The Analysis of Entry Time and Model in China Banking Sector for Following Financial Institutes-Real Option Approach

Abstract

This article examines the appropriate time and model to enter the market in mainland China by applying the real options model. Being the market followers such as emerging country banking industry would need to find the right timing when ready entering China sine the market is pretty much laid out by many other foreign financial institutes. This article finds some salubrious circumstances for following financial institutes to enter the market, for example, the local financial service has not saturated, and initial investment cost is lower or relative businessman demands more service gradually. The article also confirms the current practice, which is to establish a representative office first and then promote it to a branch, seems to be practical for followers enter the market. Once meet the standard requests and acquire the license to operate RMB business, following financial institutes can establish wholly-owned subsidiary bank or take ownership stakes by having the innovation and business strategy in the local financial market.