Bank Sukhothai ABC Comprehensive Case Analysis I.

Problem The merger of Bank Sukhothai and ABC Bank brought together two banks from different countries with their own sets of cultures, values and attitudes. Bank Sukhothai was greatly affected by the economic crisis that hit Thailand in 1997. As such, the owners resolved to merge Bank Sukhothai with ABC Bank, a regional bank established in Singapore, to be still be competitive in the local banking industry. However, with the two banks having two different cultures, the re-structuring program initiated by top management was becoming unsuccessful. Both expatriates and local employees were having problems with everyday communication and with the differing and conflicting styles of management. As such, Pol, the Vice President of Human Resources Management and Organizational Development, needs to check on how to solve issues between the employees and the expatriates and still maintain their morale. How can top management of the merged bank, Sukhothai ABC Bank, make the new organizational culture and restructuring program be successful so that the bank can achieve its goal of being competitive in the local and international banking industry and be the bank of choice of its customers? II. Areas of Consideration A. Bank Sukhothai Bank Sukhothai (BSUKHO) was founded in 1950 by two brothers of the Jindamanee Family. Sanong was the President while Porn was the vice president. It started with a capital of THB10 Million and was set up as a response to the high demand for commercial banking to facilitate international trade. From 1970s through the 1980s, BSUKHO focused on aggressive provincial branch expansion. However as they were constrained by inadequate capitalization, they turned to stock market to raise the needed capital. In the 1990s, BSUKHO decided to focus on business diversification by expanding its businesses to include commercial,

corporate and institutional banking. It also added loan and leasing services for retail and small-business customers as well as investment, brokerage and insurance services. With this, by 1990 it became the third largest commercial bank in Thailand. However, BSUKHO faced many challenges when Thailand was hit during the economic crisis of 1997. The bank was burdened with a multitude of non-performing loans (NPL) which accounted for 25% of its total loans. Their net profits fell as they set aside funds for the bad debts. As their financial status became unstable, the two brothers, Sanong and Pom, decided that the best strategy for them would be to merge with regional banks who could rescue them from their dilemma. As such, they approached Singapores ABC Bank. B. ABC Bank Background ABC was established in Singapore in 1960. ABC offered a broad range of financial services such as deposit taking, lending, securities brokering and trading, securities investment, financial futures underwriting, and other commercial banking activities among others. They had expanded through internal growth, mergers and acquisitions. In the 1990s, it had become the second largest commercial bank in Singapore and one of the worlds largest banks with total assets amounted to approximately SD200 billion. Its success lies on the standards they set for the banking industry in Singapore. ABC Bankers excelled in leading edge technology and processes and were renowned for delivering world-class customer-centric solutions and excellent service, ABC claimed that its assets were its employees and as such created a work environment which emphasized holistic development and social responsibility and thus contribute to success of the employees and of the company. C. Thailand and the Economic Crisis of 1997 The Kingdom of Thailand was a developing country which enjoyed increasing prosperity. It had a double-digit growth in income, improved health conditions, a dramatic reduction in poverty and high literacy rate. However, conditions changed when the country adopted financial liberation policy, the fixed exchange rate and the

high domestic interest rate policy. The financial liberation policy allowed local and foreign commercial banks in Thailand to take deposits or borrowings in foreign currencies from abroad, and lend them both locally and abroad. The value of baht, fixed at THB25, and very high interest rates pushed large firms to finance projects by borrowing from abroad. The crises hit when loans extended to asset owners by financial institutions exceeded the assets earnings and thus borrowers could not repay. In the end, non-performing loans (NPLs) became widespread. Thai purchasing power degenerated and the national income declined. The Bank of Thailand decided to use the countrys foreign currency reserves to buy up the excess supply. However, in August 1997, the country reserves were almost gone when it was used to bail out financial companies plagued with unsettled NPLs. As such, the International Monetary Fund (IMF) stepped in and offered a loan package of USD17.2 billion on the condition that the Thai government must operate with a set budget wherein government expenditures were cut and larger taxes were imposed. With the economic crisis, approximately 600,000 employees were laid off. D. The Merger between Bank Sukhothai and ABC Bank Bank Sukhothai approached Singapores ABC Bank to rescue them from their financial demise as a result of the economic crisis in 1997. The new structure of the merged bank, Sukhothai ABC Bank (SABC), was introduced. Its new mission was defined and organization objectives and strategies were established and introduced to the employees. Top management took note of BSUKHOs weaknesses to be able to address them and satisfactorily face more sophisticated and demanding customers. Their goal was to be competitive with big local banks and was well as ready SABC to enter the international arena within three years of the merger. With the new structure, expatriates from ABC branches around the world were transferred to Thailand to head several executive positions. They also hired Thai nationals to complement some positions. With the restructuring program, management decided to close some branches to enhance efficiency. They also introduced new standards of performance and new reward systems. Top management also wanted to upgrade the banks IT and computer systems and as

such training were prepared for the employees. English classes were also sponsored to promote better communication between the employees and expatriates. However, employees and expatriates were still having problems communicating and in working with one another. E. Personalities a. b. Sanong and Pom Jindamanee- The two brothers founded Bank Pol- He was hired to be Vice President of Human Resource Management Sukhothai (in 1950. Sanong was the President while Porn was the vice president and Organizational Development. He was perceived as having had a lot of experience in setting up efficient work processes, developing key performance indicators (KPIs), and managing restructuring processes. He was requested to work with the other executives to manage the restructuring program wherein his first task was to handle the manpower issue where employees would be asked to leave the bank due to closure of some branches. He was also tasked to protect the reputation of the new organization and maintain the morale of the employees. He saw the problem of communication between the expatriates and local employees and the differing and conflicting styles of management. c. Top Management composed of Expatriates- These were ABC employees transferred from other branches to Thailand. They have problems in understanding the employees because of language. They also thought that local employees lacked creativity and were afraid to make decisions. d. Local Employees- There were the employees of Bank Sukhothai. They were not happy working with the expatriates because they felt that they were under the supervision of foreigners. Also, language problems, differences in management style, and the dramatic changes affecting the banks structure had left the employees feeling very frustrated and less than willing to cooperate with the foreigners

F. SWOT Analysis a. Strength With the merger of the two banks, BSUKHO will be able to take advantage of ABC Banks expertise in the banking industry. ABC Banks offered an extensive range of financial services. ABC Bank was also the largest commercial bank in Singapore and one of the worlds largest banks. It was supported by a network of more that 1,500 correspondent banks worldwide with total assets amounting to approximately SD200 billion. ABCs innovative culture attracted employees with a performance-orientation and entrepreneurial way of thinking as such they were renowned for their integrity and competence. Their focus on the employees holistic development and social responsibility makes the bank conducive to work and success. b. Weaknesses One weakness noted in this case was Thai government and the financial institutions lack of control and regulation of their financial institutions. There was no control on the deposits or borrowings in foreign currencies made by local and commercial banks from abroad. This made it open to all financial speculators. As the value of baht was fixed and as interests were high, firms were encouraged to borrow. Short term capital that expected high returns in very short period became very common than the more stable long term investments. Hedging was overlooked by most borrowers and as such created more problems. Thus, when the economic crisis hit Thailand, borrowers could not repay their loans anymore. As the government and its financial institutions realized this, it was already late as they were greatly hit by it. Another weakness noted was BSUKHOs weaknesses in the banking industry. It had scant knowledge of modern banking and financial business management, a high rate of NPLs, out-of-date IT and computer technology, and the inability of its staff to satisfactorily serve more sophisticated and more demanding customers. c. Opportunities As Bank Sukhothai became unstable due to bad decisions resulting to the 1997 economic crisis, the two brothers, Sanong and Pom, resolved that the best strategy

for the company would be merger with a regional bank. This will make their balance sheets look more attractive so as their customers will still remain loyal to them and they will still remain competitive in the banking industry. A merger with ABC Bank will not just help them be more competitive in the local and international market but their knowledge in banking industry will be widened. The merged bank, SABC, will now be able to offer more products and services. With ABC Banks emphasis on leading technology and processes, BSUKHO will be able to ride on the new era of ecommerce and thus have employees who will be technology savvy. Also, with ABCs bank expertise in developing work-class customer-centric solutions and excellent service, BSUKHOs employees will be able to serve a highly diversified clientele which will now include more sophisticated and more demanding customers. The economic crisis and the effects it had on Thailands economy will provide opportunities for the government and its financial institutions to establish the needed controls and regulations needed to recover. d. Threats Bank Sukhothai was hit during the economic crisis of 1997. The bank was burdened with a multitude of non-performing loans (NPL) which accounted for 25% of its total loans. Their net profits fell by 30% as they set aside approximately THB100 million for bad debts. The banks financial soundness and competitiveness vanished. As such, there will be tighter competition among the banks as entrance of foreign banks appeared inevitable. They need to reposition themselves if they still want to compete effectively both in Thailand and in the international markets. III. Alternative courses of Action and Evaluation

1. Top management should clearly define the goals and objectives of the company in terms of the merger. They could do a review, either monthly or quarterly, and check on the following: what happened, what have they done and what they still need to do. They should communicate this to the employees so that they will be aware of the plans and goals of the company and thus be more cooperative in making the merger work for everyone. With the review or feedback, top management will be able identify the problems and

suggest solutions that will be for the benefit of everyone. Top management should also clearly set the standards that they require their employees to follow. This would include their emphasis on the performance of the employees in terms of their individual work, their interaction with their supervisors, other members of their department, and their interaction and commitment to the customers. a. Advantage Top management should keep their people well informed of the goals and objectives of the company so as they will feel that they are important. As local employees feel that their foreign supervisors do not understand them, there is a need for top management and human resources to bridge this gap. In communicating the organizational culture to the employees, memos and meetings are not enough. They could have town hall meetings, feedback boxes, focus group discussions or even team building so that the gaps between expatriates and local employees could be bridged. Also with good communication between management and the employees, the bank will be able to make the employees be part of the banks success and failure in its ventures. Employees will be more concerned with the companys success and thus help the company attain its goal of giving the best bank services and be the bank of choice by their clients. b. Disadvantage This will not work if local employees will not cooperate with top management. 2. Top management and Human resources should continue with their trainings especially in English proficiency and Information technology proficiency. Top management should also instruct expatriates to also study the culture of Thailand and their language so that they can adapt to the local culture and thus know how to manage and supervise local employees. As one of their problems was communication which resulted to the differing opinions of one another, there has to be clear solution on how they can communicate effectively with one another so as ideas, decisions and instructions could be

clearly discussed and understood. Trainings and seminars could be conducted for the employees that will help them be more competent, efficient and motivated in their work. a. Advantages Although English proficiency cannot be acquired in a short period, Bank Sukhothai ABC should still continue with the language classes. This will allow the local employees to know the language and thus not just communicate better with their managers but also with future clients especially now that they are competing with global banks. Also with continuous IT proficiency trainings, employees will be able adapt to the companys goal of being technology savvy. For the meantime, the bank could hire local employees, with good English skills, per department who could also double as an interpreter for a certain team or department. He or she could be the bridge of communication between employees and expatriates. On the other hand, expatriates should study the language and culture of the local employees. They have to take note that management is not just about supervising but also taking the time to know the people they work with. This would help them in understanding their work ethics and thus knowing how to interact and manage them. This will allow them to get the cooperation of their people and thus be more effective in their work. b. Disadvantages Continuous lessons, either English or Thai language lessons or IT proficiency lessons, could create more costs for the bank. Also if the expatriates and employees would not support the lessons and practice what they learn in everyday communication, any lessons/trainings supported by the bank will not be effective anymore. Thus management and human resources should look for more creative ways in solving the communication problem. 3. Bank Sukhothai ABC should communicate the banks vision, mission and objectives to the banking industry and to their clients so that they will have a clear idea on the image, products and services that the bank will offer.

a. Advantages As with any merger, clients may be hesitant to trust a company because they are not sure of what the company will now represent. The products and services may differ or that they may be other problems with the banks operations. As such communicating the banks vision and mission and its products through different mediums, print ads, commercials, newspapers, word of mouth and etc., would help the public become more aware of what the bank has to offer. Creating awareness would also be their key in attracting more clients and thus help them in attaining their goal of being the industry leader in banking. b. Disadvantages This will take time and will be costly for the company especially if they decide to communicate through the fastest mediums such as TV, billboards and advertisements in newspapers or magazines. They also have to make sure that the services and products they offer in their communication strategies will be applied and practiced by the banks employees to provide positive feedback. If they their employees will not share the same vision, their strategies will not work. 4. Management and Human Resources to review the performances of all employees in the company. Retention will be on performance basis and thus those who will not meet the standards of the company will be asked to resign. a. Advantages Only competent employees will remain in the bank. This will screen the employees who have no problems in communicating with expatriates, who can easily adapt to their management styles and thus have better chance of performing well in the company. b. Disadvantages This will be costly for the company as they will spend more costs on resignation packages and training for new employees.

IV. Recommendation It is recommended that the first three alternatives will be implemented by Bank Sukhothai ABC. First, top management should keep their employees well informed of the goals and objectives of the company so as they will feel that they are important to the bank. They should create clear communication lines so that everyone can understand one another and thus minimize conflicts. Also with good communication and with the importance top management puts on the well being of the employees, employees will be more concerned with the banks success and thus help the bank in attaining its goal of giving the best bank services and be the bank of choice by their clients. Language and information technology trainings should be continued so that the quality of the services they offer will be at par with their big competitions. Also, top management should not be excused from language trainings as it is also important for them to study the culture of the country they are working in. This would not only help them with the language barrier but also develop products and services that are best suited to the Thai market and eventually the regional market. Top management and human resources should emphasize that everyone, whether local employee or expatriate, has to cope with the changes happening in the bank and that they should all work together in making sure that the right changes will happen. Lastly, Bank Sukhothai ABC should make sure that the public is aware of the banks vision and mission and of different products and services it offers. They need to create noise in the market if they want to be known and thus attract more clients and investors. They should constantly review their strategies and marketing programs to be competitive in the banking industry. They should look ways in differentiating the bank from the other industry players so that brand recognition will be effective among existing and potential clients.