Entry and Survival: The Case of Foreign Banks in Norway

Abstract

Banks have been engaging in foreign direct investment (FDI) for over 150 years. In doing so, they have had to deal with the problems of the liability of foreignness, generally without being able to depend on proprietary administrative or physical technology. Foreign direct investment in banking therefore provides many experiments in entry and survival in a comparable industry across countries and institutional environments. Within banking, the Norwegian case has a number of useful characteristics. First, there is a clear and recent starting point for the entry of foreign banks. Second, there is an interesting mix of entrants and abstainers, and entry strategies. Third, enough time has elapsed that one can start to observe failures and survivors. In Section 2 I review the history of the Norwegian banking system and especially policies towards foreign banks. In brief, Norway has a long history of closure to foreign banks. In Section 3 I examine which foreign banks did or did not enter Norway when the government liberalized entry. The banks that entered had divergent firm-specific resources and followed divergent strategies. I pay particular attention to issues of the foreign banks' prior experience in Norway itself and the foreign banks' advantages vis-à-vis domestic banks. In Section 4 I investigate the correlates of survival and exit among the foreign bank entrants. Survival factors include prior experience in Norway, the size of the entrant at start-up, and the size of the parent. Lastly, Section 6 is a summary and conclusion.