In his New York office, which is decorated with photos of staff in places like Shanghai and Bombay, CEO Victor Menezes recently discussed the bank's new strategy with BusinessWeek's Pete Engardio. Here are edited excerpts from their conversation:
Q: What is Citigroup's current position in emerging markets?
A: I believe we are the only financial institution that is truly global. Our only real competition is HSBC in Asia and the Spanish banks in Latin America. And we have the largest business in emerging markets. We had $11 billion in revenue from emerging markets and $2.7 billion in net income. If this were a stand-alone business, it would rank in the Fortune 500. Emerging markets are Citi's fastest growing business, and I can see them easily contributing 25% of this company's profits (vs. 19% in 2000).
Q: What is your goal now?
A: We are trying to double our market shares in developing nations where we have a presence. Even in countries where we are the biggest foreign bank, we typically have a 3%-4% share of the financial-services market, both consumer and corporate. We want to push that up to 6%-8%. Overall, we are targeting 13%-14% growth in our customer base per annum.
Q: Why is this important?
A. We believe these markets will grow at least twice as fast as the OECD countries. Also, they have younger populations that are entering the consumer economy. So really, this is a bet on the emerging middle class.
Q: How has strategy toward emerging markets evolved in recent years?
A: Until the 1980s, we went after top corporations and consumers. But that top end has gotten saturated and more competitive. We call our current strategy "embedded banking." We want to embed ourselves into the local economy. Our objective is to be as large as a large local bank. So we have set out to develop our position with small and midsized corporations, and to go deeper into the consumer market.
Q: How are doing this in the retail business?
A: One good example is the Suvidha program in India. The challenge is to create an account for the mass market. You can open an account for 1,000 rupees, around $22. We supply remote banking through ATMs. It was an experiment, but we already have made money with this program and have gained major market share in Bangalore. Now we are looking to expand this to other cities in India, and other countries. We also have entered consumer finance [typically, loans for customers who have difficulty getting conventional credit] through acquisitions in Mexico, Argentina, and Chile.
Q: How about your strategy toward smaller companies?
A: By now, the top companies in these markets already can get access to local and international credit. So we get lower and lower profit. We have started the "emerging local corporation" effort, for those with less than $50 million in annual revenue. This is where the growth is in emerging markets. [Since 1997, the number of ELC customers has grown from 1.4 million to 8.7 million.] Our strategy to do supply these companies the most advanced products in their markets.
Q: You said that you are stressing organic growth. But Citi also has made some big acquisitions, such as in Mexico. How do you strike the balance?
A: Since the Travelers merger, we have become more aggressive in last few years. But fundamentally, our strategy is to acquire customers. In Asia, we looked at a lot of things, but didn't really bite on the hook. In some countries, we can be more successful with acquisitions, such as Mexico, Brazil, and Turkey. Also, the time is getting right in some places. There is a lot of consolidation in the industry, so small players have become willing to sell.
We had an operation in Poland for 10 years that was very successful. Then we acquired the top corporate bank, Bank Handlowy, which also gives us 100 branches. We expect to have 1 million retail customers. This puts us in a very unique position in Poland, and gives us a big jump in Central Europe.
Q: What is one of the most important lessons you have learned in the past decade about emerging markets?
A: If you want to operate in emerging markets, you have to work your way through volatility. If you ride through the cycles, you can gain sizable market share. Through the Asia crisis, Citi gained on the deposit side and on the lending side.