ORGANIZATION AND ENVIRONMENT

Analysis of the factors in the macro environment that have major impact to a company

and assessment of the steps taken by the company to overcome the problems.

Case study : Maybank Malaysia

By AhmadRawi

The writer can be contacted at:

scholars.assist@gmail.com

By AhmadRawi

The writer can be contacted at:

scholars.assist@gmail.com

INTRODUCTION

Strategic management experts have stated that in order to achieve a competitive advantage, a

company needs to pursue strategies that build on its existing resources and capabilities and

formulate strategies that build additional resources and capabilities (develop new

competencies) (Hill and Jones, 2010, p.103).

Strategies are formulated after considering various factors external and internal to the

company. This paper will focus only on the external (macro) environments of the company

that have major impacts to them. Towards this end a PEST analysis will be done to the macro

environment of a chosen company. PEST analysis is an overview analysis of the environment

that the business is in. In PEST analysis, four factors are considered namely Political factors,

Economic factors, Social factors and Technological factors (thus the acronym PEST) (Turner,

2010,p.56). Recent trend in the field of strategic management advocates the inclusion of a

further two factors namely, Environmental factors and Legal factors. All combined the macro

environment factors analysis will be known as PESTEL.

Macro environment factors are beyond the control of an organization. This is because those

factors are positioned outside the organisational system. Those forces are the prime factors in

corporate strategization i.e. determining the objectives of an organisation, its drive for profits,

its projection for future sales as well as a protection step in preventing any losses or

problems. According to Lowe and Marriott (2006,p. 181),macro factors are the major trends

and changes that affect all organizations within a nation, a region or the world and essentially

include the major political, legal, economic, social, cultural, 'green' environments and

technological factors.

This paper proposes to analyze the macro environment factors impacting Malayan Banking

Berhad, or better known as Maybank in their quest to be regional financial services leader .As

a prominent financial institution in Malaysia and stands as the Best Domestic Private

Banking from Asiamoney Annual Private Banking Poll 2010 as well as won Euromoney

Award for the Malaysia Best Private Banking Services Overall, Maybank also received

numerous awards and recognitions for its efficiency in customer affair and corporate relation.

Despite the glory and honour crowned to Maybank's achievements, it is inevitable to deal

with macro environment which commonly come along the way throughout their business

days. In order to analyze the impact of macro environments on Maybank generally, it is

essential for the scope of analysis to cover the political, economic, social, technological,

environmental and legal factors (or better referred as PESTEL analysis).

DISCUSSION

The first factor i.e political factor refers to the local government policy and administrative

affairs in the business geographical location. It covers the level stability and security provided

for the outside investors by the government of a particular location or country. The

confidence of the reliability and dependability of the government's administration will

encourage those investors to spread their business wings in the country. As one of world

financial providers, Maybank needs to study the political scenario of one particular country

before finalising the decision on venturing into new business in that country. For instance,

when Maybank set up its third branch in Cambodia, the increasing political stability in

Cambodia had given the confidence to Maybank to operate its business there. Commenting

on this, Maybank's CEO Abdul Wahid Omar stated that Maybank believes that Cambodia as

a country will continue to grow with its political stability and an economy that is open to

trade and investment (Maybank, 2011).

Apart from political stability, the local government policy is also important in order to boost

the investments inflow. Local government's policy deals with tax issues, investors incentives,

free trade zone, restrictions on profits payout and many more will attract the investors to

come. The best example here is the Cambodian government policy of allowing 100% foreign

ownership of business in Cambodia, which ultimately attract Maybank to invest in Cambodia.

These mean that foreign investors are not required to team up with a local partners which

means business ownership is absolutely owned by the investor's company (Bangkok Post,

June 02, 2007). This policy helped Maybank to lighten its organisation liabilities and

therefore convenient for Maybank to reach for any corporate and business decision that

required quick action to be taken.

However, if there are changes made by the local government with regard to their policy

which may reduce the benefits enjoyed by investors, to a certain extend, the investors may be

forced to make a choice either to conform to the new policy or to switch to new location.

Normally the action taken depends on the organisation's corporate goals and objectives. The

views or objections of both majority and minority shareholders will also be taken into

account. The good example appears in the situation where Maybank decided to take over BII

operation in Indonesia. The policy made by the government of Indonesia pertaining the

ownership of financial institution owned by foreign company is limited to one ownership of

Indonesian bank per foreign investor had forced BII’s Singaporean majority shareholder to

divest its interest in BII. The Indonesia governmental policy change had benefited Maybank

by offering a new opportunity in penetrating Indonesia financial segment.

On the economical point of view, a country's strong economic growth will definitely attract

the influx of investors to join its business community. As common practice, many countries

announce their annual budgets to show an indicator for business and commercial growth for

both domestic and external demands. The best example is Thailand, despite occasional

political unrest, is still a growth economy. (New Straits Times, Jan 08, 2011) Thai’s

government expects economic growth to slow to 4.5 per cent this year after estimated 7.8 per

cent growth last year. Due to this economic projection, Maybank plans to penetrate Thai

financial market by June of 2011 where an analysis shows that it will a turning key for

Maybank expansion into the Southeast Asia second largest economy. A country economy is

positioned as one of the important macro environments because of its function in accelerating

business growth. According to Kruger (2004,p.57) the economic factors/environment is the

controlling factor and forms the central point of change in the macro environment and is in

turn influenced by them.

The economic growth is in line with the growth of whole package of economic activities. The

inter-relation between those elements is one of contributing factors for a business plan to

grow positively. For instance, if the country's inflation is skyrocketing, it may force a higher

salary from the employees, and this situation may increase the operating costs of a trading

firm. When operating cost increased, the profit earned will decrease apparently as the firm

attempts to sustain its business. Due to lower pay-out of dividend towards the shareholders,

the firm may possibly experience a pull out of investment by the dissatisfied shareholders.

Therefore the economic changes will give impact on the business flow of an organization.

Maybank, like other financial institutions, stimulates the economic development through

loans, credit and other financing assistance to individual customers as well as various sizes of

companies. This move may help to boost the country's economic to it right path. In order to

ensure the economic growth is consistent with the business objectives inspired by Maybank,

Maybank has to pour in billions of investment for a restructuring process as happened to BII

buy over. With a confidence and positive projection of the economic growth in Indonesia, the

buying over BII turned into a profitable move in the next financial year as reported in

Maybank Financial Report 2010. Maybank owes this positive situation to the positive

economic growth in Indonesia, indeed.

Social factors in macro environments is another indispensable factors that may give impact

on any organisation. Factors include the demographic and cultural aspects that affect

customer needs and the size of potential markets. On the corporate social responsibility

(CSR) front, as pointed out in Maybank Sustainability Report 2010, Maybank has launched a

program called ‘community investment’ where Maybank concentrates on certain areas related

to the impact of their business on the society. Among the areas cover are conservation effort,

education support such as scholarship and excellent awards, arts activities, sports and health

medical related affairs.

Under demographic factor, the elements of marital status, population growth rate or age

distribution, to name few, are important for Maybank to design its financial products

accordingly. For instance, under age distribution segment, Maybank has introduced a pension

scheme called 'Golden Harvest Retirement Package' for those who aged between 45 and 70.

The target group is those who plans for a fruitful retirement day. Another financial plan for

children called 'Yippie Care2' is designed for children as young as one month old. Among the

benefits is the maturity value that is twice the sum insured, which is guaranteed, making it

easier to plan for child's future education.

Employees' affairs are also part of this social factors where the social impact to the

employees' lifestyle and working culture may differ from one country to another country. For

instance, when Maybank took over BII, the present Indonesian staff have to adopt the

corporate culture practiced by Maybank for decades without losing a grip to their own

culture. Maybank also strengthens its human capital development, its valuable assets that is

its dedicated staff. According to Maybank Annual Report 2010, The Maybank Group today

has a staff strength of more than 39,000 Maybankers in over 700 offices worldwide. The staff

are the backbone of Maybank's strive to emerge as the leader in financial sector in Malaysia.

Maybank creates leadership style in its corporate culture by making all communications

effective at all departments and sectors. A series of continuous and integrated trainings are

well-organised and completed by managers at Maybank. This is among the efforts introduced

by Maybank in order to ensure the progressive leadership continue from time to time. Several

initiatives organised by Maybank in pertaining career enhancement among its employees

where Maybank's rewards and recognition schemes has reflected the entire workplace culture.

It practices 'Pay for Performance' besides other benefits as outlined by the Ministry of Human

Resource where employees are offered with attractive salary package, bonuses and promotion

annually.

Technology enhances lifestyle and expedites business transactions. It crosses international

border to create business opportunities. Unfortunately, in recent years, there are endless list of

reports made against online banking fraud world wide. BBC News (March 10,2010) reported

that fraud cases has increased tremendously compared to previous year. The report, quoting

UK Cards Association’s figures, stated that fraud losses on UK credit and debit cards totalled

£440m in 2009 - a drop of 28% compared with the previous year. But the number of

"phishing" attacks rose by 16% in the same period. ‘Phishing’ is when fraudsters trick people

into entering their personal details on a website or in an e-mail. As a result, the total amount

of online banking losses reached £59.7m in 2009, a 14% rise compared with the previous

year.

Maybank is no exception to this problem. Curbing cyber crime or specifically referred as

'phishing' is one of the Maybank's core focus in enhancing its online banking system. Online

banking system helps Maybank to reduce its paper usage which is vital to the environment in

the long run. On top of that, Maybank needs to restore its clientele's trust when engaging with

online banking. One of Maybank's initiatives is by providing a fraud hotline which appears

on its website for customers' reach. For online shopping protection, Maybank creates

Maybankard Secure Online Shopping (MSOS), an additional authentication protocol

developed for safer online transactions when customer is using MasterCard and Visa to make

online purchase.

Environment plays indisputable role in ensuring the sustainability in business survival.

Maybank is no exception as well. As part of its social responsibility, preservation of

environment is one of the moves taken by Maybank. One of the campaigns is

'maybank2u.love the earth campaign' which is about reducing the usage of papers in daily

transactions. This is in line with Maybank's mission to humanize financial services, a strategy

that they weave into their business and the way they work to help protect and improve the

environment for their community. Maybank also took part in various environment funding for

earth disaster such as flood, earthquake, tsunami etc that had occurred worldwide. Maybank

provides aid during those disaster recovery and redeveloping process and also is very

proactive in promoting the heritage, culture and arts in the countries in which they operate.

Among the initiatives adopted by Maybank such as disaster relief, conservation of nature as

well as wildlife protec tion.As mentioned in Maybank Sustainability Report 2010, the

environment conservation steps were taken as an effort to advocate for greener earth.

In order to portray the seriousness of Maybank in current and potential impact of

environment changes on the well-being of population at large, Maybank has actively

participated in several environmental oriented forums which address the climate change in

Malaysia, specifically and global generally. For example, Maybank has worked closely with a

UK based organisation on greenhouse gas emission called Carbon Disclosure Project. This

project promotes the businesses to emerge with good formula and better implementation in

regards to carbon emission reduction strategies as an integral part of their organisation. It is

vital that transparent carbon management plan helps to disclose the potential risks and

opportunities available for the public.

The final macro environment factors to be analyzed is legal factors which consist of

restrictions or requirements of laws in the place where a company is doing business. Example

of legal restrictions are the local government policy imposed against all foreign companies

which is aimed at protecting the interests of their local-based companies. For instance, when

Maybank intended to buy over the Bank Internasional Indonesia in year 2008, Maybank has

to adhere to the regulatoion imposed by Indonesian government that foreign bank is

permitted to own one local bank only. This is the same regulation that ultimately led to

Maybank’s takeover of BII as the said regulation had necessitate Temasek Holdings (the

Singapore Government’s investment arm that owns and manages its direct investments, both

locally and overseas) to divest its stake in one of the two Indonesian Banks it owns in order to

comply with a new ruling from The Central Bank of Republic of Indonesia with Indonesia's

new policy on bank ownership (Reuters, Jan 26,2010).

CONCLUSION

As the conclusion, it has been stated that in order to achieve a competitive advantage, a

company needs to pursue strategies that build on its existing resources and capabilities and

formulate strategies that build additional resources and capabilities (develop new

competencies) (Hill and Jones, 2010, p.103). But in order to formulate the strategies, an

organization must be aware of its macro/external environments.Though macro economics

situations are always beyond the control of organisation, the organisation must be proactive

in overcoming the situation. By actively participating in the respective sectors (i.e.

Politic.Economy, Social, Technology, Environmental and Legal), effective strategization can

be achieved as shown by Maybank.

REFERENCES

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