evaluation system of core competencies of state-owned commercial banks, this article has designed a set of questionnaires to regulatory authorities, state-owned commercial banks, joint-stock commercial banks and rural credit unions, and scientifically calculated the results of questionnaires to deduct the index weights of indicators in the evaluation system through AHP method. It subjectively assigned weights to indicators, and finally ranked the core competencies for our five state-owned commercial banks.Based on the evaluation system and results, this article has analyzed the relationships and mechanisms of core competencies in four aspects:differentiation competition strategy, risk management, organization optimization and technological innovation, for the sake of optimization and enhancement of core competencies of state-owned commercial banks. It has also elaborated the current status, existing problems and measures in the above four aspects.After thirty years of reform and development, the overall strength of China's banking industry has been greatly improved, five state-owned commercial banks have became large international banks. However the size, profits, and growth in the number of outlets cannot demonstrate excellence of service and mechanism over their competitors, neither to demonstrate core competencies. On the contrary, some banks are observed reforming superficially to some extent. State-owned commercial banks should deepen reform to solve current problems, smoothly transit mechanism reform from the previous stage to the next stage.(A)State-owned banks must promote market-oriented reforms robustly through effective differentiation strategy to reduce financial risk, decrease waste of resources, get rid of the crisis of homogenized competition, in an effort to improve the profitability, enhance the core competencies, win more market segmented customers, and ultimately win the long-term competitive advantages for the state-owned commercial banks.First, banks should promote the differentiation of business strategy vigorously. State-owned banks should fully exploit distinct businesses, innovatively carry on new business around the core strengths, reduce the replicability and imitability of core products and win competitive advantages based on target markets and customers. High added value, high market fit, high-quality differentiated financial products and services could work to further cultivate and enhance the core competencies.Second, banks must strengthen market differentiation strategy, avoid of expanding institutions blindly which is not compatible with restructuring and development. State-owned banks must figure out their strategic market positioning accurately, combine with own comparative advantages and resources, and concentrate on familiar markets and correlated areas. Internationally, state-owned banks must improve the overall planning in both international and domestic markets with an emphasis on serving enterprises holding the "Going abroad" strategy.Finally, state-owned banks must strengthen the centralized management of organization, and improve the differentiated competition through efficient operations. While enhancing the vertical management and enhancing the horizontal synergies inter-sectionally, they have to increase allocation of resources in terms of core competencies, and promote business products innovation. (B)State-owned banks must develop leading risk-oriented culture and enhance their soft power, form a vertical and centralized comprehensive risk management system, and establish the comprehensive risk management system with the principle of "three defense". Further efforts should be made to strengthen the ability to identify risks, improve risk measurement capabilities, enhance risk selection capabilities, develop the ability to allocate risks, and strengthen portfolio management capabilities to enhance core competencies of state-owned commercial banks.(C) State-owned banks must build up effective balancing mechanisms and improve corporate governance. After decades of shareholding system reform, state-owned commercial banks have basically achieved transitions to modern banks. In the next stage, they should strengthen corporate governance and improve business decisions scientifically and operations management robustly. First, attentions should be paid on integrating the balancing mechanism on the shareholders behavior, preventing major shareholders control caused by excessive equity concentration, and noticeably insider control by diluted ownership. It is necessary to strengthen the limits on major shareholders, and standardize shareholders rights and obligations. At the same time, state-owned banks should strengthen top management incentives and restraints, withdraw from excessive focus on short-term benefits, establish a scientific and reasonable performance evaluation system, accelerate the risk-based remuneration system and defer payment mechanisms, and promote long-term share incentives.(D) Clear objectives must be established to effectively construct bankers generation and evaluation mechanism; State-owned banks must strengthen the analyzing capabilities on customers and market segmentation, target customers and markets clearly and precisely, and improve business processes and operations system continuously; invest in technology firmly, promote innovations on the organization and service systems; strengthen the organization's communication and learning, and smooth information flow to fully respect employees' feedback, and advocate teamwork and employee participation actively.(E) State-owned banks must always keep an acute insight and a forward-looking mind, establish business philosophy through scientific and technological innovations to support development, and integrate technological factors into external businesses and services and internal management; develop and gradually implement the scientific and technological innovation strategies tailored for own development in light of self market needs and strategic needs, according to changes of customers and economic development; build compound talents team through technical training on operations staff and operations training on technical staff, ensure collaboration of business and technology, maximizing the advantages of technological innovation; rely on modern Internet and information technology, enhance the ability of technological innovation, establish customer service-focused business processes, reduce management involvement, speed up business process response and improve quality of financial services.The innovations of this article:First, abandoning previous broad and overloaded research of core competencies, this article has researched from the industrial economics angle, via literature research, combing theoretical definition of core competencies with characteristics of state-owned commercial banks and concepts of innovative core competencies, tried to define the core competencies of state-owned commercial banks.Second, supported by more rigorous theories, this article has analyzed the core competencies system, specifically, apply Porter's value chain theory on analysis of the value chain of China's commercial banks. Based on in-depth research on internal and external value chain of state-owned commercial banks, it analyzed the constituents of core competencies, in order to build up the ground of evaluation system for core competencies of state-owned commercial banks.Third, combing definition and qualitative analysis of influencing factors of state-owned commercial banks, based on4criteria and9indicators, this article has preliminarily established the evaluation system for core competencies of state-owned commercial banks. Through appropriate design of questionnaire, it has ranked the core competencies of China's five state-owned commercial banks through AHP method, and quantitatively analyzed the relative strength of core competencies of China's state-owned commercial banks.Due to individual academic research limits, time restricts, references access limits and other implications, this study is weak in the following regards, pending on future improvement:(A) The current academic research on the core competencies is still immature, lack of related theoretical and systematic literature on core competencies research. In addition, various branches of industrial economics themselves are in the process of continuous improvement, it is difficult to understand the system from the normal perspective of industrial economics.(B) Deep understanding of China's banking industry is necessary to research the core competencies of state-owned commercial banks. As state-owned commercial banks are constantly impacted by ever-changing internal and external environments, the factors on the core competencies follow dynamic tracks. It is anticipated to further improve the evaluation system for core competencies of state-owned commercial banks rationally and comprehensively.