Entry of Foreign Banks Into North Cyprus: A Research Proposal

Entry of Foreign Banks into
North Cyprus.
A Research Proposal

2010
Lawrence O. Emeagwali
MANAGEMENT 602

2
Entry of foreign Banks into North Cyprus
A Research proposal
by
Lawrence Okechukwu Emeagwali
Research Proposal in partial fulfillment of the Course Requirements
for MNGNT 602
The American University, Cyprus

JANUARY, 2010.
Lawrence O. Emeagwali lawrenceemeagwali@gau.edu.tr http://strategy‐lawrence.blogspot.com
3
1. Introduction
Banks have been engaging in foreign direct investment (FDI) for over 15 decades. In the
process, they have had to cope with and deal with the disadvantages of being foreign, generally
without being able to depend on proprietary administrative or physical technology. It is clearly
obvious then, that foreign direct investment in banking is a suitable phenomenon which
provides many experimental basis for the study of how banks enter and survive in a comparable
industry across nations and other institutional environments. Limited research exists however
in the investigation of this occurrence in unrecognized countries.
In studying global banking activities, the Turkish Cypriot case has a considerable number of
important and useful characteristics. First, the peculiar situation of the northern part of the
island which is not officially recognized by the rest of the world except Turkey, presents a
myriad of interesting and unique problems both in it’s ability to attract foreign multinational
banks and also it’s ability to carry out reciprocity which is a common feature in the
internationalization of banks. Second, there is a clear and recent starting point for the entry of
foreign banks into North Cyprus. Third, there is an interesting mix of entrants, abstainers, and
entry strategies. Fourth, it’s long enough since foreign banks started penetrating the Turkish
Cypriot banking sector, thus enough time has elapsed that one can start to observe entry
strategies as well as failures and survivors.

This proposed research therefore aims to explore, observe and analyze the process, strategies
and modes of entry of foreign banks into North Cyprus as well as their survival in this
unrecognized nation. Hence the posing of the following research questions:

1.1 Research Questions:
RQ1: What motives are responsible for the entry of foreign banks into the TRNC?
RQ2: What entry modes and strategies do foreign banks employ when entering the Turkish
Cypriot banking sector?
RQ3: What factors influence the survival of foreign banks in the TRNC?
4
In order for the proposed research work to effectively analyze this phenomenon, it is wise to
take a look on the background of the Turkish Republic of Northern Cyprus as well as historic
trends and occurrences in its banking sector. It is important to reiterate here again that the
TRNC is an unrecognized country since it has no diplomatic recognition from most recognized
nations of the world especially UN member states, with the exception of Turkey. In the
following subsection I take a closer look at the broad definition of an unrecognized country.

1.2 What are unrecognized countries?
According to answers.com, unrecognized countries are contemporary geopolitical entities that
wish to be recognized as sovereign entities, but do not have complete worldwide diplomatic
recognition. It implied that unrecognized countries are classified into two groups viz: Countries
with partial or complete control over their territories and have stated a desire for full
independence. On the other hand the second group is made up of those countries which have
been duly recognized by the United Nations, but have refused to be recognized by at least one
other recognized nation, because such countries, can not lay claims to all of its territory.
Countries which belong to both groups of unrecognized countries include the Republic of China
(Taiwan), Nagorno Karabakh, Somaliland, Transnistria. Abkhazia, Kosovo, Northern Cyprus, the
state of Palestine, the Sahrawi Arab Democratic Republic and South Ossetia among others.
The Turkish Republic of Northern Cyprus however, belongs to the first group of unrecognized
countries, seeing that it is only recognized by Turkey.

5
2. Literature Review
Previous research on the entry of foreign banks into different nations of the world, has been in
existence for over many decades, and has as expected, initially focused on the occurrence of
this phenomenon among the developed countries of the world (Tschoegl, 2001). However, in
the late 19 century research began to shift to studying the occurrence of this phenomenon in
the developing countries of the world. Prominent among these research works, were the works
carried out by such renown researchers of international banking activities as Adrian Tschoegl of
the Wharton Financial Institutions center of the University of Pennsylvania whose work
spanned the observation and analysis of the entry and survival of foreign banks into Norway
and a separate research into the entry of foreign banks into Japan and California.
Most of these previous research work had focused on understanding why banks entered
foreign markets, how they enter these markets, the factors which affect the choice of foreign
markets, as well as the advantages and abilities these foreign banks have which makes it
possible for them to compete against local firms which are not faced with the difficulties and
disadvantages of operating at a distance and in an unfamiliar market. The qualities of host
countries which makes them attractive to foreign banks (Graham, 1990). The effect of strategic
interaction between firms as a motive for foreign direct investments (Knickerbocker, 1973 &
Graham, 1978). An examination of the type of banks which entered these foreign markets, and
the banks which left (Veugelers, 1995 & Graham 1990) as well as banks which survived
(Tschoegl, 1994). Other previous research into the entry of foreign banks into various
developed and developing nations of the world, include the works of Yu and Ito, (1988);
Terpstra and Yu, (1989); Ito and Rose, (1994); Hennart and Park, (1994) as well as Engwal and
Wallenstal, (1988).
2.1 Importance of my Proposed Research Topic
It can be observed from the above, that previous research literature has paid little attention to
the internationalization of banks related to the unrecognized countries of the world. More
6
especially, it reveals that although foreign banks maintain a presence in the various
unrecognized countries of the world, for various reasons, empirical investigation into such
activities has, to say the least, been non existent. Therefore the aim of this proposed research is
to bridge the gap existing in the body of literature pertaining to the study of the entry of foreign
banks into various countries of the world; by thoroughly examining the occurrence of the same
phenomenon in unrecognized countries, using the Turkish Republic of North Cyprus as a case
study.
2.2 An Overview of the Turkish Cypriot Banking sector
Post separation of Cyprus in 1974, the TRNC Government became persistently, economically
and financially dependent on Turkey as it is the only country which recognizes it. Since the
official currency of the Northern part of the island is the Turkish Lira, the monetary policy of the
Turkish Cypriots also became dependent on the economy of Turkey, with very minimal or no
influence from the economic or political situation of the divided island. Thus, with any
instability in the Turkish economy, there was a resultant instability in the economy of the TRNC.
This phenomenon for year has led to the continuous deterioration of macroeconomic
fundamentals. The North Cyprus economy has experienced two banking sector crisis. The first
took place in 1994 and the second took place between the years 2000 and 2002.
In 1999 there were 37 surviving banks in North Cyprus. However, towards the end of 2002 ten
of these banks suspended operations, two banks were taken over by another bank, and only 25
banks remained. However, after new governmental regulations and policies, normalcy was
restored in the banking sector, with more provisions made for the entrance of foreign banks.
HSBC and ING are two of the prominent multinational foreign banks to enter the Turkish
Cypriot banking sector. HSBC was the first to establish, after encountering problems with the
Greek Cypriot and Uk government on the legality of it’s branch in the TRNC. ING bank entered
next having acquired the popular Oyak bank in 2008. These two foreign banks will form the
basis of my proposed case study research.

7
3. Research Methodology
The methodology stated here is subject to alterations or complete change, during the actual
research process. A Periodical Synopsis will document and reveal any changes or alterations
made in the process.
First of all I’ll consider more extensively and comprehensively, all prior and existing statistical,
theoretical and empirical findings from available literature, related to my chosen project topic.
Next the proposed research will be conducted, using the qualitative research methodology, in
particular the case study approach.
The case study approach will be used here because according to Yin,(1993) Case study research
approaches are necessary
1. To explain complex causal links in real‐life interventions
2. To describe the real‐life context in which the intervention has occurred
3. To describe the intervention itself
4. To explore those situations in which the intervention being evaluated has no clear set of
outcomes.
Also the case study approach has been identified to be the ideal research methodology, when a
holistic, in‐depth investigation is needed (Feagin, Orum & Sjoberg, 1991). Also, according to
Stake, (1995) case studies are best suited to this type of research because they are usually
designed to reveal the details, by using multiple sources of data. Case studies also allow for
triangulation of findings. Triangulation is the protocol used to ensure accuracy and alternative
explanations.
3.1 Data Needs and Data Collection
In gathering data to be analyzed, first of all I will design my case study research protocol, then I
will prepare for data collection by using the six primary sources of evidence for case study
8
research as postulated by Yin, (1994) and they include documentation, use of archival records,
interviews, direct observation, participant observation and collection of direct artifacts.
Documents I would need for the case study research will include bank letters, bank
memoranda, bank agendas, bank study reports, or any relevant items which would aid the
successful conduct of the research. I would also carefully review the validity of the documents
so as to prevent the inclusion of incorrect data into the research data base. Since one of the
most important advantage of having access to these bank documents is to find matching
evidence among the information gathered from other sources for the two foreign banks in
question.
Archival records from such institutions as the Turkish Cypriot Chamber of Commerce would
also be useful in the research process since they include historical list of banks which have
entered or exited the Turkish Cypriot banking sector as well as other useful information such as
records of bank activities, charts, lists of names, important dates as well as reports and survey
data, . I will try as much as possible to be meticulous in determining the origin of the records
and their accuracy.
Since interviews have been found to be one of the most important sources of case study
information. I will conduct a diverse array of interviews. These interviews could take one of
several forms: open‐ended, focused, or structured. In the open‐ended interview, I would ask for
the specific opinion of relevant bank officials on specific events or facts related to my research
questions stated earlier on. This will be a very important phase of my research on the entry of
foreign banks into North Cyprus, because the information I retrieve from the interview process
could help me to corroborate previously gathered data. As the need arises, I will also use the
focused interview, in which the bank respondent is interviewed for only a short time, and the
questions asked would come from the case study protocol. The structured interview would be
used particularly in study of the bank’s perspective of the Turkish Cypriot neighborhoods since
in such a situation; a formal survey would be required. I will also make use of tape recorders
9
during the interviews although this will be subject to the permission of the bank official to be
interviewed.
3.2 Analytical Techniques
In analyzing the data I collected for both HSBC and ING banks, I will employ a data analysis
technique which consists of examining, categorizing, tabulating, or recombining the evidence to
address the initial propositions of my research work, as suggested by (Yin, 1994). I will rely on
my experience and the previous literature studied, to present the evidence in various ways,
using various suitable interpretations. This is necessary because statistics are not necessarily
used in most case study research methods. This case studies will however, employs a series of
statistical tests to aid in the effective presentation of the data to the final audience.
I will also make us e of the alternative analytical technique suggested by Miles and Huberman
(1984), such as using arrays to display the interview and archived data, creating displays,
tabulating the frequency of events and information documented from interviews with the bank
officials, events, ordering the information, and other methods. I will be meticulous so as to
conduct the analysis in a way that will not bias the results.
Further, I will use additional techniques suggested by Yin (1994) such as pattern‐matching,
explanation‐building, and historical time‐series analysis of the entry of these and other foreign
banks into North Cyprus. In general, the analysis will rely on the theoretical propositions and
conceptual frame works that led to the research questions posed in my proposed research
work.
3.3 Plan for Interpreting results
I will use a combination of clear tabulation and the explanation‐building method in interpreting
my findings the later is a method in which the findings from the analysis of the case study is
interpreted by building an explanation of the case where necessary. Trends will be discovered
from the various analytical processes and time series will be duly interpreted taking cognizance
10
of the importance of the various periods both in the history of the Turkish Republic of North
Cyprus, as well as the history of both banks and Turkey.
3.4 Expected Results
After completing my proposed research, I expect to find historic records of foreign banks which
entered and which exited the Turkish Cypriot banking sector. I also intend to find foreign banks
which survived the periods of financial crisis in the country. I also intend to discover any
relationships between the foreign banks which entered and the host government at the time
they did. I also expect a pattern which shows that banks which entered tended to utilize their
presence and incorporation in mainland Turkey, as a basis and justification for entry into the
TRNC. I intend to unveil the historic entry modes and strategies of banks which entered, as well
as how they survived and why those which had exited the TRNC did and the reasons.
.
11
REFERENCES
Engwall, L. (1994). The Invisible Hand Shaking the Visible Hand. Uppsala University Working
Paper Series 94‐5.

Feagin, J., Orum, A., & Sjoberg, G. (Eds.). (1991). A case for case study. Chapel Hill, NC:
University of North Carolina Press.
Graham, E. M. (1978). Transnational Investment by Multinational Firms: a rivalistic
Phenomenon. Journal of Post‐Keynesian Economics 1 (1), 82‐99.

Hennart, Jean‐François, and Park, Y. (1994). Location, Governance and Strategic Determinants
of Japanese Manufacturing Investments in the United States. Strategic Management Journal 15
(6), 419‐436.

Ito, K., & Elizabeth L.R. (1994). Industry Consolidation and Global Competition: Multiple Market
Competition in the Tire Industry. Leonard N. Stern School of Business, New York University,
unpublished paper.

Knickerbocker, Frederick T. (1973). Oligopolistic Reaction and Multinational Enterprise Division
of Research, Graduate School of Business Administration, Harvard University, Boston.

Miles, M., & Huberman, M. (1984). Qualitative data analysis: A source book for new methods.
Beverly Hills, CA: Sage Publications
Safakli, O. (2003), “Basic problems of the banking sector in the TRNC with partial emphasis on
the proactive and reactive strategies applied” Journal of Dogus University, Vol. 4 No. 2,pp. 217‐
32
12
Sjoberg, G., Williams, N.,Vaughan, T., & Sjoberg, A. (1991). The case study approach in social
research. In Feagin, J., Orum, A., & Sjoberg, G. (Eds.), (1991). A case for case study (pp. 27‐79).
Chapel Hill, NC: University of North Carolina Press.
Stake, R. (1995). The art of case research. Newbury Park, CA: Sage Publications.
Terpstra, Vern, and Yu Chwo‐Ming. 1989. Determinants of Foreign Investment of U.S.
Advertising Agencies. Journal of International Business Studies 19 (1), 33‐ 46.

Tschoegl, Adrian E. 1982. Foreign Bank Entry into Japan and California. In Alan M. Rugman, ed.,
New Theories of the Multinational Enterprise (London: Croom)
Yin, R. (1993). Applications of case study research. Newbury Park, CA: Sage Publishing.
Yin, R. (1994). Case study research: Design and methods (2nd ed.). Thousand Oaks, CA: Sage
Publishing.
Web References
Answers.com
www.answers.com/unrecognizedcountries


Entry of Foreign Banks Into North Cyprus: A Research Proposal

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Entry of Foreign Banks Into North Cyprus: A Research Proposal

Caricato da

Copyright:

Formati disponibili

Potrebbero piacerti anche