Going Global & Managing Global Businesses Case Study

Raiffeisen’s Business Strategy in Russia

OR

Abstract:
In a move to internationally expand its horizons in Central and Eastern Europe (CEE), the third largest CEE banking group, Raiffeisen International Bank (RIB), acquired a 100% stake in the Russian JSC Impexbank on 2 February 2006. The deal, worth US$550 million, would enable the Austria-based Raiffeisen International to augment its share of the growing Russian retail market. Since 1997, Raiffeisen International was present in Russia through its subsidiary ZAO Raiffeisenbank Austria. Analysts anticipated that together with the newly-acquired Impexbank and its Russian subsidiary, ZAO Raiffeisen Bank Austria, the combined entity would emerge as the eighth-largest bank with a 2% market share in Russia, one of the promising markets in the CEE region with 143 million inhabitants. The Russian Banking industry was in a reformative stage and the Russian government was highly in favour of the foreign investments in the country's banking sector. Gradual improvements in the macro-economic situation in Russia accompanied with a rapid growth in its banking sector made the Russian market more attractive to the international investors. The acquisition of Impexbank in Russia was seen as the latest manifestation of that and was the first major step taken by the Austrian bank towards the realisation of its long-term business strategy in Russia. There are those, however, who expressed scepticism regarding the dangers of investment hype in Russia that at any point of time might turn out to be an uncontrollable proposition for the country's government. At the same time, analysts anticipated that the third-largest Austrian bank would soon foray into the affluent areas of Russia, thereby paving its way to become a significant player in the country. Critics opined that the rising overseas expansion strategy of Raiffeisen might not turn out to be a fruitful business proposition for the Austrian Bank in the long run. Moreover, there might be problems related to the operational issues resulting from the identical network overlaps between the three players to the combined entity. They even doubted whether such smaller acquisitions of Raiffeisen would enable it to reach the masses. At the same time, they were also of the opinion that the Raiffeisen-Impex deal would send a very strong signal to the investors, who were eyeing for investments in the Russian banking sector. It remains to be seen whether the CEE-focused RIB (Raiffeisen-Impex Bank) would be able to do justice to its global stature in the Russian territory.This case is intended for MBA/PGDBM students and was designed to be part of the strategic management curriculum.

Pedagogical Objectives:

• To understand the growth strategies of Raiffeisen International
• To nalyse the benefits and drawbacks of expansion strategies associated with banking companies
• To study the impact of Raiffeisen International on the Russian banking sector.
• To understand the trends and developments in the Russian banking sector
• To understand the pros and cons of the Russian banking sector reforms.

Keywords : Raiffeisen International; Austria; CEE (Central and Eastern Europe); Impexbank; Russia; CAGR (compound annual growth rate); Market share; Credits; Deposits; ROA (return on assets); WTO (World Trade Organisation); Retail; CIS (Commonwealth of Independent States); GDP (gross domestic product); CBR (Central Bank of Russia)