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INTRODUCTION The world’s economic landscape is changing by Globalisation and the way we live our lives. While globalisation, and the arguments that surround it, have ebbed and flowed for centuries, the wave of globalisation we are currently experiencing is unique in terms of the speed and intensity of the political, economic, social and technological forces that have collided to create it. It has unleashed a renewed wave of people, commerce and capital throughout the global economy and has powered the creation and transformation of markets, jobs and industries across the world, at ever increasing speeds. Governments can have a major impact on business by imposing regulations on multinational firms. The government can change the level of taxation and or import duties, provide subsidies to certain firms, or impose regulations which require multinational firms to change how they operate(e.g through anti-pollution regulations). Changes in the economic business environment can influence a firm’s expension. For instance, if economic growth increases, the firm may be able to expand production and open new plants; during an economic recession, when economic activity stagnates or even declines , the firm may need to close down the plants and reduce production. Firms have to consider other economic factors such as the rate of inflation, disposable income, and rates of unemployment. In the global economy, the firm must pay special attention to three important issues: cost of production, currency exchange rates, and cost of capital. This assignment sets out how ING DIRECT across the UK economy are taking advantage of the opportunities provided by globalisation in terms of new, rapidly-growing markets for investors. My topic for assignment is “ING DIRECT in UK”, which covered the economic and political environment of ING DIRECT in UK. As well as I tried to examine the ING DIRECT’S micro and macro environment by the Porter’s five forces and PEST analysis.

COMPANY OVERVIEW ING DIRECT is the world’s top direct bank, which presented a focused range of simple financial products, namely savings, mortgages, payment accounts and investment products, mainly via direct channels. ING DIRECT was established in Canada in April 1997, and has since successfully launched operations in Spain, Australia, France, USA, Italy, Germany, the UK and Austria. ING DIRECT’s mission is to become the world’s most favoured consumer bank through support its core products and expanding geographically. It has consistently been one of the world’s fastest rising banks, with leading positions in all markets in which it operates. With over 21 million customers internationally, the total client retail balance of ING DIRECT amounted to EUR 318 billion at the end of June 30 2008. ING Direct launched in the UK in May 2003, Which has a million savings customers in the UK on its easy access savings account, offering a range of straight forward mortgage and home insurance products through its award-winning call centres. ING Direct is regulated by the Financial Services Authority for the conduct of UK businesses and as a Dutch bank is authorised by DNB (De Nederlandsche Bank). ING Direct is a member of both the UK Financial Services compensation scheme and the Dutch Investors Compensation Scheme

which has recently been extended to cover deposits of up to EUR 100,000 per customer (approximately £70,000)

COMPETETIVE AND ECONOMIC ANALYSIS The figures show that there is a significant decrease in ING Direct’s profit which is 694 million to 530 millions. After analyzing ING Direct’s geographical figures the major cause of the decrease is because of the UK market which in 139 million (85% of the total decrease) and partly Japan where it is 22 million decrease (13.5% of the total decrease). After analyzing the financial facts we have indentified following causes of decrease in profit: 1-Intense competition. 2-Increase in Base rate (Bank of England rates). Company Name

ING Direct (UK)

Rates On Saving (%)

5.5 %

Company Name

Rates On Saving (%)

HSBC Direct Halifax Dutch Bank Barclays Alliance Leicester Sainsbury Bank

5.75 % 5.30 % 5.25 % 5.25 % 6.15 % 6.25 %

(Comparison Table on bases of Interest Rate)

The comparison table speaks itself above, which made ING Direct customers to move to other similar products offering higher interest rates. Furthermore increase in Bank of England’s interest rate in august 2006 which was not immediately implemented by ING Direct, which lost attraction for ING Direct’s customers with high balances and persuaded them to move to competitor. According to a source, in UK ING Direct customer in 2007 pulled off £ 5.5 billion from saving deposits which was 21% of the total saving deposits.

ING DIRECT (05-07) ING DIRECT continued to invest in building the business and expanding its product offering. The company faced a challenging year, given the interest rate environment, strong competition and required repositioning of ING DIRECT UK, all of which impacted profit. Total client retail balances were up EUR 35 billion (excluding currency effects), bringing the total balance to EUR 310.1 billion, driven by a record own originated mortgages production of EUR 29 billion. ING DIRECT continued to invest to enhance commercial growth through geographical expansion and the roll-out of new products, despite challenging market conditions. Yield curves remained flat or inverted in all currency zones, while competition for deposits intensified as many banks faced tighter liquidity and increased funding costs on the wholesale markets. In this environment underlying profit before tax declined 23.6% to EUR 530 million, compared with EUR 694 million in 2006. Including the impact of the divestment of Degussa Bank, which was sold at year-end 2006,total profit before tax decreased 23.3%.Total underlying income declined in 2007 by 1.7% to EUR 2,196 million due to an 8.1% lower interest result. The interest margin narrowed to 0.75% from 0.89% in 2006 as a result of higher central bank rates in the euro, British pound and Australian currency zones and the intensified competition for retail funds. The total client retail balances in 2007 grew EUR 28 billion (or EUR 35 billion excluding currency effects) to EUR 310.1 billion at year-end. This includes EUR 5.3 billion from addon acquisitions in the fourth quarter. ING DIRECT – Financial Results (Causes & Implications for Future)

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ING Direct

ING DIRECT deals in the business of banking. Banking involves huge amount or risk. Banking risks are defined as adverse impacts on profitability of several distinct sources of uncertainty. Risk measurement requires capturing the source of the uncertainty and the magnitude of its potential adverse effect on profitability. Profitability refers to both

accounting and mark-to-market measures. However, there has been a significant extension of focus, from the traditional qualitative risk assessment towards the quantitative management of risks, due to both evolving risk practices and strong regulatory incentives. The underlying philosophy of capital requirement is to bring capital in line with risks. This philosophy implies modelling the value of risk. The main risks that ING DIRECT is facing are:1. Bad debts in mortgage market 2. Credit risks 3. Liquidity risks 4. Downturn in economy 5. Underwriting of Assets ( Assets Management) ING DIRECT is working in an uncertain environment. It has to change with the environment and changing market conditions. •

Before we look into the external and internal factors impact on the company lets discuss opportunities and threats.

OPPORTUNITIES 1. ING DIRECT is currently operating in only 9 countries leaving many potential highgrowth markets unexplored. 2. In order to keep costs down ING DIRECT started dropping customers that required too much hand-holding, the reason being, customers are used to branches, have high expectations, or require a lot of advice, so they really don't fit in. So, they simply fired them. These customers could have been their long-term customers if operated correctly and less rudely as it is distant a smaller amount costly to develop your existing customer foot and put up for sale more ideas to them than it is to seek new, single transaction customers.

THREAT 1. EXTERNAL ----- With the growing popularity of ING DIRECT E-banking system, many other banks are adopting the same approach, giving ING a tough competition, like :• • •

MetLife launched an Internet bank in 2002 and has been greatly promoting high tax rates. Emigrant Direct is the online branch of New York based Emigrant Savings Bank, is trying to bang ING at its own fixture, offering a 3.5 percent savings yield. UK-based HSBC (Research), which offers consumers a high yield online savings division with a give in of 3.25 percent.

2. INTERNAL -----Some internal challenges which ING DIRECT is facing are listed below :• •

To analyze macro environment we will be conducting pest analysis to see what role of these factors have on ING DIRECT.

PEST Analysis of ING Direct

PEST ANALYSIS

Techn ologic al

Econo mical

Politic al

Social

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ING DIRECT is growing at a high pace and it has become difficult for them to cope up with that as more customers mean increasing pressure on the systems and processes. ING DIRECT positions itself as a rebel in the banking industry, but at the similar time it bears the brand name of one of the most respected financial institutions, ING. So, the more that ING DIRECT’s part within ING’s profits will increase, the bigger the dilemma.

Political Factors ING Direct operates in nine countries which have completely different taxation laws and accounting systems. The further growth will depend on how well the company can adapt to the local laws. E.g.: ING Direct’s ability to penetrate the Middle East markets will depends on its ability to adhere to the Shariah law. The employment laws also differ according to countries. E.g.: It is much harder to fire permanent employees in U.K. than in U.S. Again, the industry is regulated by governmental agencies in different countries which will force ING Direct to make changes to its products. E.g.: FSA in U.K makes sure that ING Direct adherers to its guide lines while operating in its borders. The marketing efforts of the company will also be affected by the governmental agencies like ‘British Advertising Standards Authority’. The stability & economic policies of the local governments will also affect the bank policies. E.g.: Recently, UK government put pressure on all banks to pass the rate cut to its customers.

Economical Factors The world economy is facing a banking crisis which has affected customer confidence in a big way. Among the bankrupted where some internet savings banks which has raised the question whether the business model is a reliable one or not. This means that ING Direct is facing an uphill struggle to gain new customers. But, it is also an opportunity to takeover ailing competitors, and achieve inorganic growth. The economic growth in the countries it operates is at best slow and at worst, bordering on recession. E.g.: U.K. economy is in serious danger of going in to recession. This normally means that the public have to break in to their savings account which is a bad proposition for ING Direct. The interest rates have been brought down by most central banks. This means that the operating profits of ING Direct will shrink, forcing the bank to further bring down its costs. We can also see that the exchange rates are highly volatile and so is the inflation rate in different countries. We should also consider the productivity of employees across countries. We should also take in to account that unemployment is rising in countries like U.K.

Social Factors The biggest social factor affecting ING Direct is the customer perception that a bank should have a physical presence in the high street. Even though effective marketing & advances in technology have made internet banks acceptable, major sections of customers are still vary of these banks. The recent failures of Icesave have just cemented their opinions. The fact that ING Direct has a ‘rebel’ status in the banking sector will appeal to the young customers. This will also alienate older customers who like to follow age old practices. ING Direct should also look in country culture like ‘emphasis on safety’, ‘attitude to foreign products’ and language when it thinks of expansion.

Technological Factors ING Direct depends on technology for its operations around the world. The main channel of distribution is a website. Supporting this website is state of the art call centres which facilitate some human touch in the operations. This means that the company can operate only in technosavvy communities. ING Direct tries to educate the masses about its website through heavy marketing. Also, the website is kept very user-friendly so that the learning curve of the new customers is kept to a minimum. The staffs at the call centres is given extra training to handle the customers who are less fluent at using the technology based banking system the company offer. When expanding, the company should look in to the factors like penetration of internet facilities, familiarity with information technology & the learning culture of the people.

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To analyze micro environment we will be conducting Porter’s five force’s to see what role of these factors have on ING DIRECT Rivalry among existing companies

Suppliers bargaining power

Industry competitors

Buyers bargaining power

Threat of substitute products products

Bargaining Power of Suppliers We can see that the bargaining power of depositors, provider of the companies capital is very high. But other suppliers like its staff and service providers have little bargaining power as they can be easily replaced. This means: 1) Interest rates are kept high and they can’t bargain with the investors. 2) They cut down the cost to get favourable deal and keep constantly negotiating with its staff and service providers.

Bargaining Power of Buyers ING Direct has millions of investors. Almost all of these investors are individuals who think and act independently. These factors bring down the bargaining power of the customers. This means: 1) Bargaining power of the investor is high due to the choices available. 2) Small savings customers have low bargaining power.

Threat of New Entrants It is very easy to enter ING Direct’s Market the online savings banking. The barriers like technology, cash, license & in frastructure are easy to overcome. Any traditional bank can start a online savinds bank with little or no effort which include the view of account statement. This means: 1) In making the real business, there is definetly the threat of new entrant to make the business very competitive. 2) As ING Direct’s customers are not loyal there is a danger that new entrants with better deals will have no difficulty in gaining customers.

Threat of Substitute The market is packed with similar products which directly contend with ING Direct’s products. We should also take into the account of the alternative or indirect substitutes like government bonds and traditional banks which is not the same product, but give similar profit. This means: 1) ING Direct should strive to maintain the unique element to its product which is the above average customer service. 2) ING Direct charges no penalties for switching to a competitor making it tempting for an investor to jump ship to a different bank.

Rivalry Among Competitors Rivalry among competitors is intense in banking sector. In a sector where success formulas are fast copied, ING Direct should continually innovate to stay one step ahead of rivals. This also means that profit margins are kept at minimum. This means: 1) ING Direct tries to keep competition to a minimum by focusing on a unique sector of the market. More the products, more the competition. 2) ING Direct should try foreign markets where there is less competition in its unique sector.

CONCLUSION: Every coin has two faces, so here in our case study we have discussed about the political and economical aspects of ING Direct with suitable recommendations to various challenges faced by them in order to attain their target. Recession in the current business environment has made the people to save more. This is a clear advantage for ING Direct as their main aim is to get people to save more. We recommend that ING Direct while shaping up their marketing campaigns to concentrate more on their savings accounts. The reason behind this recommendation is, in this current economy state people wish to keep away from mortgages. For every organization, “Strategic management is planning, implementation and control” (Naylor, j.2002). However, we believe that ING Direct is a bank with strong and invulnerable roots and will successfully bail out when compared to its traditional based rivals with its strong policies, strategies and its effective and efficient workforce.

RECOMENDATION: Mobile Banking Technology to be developed: The next revolution in banking will use the full facilities of mobile information technology. Just like ING Direct revolutionarised the banking sector by only using a website, the next big thing will be use of mobile (for e.g. mobile phone) system for baking on the go.ING direct can reengineer the power of mobile information system by providing the facility to the customers to transfer funds between accounts and to view the account statement. Online Chat Facility: Customers who have any doubts or issues with their account while they are logged in can use this facility to clear their doubts. This can lead to solve the problems very easily and fast also the employee can handle two customers one at a time and this will need no verification of the customer over phone as they are already logged into the machine.

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http://www.berr.gov.uk/files/file44332.pdf

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http://www.ingdirect.co.uk/general/contactus/pressreleases/Kaupthing_Edge_PR.pdf

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