Shinhan Financial Group (a)
Shinhan Financial Group (A)
1. Why did SFG want to buy Chohung? Was this part of a reasonable strategy, in light of the state of the two banks and the Korean banking industry? For example, having received immediate visible employee resistance, should they have gone forward?
Following the Asian financial crisis in the late 1990’s, the South Korean banking industry became less fragmented as firms frequently engaged in M&A. The number of commercial banks in South Korea dropped 35% after the financial crisis and the marketplace left SHB (Shinhan Bank, Shinhan Financial Group’s name prior to acquiring Chohung Bank) to either compete with the industry’s leader--which held more than 30% market share--or with peers, which SHB’s leadership did not want to do. Chohung Bank was distressed from insolvency during the financial crisis but because of CHB’s 100-year longevity at that time, it held prime retail locations within Seoul. It also had a respected brand in spite of its poor leadership and abysmal financials up to 2003. In Chohung, Shinhan Bank sought to concentrate the market further and spurn an oligopoly in the sector with itself among the few dominant firms.
Because the two entities served different markets, this represented an opportunity for SFG to expand its reach and portfolio of products. Further, the two banks had been operating with the same primary technology and CHB’s retail locations would allow SFG to possess one of the country’s largest distribution networks. Although CHB had a weak financial position and because the Korean government had a majority stake in CHB, SFG would be required to work with the Korean government not only as a regulating body but also as the majority shareholder of the smaller firm, SFG’s strategy still represented a prime opportunity to reposition itself within the industry.
In protest of the deal, 3,500 CHB union members shaved their heads, leaving piles of hair in front of SFG’s headquarters. Workers
1. Why did SFG want to buy Chohung? Was this part of a reasonable strategy, in light of the state of the two banks and the Korean banking industry? For example, having received immediate visible employee resistance, should they have gone forward?
Following the Asian financial crisis in the late 1990’s, the South Korean banking industry became less fragmented as firms frequently engaged in M&A. The number of commercial banks in South Korea dropped 35% after the financial crisis and the marketplace left SHB (Shinhan Bank, Shinhan Financial Group’s name prior to acquiring Chohung Bank) to either compete with the industry’s leader--which held more than 30% market share--or with peers, which SHB’s leadership did not want to do. Chohung Bank was distressed from insolvency during the financial crisis but because of CHB’s 100-year longevity at that time, it held prime retail locations within Seoul. It also had a respected brand in spite of its poor leadership and abysmal financials up to 2003. In Chohung, Shinhan Bank sought to concentrate the market further and spurn an oligopoly in the sector with itself among the few dominant firms.
Because the two entities served different markets, this represented an opportunity for SFG to expand its reach and portfolio of products. Further, the two banks had been operating with the same primary technology and CHB’s retail locations would allow SFG to possess one of the country’s largest distribution networks. Although CHB had a weak financial position and because the Korean government had a majority stake in CHB, SFG would be required to work with the Korean government not only as a regulating body but also as the majority shareholder of the smaller firm, SFG’s strategy still represented a prime opportunity to reposition itself within the industry.
In protest of the deal, 3,500 CHB union members shaved their heads, leaving piles of hair in front of SFG’s headquarters. Workers
Bibliography: “Historic Exchange Rates.” 20 Jun. 2012 <http://www.x-rates.com/historical/?from=KRW&amount=6000000&date=2003-07-01>. Baroudi, Jack. “Aligning Culture with Strategy: Moving Toward Execution.” <https://sakai.udel.edu/access/content/group/7ed2bce2-4f6a-4422-9a19-1cd92480da0b/Class%20Five/CVFslideswith%20detail.pptx>. Kanter, Rosebeth Ross and Ryan L. Raffaelli. “Shinhan Financial Group (A).” Harvard Business Review. March 5, 2008. -------------------------------------------- [ 1 ]. “Historic Exchange Rates”