Assignment Submission And Assessment

Assignment Submission And Assessment

Answer in English. Read the articles below and answer the questions at the end of each article. The questions are: 1. Identify the main problem in the case. 2. What strategy is CIMB thinking of using? Include excerpts from the case. 3. Do you think that the strategy in (b) is justified? Why or why not? Include excerpts from the case and justification based on strategic management concepts covered in your module.

Paper For Above instruction

The case of CIMB Group Holdings Bhd's strategic move to acquire Jupiter Securities exemplifies a carefully planned expansion strategy within the highly competitive and fragmented Malaysian stock broking industry. The main problem in this scenario revolves around CIMB's need to bolster its stock broking capabilities through acquiring a license that allows operations in Malaysia, thus facilitating a broader joint venture with China Galaxy Securities. This move is motivated by the desire to expand market reach, reduce operational costs, and leverage economies of scale in a challenging industry environment.

Regarding the strategy CIMB is contemplating, it appears to be a form of strategic alliance combined with acquisition and market expansion through joint ventures. The case states that CIMB is aiming to acquire Jupiter Securities to obtain an additional license critical for its planned joint venture with China Galaxy Securities. The objective is to “park all its stock broking business in the region in the JV with China Galaxy Securities” (article), ensuring CIMB consolidates its broking operations in a single entity to improve efficiency and competitive positioning. Moreover, the acquisition price of RM50 million, valued at 7.14 times sales, indicates a strategic investment to reposition CIMB within the industry using synergistic advantages with China Galaxy Securities, a major Chinese securities firm listed in Hong Kong with extensive online operations.

The strategy demonstrates CIMB’s intent to penetrate the regional market more effectively by leveraging the Chinese partner’s vast customer base and technological infrastructure, aiming at reducing its high operational costs (estimated at RM600mil to RM700mil) in Malaysia. This aligns with a diversification and partnership strategy aimed at gaining economies of scale, improving market share, and reducing internal costs by sharing resources and technology with China Galaxy Securities.

Is this strategy justified? From a strategic management perspective, the move is justifiable because it aligns with core principles of strategic growth and competitive advantage. The acquisition allows CIMB to expand its license portfolio and create a more integrated ecosystem for its stock broking activities, thus improving efficiency and market reach. Combining local market knowledge with the technological and scalability advantages of China Galaxy Securities could create a sustainable competitive edge in a fragmented industry where many small players, including SJ Securities, Mercury Securities, and others, operate with limited market share.

Furthermore, the joint venture offers the potential for shared risks and resource pooling, which is especially critical in heavily regulated and capital-intensive industries like stock broking. The strategic alliance with China Galaxy offers CIMB access to a large, technologically advanced online client base, allowing for cost-effective scaling. It also mitigates the risks associated with market share decline, as seen in the financial performance of Jupiter Securities, which posted a narrow loss of RM1.39 million in FY16, reflecting the industry's inherent difficulties.

However, potential risks must also be recognized. The acquisition’s success depends on regulatory approval, integration effectiveness, and the ability to adapt to competitive pressures. The competitive landscape, characterized by consolidations like KAF Investment Bank’s privatisation and Hwang-DBS’s sale of its IB business, indicates an industry in transition, necessitating strategic agility. Therefore, while the strategy appears justified on the grounds of growth, cost reduction, and market expansion, it must be executed with careful regard to industry dynamics and regulatory considerations to be successful.

References

  • Barney, J. B., & Hesterly, W. S. (2015). Strategic Management and Competitive Advantage: Concepts & Cases. Pearson.
  • Grant, R. M. (2019). Contemporary Strategy Analysis and Cases: Text and Cases. Wiley.
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  • Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
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