The Influence of National Culture on Customers' Cross-Buying Intentions in Asian Banking Services

Evidence from Korea and Taiwan

Jung Kee Hong, You-il Lee

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317690900
• Edition: 1
• Topic: Economia
• Subtopic: Teoria economica

The traditional walls between banking, insurance and securities markets are breaking down as a result of deregulation and liberalization of financial services. The cross-buying of financial services has become a global trend as a part of the convergence of financial services. This trend has recently commenced in East Asian countries, such as Taiwan and Korea, where the tremendous growth of these activities has been noticed. The book explores what the determinants of this growth in East Asia, particularly in Korea and Taiwan are, and how these determinants influence differently to the customers of these two countries when compared with the studies conducted on other countries (e.g. Europe and North America).

The book opens the view on the subject of customers' behavioral intentions of cross-buying banking services in East Asian countries, especially from a cross-cultural perspective and empirically tested findings help marketing personnel in financial institutions, marketing practitioners' in banks and researchers of financial services and marketing, understanding on East Asia such as Taiwan and Korea, where the tremendous growth of these activities has been noticed in recent years.

1 Introduction

1.1 Background

Over the years, financial markets have undergone dynamic changes due to the consolidation of the industry, globalization of the market and convergence of the financial services (Chen et al. 2009; Claessens 2009; Moshirian 2008). Specifically, the convergence of financial services has caused the traditional walls between banking, insurance and securities markets to break down, as a result of deregulation and the liberalization of financial services (Claessens 2009; Singhal and Vij 2006; Yeager et al. 2007). However, this change – the convergence of financial services – occurred comparatively late in East Asian countries, such as Korea, Taiwan and China, compared to European countries.¹ This was mainly because the regulatory frameworks of financial services in these East Asian countries were mostly based on the model of the United States (US) (Calomiris 1998; Hellmann et al. 2000; Rajan and Zingales 2003), which prohibits the convergence of financial services through a regulatory separation of banking, insurance and securities services (Francis et al. 2010; Kroszner and Rajan 1994).² However, since the early 2000s, these regulatory constraints in East Asian countries have been gradually demolished. Following the Asian financial crisis in 1997, the local regulators of these countries – except in Mongolia – have been allowing the cross-buying of financial products in the banking industry (Claessens et al. 2010; Corbett 2007; Ghosh 2006).

Despite the late changes in these regulations, the emergence of this sector, including the cross-buying of financial products in the banking industry, has shown remarkable growth compared to countries in Europe (ADB 2009; Prasad 2009). For example, the cross-buying of insurance products from the bank, popularly known as ‘bancassurance’ (Fields et al. 2007), in Korea and Taiwan was lagging behind European countries due to the late establishment of the regulatory frameworks and guidelines in the Asian financial services industry. Most countries in Europe began bancassurance in the early 1970s and 1980s, whereas Taiwan began bancassurance in 1998, and Korea in 2002 (Artikis et al. 2008; Chen et al. 2009). However, despite this late start, the Swiss Re (2007) reported bancassurance activity in the East Asian region has shown significant growth in the past decade, mainly led by Korea, and is coupled with a high sales performance in Taiwan. In Korea, despite the financial crisis in 2008, the bancassurance market had a Compound Annual Growth Rate (CAGR) of 16 per cent from the fiscal year 2005 to the fiscal year 2009 (Korea Life Insurance Association 2010). In Taiwan, the bancassurance market currently represents 69 per cent of all new insurance policies issued, which means that out of any ten new insurance premiums collected, almost seven are generated by customers’ cross-buying activities at bank branches (Taiwan Life Insurance Association 2010). The growth of these two countries in the bancassurance sector should be observed with great interest, as the growth of European countries in the same sector during the same period had less than 2 per cent CAGR, and the average market share of bancassurance was less than 12 per cent (CEA European Insurance and Reinsurance Federation 2010).³

Therefore, it is imperative to consider what drives this growth in Korea and Taiwan. What values do the customers in these countries commonly appreciate that have accelerated this phenomenon? What are the differences in how these values influence the customers of Korea and Taiwan compared to customers in other countries?

Taiwan and Korea have close resemblance in a number of aspects. In terms of the industrialization process over the last four decades, both economies were strictly governed and led by their governments, who strongly supported the local industry players in return for political support (Jacobs 2007; Lim 2009). Both countries are recognized as being highly democratic due to the presence of multi-party governments and social evolutions in democratization since 1987 (Chia et al. 2007; Peng et al. 2010). In some studies, such as those of Abe et al. (1999) and Hsieh (2011), it has been suggested that Korea and Taiwan have taken different paths of development – Korea undertook ‘path-breaking’ to restructure the local financial market, while Taiwan undertook ‘path-reforming’ in their financial sectors. Regardless of the political paths they pursued, it is clear that Korea and Taiwan have records of strong economic growth and success in the financial market. This places these countries in important positions, not only in the East Asian market, but also in the world’s economies. The report from the Asian Development Bank (2009) indicated that Korea and Taiwan represent 49 per cent of the money supply in the East Asian market.⁴ As of 2010, Korea and Taiwan were respectively the thirteenth and nineteenth largest Gross Domestic Product (GDP) countries at purchasing power parity.⁵

This suggests that Korea and Taiwan’s strong economic growth and rapid financial reformation were the one of reasons for their success in the cross-buying of financial products in the banking industry. However, considering that their industrialization and democratization occurred during the 1980s and 1990s, whereas the cross-buying of financial products emerged in the late 1990s and early 2000s, there must have been a different moderating factor that influenced these two countries. Furthermore, if industrialization and democratization were the factors that influenced the growth of customers’ cross-buying activities, then some European countries should have shown a superior outcome to Korea and Taiwan.

Korea and Taiwan share similar cultural values, including collectivism. Both countries have been recognized by cross-cultural studies as countries with highly collectivistic cultures (Abe et al. 1999; Brewer and Chen 2007; Bruton and Lau 2008; Hofstede et al. 2010; House et al. 2004; Kongsompong et al. 2009; Zhang et al. 2008). For example, Hofstede has undertaken numerous studies (Hofstede 1984a, 2004, 2007; Hofstede and Hofstede 1991; Hofstede et al. 2010) examining countries’ individualism-collectivism scores. These studies indicated that Korea and Taiwan have individualism scores of 18 and 17, respectively, in Hofstede’s individualism-collectivism cross-cultural dimensions, whereas most European countries scored an average higher than 55. Korea and Taiwan also scored relatively lower than their peer Asian countries. For example, Hong Kong scored 25 and Japan scored 46. House et al. (2004) confirmed that Korea and Taiwan rank among the lowest countries with societal collectivism. In a review of 20 years of cross-cultural studies by Zhang et al. (2008), Korea and Taiwan were frequently selected as countries representative of high collectivism.

Customers or personnel in high collectivistic cultures express different buying behaviour and buying intentions to their counterparts in high individualistic cultures (Cunningham et al. 2005; Furrer et al. 2000; Kacen and Lee 2002; Lee and Kacen 2008; Liu et al. 2001; Moon et al. 2008; Ozdemir and Hewett 2010; Sternquist et al. 2004; Ueltschy et al. 2009). For example, Furrer et al. (2000) and Liu et al. (2001), based on a survey of personnel from 16 different countries, found that customers from a collectivistic culture tend to have a higher intention to praise the service provider when they experience positive service quality than customers from an individualistic culture. At the same time, collectivistic customers are less likely to change to another service provider or to voice a negative opinion of their service provider, even after experiencing poor service quality. From samples from New Zealand, Moon and Chadee (2008) found that collectivistic customers, such as those from Asia, concentrate less on price sensitivities than individualistic customers – particularly in relation to their purchasing intentions. Ozdemir and Hewett (2010) confirmed that collectivism generally increases the importance of a relationship quality, rather than the service quality for behavioural intentions.

Therefore, it could be assumed that the high level of collectivism in Korea and Taiwan could explain the rapid growth of customers’ cross-buying of financial products. While Korea and Taiwan have other similar cultural values – such as power distance, uncertainty avoidance, masculinity-femininity and long-term orientation – collectivism is the most homogenous value between Korea and Taiwan. In addition, in terms of the overall comparison of cultural values between European countries and Korea and Taiwan, collectivism is the cultural value that expresses the most divergence from other cultural values (Hofstede 1984a, 2004, 2007; Hofstede and Hofstede 1991; Hofstede et al. 2010). Moreover, collectivism has been considered the most important dimension of cultural differences in social behaviour (Triandis 2006; Triandis and Gelfand 1998), and one of the most active constructs in studies of psychology (Schimmack et al. 2005; Vandello and Cohen 1999).

1.2 Critical issues of studies on cross-buying in East Asia

Despite the importance of collectivism in the buying behaviour and buying intentions of customers, only a handful of studies have been conducted on the influence of collectivism on Korean and Taiwanese customers, particularly in the financial service sectors. Equally and importantly, there seems to be little work on cultural values, such as collectivism among the literature of cross-buying activity. In fact, the recent studies found that cross-buying activity is recognized as the most significant trend in banking services, not only in Korea and Taiwan, but also in other Asian countries (Claessens et al. 2010; Corbett 2007; Ghosh 2006).

The importance of cross-selling and cross-buying has been a point of interest in several studies in European countries. In the Netherlands, Verhoef (2001), Verhoef et al. (2002) and Verhoef and Donkers (2005) repeatedly confirmed that cross-selling increases customer retention and the value of each customer in the context of the financial services industry. Ngobo (2004) and Soureli et al. (2008), based on studies in France and Greece, respectively, addressed the fact that, if financial institutions can create more opportunities for customers to cross-buy financial products, this will eventually increase the retention of customer relationships, which will enhance the profit of financial institutions. Harrison et al. (2007) and Ormeci and Aksin (2009) substantiated these findings in studies of international insurance companies based in the United Kingdom (UK). They confirmed that customers’ cross-buying of financial products generates additional income for financial institutions. These studies and other related studies have demonstrated the various factors that influence cross-selling or stimulate customers in their cross-buying of financial products (Güneş et al. 2010; Kamakura et al. 2003; Knott et al. 2002; Kumar et al. 2008; Lymberopoulos et al. 2004; Ngobo 2004; Reinartz et al. 2008; Salazar et al. 2007; Soureli et al. 2008; Verhoef and Donkers 2005; Verhoef et al. 2001; Vyas and Math 2006). However, none of these studies have addressed the notion that collectivism or other cultural factors may also be moderators.

The situation in the Asian context is even more pressing. There have been only a limited number of studies conducted on the topic of the cross-buying of financial products in Asian countries, and most of these studies were based in Taiwan. Liu and Wu (2007, 2009) investigated the determinants of customers’ cross-buying in the banking industry and the correlation they have to customer retention. Fan et al. (2011) identified eight factors that affect cross-buying intentions in the Taiwanese bancassurance market. Among these few studies conducted in Asia, as with those conducted in European countries, none considered cultural values as a key factor. In fact, the determinants and factors mentioned in these studies of Taiwanese cross-buying activities were similar to those suggested in the studies from European countries. However, some of the outcomes of these influential factors on Taiwanese customers’ cross-buying activities were different to those found in the studies of European customers.

Considering that Taiwan has different cultural values to European countries – such as collectivism – it is reasonable to assume that there may be academic merit in investigating the effect of collectivism on the relationships between these factors and customers’ cross-buying intentions. Furthermore, there is also a clear lack of studies conducted in the context of the Korean market. There is only one study by Kim and Kim (2010), which aimed to identify the cross-buying intentions of bank customers based on five factors adopted from various studies in Europe. However, Kim and Kim (2010) did not consider collectivism or other cultural values as moderators in the conceptual model, even though the study included ‘emotional bonding’ as one of the key variables, which is a core value initiated by high collectivism (Hofstede 1984b, 2007; Hofstede et al. 2010). Therefore, empirically testing cross-buying factors in Korea and Taiwan, with consideration of their similar cultural value (collectivism), and offering a particular perspective (culture), will contribute to research in the area of customers’ cross-buying intentions in financial products. This attempt places a significant importance on the fact that this activity of cross-buying of financial products is not only a growing trend in these two countries, but also a frequent subject of studies undertaken in European countries.

Prior to beginning this study on cross-buying activities in Korea and Taiwan, there are a number of critical issues that must be fundamentally noted, reviewed and offered keen consideration. First, most of these studies on financial services – both in general and including those studies in Korea and Taiwan – viewed cross-buying from the financial service providers’ perspectives, not from the customers’ perspectives. This is the reason that the majority of these studies focus on the cross-selling efforts of the financial service providers (Ansell et al. 2007; Kamakura et al. 2003; Knott et al. 2002; Li et al. 2005; Ormeci and Aksin 2009; Salazar et al. 2007; Vyas and Math 2006). Only a few focus on cross-buying or the intention of customers’ to cross-buy in financial services (Liu and Wu 2009; Ngobo 2004; Reinartz et al. 2008; Shih-Ping 2008; Soureli et al. 2008; Verhoef et al. 2001). The reason for the absence of this topic is that these studies are inclined to...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Acknowledgements
• List of abbreviations
• 1 Introduction
• 2 Review of literature
• 3 Conceptual model and methodology
• 4 Data collection and analysis
• 5 Discussion and future studies
• 6 Conclusion
• References
• Index