Strategic background
Discuss about the risks created by cryptocurrencies in the market of Australia and New Zealand.
The aim of the report is to provide the details related to the overview of the strategic dilemma for the case study organization that is created by the cryptocurrencies (like bitcoin, litecoin, and Ethereum). The case study organization that has been selected is Australia and New Zealand Banking Group. The analysis related to the strategic environment of the company is discussed along with the impact of the different types of cryptocurrencies on the organization working. This report also includes the recommendations for addressing the risks created by cryptocurrencies in the market of Australia and New Zealand.
Australia and New Zealand Banking Group are mainly known as ANZ Group which is 5th largest listed corporations in Australia and no. 1 bank in New Zealand with the capitalization of approx. AU$93.4b and total assets of A$896.5 billion as at 31st March 2017. The company has a pleased inheritance of more than 180 years with the world headquarters in Melbourne (ANZ Group, 2018). The aim of the company is to contribute in shaping the people and communities thrive which helps the company in creating a balanced, maintainable economy in which people can take part and can form an improved life (ANZ Group, 2018).
ANZ group recently has made some of the strategic decision in which the ANZ has agreed to sell its 55% Stake in Cambodian joint venture to Japan’s J Trust as the lender exits a string of minority holdings to streamline its capital requirements. ANZ expects to log a loss of A$30 million ($22.59 million) which leads to the divestiture (Reuters, 2018).
The strategic environment includes the analysis of the external factors which can impact the working of the company considering the cryptocurrencies. This strategic environment is explained with the help of the IO model.
The IO model adopts an external perspective that helps the company in explaining that forces outside of the organisation reflects the dominate influence on an organization strategic actions. These IO model is based on the assumptions which are discussed below: –
- The external environment imposes pressure and constraints on firms and identifies the strategies that will leads to the superior results.
- Most of the companies compete in an industry or segment of the industry that control the alike set of the strategically relevant resources due to which they pursue similar strategies (Kraaijenbrink, Spender and Groen, 2010).
- Resources that are used to implement the strategies are very mobile across companies.
- The organisational decision makers are assumed to be rational and committed to action only best interest of firm.
Considering the IO model, the below given is the external environment analysis of the ANZ including the impact of cryptocurrencies on the company and its operations.
PESTLE is a part of general environment analysis of IO model that is used by the company to analyze the external forces that can affect ANZ Group working (Lee and Carter, 2011).
Strategic environment
(Source: Kotler, 2015)
Banks are increasingly global in the current environment of the business due to which the geopolitical environment can influence on banking industry profitability and operations. It is found that the Banking industry also face numerous threats due to which they are not able to manage their operations. The government of Australia and New Zealand promotes the operations of ANZ group. Presently, the banking companies are affected because of the acceptance of the digital currencies by the government of Australia. The government of country allows trading, mining and buying cryptocurrencies in the country (Weber, 2014). This clearly created the impact on the profitability and operations of ANZ Group because people started performing the transactions with each other without involving government in it. Moreover, in the near future banks might face major threat because of the government actions towards the digital currencies (Raymaekers, 2015). For instance; the Chinese government has decided to develop their own digital currency which leads to the threat for the existing bank service providers. The reason behind the development of their own cryptocurrency is that there are many people are not allowed to access the baking services along with this charges for the cross-borders are high. Therefore, the actions of Australian and New Zealand government towards the cryptocurrencies might lead to the threat to the company.
Apart from this, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry ensure that each bank that falls under this group is following the guidelines and ensure that no misconduct of the relevant financial services entity is taking place. The decision of this commission also influences the banking industry as a whole (Royal Commission, 2018).
The economy of Australia is advanced and one of the largest mixed market economies across the world with the GDP of AUD$1.69 trillion as of the year 2017. Through, the economy of New Zealand is the 53rd largest countrywide economy in the world. The economy of both the countries helps the banks in earning revenue and processing their work smoothly. Though, the emergence of cryptocurrencies like bitcoin, litecoin, and Ethereum has affected the economic conditions of the company due to which working of banking industry is also affected as a maximum number of people are expanding their amount on Cryptocurrencies exchange (Yermack, 2015). The high fluctuations in the prices might lead to profit for the customer or less and this affects the supply of money in the countries.
Industrial organisational model
ANZ Group attracts many customers because of the attractive facility and safety to them. Most of the citizen performs the transactions with the help of the banks and they find these institutions reliable due to which they can easily perform the transaction. The numerous people in Australia and New Zealand still rely on the operations of bank. Though the emergence of the digital currency has diverted the customers and they started investing the amount in cryptocurrencies mainly in Lietcoin and bitcoin instead of saving the amount in the bank (Vlasov, 2017). This created an impact on the working of the company. The use of the cryptocurrencies by the citizen will reduce the use of the hard currency. The change in the behavior of customers leads to the threat for the hard currency in which bank deals. Therefore, ANZ Group should make their loyal customers aware of the risk associated with the Cryptocurrencies.
The use of technology in the banking sector is increasing rapidly for providing the convenience to the customers. Though, this technology has also created the impact on the working of banks. ANZ group also make use of the technology in their banking operations such as mobile payment, online transactions, online transfers and many others. The Satoshi Nakamoto paper related to the bitcoin reflects that technology has brought the new ways with the help of blockchain technology through which the customers can perform the banking transactions conveniently. This technology creates impact on the working of banking industry as a whole (Fanning and Centers, 2016). Therefore, maximum numbers of customers are getting involved in the transactions with the help of digital currency in which there is no involvement of any institution or bank (Wonglimpiyarat, 2016).
ANZ Group banks have to accomplish all the legal obligations before performing its business operations in the country. For example; in Australia, the bank is working under the Banking Act 1959 and the company holds an Australian financial services license under the Corporation Act 2001. All these legal obligations secure the working of the company. The emergence of digital currency like litecoin, there is no need for the legal obligations to be fulfilled. Apart from the, a tax that is levied by the Australian Taxation Office (ATO) for the superior transactions barter arrangement with Cryptocurrencies in the subject to appropriate taxes that depend upon the use and user (Bajpai, 2018). The tax on the usage of Cryptocurrencies might support the work done by the banking institutions. The legalisation of the crytocurrencies in the industry might lead to instability as the people will invest their amount in these currencies instead of getting it deposit on banks (Srokosz and Kopciaski, 2015).
PESTLE analysis
ANZ Group ensures that they fulfill all the legal obligations related to the society. ANZ Group implements the equator principles which helped to develop social and environmental policies that are functional for every lending and investment decisions. The environment aspect of the company is not affected by any of the external factors.
This is a framework that is included in industry environment of the IO model and it is tool for evaluating a competition of firm that reflects economies to originate five forces that recognize the competitive intensity and the appeal of a business in terms of its success.
(Source: Rothaermel, 2015)
ANZ Group has a high level of threat from its competitive banks in the same market as AMP bank, Commonwealth Bank of Australia, Westpac Bank Corporation, and many others. Though, ANZ Group is a well-known in the market due to which they are able to keep a large number of customers with them that helps them in generating the profit. Apart from the bitcoin, another threat to banks is the emergence of the other cryptocurrencies such as ZCash, Litecoin and Ethereum and many others. These digital currencies have attracted the huge amount of customers due to which industry is not able to perform its activities effectively and this currency will eliminate the use of the hard currency (Paul, 2016).
The threat of substitute is high after the change in the customer preference towards the digital currency. Citizen of the country has started making the use of the digital currency instead of hard currency which has eliminated the use of the hard currency (Taran, et.al, 2015). This was possible because they found Bitcoin, litecoin, and Ethereum are accepted by some companies and then they started making use of the same (Schwienbacher, 2016). This is the way through which they can easily reduce the cost that the banks charge for the particular transaction. For instance; each owner of the Cryptocurrency can transfer the coin to another person by digitally signing a hash of the prior transactions. A payee can easily authenticate the signature to verify the chain of the ownership. This is the way through which they can ensure that the amount has been transferred to the other person.
The suppliers of the ANZ Group include the reserve bank of Australia. ANZ Group gets all the hard currency from reserve bank of Australia. Along with this, they also get the cash from their customers as they deposit the amount and also from mortgage and loan. These are the major suppliers of ANZ Group from which they can get the hard currency and can perform their activities. The suppliers easily offer their amount to the bank but currently the change in preference of customers as they are making use of digital currency instead of hard currency. Therefore, the customer deposits are switching to the digital currency like bitcoin. The suppliers are spending their amount in Cryptocurrencies exchanges instead of depositing it on the bank. The supply of these currencies is done with the help of the mining process as this is the process through which the customers can get the Cryptocurrencies like bitcoin, ZCash and many others (Ankalkoti and Santhosh, 2017). People compete to mine Cryptocurrencies through computers or desktop as this is the effective way through which they can resolve the complex puzzles of math and can win the cryptocurrencies (Bitcoin, 2018).
The bargaining power of customer is medium for the bank. The technology has brought different ways for the customers to secure their amount through investment. Some of the customers prefer banks as they are the safest way but some other make use of the cryptocurrencies for the payment as the owner has the full authority there is no involvement of another person (Negurita, 2014). Moreover, they just have to manage their wallets through which they can easily transfer the amount. Though, there are many customers who believe that this currency is used for the criminal purposes. This is the fact that this currency can be used by the customers for the criminal purposes.
The rivals of the company include the banks that operate in the same market of New Zealand and Australia. These banks include AMP bank, commonwealth bank of Australia, Westpac Bank Corporation, and many others. Moreover, the digital currencies are also giving strong competition to banks. Basically, the rivalry is between the hard currency and cryptocurrencies.
The overall analysis reflects that there are many processes that might lead to the risk factor for Australia and New Zealand Banking Group. The emergence of the cryptocurrency has led to many changes in the market and in the operations of the business. Though, there are both positive and negative aspects related to the use of Ethereum and other cryptocurrencies in the business. The digital currency is supported by the digital signatures which offer a strong control of ownership to the customers but still, it is incomplete without a way to prevent double-spending. The problems of all these issues of trust and safety are resolved with the use of the proof-of-work which is a technology that helps the person to keep the record of all the transaction (Prakash, 2017). Moreover, the people are attracting towards the Cryptocurrencies but there are many risk factors associated with the use of these currencies. The change or fluctuations in the prices of the Cryptocurrencies like bitcoin, Litecoin and other might leads to the loss or profit for the customers. Therefore, there is need of learning towards the use of bitcoin (Polasik, et.al, 2015).
The overall analysis reflects that Cryptocurrencies create a major impact on the ANZ Group due to which they are not able to attain the maximum profit with the effective operations of the company. The government should take the necessary steps to maintain the supply and demand of the hard currency in the market because the use of the Cryptocurrencies is eliminating the hard currency. Therefore, these currencies are disruptive financial innovations (Vora, 2015). Further, the ANZ Group should make the people aware about the use of Cryptocurrencies and investment in these currencies is not advantageous for them. Along with this, customers should understand that the involvement of institution is essential while processing with the transaction because this is the only way through which they can ensure the safe transaction.
Conclusion
In the end, it can be concluded that ANZ Group is facing many issues because of the emergence of Cryptocurrencies in the market. Moreover, the approval of the use of Cryptocurrencies has also impacted the operations and might leads to the elimination of the hard currency from the market as this is the fact that many companies are making use of cryptocurrency for the transactions. Most of the people are only aware of the benefits of the Cryptocurrencies they should be aware of the other side of cryptocurrency. ANZ Group should generate the awareness among the customers about the same
References
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