The competitiveness of commercial banks is of vital importance for a developing country that is striving to enhance the standard of living of its citizens by ensuring an expansion of banking services. Several international banks have invested in Tanzania, and they have changed the competitive landscape for the local banks to implement change towards improved service delivery. Tanzania is therefore an appropriate research ground for examining the competitiveness of the banking industry by conducting a comparative analysis between foreign and local banks that are operating successfully in the country.
The purpose of this study was to develop a model of service performance that is relevant for the Tanzanian banking industry, and a model is proposed that conceptualise service performance as two second-order constructs consisting of service innovation and service quality. The relationships between personal cultural orientation, service performance and customer satisfaction, and their effect on the corporate reputation were investigated with a view to examine the moderating role of the type of bank used by customers, on these relationships.
This study used multiple group structural equation modelling to compare foreign and local banks in terms of personal cultural orientation, service performance and customer satisfaction as antecedents of customer based corporate reputation. Validity and reliability assessment as well as measurement invariance testing were performed on the measurement models used in the study. The sample comprised 380 customers, whom 196 use local banks and 184 use foreign banks. The moderating role of type of bank (local versus foreign) was investigated for the relationships between cultural orientation, service performance, customer satisfaction and corporate reputation. Two multiple group structural equation models were used to test for differences between local and foreign banks on the hypothesised relationships, in order to avoid complexity in the testing of moderation. For the first structural equation model, scales from previous studies were used to develop a service performance instrument that suited the realities of the banking industry in Tanzania, where the largely homogeneous population is geographically dispersed, and agriculture and subsistence farming are a considerable part of the economy. The service performance model included service quality and service innovation as second-order constructs. The means for both service quality and service innovation were significantly higher for foreign banks than for local banks. The first-order dimensions of service innovation were facilities for cash distribution, physical access, service access and innovativeness, whilst the first-order dimensions of service quality were tangibles, empathy and security.
Measures for customer satisfaction and corporate reputation were adapted from the literature. At mean level, there were not significant differences between local and foreign banks’ customers in term of customer satisfaction or corporate reputation of their banks.
Service quality was a very significant predictor of both customer satisfaction and corporate reputation for both local and foreign bank customers. The relationship between service innovation and corporate reputation was moderately significant and negative for both local and foreign banks. Customer satisfaction had a moderately significant positive relationship with corporate reputation. The relationships between service innovation, service quality, customer satisfaction and corporate reputation were not significantly different for both local and foreign banks.
The second structural equation model investigated the relationships between cultural orientation, service innovation and service quality. Cultural orientation was measured with Sharma’s (2010) scale, and the dimensions consumer innovativeness, traditional values and prudence values were used in the model. Foreign bank customers had significantly higher mean values than local bank customers for consumer innovativeness and traditional values, but there was no significant difference between the two types of banks for prudence values.
There were significant relationships between consumer innovativeness and the perceived service innovation of their banks for both local and foreign bank customers, with the relationship being significantly stronger for foreign bank customers. Traditional values and prudence had no significant relationship with perceptions of the service innovativeness of either group of banks.
The three components of cultural orientation had the following relationships with service quality. Consumer innovativeness was not significantly related with service quality for local bank customers, and was weak, significant and negative for foreign bank customers. There was no significant relationship between traditional values and service quality for foreign banks’ customers, whereas for local banks’ customers the relationship was weak, significant and positive. Prudence was significantly and positively related to service quality for both local and foreign bank customers, and the relationship was significantly stronger in the case of foreign banks.
This study suggests that both local and foreign banks are competitive banks within Tanzania and the differences in service performance between these two groups of banks can be attributed mainly to differences in the cultural orientation of the two groups of customers. It is therefore suggested that banks in Tanzania pay more attention to the personal cultural orientations of their customers in order to differentiate themselves and be more effective in serving their customers.