STRATEGY ANALYSIS OF IDLC FINANCE LIMITED

Submitted to:

Dr. A.K.M. Saiful Majid

Professor

IBA, University of Dhaka

Submitted by:

Muhammad Hasibur Rashid Chowdhury

Student ID: ZR-1201002EMBA, Batch No.: 12

Institute of Business Administration

University of DhakaJune 12, 2014

Professor Dr. A.K.M Saiful Majid

Course Teacher

Strategic Management (W-615)

Institute of Business Administration

University of Dhaka

Subject: Letter of TransmittalDear Sir,

Ive prepared the term paper titled Strategy Analysis of IDLC Finance Limited as per the valuable guidelines and advice provided by you. As an employee of IDLC I am bound to maintain confidentiality of different issues of the organization. Moreover, as a non-banking financial institute IDLC has to comply with immense rules and regulations which restrict the availability of data. Despite the facts I have tried to make the report extensive as much as possible.

Preparing this paper helps me a lot to get exposure of strategic management issues with practical situation. I am personally thankful to you for giving me such an opportunity and also providing your thoughtful guidelines to prepare this report.

For any additional information or assistance apart from this report if required so, please contact me at hasib@idlc.com or +8801730319914Sincerely yours,__________________________________Muhammad Hasibur Rashid Chowdhury

Roll No: ZR-1201002EMBA 12th Batch, IBA

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ACKNOWLWDGEMENT

This report is prepared as per the requirements of the Strategic Management (W-615) course under the Executive MBA program of IBA. To provide this opportunity and thoughtful guidelines I am grateful to the course teacher Professor Dr. A.K.M Saiful Majid sir.

I would also like to thank some colleagues who have extended their cooperation to me for preparing this mammoth task. I would like to thank Mr. Mir Tariquzzaman, GM & CTO (IT) whom I have consultant several times on different issues. I would also like to thank Ms. Bilquis Jahan, DGM & Head of HR for her patience and time she had provided to me.

Table of Contents

Executive Summary....i10Chapter 1: Introduction

101 Introduction

101.1Origin of the Report

101.2 Objective

101.3 Scope

111.4 Methodology

111.5 Limitations

12Chapter 2: Company Profile IDLC Finance Limited

122.1 IDLC at a Glance

122.2 Shareholding Structure

132.3 Organizational Hierarchy

142.4 Products and Services

142.4.1 For Large Local and Multinational Corporate Houses

142.4.2 For Small and Medium Enterprises

152.4.3 For Retail Clients

152.4.4 For Capital Market Clients

152.5 Board of Directors

162.6 Management Committee

172.7 Memberships

172.8 Key Financials:

192.9 Geographic Coverage

20Chapter 3: Organizational Strategy Analysis IDLC Finance Limited

203.1 Critical Analysis of Strategy Making Hierarchy of IDLC

213.2 Vision Statement

213.2.1 Critical Analysis of IDLCs Vision Statement

223.3 Mission Statement

223.3.1 Critical Analysis of IDLCs Mission Statement

233.4 Strategic Objectives

233.5 Core values

243. 6 Employee Code of Conduct and Ethics

25Chapter 4: Strategic Group Mapping

254.1 Strategic Group Mapping

274.2 Analysis of Strategic Groups

324.3 Basic and complementary strategies designed and being implemented to match market situations

324.3.1 Corporate Business

334.3.2 Small and Medium Business

334.3.3 Consumer Business

34Chapter 5: Environmental Factors Analysis

345.1 PESTEL Analysis

345.1.1 POLITICAL FACTORS:

345.1.2 ECONOMIC FACTORS:

355.1.3 SOCIO-CULTURAL FACTORS:

355.1.4 TECHNOLOGICAL FACTORS:

365.1.5 ENVIRONMENTAL FACTORS:

375.1.6 LEGAL FACTORS:

375.2 Five-Forces Model of Competition

395.2.1 Competition among Rival Companies

405.2.2 Threats of New Entrants

405.2.3 Power of Suppliers

405.2.4 Bargaining Power of Client Groups

415.2.5 Competitive Pressure from Substitute Products

42Chapter 6: SWOT Analysis

426.1 SWOT Analysis

43Chapter 7: Analysis on Overall Banking Industry

437.1 Industry Life Cycle

437.1.1 Countrys Total credit growth all banks

447.1.2 Countrys Total Deposits Growth

447.1.3 Countrys Overall Export growth

457.1.4 Countrys Import Scenario

457.1.5 GDP Sectoral Growth rate in %

467.2 Dominant Traits of the Industry

487.3 Drivers of Industry Change

497.4 Key Success Factors

50Chapter 8: Recommendations and Conclusion

508.1 Recommendations and Conclusion

Executive SummaryIDLC Finance Limited is one of the leading non-bank financial institutions in Bangladesh. Established in 1985 as the pioneering leasing company in Bangladesh, IDLC now offers a wide range of products ranging from Corporate Finance, SME Finance, Consumer Finance, to Capital Market solutions, through its presence across the country with 26 branches and over 600 permanent employees. Over the year, IDLC has developed a strong strategic management process that clearly dictates organizational policy-making, strategy development & execution, and overall organizational management in an efficient manner. Both IDLCs Board of Directors and top management personnel are integrally involved in leading this strategic management process in the most efficient manner by ensuring a good strategic plan for the organization, remaining updated on organizational and industry scenario, putting constructive pressure to achieve desired outcomes, taking corrective measures for better strategic management, developing stronger competencies and capabilities, and portraying strong corporate governance, ethics and CSR. IDLC has always been well-regarded in the financial sector of Bangladesh for its corporate governance practices, ethical integrity and transparency. Maintenance of an effective Corporate Governance process remains a key priority of the Board of IDLC. Moreover, IDLC has a strong Human Resource management system in place that focuses on key areas such as maintaining a favorable work environment by embracing diversity and inclusion; exercising non-discrimination and maintaining gender balance across all spheres of IDLC; providing opportunities to employees and fresh graduates for both their personal and professional development in the form of training programs, job rotation, succession planning and internship opportunities; ensuring health and safety standards across all branches of the IDLC Group while offering major benefit schemes and company contributions to employees; and helping employees maintain proper work-life balance throughout their stay at IDLC. These practices help IDLC attract and retain the best professionals in the industry. Based on the strategies adopted by its competitors and changing market scenario across different business segments, IDLCs business units also differ from one another in terms of core strategies and focus areas. In response to a more mature market, IDLCs Corporate business is mainly focused on service quality and efficiency, higher ticket size, and improved portfolio quality, while its SME business is more focused on rapid product innovation and increased presence through expanded geographic coverage to leverage the most from the fast-growing SME sector in Bangladesh. The major factors of IDLCs external, and immediate industry and competitive environment, and their subsequent influence on its operations, have been identified through PESTEL analysis and Porters Five Forces Model of Competition. PESTEL analysis reveals major political, economic, socio-cultural, technological, environmental and legal factors that influence IDLCs performance and strategic decisions. Major factors include, but are not limited to, budgetary measures and various policies and regulatory measures by the Government and Bangladesh Bank; changing demographics of the population; greater reliance on technology to offer more customized financial solutions and better services.The Five Forces Model of Competition reveals strong market competition and rivalry in the industry, low threats of new entrants due to high regulatory restrictions, high bargaining power of both industry suppliers and customers due to intense competition among rival companies and competing product offerings, and almost zero threat from substitute products from another industry.

SWOT Analysis of IDLC reveals its core strengths in the areas of effective strategic decision-making and execution, strong corporate governance, competent management team, strong financials, diversified product portfolio and a prestigious customer base, professional workforce combined with strong HR Management, strong technology platform, superior customer service, and growing CSR commitment, thus leading to a strong brand image.

In light of the above analysis, we may safely conclude that IDLC holds a strong position in the banking and financial services sector of Bangladesh. By focusing more on balanced strategic objectives; strong management leading to efficient strategy development and execution; revising business models and strategies in a timely manner will provide better results and competitive advantage.Chapter 1: Introduction

1 IntroductionIn this report we will analyze the strategy of IDLC Finance Limited in terms of various parameters. Those parameters are companys current strategies, what is the strategic group, their impact of the different environmental factors such as five forces, PESTEL. We will also go through the detail analysis on SWOT of IDLC.1.1 Origin of the Report

As part of our Strategic Management course of Executive MBA program, our honorable teacher Professor Dr. Saiful Majid has given us an assignment to perform an analysis on the strategic management process of my own company and recommend course of actions to strengthen in light of the learning from the course. As per our teachers instruction we have made this report.1.2 Objective

Our main objective is to analyze the strategy implemented by IDLC both basic and complementary, its strategic groups, different external factors such as five forces, PESTEL, SWOT, banking industry life cycle, dominant traits of the whole industry, key success factors and finally come up with recommendations so that IDLC Finance Limited can do even better in the competitive market.1.3 Scope

The report attempts to analyze the strategic management process of IDLC Finance Limited, focusing on IDLCs strategic objectives, polices and guidelines developed and executed by its Board and Management, and followed by its staff. To identify IDLCs competition market position and major opportunities for the future, and accordingly recommend required measures, a number of strategic management tools were applied, including detailed analysis of IDLCs vision, mission and strategic objectives; strategic group mapping of IDLC; PESTEL analysis and applying Porters Five Forces Model of Competition to highlight influence of major factors related to IDLCs external environment and immediate industry and competitive environment; and SWOT Analysis of IDLC. Accordingly recommendations have been provided in this report that may contribute to further growth and improvement of IDLC.

1.4 Methodology

The report has been prepared by reviewing various policies, guidelines and reports of IDLC. Moreover, references have been made from IDLCs Annual Financial Report and Annual Sustainability Report, while key personnel from Corporate, SME, Consumer, Capital Markets and Human Resources were interviewed for their opinion on various issues related to IDLCs strategic management process.

1.5 Limitations

Due to confidentiality and sensitivity of certain information, detailed strategies, policies and guidelines could not be enclosed with this report.

Chapter 2: Company Profile IDLC Finance Limited

2.1 IDLC at a Glance

IDLC Finance Limited, Bangladeshs pioneering leasing company, was established in Dhaka in 1985. IDLC was formed through the collaboration of International Finance Corporation (IFC), German Investment and Development Company (DEG), Kookmin Bank, Korea Development Financing Corporation, The Aga Khan Fund for Economic Development, The City Bank Limited, IPDC of Bangladesh Limited and Sadharan Bima Corporation.

Today, IDLC Finance is the leading multi-product Non-Banking Financial Institution in Bangladesh with 26 branches and 2 SME booths, and over 600 permanent staff across the Group. IDLC offers a wide range of loan and deposit products to its Corporate, Consumer and SME client segments, while operating in the Capital Markets through its two wholly-owned subsidiaries IDLC Investments Limited, providing Merchant Banking services, and IDLC Securities Limited, providing Brokerage services.

The IDLC Group has always been a standard bearer for the financial sector in terms of corporate governance, statutory compliance and ethical business practices. The Group is also highly regarded for its professional pool of resources and progressive work environment

2.2 Shareholding Structure

2.3 Organizational Hierarchy

2.4 Products and Services

IDLC has extensive knowledge, expertise and experience to offer a range of financial solutions in response to the needs of a broad spectrum of clientele. These are discussed in the following sections:2.4.1 For Large Local and Multinational Corporate HousesIDLC has many some products for the large local and multinational corporate houses such as: Term Loan

Lease Finance

Working Capital Finance

Project Finance

Refinancing and Special Funds

Corporate Advisory Services

Structured Finance division offers the following Solutions: Fund-raising through Loan/Lease/Private

Placement of Equity/Preference Shares/Bond Foreign-currency Loan/Refinancing of Special Funds Project/Infrastructure Finance

Advisory Services

Securitization of Assets

Structured Solutions

2.4.2 For Small and Medium Enterprises

Small Enterprise Finance in the forms of:

SME Loan

Abashan Loan

Seasonal Loan

Revolving Shortterm Loan

SME Sachal Loan

Medium Enterprise Finance in the forms of:

Term Loan

Lease Finance

Working Capital Finance

Project Finance

Specialized Products

Other facilities include:

Supplier Finance

Women Entrepreneur Loan

Commercial Vehicle Loan

2.4.3 For Retail Clients

Deposit Schemes (Cumulative Term Deposit, Monthly/Quarterly/Annual Earner Deposit, Double/Triple Money Deposit, Short-term Deposit)

Home Loan

Car Loan

Personal Loan

2.4.4 For Capital Market Clients

Portfolio Management (MAXCAP - Discretionary Portfolio Management known as MAXCAP, Cap Invest - Margin Lending)

Investment Banking (IPO, RPO, Bond Issuance, Rights Shares Offering, Corporate Advisory etc.)

Research

Brokerage Services

2.5 Board of Directors

The Board of IDLC comprises of eleven Non-executive Directors, including two Independent Directors, and one Executive Director, i.e. the CEO and Managing Director of IDLC:

1. Mr. Anwarul Huq, Chairman-nominated by Reliance Insurance Limited

2. Mr. Rubel Aziz, Director-nominated by The City Bank Limited

3. Mr. Md. Kamrul Hassan, Director-nominated by Transcom Group of Companies

4. Mr. Aziz Al Kaiser, Director-nominated by The City Bank Limited

5. Mr. Hossain Mehmood, Director-nominated by The City Bank Limited

6. Mrs. Meherun Haque, Director-nominated by The City Bank Limited

7. Mr. Kazi Mahmood Sattar, Director-nominated by The City Bank Limited

8. Mr. Md. Rezaul Karim, Director-nominated by Sadharan Bima Corporation (SBC)

9. Alhaj Akram Hussain (Humayun), Director-nominated by Mercantile Bank Limited

10. Mr. Farooq Sobhan, Independent Director

11. Mr. Syed Abu Naser Bukhtear Ahmed, Independent Director

12. Mr. Selim R. F. Hussain, Ex-Officio

All Non-executive Directors, other than the Independent Directors, are nominated by their respective organizations, and the elected Directors nominate two Independent Directors for the Board. The Directors are then appointed by the shareholders in the Annual General Meeting (AGM).

The CEO and Managing Director of IDLC is also appointed by the Board subject to consent of the shareholders in the AGM. Any change in the Board members requires intimation to the Bangladesh Bank, all scheduled banks and financial institutions, Bangladesh Securities and Exchange Commission (BSEC), and stock exchanges.2.6 Management Committee

Mr. Selim R.F. Hussain, CEO and Managing Director

Mr. H.M. Ziaul Hoque Khan, Deputy Managing Director

Mr. Asif Saad Bin Shams, GM and Head of Credit and Collection

Mr. M. Jamal Uddin, GM and Head of Corporate and Structured Finance

Mr. Zahid Ibne Hai, GM and Head of SME Division

Mr. Irteza A. Khan, DGM and Head of Consumer Division

Ms. Bilquis Jahan, DGM and Head of Human Resources

Mr. Mir Tariquzzaman, GM and Chief Technology Officer

Mr. M. Ataur Rahman Chowdhury, AGM and Head of Operations

Mr. Mustaq Ahammed, AGM and Head of Internal Control and Compliance

Mr. Md. Moniruzzaman, Managing Director, IDLC Investments Limited (subsidiary), and

Mr. Md. Saifuddin, Managing Director, IDLC Securities Limited (subsidiary)

2.7 Memberships

Association

Bangladesh Leasing and Finance Companies Association | Asian Financial Services Association | Bangladesh Merchant Bankers Association | Bangladesh Association of Publicly Listed Companies

Institute

The Institute of Bankers, Bangladesh

Chambers of Commerce and Industry

International Chamber of Commerce Bangladesh | Metropolitan Chamber of Commerce and Industry | Dhaka Chamber of Commerce and Industry | Bangladesh German Chamber of Commerce and Industry | The Federation of Bangladesh Chambers of Commerce and Industry

International Memberships

International Factors Group (IFG) - an international association of factoring companies | Small Business Banking Network (SBBN) - a global initiative to improve access to financial services by small businesses

Sustainability Memberships

United Nations Global Compact | United Nations Environment Programme Finance Initiative | CSR Centre of Bangladesh

2.8 Key Financials:

2.9 Geographic Coverage

Chapter 3: Organizational Strategy Analysis IDLC Finance Limited

3.1 Critical Analysis of Strategy Making Hierarchy of IDLC

3.2 Vision Statement

We will be the best financial brand in the country

3.2.1 Critical Analysis of IDLCs Vision Statement

IDLCs vision statement contains the following characteristics of a good vision statement:

SHAPE \* MERGEFORMAT

In spite of the above characteristics, the vision statement also has some major shortcomings that should be addressed:

Not too focused: The vision statement does not provide a specific tangible goal to the management to set their strategies and allocate resources accordingly. Also it does not indicate what the company is doing to prepare for the future.

Not distinctive: The vision statement fails to create a unique identity for IDLC. It could be applicable to any other rival company competing in the industry.

Too reliant on superlatives: The vision statement only states that IDLC desires to be the Best Financial Brand in country; however, it does not indicate any specific strategic course of the company.

Hence it can be safely presumed that IDLCs vision is a moderately well-drafted statement, although there is room for much improvement.

3.3 Mission Statement

We will focus on quality growth, superior customer experience and sustainable business practices

3.3.1 Critical Analysis of IDLCs Mission Statement

The mission statement of IDLC clearly specifies the areas the company will focus on to achieve its vision of becoming the best financial brand in the country. It specifically mentions:

Stakeholder desire of Quality growth,

Customer desire of Superior customer experience, and

Core objective of IDLCs existence and operation, that is, Sustainable business practices.

In that regard, it is a fairly effective mission statement.

3.4 Strategic Objectives

The strategic objectives of a company serve as the performance targets, that is, results and outcomes desirable by the company management. Usually such objectives are set to ensure that the company at its full potential and delivers the best possible results to work towards achieving its vision.

The strategic objectives for IDLC include:

Grow and develop our talent pool;

Fully leverage new core banking platform;

Optimize distribution points;

Grow and diversify funding sources;

Grow sales and service capabilities in Consumer Division;

Aggressively grow SME portfolio;

Focus on top-tier clients in Corporate;

Consolidate capital market operations and enhance capabilities;

3.5 Core values

The core values of IDLC portrays the beliefs, traits and behavioral norms its employees are expected to display in carrying out their daily responsibilities and pursuing the companys strategic vision and strategies.

The core values of IDLC comprise of seven behavioral attributes expected from its employees:

3. 6 Employee Code of Conduct and EthicsIDLC employees shall:

Act with integrity, competence, dignity and in an ethical manner when dealing with customers, prospects, colleagues, agencies and public;

Act and encourage others to behave in a professional and ethical manner that will reflect positively on IDLC employees, their profession and on IDLC, at large;

Strive to maintain and improve the competence of all in the business;

Use reasonable care and exercise independent professional judgment;

Not restrain others from performing their professional obligations;

Maintain knowledge of and comply with all applicable laws, rules and regulations;

Disclose all conflicts of interest;

Deliver professional services in accordance with IDLC policies and relevant technical and professional standards;

Respect the confidentiality and privacy of customers, people and others with whom they do business; and

Chapter 4: Strategic Group Mapping

4.1 Strategic Group Mapping

Strategic Group Mapping is a concept used in strategic management that groups companies within an industry that have similar business models or similar combinations of strategies. Such grouping aims to identify organizations with similar strategic characteristics, following similar strategies, or competing on similar bases. This also helps the organization identify its position, in respect to its main competitors, within the industry.

Strategic Group Mapping delivers the following benefits to an organization:

It helps a company identify its direct and indirect competitors, and/or possible partners within the industry;

It illustrates the ease or difficulty of moving from one strategic group to another;

It often helps identify future opportunities and/or strategic problems to the company; and

It ensures the company takes into account views of its major stakeholders while developing or assessing its strategies;

In consideration of the value chain components of the banking and financial sectors industry, IDLCs close competitors include a combination of the following banks and NBFIs:

Organization Type

BRAC Bank Limited Bank

The City Bank Limited Bank

Eastern Bank Limited Bank

IPDC of Bangladesh Limited NBFI

United Leasing Company Limited NBFI

Uttara Finance and Investments LimitedNBFI

The relative positions of IDLC in terms of its key financials have been provided below:

Bank/NBFITotal AssetsOperating IncomeProfit after TaxNPL Ratio

BRAC Bank Limited 180,396 5,406 700 10.00

The City Bank Limited 130,314 4,620 794 7.48

Eastern Bank Limited 147,044 5,731 2,393 3.17

IDLC Finance Limited 37,784 2,403 713 1.63

IPDC of Bangladesh Limited 7,115 208 129 3.98

United Leasing Company Limited 11,817 384 229 3.50

Uttara Finance and Investments Limited 19,365 1,142 815 2.90

Comparative position based on Total assets (in BDT Million) and NPL ratio:

4.2 Analysis of Strategic Groups

The number of groups within an industry and their composition depends on the dimensions used to define the groups. For IDLC, the following characteristics were considered as the bases of competition with its immediate peer banks and NBFIs:

Product and Service Diversity

Geographic Coverage

Market Segments Served

Brand Image and investments in Marketing Communications

Product and Service Quality, and

Pricing Policy

In light of the above, the following tables summarize the comparative position and strength of competition among IDLC, BRAC Bank Limited (BRAC), The City Bank Limited (CBL), Eastern Bank Limited (EBL), IPDC of Bangladesh Limited (IPDC), United Leasing Company Limited (ULC) and Uttara Finance and Investments Limited (UFIL).Table 1 - Comparison of Strategic issues (Products, coverage and market segments)OrganizationsProduct and Service DiversityGeographic Coverage Market Segments Served

IDLCWide range of products offered under Corporate, Consumer (Deposit and Loan products), SME and Capital Markets segments26 branches and 2 sales centres across Dhaka, Chittagong, Sylhet, Bogra, Comilla and Jessore regions. Caters to local and multinational corporate houses; small and medium enterprises (excluding micro enterprises); individual deposit clients; individual borrowers of Consumer loan products; capital market investors; and NRB clients.

BRAC BankWide range of products offered under Corporate, Consumer (Deposit and Loan products) and SME Banking segments.Much wider geographic coverage with over 100 branches across Dhaka, Chittagong, Khulna, Jessore, Rajshahi, Rangpur and Sylhet regions.Caters to local and multinational corporate houses; micro, small and medium enterprises; individual deposit clients; individual borrowers of Consumer loan products; and NRB clients.

Hence BRAC is a direct competition for IDLC across these market segments.

Hence BRAC is a direct competition for IDLC in terms of product offerings. Hence BRAC is in a much better competitive position compared to IDLC in terms of geographic coverage.

City BankWide range of products offered under Corporate, Consumer (Deposit and Loan products), SME and Islamic Banking segments. Much wider geographic coverage with around 100 branches across Dhaka, Chittagong, Sylhet, Khulna, Rajshahi, Comilla, Rangpur and Barishal regions. Caters to local and multinational corporate houses; micro, small and medium enterprises; individual deposit clients; individual borrowers of Consumer loan products; and NRB clients.

Hence CBL is a direct competition for IDLC in terms of product offerings. Hence CBL is in a much better competitive position compared to IDLC in terms of geographic coverage. Hence CBL is a direct competition for IDLC across these market segments.

Eastern BankWide range of products offered under Corporate, Consumer (Deposit and Loan products), SME and Investment Banking segments.Much wider geographic coverage with over 70 branches across Dhaka, Chittagong, Sylhet, Khulna, Rajshahi, Rangpur and Barishal regions.Caters to local and multinational corporate houses; small and medium enterprises (excluding micro enterprises); individual deposit clients; individual borrowers of Consumer loan products; capital market investors; and NRB clients.

Hence EBL is a direct competition for IDLC in terms of product offerings. Hence EBL is in a much better competitive position compared to IDLC in terms of geographic coverage. Hence EBL is a direct competition for IDLC across these market segments.

IPDCSelect products offered under Corporate and Consumer (Deposit and Loan products) segments. 5 branches located in Dhaka, Chittagong and Sylhet. Caters to select clients segments such as local and multinational corporate houses, and individual depositors and Consumer loan clients.

Hence IDLC is in a much stronger position in terms of its product and service portfolio compared to IPDC.Hence IDLC is in a much stronger position compared to IPDC in terms of its geographic coverage. Hence IPDC competes with IDLC only in these select market segments.

ULCSelect products offered under Corporate Finance (only Syndication and lease facilities), SME Finance (only Supplier Finance facilities), and Consumer (Deposit and Loan products) segments.17 branches across Dhaka, Chittagong, Barishal, Khulna, Rajshahi, Rangpur and Sylhet regions.Caters to select client segments such as Syndication and Lease clients constituting of large local and multinational corporate houses; Supplier Finance clients constituting of small and medium enterprises; and individual depositors and Consumer loan clients.

Hence IDLC is in a much stronger position in terms of its product and service portfolio compared to ULC. Hence ULC has a geographic coverage comparable to that of IDLC. Hence ULC competes with IDLC only in these select market segments.

The competition is particularly strong in the Supplier Finance segment considering ULCs strong service capability in offering this product.

UFILSelect products offered under Corporate, SME and Consumer (Deposit and Loan products) segments. 5 branches across Dhaka, Chittagong and Bogra. Caters to corporate houses; small and medium enterprises; and individual depositors and Consumer loan clients.

Hence IDLC is in a much stronger position in terms of its product and service portfolio compared to UFIL. Hence IDLC is in a much stronger position compared to UFIL in terms of its geographic coverage.Hence UFIL competes with IDLC only in these select market segments.

Table 2 Comparison of Strategic issues (Brand image, service quality and pricing policy)OrganizationsBrand Image and investments in Marketing Communications Product and Service Quality Pricing Policy

IDLCStrong brand image; however, investment in marketing communications is gradually increasing, though the budget is significantly low compared to banks. High product and service quality ensured at all timesHigher lending rates compared to banks, considering deposit base and bank-borrowing as major source of funds

BRAC BankStrong brand image and extensive investment in marketing communications initiatives, compared to IDLC.

Hence although IDLC has a strong brand, BRAC is in a much better position compared to IDLC in terms of marketing communications activities. High product and service quality.

Hence BRAC is a direct competition for IDLC in this regard. Much lower cost of funds, resulting is lower lending rates offered to clients, compared to NBFIs.

Hence it is difficult for IDLC to compete with BRAC in terms of its pricing policy.

City BankStrong brand image and extensive investment in marketing communications initiatives, compared to IDLC. High product and service quality. Much lower cost of funds, resulting is lower lending rates offered to clients, compared to NBFIs.

Hence although IDLC has a strong brand, CBL is in a much better position compared to IDLC in terms of marketing communications activities. Hence CBL is a direct competition for IDLC in this regard. Hence it is difficult for IDLC to compete with CBL in terms of its pricing policy.

Eastern BankStrong brand image and extensive investment in marketing communications initiatives, compared to IDLC.High product and service quality.Much lower cost of funds, resulting is lower lending rates offered to clients, compared to NBFIs.

Hence although IDLC has a strong brand, EBL is in a much better position compared to IDLC in terms of marketing communications activities. Hence EBL is a direct competition for IDLC in this regard. Hence it is difficult for IDLC to compete with EBL in terms of its pricing policy.

IPDCSignificantly low investment in terms of brand building and marketing communications activities, compared to IDLC. Sufficiently strong product and service quality. Similar pricing policy is followed by all NBFIs, considering deposit and bank borrowings as major source of funds.

Hence IDLC is in a much better position compared to IPDC in terms of brand image and marketing communications. Hence IPDC is a direct competition for IDLC in this regard. Hence IDLC competes directly with IPDC in terms of its pricing policy.

ULCSignificantly low investment in terms of brand building and marketing communications activities, compared to IDLC.

Hence IDLC is in a much better position compared to ULC in terms of brand image and marketing communications. Sufficiently strong product and service quality.

Hence ULC is a direct competition for IDLC in this regard. Similar pricing policy is followed by all NBFIs, considering deposit and bank borrowings as major source of funds.

Hence IDLC competes directly with IPDC in terms of its pricing policy.

UFILSignificantly low investment in terms of brand building and marketing communications activities, compared to IDLC. Sufficiently strong product and service quality. Similar pricing policy is followed by all NBFIs, considering deposit and bank borrowings as major source of funds.

Hence IDLC is in a much better position compared to UFIL in terms of brand image and marketing communications. Hence UFIL is a direct competition for IDLC in this regard. Hence IDLC competes directly with UFIL in terms of its pricing policy.

4.3 Basic and complementary strategies designed and being implemented to match market situationsThe market scenario of IDLC varies along with its business functions, and accordingly strategies are crafted at organizational and functional levels to cope with the changing market situations, as well as relevant strategies adopted by its major competitors.

4.3.1 Corporate Business

To remain competitive in corporate business, IDLCs specific strategic measures include:

Improved efficiency across the value chain, by striving to lower funding costs to offer attractive rates, design flexible credit terms, and improving overall service quality and timeliness to attract more customers;

Increasing ticket size to existing customers;

Booking leading Corporate houses to improve quality of the portfolio, and ensure continuous flow of business in future;

Developing new service capacities to offer better and unique financial solutions to clients;

Restricting the size of the Corporate team by not hiring for any new positions and leveraging more from the existing ones; and

Zero / Slow expansion of physical presence through additional outlets or new branches for Corporate and Consumer Divisions respectively;

4.3.2 Small and Medium Business

IDLCs SME Team is focusing on the following aspects:

Rapid product innovation and customization, incorporating attributes appealing to a growing number of customers;

Capacity development of entrepreneurs, in terms of better planning, business and human resource management, improved ICT platform, accounting and book-keeping practices, developing networking capacities etc., and thus create new opportunities for IDLC;

Increased presence through additional distribution channels and sales outlets. In addition to having SME presence across all branches of IDLC, SME has two dedicated Sales Centers in Dhaka as well to attend to walk-in clients.

Expansion of geographic coverage by opening new branches in locations outside Dhaka with flourishing SME business. At present, IDLC is contemplating opening of a branch in Khulna, and another branch in North Bengal, which is currently taken care of by Bogra branch only.

4.3.3 Consumer Business

, IDLCs specific strategy measures include:

More focus on strengthening the deposit base, thus having a source of low-cost fund and competitive advantage in terms of lending activities;

Booking high net-worth deposit customers to improve quality of the portfolio, and ensure continuous flow of business in future;

Developing new service capacities to offer better and unique financial solutions to clients;

Restricting the size of the Consumer team, excepting Deposit mobilization team, by not hiring for any new positions and leveraging more from the existing ones; however, for deposit, the size of the sales team has increased in the last couple of years to allow greater sourcing of deposits at IDLC; and

Engaging in CSR initiatives involving Consumer clients, thus becoming a preferred service-provider for the clients.

Chapter 5: Environmental Factors Analysis

5.1 PESTEL Analysis

External environmental factors, as outlined in the diagram above and their possible impacts on IDLCs strategic decision-making process have been analyzed below through PESTEL analysis.

Political Factors Economic Factors

Socio-Cultural Factors

Technological Factors

Environmental Factors

Legal Factors

5.1.1 POLITICAL FACTORS:

Major political factors affecting IDLCs performance include: Budgetary measures, dictating short, medium and long-term strategies by setting sectoral priorities, as per policy changes every fiscal year;

Corporate tax policies, affecting overall profitability of the company and its clients;

Tariff policy and trade restrictions, directly affecting business performance of IDLC corporate clients involved in foreign trading;

FDI policies, dictating growth opportunities for both existing and new business;

Environmental regulations and labor laws, requiring greater compliance by clients and higher due diligence by IDLC while making credit decisions;

Political stability of the country, dictated by the government and opposition parties, greatly affecting the overall economic performance of the country and subsequently the performance across all industries. And due to bad business spells suffered by clients, IDLCs business performance also suffer negative consequences.

5.1.2 ECONOMIC FACTORS:

Major economic factors affecting IDLCs performance include:

Repo and reverse rates, as declared by Bangladesh Bank, influencing inter-bank lending activities, thus affecting commercial lending;

Provisioning requirements, as a safety measure against lending activities, greatly affecting business performance of IDLC;

Favorable savings policies, boosting deposits in IDLC, thus allowing higher lending activities;

Restrictive policy measures by Bangladesh Bank to control money supply and inflation determines lending rates for banks and FIs, ultimately affecting overall organizational performance.

5.1.3 SOCIO-CULTURAL FACTORS:

Major socio-cultural factors affecting IDLCs performance include: Population growth generates more demand for financial services, resulting in opening of new branches and geographic expansion;

Increasing literacy rates brings more people under the umbrella of formal banking and financial services;

Lifestyle changes leading to the introduction of new and innovative products and services to suit unique and ever-changing needs of the diverse client groups;

Greater women empowerment, resulting in more female participation across the organization and thus adding a new dimension in the strategic decision making process of IDLC, while giving rise to demand of specialized products, such as Women Entrepreneur Loan offered by IDLCs SME Department; and

More involvement in community empowerment activities through IDLCs CSR activities in the areas of better education, healthcare and skills development of the underprivileged.

5.1.4 TECHNOLOGICAL FACTORS:

Major technological breakthroughs of IDLC over the past years include: Adoption of Oracle Flexcube Universal Banking Solution (FCUBS), the new Core Banking Platform that became operational across IDLC in January 2012, making IDLC the first non-banking financial institution to use this platform. This system has enabled creation of a number of satellite systems to further enhance IDLCs operational efficiency and MIS generation, and we are on our way to complete two years of efficient operation on this platform.

Unified communication network, linking all branches and employees of IDLC across various geographic locations;

Continuous upgrade and adoption of environment-friendly technologies, with the ultimate objective of capacity maximization, cost minimization and reduced negative impact on the environment. Major achievements in this regard include gradual process of server virtualization, and video conferencing facilities connecting major branches and saving physical travel by employees, thus saving over 200,000 kWh of electricity and around 120 tons of CO2 emission per year.

HR Automation project to manage growing number of employees and relevant HR issues more efficiently across the IDLC Group. The implementation is taking place in two phases: Phase I includes Payroll Management and has already been launched in January 2013; and Phase II includes other core aspects such as Employee Profiles, Performance Management, Training Management etc., and is scheduled to be launched by the end of 2013.

5.1.5 ENVIRONMENTAL FACTORS:

Major issues affecting IDLCs business strategies in recent years include:

Environmental Risk Management Guidelines issued by Bangladesh Bank in 2011, requiring all banks and FIs to conduct strong due diligence while taking credit decisions. Moreover, strong monitoring during the credit terms and joint collaboration with the clients to address and resolve environmental issues are also required as per this guideline;

New business opportunities arising through various policies and regulation issued by the government. For example, mandatory installation and use of ETP (Effluent Treatment Plants) in sectors such as textiles provides a new financing opportunity for IDLC for this purpose. Moreover, attempt of the Government to make brick fields more environment-friendly also offers a significant prospect for IDLC to extend financing in a new sector;

Green Banking activities and guidelines issued by the Bangladesh Bank not only requires all banks and FIs to focus more on environmentally sustainable projects and sectors for commercial lending, but also to streamline its internal operations and premises to make those more environment-friendly. Such regulations are reflected in the strategic decisions of IDLC for the short and longer terms;

Environmental Principles of UN Global Compact and UN Environment Programme Finance Initiative, regulating IDLCs overall operations and lending processes in line with globally acceptable standards and practices.5.1.6 LEGAL FACTORS:

The functions of IDLC are regulated by Bangladesh Bank and Securities and Exchange Commission for its Capital Market operations.

Major legal factors affecting IDLC include the followings: Being a non-banking financial institution, IDLC is regulated by the Financial Institutions Act, 1993. Any changes in this act will be applicable for IDLC as well, and accordingly will be reflected in its periodic strategies;

Interventions by the Bangladesh Bank and Securities and Exchange Commission, the two regulatory bodies of IDLC, influence the strategic decision process of the organization;

Being an NBFI, IDLC is not authorized to perform current and foreign currency transactions.5.2 Five-Forces Model of Competition

Factors related to the immediate industry and competitive environment of IDLC, as outlined in the diagram below, and their possible impacts in strategic decision making have been analyzed below through the Porters Five Forces Model of Competition.

The following chart summarizes strength of the impact of these five forces, and their probable influence on IDLC:

Details of these factors have been described below:

5.2.1 Competition among Rival Companies

For IDLC, the competitive environment from rival companies is clearly differentiated into two scenarios:

Competition from other NBFIs

Competition from commercial banks

If the competitive environment is analyzed considering only competition NBFIs, the threats of rival companies will be low in light of the following factors:

Majority of the NBFIs in Bangladesh offer specialized products and services. IDLC is one of the very few leading NBFIs offering a diversified portfolio of products and services covering all branches of financial services. Hence IDLC is in a stronger position compared to majority of the market players in the NBFI segment.

IDLC retains the strongest professionals in the market graduating from leading local and international universities, which is a major competitive advantage over its NBFI competitors.

However, if the competitive environment is analyzed considering major commercial banks as IDLCs competitors, the threats of rival companies will be comparatively higher due to the following factors:

IDLC, being an NBFI, cannot offer trade services such as opening of LCs, overdraft and other working capital facilities, as well as dealing with foreign currencies. This is a significant disadvantage for IDLC considering other competing commercial banks, many of which are dependent of these services for their revenue stream.

Being an NBFI, IDLC has to borrow funds from other banks which are then marked-up and channeled to clients as term lending. Hence by nature IDLCs lending rates are higher compared to rival banks, which is another significant disadvantage.

There market players offer closely standardized products and services. This mainly results from the high regulatory requirements in launching new products and services. Hence clients can easily switch between brands, thus raising the competition.

The leading players in the market are regularly coming up with innovative products and new marketing strategies to attract and retain more customers, and thus capture a greater share of the market. Hence regular strategic revisions are mandatory to remain profitable in the market.

5.2.2 Threats of New Entrants

The threat of new entrants is low for IDLC considering the following factors:

The banking and financial sector is a highly regulated market, with large initial investment requirements. This significantly raises the entry barriers, thus weakening threats from new entrants for the existing market players.

In the backdrop of the lingering effects of the past financial crisis, and major scandals like that of the Hallmark Group, many public and privately owned banks and FIs are struggling to make a profit, or even remain in the business. This reduces the likelihood of new companies entering this market in the near future.

In the present financial situation of the country, investment is at a declining rate, while clients are more cautious in availing facilities from banks and financial institutions. Thus demand at present is declining, making it more difficult for new companies to enter the market.

The leading market players strongly capture a significant portion of the market. Hence it will be difficult for new entrants to lure away customers and gain a considerable market share.

5.2.3 Power of Suppliers

For financial institutions, the major supplier groups are those offering the required fund that can be utilized for lending purposes. And major fund sources and their influence on IDLC have been mentioned below:

Rival banks and financial institutions, in the form of inter-bank exchange, which is mostly determined by market forces;

Individual and institutional clients, in the form of term deposits. Owing to high competition in the market, deposit clients are more rate-sensitive and hence have a greater bargaining power over IDLC, requiring higher interest rates on their term deposits; and

Refinancing facilities of Bangladesh Bank and foreign funds from many development organizations, having considerable influence over IDLCs performance and compliance process to consider it eligible for availing those funds.

5.2.4 Bargaining Power of Client Groups

The financial sector faces high bargaining power from the consumer groups attributable mainly to the following factors:

Low switching cost for the consumer groups due to largely standardized products and services offered by the competing companies;

For Corporate Financing products, banks and FIs opt to add the leading large local and multinational corporate houses in their portfolio, not only in considering of large business volumes but also to increase the quality and brand value of their overall portfolio. Hence this provides significant bargaining power to the client groups.

5.2.5 Competitive Pressure from Substitute Products

Threats of substitutes refer to products offered by players outside the industry that can offer similar benefits at similar prices to the consumer groups.

For the banking and financial sector, hence, threat from Substitute Products is almost non-existent considering the nature of its products and services. Chapter 6: SWOT Analysis

6.1 SWOT AnalysisThe following table summarizes major points concerning IDLCs competitive analysis, in terms of its Core Strengths, Limitations, Market Opportunities and Threats to Future Growth. Each of these points has been elaborated below.

StrengthsWeaknesses

Effective Strategic Decision and Execution Higher lending rates

Corporate Governance Unauthorized to perform certain business functions

Competent Management Team

Strong Financial Position

Diversified product portfolio, allowing one-stop solutions

Prestigious customer base

Professional Workforce

Strong HR Management

Technology Platform

Superior Customer Services

CSR Commitment, and

Strong Brand Image

OpportunitiesThreats

Focus on Green Financing activities Greater Customer Bargaining Power

Robust SME Lending Highly Rate Sensitive Clients

Priority Team Formation under Consumer Finance Political and Economic Situations

Financial Literacy for Stakeholders Regulatory Restrictions

Leveraging on Marketing Communications

Highly Competitive Industry, and

Expanding Branch Network

Chapter 7: Analysis on Overall Banking Industry

7.1 Industry Life Cycle

To know which stage the banking industry of Bangladesh is in now, we need to analyze many financial parameters. In my report, I have investigated the following parameters to get an understanding of life cycle of Bangladeshs overall banking industry:

1) Countrys Total credit growth all banks

2) Countrys Total Deposits growth all banks

3) Countrys Overall Export growth

4) Countrys Import Scenario

5) Sectoral GDP growth

7.1.1 Countrys Total credit growth all banks

7.1.2 Countrys Total Deposits Growth

7.1.3 Countrys Overall Export growth

7.1.4 Countrys Import Scenario

7.1.5 GDP Sectoral Growth rate in %

Considering all the above facts, we see that Bangladeshs banking industry is still in growth stage.

Figure: The life cycle curve shows in which stage Bangladeshs banking industry is in7.2 Dominant Traits of the Industry

The analysis of the immediate industry and competitive environment begins with an analysis of the dominant features of the industry, thus gaining a comprehensive overview of the industry landscape.

Major economic features of the financial services industry include:

The following section presents a brief on each of these economic features:

Market Size and Growth Rate: The market size and growth rate is an important indicator of future business prospects of the market players, showing level of product and service innovations required for the future, and strategic measures needed to secure existing market position and capture new market share.

Number of Rival Companies in the Market: The financial services sector is characterized by high level of competition among the rival companies to maintain existing market position while trying to capture more market share. Moreover, market is dominated by a few top market players having gained competitive advantage over rival companies in terms of product offering, service standards, technological competitiveness and strong pool of human resources.

Bargaining Power of the Customers: This industry is characterized by high bargaining power of the customers, owing to intense competition among the rival companies resulting in low switching cost for the customers from one service provider to the next.

Degree of Product and Service Differentiation: There is not much scope of high product differentiation in the financial services industry, which leads to heightened competition in terms service quality and pricing strategy among the competitors.

Demand-supply Condition: A significant share of the countrys population is still beyond the reach of the formal banking and financial services sector, thus posing a significant opportunity for the existing market players to expand their business, and for new entrants in the industry.

Pace of Technological Changes: Technology plays a major role in advancing the industry by allowing new product and service standard innovations, thus allowing more sophisticated service delivery to the clients. 7.3 Drivers of Industry Change

The Driving Forces of an industry are the major underlying causes of changing industry and competitive conditions by influencing customers, competitors and suppliers to alter their strategies and actions. Such forces are the biggest influences on how the industry landscape will alter.

The major industry driving forces include:

The following section identifies impact of each of these driving forces in shaping the industry, while offering an insight into the external environmental factors affecting the industry:

Increasing Globalization, making competition more intense through increasing involvement of multinational and overseas companies in the financial sector;

Changes in Customer Profile, requiring continuous innovation in terms of product and service features to match their changing needs and requirements;

Product Innovation, which should be a continuous process to tap different market segments, client groups and geographic locations with customized products, product mixes and financial solutions;

Technological Changes, which is crucial in todays world to provide faster and more efficient service, also customized as per client needs;

Regulatory Influences, which is a significant driving force for banks and FIs. This being a highly regulated sector, banks and FIs must be fully compliant to the policies and regulations of the Bangladesh Bank, and the Securities and Exchange Commission in terms of capital market operations;

Government Policy Changes is another major industry force, since it affects not only the operations of the banks and FIs, but also those of their clients from different industries, which results in change of strategies for banks and FIs; and

Changing societal concerns and lifestyles, raising demands for more sophisticated savings and loan products and complete financial solutions for both individual and institutional clients.

7.4 Key Success Factors

- Better customer service

- Area coverage / presence (onsite / internet / mobile)

- Low lending rates

- Sector focusChapter 8: Recommendation and Conclusion8.1 Recommendation and ConclusionIn light of the discussion and analysis of various factors influencing IDLCs performance and the industry as a whole, we can draw the conclusion that IDLC holds a strong position in the banking and financial services sector of Bangladesh. This has been achieved over the years through a combination of strong and properly balanced strategic objectives; strong management leading to efficient strategy development and execution; revising business models and strategies in a timely manner in response to changing market scenario and competitor moves; and analyzing factors of the external environment and the immediate industry and competitive environment and accordingly taking measures to engage those in IDLCs favor.

However, IDLC believes in continuing its pursuit for further growth and improvement, and consideration of the following factors is strongly recommended to achieve that objective:

Update the vision statement to add more specific and tangible goals and targets;

Improve gender balance and thus add a new dimension to the strategic decision-making process;

Continuously update its strategic group mapping to have clear understanding about its market position and close competitors, and accordingly develop or revise strategies to respond to strategic moves of its competitors;

Focus more on SME financing activities and capacity development of small and medium entrepreneurs to leverage more from a growing sector and create new client groups;

Continue investment to upgrade its technological platform to be the best in terms of quality of product and service delivery;

Leverage on environmental regulations by identifying new business opportunities, as well as investment in green financing activities in line with the requirements of Bangladesh Bank;

Use intense market competition as a driving force for greater innovation in terms of product and service delivery, quality, and financial solutions;

Improve its core strengths even further to continue holding a strong competitive position in the market;

Leverage on the market opportunities identified through SWOT Analysis, such as green financing, growth in SME lending, priority team formation under Consumer Division, financial literacy for stakeholders to create new client groups, leveraging more from marketing communications activities, and expanding its geographic coverage through increased branch network;

Engage in more CSR activities benefiting its major stakeholders, environment and the community, and thus create a unique brand position for IDLC

Course: W-615 Strategic Management

Submission Date: June 12, 2014

Junior Officer

Support Officer

Officer

Senior Officer

Prob. Officer

Executive Officer

Sr. Exec. Officer

Asst. Manager

Asst. Manager

Manager

Sr. Manager

AGM

DGM

GM

DMD

CEO & Managing Director

Mgt. Trainee

Managerial Hierarchy

Non-Managerial Hierarchy

Corporate Strategy

Across the IDLC Group, i.e., IDLC Finance Limited, and its two subsidiaries, IDLCIL and IDLCSL

Business Strategy

Developed for each individual business activity of the company, namely Corporate, SME, Consumer and Capital Market Operations

Functional Strategy

Developing specific strategies and objectives for each individual functions under major Business areas, in line with the organizations overall Corporate Strategy

Operating Strategy

These strategies complete the execution and achievement of major Business and Functional strategies, while provide a basis for managing down-the-ladder activities

Developed by the Board of Directors, and the CEO and Managing Director of IDLC

Developed by the Head of different Business Lines, in consultation with Functional Heads

Developed by the Functional Heads, in collaboration with key company personnel

Developed by Managers of major geographic units & strategically important activities, such as human resource management, marketing & promotion etc.

Feasible: The vision statement shows a position that IDLC can expect to achieve in the future, with carefully crafted strategies, followed by proper and timely execution.

Graphic: The vision statement gives a clear indication that the management of IDLC is trying to develop a company that provides the best financial services, while holding the leading market position in the financial sector of Bangladesh.

Flexible: The statement is flexible, giving management to option to change their strategic course in response to evolving product, market or technological situations, to become the best financial brand in the country.

Desirable: The direction provided to the company by the vision statement is desirable to IDLCs stakeholders in the long run, since it shows better returns in future.

Easy to communicate: The vision statement is very easy to communicate, since it is brief, precise and memorable.

Quality Growth

Superior Customer Experience

Sustainable Business Practices

Eco-

friendly

Core Values

of

IDLC

Equal Opportunity

Trust & Respect

Integrity

Customer Focus

Passion

Simplicity

Substitute Products from other

Industries

Rivalry among Competing Sellers

Suppliers of Resource Inputs

Buyers / Clients

Potential New Entrants

Market Size

&

Growth Rate

No of

Industry Rivals

Technological

Changes

Bargaining Power of Customers

Product and Service Differentiation

Demand-Supply Conditions

Increasing Globalization

Changes in

Customer Profile

Product

Innovation

Technological

Changes

Regulatory

Influences

Government Policy Changes

Changing Societal Concerns and Lifestyles

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