THE INTERNATIONALISATION OF ITALIAN BANKS IN THE 90'S

 

Marco Mutinelli
Università degli Studi di Brescia
Dipartimento di Ingegneria Meccanica
Via Branze 38
I–25123 Brescia (Italy)

Ph. +39 02 2399 2753
Fax. +39 02 2399 2710

E–mail: mutinell@bsing.ing.unibs.it

 

Lucia Piscitello
Politecnico di Milano
Dipartimento di Economia e Produzione
Piazza Leonardo da Vinci, 32
I–20133 Milano (Italy)

Ph. +39 02 2399 2740
Fax. +39 02 2399 2710

E–mail: lucia.piscitello@polimi.it

 

THE INTERNATIONALISATION OF iTalian BANKS in the ‘90s

 

ABSTRACT

Theories and approaches so far suggested about globalization of the banking sector basically relate banks’ international growth to (i) the follow the customer strategy, that is the wish to service their national customers (specifically manufacturing firms) even on the foreign markets where they spread their international activities, and (ii) the market seeking strategy, that is the search for favorable conditions on foreign markets. The present paper aims to investigate international growth strategies followed by Italian banks in the ‘90s. Empirical evidence is provided through an econometric panel model. Results confirm that Italian banks have followed both the strategies (i) and (ii) although with different weights for different organizational forms.

 

THE INTERNATIONALISATION OF ITALIAN BANKS IN THE ‘90s:

Introduction

Although banks did not (and do not) actually need foreign branches, subsidiaries and representative offices to undertake cross–border lending and trade finance, from the early nineteenth century multinational banking involving foreign direct investment (FDI) also appeared (Jones, 1992). Even more, technology, liberalization of trade policies, privatization of banks in emerging countries, and globalization of non-financial markets have merged in recent years to create unprecedented opportunities and challenges (Miller and Parkhe, 1998).

This notwithstanding, international studies on multinational banking are quite scant (mainly because severe constraints on data availability) and serious lacunae still exist (Dunning, 1993). Additionally, the most of existing literature refers to the US (e.g. Grubel, 1977; Goldberg and Saunders, 1980, 1981a, 1981b; Gray and Gray, 1981; Ball and Tschoegl, 1982; Kindleberger, 1983; Yannopoulos, 1983; Aliber, 1984; Goldberg and Rai, 1986; Nigh et al., 1986; Hultman and McGee, 1989; Goldberg and Johnson, 1990; Goldeberg and Grosse, 1994; Miller and Parkhe, 1998) and UK case (e.g. Jones, 1992), while on the contrary, evidence proposed with reference to other countries has been mostly limited to some explorative and qualitative studies (for the Italian case see Marchi and Panizza, 1993; Nieri, 1994; Crecchia, 1996).

The present paper aims to investigate international growth strategies followed by Italian banks in the ‘90s, testing some hypotheses suggested in the international literature (Erramilli and Rao, 1990; Miller and Parkhe, 1998) to explain the extent, pattern, and ownership structure of banks’ international growth, and related to: (i) the follow the customer model, which justifies banks going abroad to service their clients (especially manufacturing firms) who have preceded them investing in a foreign country; and (ii) the market seeking approach, which substantiates banks’ internationalization with the search for favorable local market conditions and the possibility of supplying new foreign clients. In particular, the siting of international activities by multinational banks thus depend on the source of comparative advantage that accrue to banks operating abroad.

The remaining of the paper is organized as follows. In section 2 we discuss the theoretical framework and develop hypotheses as to the relationship between international banking and manufacturing FDI. In section 3 we present data employed in the empirical study, based on an econometric panel model. Section 4 illustrates the model and the variables, and Section 5 presents the empirical findings. Some summarizing remarks in Section 6 conclude the paper.

theoretical BACKGROUND and hypotheses

The international literature upon the service firms’ (particularly, banks) international growth, their foreign location and their organizational form, highlighted two main strategies: (i) the follow the customer and the (ii) market seeking. The present paper starts from the analysis of these two strategies and formulate some research hypotheses, while disregarding other interpretations specifically linking international banking processes to macro–economic shocks and changes in relative competitiveness among world areas.

According to the follow the customer model, the international activities undertaken abroad by domestic banks follow FDI previously undertaken by national clients and specifically by manufacturing firms. Indeed, on the one hand, the latter need complementary assets, infrastructures and financial / insurance / consultancy / telecommunication / advertising services in order to support their new global dimension; on the other, the intangibility and the inseparability of banking and financial services (which constrain the possibility of trading those services, and require close interrelationships between banks and customers) push the financial institution to follow the clients in their international growth patterns, and allow the former to enjoy benefits from such a privileged relationship. Banks then operate abroad to assist their customers with financial services (Kindleberger, 1983; Aliber, 1984; Miller and Parkhe, 1998). Therefore:

H1) location choices undertaken by multinational banks are strongly driven by the siting carried out by firms in manufacturing.

Empirical evidence to the hypothesis has already been provided both by trends followed by FDI in the ‘60s and ‘70s (UNTCT, 1987; 1988; 1989), and by some research studies about US banks’ international activities. In particular, Nigh et al (1986), Goldberg and Johnson (1990), and Miller and Parke (1998) found a positive correlation between US banks’ foreign activities and manufacturing activities set abroad by US firms in the periods 1983–1985, 1972–1995, and 1987–1995, respectively. Similarly, Hultman and McGee (1989) and Goldberg and Grosse (1994) confirmed that result with reference to the foreign participation in the US market in the period 1973–1986. Yamori (1998) corroborated the evidence with a study on Japanese banks in the first years of 1990s.

In general, the flow of goods and services across national borders requires converting the currency of importing country into the currency of the exporting country. That is facilitated by establishing banking operations in foreign countries (Gray and Gray, 1981). Accordingly:

H2) location choices undertaken by multinational banks are pulled by a lively uni- and bi-lateral trade between the home and the host country.

Empirical evidence to the hypothesis has been provided by Goldberg and Johnson (1990), and Grosse and Goldberg (1991) which found that bilateral trade contributes to the expansion of foreign banks in the US. Likewise, Miller and Parkhe (1998) and Yamori (1998) found that bilateral influenced the US and the Japanese banks – respectively - behavior abroad, and Galiatsos and Papapetrou (1995) reached a similar conclusions for foreign banks in Greece.

According to the market seeking strategy, service firms enter new markets both because "constrained localisation", and in order to gain specific advantages in loco. The entry choice is stimulated by favorable conditions and opportunities offered by the local market related to the internal production level, and to the local banking system, its development and efficiency. Therefore:

H3) location choices undertaken by multinational banks are positively influenced by the average national wealth, and by the wealth pro capite.

H4) location choices undertaken by multinational banks are stimulated by the characteristics of the local banking market in term of size, development (growth rate????) and efficiency

All the empirical studies generally confirmed the two hypotheses (e.g. Sabi, 1988; Miller and Parkhe, 1998).

METHODOLOGY

Sample

The econometric exercise refers to the international activities (subsidiaries, branches, representative offices) undertaken by Italian banks in the period 1991–1997. Data employed in this study come from a research conducted at Politecnico di Milano, Dipartimento di Economia e Produzione. In 1997 10 Italian banks owned at least one foreign subsidiary and 22 owned at least one foreign branch (it is worth noting that all Italian banks with foreign subsidiaries also owned foreign branches). The total number of foreign branches was 86, while the number of foreign subsidiaries did non exceed 30 units, with a total of 593 counters. Finally, there were 128 representative offices abroad. The geographical breakdown of foreign activity of Italian banks, in the various organizational forms, is shown in Table 1.The empirical model focuses on the 69 countries (out of the world’s top150 in terms of GDP) in which branches, subsidiaries, representative offices by Italian banks and/or production activities by Italian firms in manufacturing, are located. Among these, all OECD countries are represented, as well as almost all the other largest countries (see Appendix 1).

Table 1 – Geographical breakdown of overseas activity of Italian banks, 1991–1997

.

Branch offices

Subsidiaries

Representative offices

.

1991

1993

1995

1997

1991

1993

1995

1997

1991

1993

1995

1997

.

.

.

.

.

.

.

.

.

.

.

.

.

European Union

49

52

48

48

20

20

21

18

56

49

49

44

Belgium and Luxembourg

5

8

7

8

8

8

8

7

9

9

10

12

France

6

7

4

5

7

6

7

7

9

7

8

6

Germany

10

9

9

7

3

3

3

2

19

14

13

8

United Kingdom

15

15

15

15

1

1

1

1

6

4

5

7

Spain

12

12

10

10

.

1

2

1

5

5

6

4

Central and Eastern Europe

.

.

.

.

.

.

.

.

13

15

20

20

Russia

.

.

.

.

.

.

.

.

8

8

10

10

Other European countries

.

.

.

.

3

4

4

3

6

4

2

1

North America

24

23

17

15

3

3

1

1

17

14

17

14

United States

24

23

17

15

1

1

.

.

15

12

16

13

Latin America

.

.

.

.

3

3

7

8

12

9

8

8

Argentina

.

.

.

.

1

1

2

2

3

3

3

3

Brazil

.

.

.

.

1

1

2

2

3

2

2

2

Asia

20

21

21

23

.

.

.

.

37

34

38

34

China

.

.

1

2

.

.

.

.

9

9

13

13

South Korea

.

.

.

.

.

.

.

.

2

3

3

2

Japan

4

4

4

3

.

.

.

.

5

3

3

3

Hong Kong

7

7

6

6

.

.

.

.

10

9

7

4

India

.

.

.

.

.

.

.

.

3

3

3

2

Oceania

.

.

.

.

.

.

.

.

7

6

6

4

Australia

.

.

.

.

.

.

.

.

7

6

6

4

Africa

1

.

.

.

1

1

.

.

3

2

3

3

Total

94

96

86

86

30

31

33

30

151

133

143

128

Sources: ABI, database Reprint (Cnel- R&P- Politecnico di Milano).

 

Table 2 - Most internationalized Italian banks, 1998

.

No. of foreign
branches

No. of foreign
subsidiaries

No. of foreign
countries

Investments abroad/Total investments

.
.
.
.
.

Banca Commerciale Italiana

14

10

19

29,2%

Banca di Roma

17

2

13

16,6%

Banca Nazionale del Lavoro

9

6

12

9,1%

San Paolo - IMI

11

1

11

10,5%

Cariplo

6

3

9

10,3%

Monte dei Paschi di Siena

6

5

9

7,7%

Credito Italiano

5

1

6

25,0%

Banca Nazionale dell’Agricoltura

2

-

2

20,3%

Banca Popolare di Milano

2

-

2

14,4%

Rolo Banca 1473

1

-

1

10,7%

Cassa di Risparmio di Torino

4

-

4

24,8%

Sources: ABI, database Reprint (Cnel- R&P- Politecnico di Milano).

The dependent variables

Foreign activities of Italian banks have been measured by the different organizational forms they adopted abroad in the period considered (t = 1991, 1993, 1995, 1997). In particular, in order to maintain a certain homogeneity with almost all the other empirical studies in the literature, we separately considered subsidiaries, branches and representative offices. Therefore:

  1. SUBSID is the total number of subsidiaries operating in each foreign country in the period considered;
  2. BRANCHES is the total number of branches operating in each foreign country in the period considered;
  3. OFFICES is the total number of representative offices operating in each foreign country in the period considered;
  4. TOTAL is the sum of the number of subsidiaries, branches and representative offices operating in each foreign country in the period considered;

The independent variables

According to the hypotheses previously developed, to the variables suggested by the international literature and to the availability of data, the following variables have been considered:

Table 3 - Expected sign for independent variables

Variables

Expected sign

FDI

+

TRADE

+

WEALTH

+

RISK

+

MKT_DEV

+

SPREAD

+

MKT_SIZE

+

CULTDIST

-

(1) The production activities of manufacturing firms (FDI)

FDI is measured by the number of manufacturing affiliates of Italian firms in each country in the period considered. Data are obtained from the data base Reprint (see Cominotti et al., 1999). The expected correlation between international activities undertaken by Italian banks and the presence of manufacturing affiliates of Italian firms is positive (see Table 3).

(2) Bilateral trade (TRADE)

In order to take into account commercial activities established abroad by Italian firms, TRADE is the sum of exports and imports (Miller and Parkhe, 1998; Yamori, 1998) between Italy and the other countries in the year considered. Data come from the Italian Institute for the International Trade (ICE). According to the hypothesis previously developed, the expected sign is positive.

(3) Wealth of the local market (GDP, GDP_POP)

GDP and the GDP_PC measure the national GDP and GDP pro capite in the period considered. Data come from the IMF International Financial Statistics (1999). Expected signs on the Italian banks’ locational decisions are positive.

(4) Characteristics of the local banking market (MKT_SIZE, MKT_DEV, SPREAD)

In order to represent the local banking market, we followed the previous works by Demirgüç-Kunt and Levine (1995) and Miller and Parkhe (1998). Therefore, MKT_SIZE is a proxy for the local banking market size and it is measured by the total deposits (of deposit money banks) in the years considered;

MKT_DEV is a proxy for the development of the banking system and it is measured as the ratio of the total claims of deposit money banks to the national GDP, in each year of the period considered. Finally, SPREAD is a proxy for the banking efficiency, measured as the difference between bank lending and borrowing rate, in the years considered. The source for the three variables is IMF International Financial Statistics (1999).

According to the hypotheses developed, the expected signs are positive.

(5) Some control variables (OECD, RISK, CULT_DIST)

In order to control for some of the additional aspects certainly influencing the location choices by banks, we considered three further variables. Since relationships could be come out differently for developed and developing countries (Miller and Parkhe, 1998), we considered the variable OECD which is a dummy equal to one whether the country is an OECD country and zero otherwise.

Additionally, as some of the empirical studies so far suggested tested the negative relationship between FDI by banks and the target country’s risk (e.g. Hultman and McGee, 1989; Goldberg and Johnson, 1990; Yamori, 1998), we considered a measure of country risk (RISK) calculated in each year of the period considered, according to the IICRI (Institutional Investors Credit Rating Index).

Finally, a proxy for the socio-cultural distance between each foreign country and Italy has been considered. CULT_DIST derives from the original measure proposed by Hofstede (1980) and then re-calculated for Italy. Such a proxy has always been used in studies about internationalisation by manufacturing firms (e.g. Gatignon and Anderson, 1988), but it has generally ignored in studies for service firms (a relevant exception is represented by Erramilli, 1991). We expect foreign activities by Italian banks to be negatively related to the cultural distance CULT_DIST.

The model

The model estimated is the following:

Yit = a t + b C it + e it i = 1, …, 69 countries; t = 1991, 1993, 1995, 1997

where Yit is alternatively SUBSID, BRANCHES, OFFICES and TOTAL; while X is the set of the explanatory variables.

The model has been estimated through a panel methodology (weighting for the cross section dimension and estimating fixed effects in each of the year considered). Indeed, a panel estimation increases the degree of freedom and reduces the collinearity among explanatory variables, hence improving the efficiency of econometric estimates. Additionally, by utilizing information on both the intertemporal dynamics and the individuality of the entities being investigated, one is better able to control in a more natural way for the effects of missing or unobserved variables (Hsiao,1986).

Results

Results of the econometric estimates (both the most general model in which the whole set of independent variables are estimated – Models A -, and the best specification of the model, in which only the variables significant at least at p<.10 are left – Models B -) are reported in Tables 4-7.

Table 4: Econometric estimates TOTAL

.

Model A

.

Model B

.

FDI

0.034
(3.5154)

***

0.0334
(4.1649)

***

TRADE

7.72E-05
(3.1272)

***

8.83E-05
(4.1794)

***

GDP_POP

-6.83E-05
(-1.8592)

*

-5.22E-05
(-1.9107)

*

GDP

2.04E-07
(0.5887)

.
.
.

RISK

0.0028
(0.0969)

.
.
.

MKT_DEV

4.6245
(3.7428)

***

3.0165
(3.4500)

***

SPREAD

0.0068
(0.8593)

.
.
.

MKT_SIZE

3.42E-06
(4.7388)

***

3.68E-06
(9.5622)

***

CULTDIST

-0.8066
(-2.0419)

**

-0.7765
(-2.6458)

***

OECD

1.7945
(1.6143)

.

1.7814
(1.9256)

*

a 1991

1.2995
(0.7815)

.

1.8745
(1.9396)

*

a 1993

0.4606
(0.3049)

.

1.1438
(1.2597)

.

a 1995

0.0063
(0.0041)

.

0.8336
(0.9041)

.

a 1997

-0.6695
(-0.3991)

.

0.2929
(0.2802)

.

Weighted Statistics

.
.
.
.

F-value

56.7103

***

112.755

***

Durbin-Watson

1.3321

.

2.0865

.

Adj R2

0.7543

.

0.7563

.

Included observations

46

.

62

.

Panel observations

163

.

229

.

Notes: Number in brackets are t-ratios. Two tail probabilities are reported for t-test

*** significant at p<.01; ** significant at p<.05; * significant at p<.10

 

Table 5: Econometric estimates SUBSID

.

Model A

.

Model B

.

FDI

0.0131
(4.9703)

***

0.0127
(6.0422)

***

TRADE

1.40E-05
(2.1200)

**

1.51E-05
(2.6711)

***

GDP_POP

3.90E-05
(3.8467)

***

3.33E-05
(4.6760)

***

GDP

-3.16E-07
(-3.2969)

***

-3.00E-07
(-6.0231)

***

RISK

-0.0178
(-2.2577)

**

-0.0168
(-2.8927)

***

MKT_DEV

0.7877
(2.3594)

**

.
.

SPREAD

0.0003
(0.1239)

.
.
.

MKT_SIZE

1.20E-08
(0.0605)

.
.
.

CULTDIST

-0.4714
(-4.3351)

***

-0.4620
(-5.6287)

***

OECD

-0.2374
(-0.7705)

.
.
.

a 1991

1.2023
(2.6322)

***

1.2052
(3.6876)

***

a 1993

1.0032
(2.3778)

***

1.0697
(3.4892)

***

a 1995

0.8383
(1.9774)

**

0.9637
(3.1476)

***

a 1997

0.7788
(1.7669)

*

0.9385
(2.8880)

***

Weighted Statistics

.
.
.
.

F-value

22.4019

***

44.2257

***

Durbin-Watson

0.9049

.

1.8555

.

Adj R2

0.5380

.

0.5394

.

Included observations

46

.

59

.

Panel observations

163

.

219

.
.

Notes: Number in brackets are t-ratios. Two tail probabilities are reported for t-test

*** significant at p<.01; ** significant at p<.05; * significant at p<.10

 

 

Table 6: Econometric estimates BRANCHES

.

Model A

.

Model B

.

FDI

0.0185
(2.9316)

***

0.0185
(4.6557)

***

TRADE

5.13E-06
(0.3223)

.
.
.

GDP_POP

-4.30E-05
(-1.7806)

*

-4.52E-05
(-2.7169)

***

GDP

3.33E-07
(1.4582)

.

3.50E-07
(1.9532)

*

RISK

-0.0039
(-0.2068)

.
.
.

MKT_DEV

2.2878
(2.8565)

***

1.7690
(3.6935)

***

SPREAD

0.0006
(0.1246)

.
.
.

MKT_SIZE

1.87E-06
(3.9380)

***

1.91E-06
(5.0965)

***

CULTDIST

-0.1196
(-0.4616)

.
.
.

OECD

1.3199
(1.8000)

*

1.5242
(2.7710)

***

a 1991

-0.2207
(-0.2052)

.

-0.5106
(-1.3026)

.

a 1993

-0.4583
(-0.4565)

.

-0.7007
(-2.0142)

**

a 1995

-0.8697
(-0.8610)

.

-0.8581
(-2.5714)

**

a 1997

-1.0127
(-0.9586)

.

-1.0093
(-2.4673)

**

Weighted Statistics

.
.
.
.

F-value

30.0069

***

85.7843

***

Durbin-Watson

2.5173

.

1.9962

.

Adj R2

0.6134

.

0.6296

.

Included observations

46

.

67

.

Panel observations

163

.

248

.

Notes: Number in brackets are t-ratios. Two tail probabilities are reported for t-test

*** significant at p<.01; ** significant at p<.05; * significant at p<.10

 

 

Table 7: Econometric estimates OFFICES

.

Model A

.

Model B

.

FDI

0.0006

(0.1206)

.

0.0197

(5.0946)

***

TRADE

6.23E-05

(4.4944)

***

.
.

GDP_POP

-6.17E-05

(-3.0364)

***

.
.

GDP

1.66E-07

(0.8537)

.
.
.

RISK

0.0252

(1.5977)

.
.
.

MKT_DEV

1.3870

(2.0359)

**

1.2780

(3.2988)

***

SPREAD

0.0042

(0.9702)

.
.
.

MKT_SIZE

1.41E-06

(3.5109)

***

1.77E-06

(8.1324)

***

CULTDIST

-0.2537

(-1.1739)

.

-0.3941

(-2.3481)

**

OECD

0.7200

(1.1832)

.
.
.

a 1991

0.4985

(0.5467)

.

1.4146

(2.5953)

**

a 1993

0.0891

(0.1084)

.

0.9084

(1.7527)

*

a 1995

0.2084

(0.2376)

.

0.9473

(1.7877)

*

a 1997

-0.2603

(-0.2797)

.

0.6334

(1.0958)

*

Weighted Statistics

.
.
.
.

F-value

31.4872

***

101.4816

***

Durbin-Watson

1.4181

.

2.2764

.

Adj R2

0.6253

.

0.5463

.

Included observations

46

.

67

.

Panel observations

163

.

248

.

Notes: Number in brackets are t-ratios. Two tail probabilities are reported for t-test

*** significant at p<.01; ** significant at p<.05; * significant at p<.10

In particular, Table 4 reports estimates of equation for the total number of foreign initiatives undertaken by Italian banks (TOTAL). The results provide strong support to the hypothesis that the Italian banks pursued a follow the customer strategy in the ‘90s. Indeed, the internationalization of Italian manufacturing firms (FDI) and the volume of Italian inward and outward trade flows (TRADE) resulted significantly (at p<.01) positive both in Model A and B. Likewise, variables related to the local banking market seem to be extremely important in determining the Italian banks’ location choice. Indeed, both the development (MKT_DEV) and the size (MKT_SIZE) of the banking system are positive and significant at p<.01 in both the models (on the contrary, the efficiency of the system – SPREAD - does not appear to be of any relevance). Finally, the banks’ location is driven by the search for socio-cultural proximity (CULT_DIST is indeed negative and significant at p<.05 and p<.01, in Model A and B respectively). Interestingly, the dummy concerning the OECD countries comes out positive and significant (at p<.10 in Model B) thus showing a general preference to address foreign initiatives towards those countries, although the poorer (local wealth - GDP_POP – results indeed negative and significant at p<.10 in the best specification of the model).

Table 5 reports estimates of the equation for the number of subsidiaries of Italian banks (SUBSID). As expected, the follow the customer strategy strongly emerges in this case too. Indeed, both FDI and TRADE do result positive and significant in both the model (almost always at p<.01). Likewise the previous case, the characteristics of the local banking market emerge as crucial in determining the locational choice (MKT_DEV is significant at p<.05 in both the Models), as well as the characteristics of the local economy. Subsidiaries are indeed settled in countries where the national wealth as well as the national risk is low (GDP and RISK are indeed significantly negative at p<.01 in both the models) while the citizens’ wealth is high (GDP_POP is instead positive at p<.01). Interestingly, the socio-cultural distance (CULT_DIST) is again very important in determining the choice (at p<.01).

Table 6 reports estimates of the equation for the number of branches of Italian banks (BRANCHES). Even in this case, the Italian banks’ decision seem to have been driven by the two strategies. On the one hand, the amount of Italian manufacturing firms which moved their activities abroad (FDI is positive and significant at p<.01 in both the models, while TRADE does not seem to be relevant in this case); on the other, the characteristics of the local banking market (MKT_DEV and MKT_SIZE are positive and significant at p<.01) and of the local economy (both GDP and OECD are indeed positive and significant)

Finally, Table 7 reports estimates of the equation for the number of representative offices of Italian banks (OFFICES). The follow the customer issue is again confirmed, although showing a weaker impact (either FDI or TRADE are significant in the model, at p<.01) than in the previous cases. The development (MKT_DEV) and the size (MKT_SIZE) of the local banking market are the most significant variables (significant at p<.01 in model B) as well as the socio-cultural distance (CULT_DIST), which result negative related to the locational choice of representative offices at p<.01.

It is worth observing that the estimates obtained present an unexplained variance always minor than 0.5 (the adjusted R2 is indeed greater than 0.53 in all the models presented). That represents an impressive results, as the models do not take into account firm–specific variables, which certainly have a crucial role in firms/banks decision of foreign expansion.

SUMMARISING REMARKS AND CONCLUSIONS

This study examined the international activities undertaken by Italian banks in the ‘90s. According to the previous literature, it suggests that patterns of international expansion pursued basically two strategies: (i) a follow the customer strategy, in which banks internationalize in order to serve their previous customer once they moved abroad; and (ii) a more general market seeking strategy, according which banks go abroad in order to capture locational advantages. The findings demonstrate that strategies are partly similar even for different organizational forms adopted by banks, although highlighting some differences which seem to be consistent with the different features of the various organizational forms. Indeed, overseas subsidiaries and branches perform all the traditional banking functions, including accepting deposits and issuing loans. Thus, they can provide a large set of services to Italian firms operating abroad through manufacturing or trading subsidiaries and affiliates. As a matter of fact, the variables related to internationalization of Italian manufacturing firms (FDI) and the volume of Italian inward and outward trade flows (TRADE) have a highly significant positive impact on the presence of Italian banks’ subsidiaries and branches. On the contrary, representative offices, which are not permitted to book assets or liabilities, are used primarily for exploratory purposes and typically represent the first step towards a bank’s overseas expansion. Accordingly, new representative offices established by Italian banks in the ’90s concentrated in Central and Eastern Europe and in China, where Italian FDI has been rapidly growing.

The model developed confirm that strategies adopted by Italian banks mirrored so far different facets of the follow the customer strategy, as the historical trend observed since the beginning of the 20th century witnesses. The first phase of banks’ international growth, which concerns the first two decades of the century, might be interpreted as driven by the "ethnic banking" model, with the acquisition of local banks in the countries where migratory flows from Italy were directed (e.g. USA, Argentina). After the 1929 crisis, the resumption of the internationalization process was slow and mainly driven by the requirements of trade exchanges and by the canalization of Italian emigrants’ remittances. However, overseas presence of Italian banks was quite scant, so that in 1970 only four Italian banks held branches abroad.

In the seventies a certain acceleration of Italian banks’ international expansion took place. It corresponded with the opening of the first branches in EEC countries (UK, Germany, Spain), the consolidation of the presence in the US and the diversification towards new markets (Japan, some of the LDCs, OPEC countries and Central and Eastern Europe countries). However, this process met serious obstacles stemming from the hard Italian economic situation, marked by a huge deficit of the balance on current accounts and large capital outflows. In the eighties the economic upswing, the ongoing integration of international financial market and the perspective of the unification of the European markets stimulated a slow but constant transformation of the Italian credit and financial system to start, tending to make it more adequate to the new requirements and rules of the international competition. In that period, a further incentive for banks’ overseas expansion was given by the remarkable growth of the multinational activity of Italian manufacturing firms (Cominotti et al. 1999). On the contrary, in the nineties the number of foreign branches, subsidiaries and representative offices declined, because of restructuring processes and in some cases as a consequence of mergers between Italian banks which held own structures in the same countries.

However evidence provided could be extended in some different directions. In particular, the model could be usefully enriched in order to take into account further factors which certainly influence banks’ locational decisions. In primis, firm–specific aspects could be usefully incorporated in order to take into account different characteristics of banks which can proxy banks’ ownership and competitive advantages. Experience, knowledge and information and size could be important factors (Normann, 1984; Goshal, 1987; Enderwick, 1989b; Erramilli, 1990; Nayyar, 1990) in explaining banks’ international growth.

The research agenda should also include the analysis of the most recent period in which strategies pursued by Italian banks seem to follow different rules. Finally, a comparison with other European countries could provide further insights into the phenomenon.

 

Appendix 1: Countries considered in the econometric models

European Union

North America

Austria

Canada

Belgium /Luxemburg

United States

Denmark

Central and Latin America

Finland

Argentina

France

Brazil

Germany

Chile

Greece

Colombia

Ireland

Equador

Netherlands

Mexico

Portugal

Paraguay

Spain

Peru

Sweden

Uruguay

United Kingdom

Venezuela

Other European countries

Near and Middle East

Albania

Giordania

Belarus

Iran

Croatia

Israel

Czech Republic

Libano

Hungary

Kazakhstan

Poland

Saudi Arabia

Slovenia

United Arab Emirates

Switzerland

Other Asian countries

Ukraina

China

Egypt

Hong Kong

Norway

India

Romania

Indonesia

Russia

Japan

Slovakia

Malaysia

Turkey

Pakistan

Africa

Philippine

Algeria

Singapore

Côte d’Ivoire

South Korea

Libia

Taiwan

Malta

Thailand

Morocco

Oceania

Nigeria

Australia

Rep. of South Africa

.

Tanzania

.

Tunisie

.

 

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