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Michael Porter, an authority on competitive strategy, contends that a corporation is most concerned with the intensity of
competition within its industry. The level of this intensity is determined by basic competitive forces. “The collective strength of these
forces,” he contends, “determines the ultimate profit potential of the industry, where profit potential is measured in terms of long run
return on invested capital.” In carefully scanning its industry, the corporation must assess the importance to its success of each of the
product on six forces:
1. threat of new entrants
2. exit barriers
3. rivalry among the existing firms
4. threat of substitute products or services
5. bargaining power of buyers
6. bargaining power of suppliers
Threat of New Entrants/ Entry Barriers
Factors HUF MUF N MF HF Comment
Economies of Low 5 High Banking industry can achieve economies of scale i.e. lowering heir
scale avg: cost by increase heir sizes in other geographic areas and banks
mergers and acquisitions can reduce their cost.
1
No brand loyalty.
Brand Loyalty Low 3 High
lack of experience and trust of customers
1 3 8 20
Average: 32/8= 4
Exit Barriers
Factors HUF MUF N MF HF Comment
Specialized High 2 Low Specialized assets e.g. ATM, S/W are expensive.
Assets
High 1 low Because considerably have much assets and have to bear
Fixed cost of much exit cost
Exit
Economy of any country depends on banking industry so
High 1 low
high relationship.
Strategic
interrelationship High 1 low Govt barriers are high for banking industry.
Govt Barriers
3 2
Average 5/4 = 1.25
2
Competitive Rivalry
Factors HUF MUF N MF HF Comment
Composition Equal size 4 Unequal size The organizations are unequal in sizes accept few of them
of competitors
Market Slow 3 Fast The market is saturated so there is very low. And there is
Growth Rate snatching and retaining the customers of competitors by offering
less prices.
Fixed Storage High 3 Low Banking industry does not bear any storage cost
Cost
3
Power of Buyer
Number of
If large important buyers so the bank can charge the interest the
Important Few 5 Many bank wants if few large so bank have to give service on their
Buyers demand.
Threat of The buyers can’t acquire or purchase the supplier of the service
Backward High 5 Low i.e. bank due to large capital requirement.
Integration
E-banking, ATM, is specialized services.
Product Commodity 4 Specialty
Supplied
Switching Low 1 High Because there are no account opening charges. Its very low or no
Cost switching cost.
Profit earned Low 1 High If customer financed at lower interest charges the buyer earn
by buyer more.
2 4 10
Average 16/5= 3.2
4
Power of Supplier
Number of The industry has flexibility to get required cash from any one of the suppliers i.e.
important Few 4 Many SBP, commercial banks, depositors.
suppliers
Availability of Difficult 5 Many Many substitutes are available, can switch suppliers easily.
Substitutes
Threat of High 2 Low The supplier needs much capital to acquire the buyer.
forward
integration
5
Threat of Substitute Product
Factors HUF MUF N MF HF Comment
Threat of High 5 Low Banking products are usually updated according to need and
obsolescence demand.
of industry’s
product
Aggressiveness High 3 Low Substitute products have effect on banks but volatile.
of substitute
product in
promotion
Switching cost Low 1 High Banking products and its substitutes are having very small
differences.
Perceived High 3 Low Lack of differentiation between products.
Price/value
1 6 5
Average 12/4=3
6
Overall Industry attractiveness
Factors Unfavorable Neutral Favorable
Entry Barriers 4
Threat of substitutes 3
7
Porter's Five Forces model focuses on the external environment, and how it may impact on the operations of the businesses in a
particular industry.
The threat of new entrants into the banking industry is low. The entrance barriers are high in that the capital requirements are
high like maintaining SLR, CRR with SBP, all other expenses like licensing fee, expending branch networks etc are costly.
Furthermore, the current market competition is very high in banks so in this situation new entrants are difficult to enter, it will be
almost impossible to achieve product differentiation because it requires experience and time specially in banking sector. Customers
usually chose the banks by their convenience and personal relations which reduces the brand loyalty.
The bargaining power of consumers is favorable for banking industry. The banks are having potential market which is defiantly
favorable for the banks because the banks could offer interest rates which is favorable for them. Banks are offering so many
specialized services like ATM, E-banking, Mobile banking etc.
The threat of substitute products is neutral. The banking products can not be outdated because they update their services and
product features time to time. There are several substitute products like Investment in foreign Exchange, insurance companies, and
mutual funds etc which have low effect on banking industry for substitution.
The Exit Barriers in banking industry is Unfavorable for the banks. Banks are having their specialized assets like their
expensive software’s, ATM, and a huge infrastructure, which are not easy to offset. Overall the economy of any country depends on
their banking industry so it’s not easy to quit. The central bank requirements also create hurdle for exiting from banking industry.
The bargaining power of suppliers is low which is favorable to industry as the industry has flexibility to get required cash from
any one of the suppliers i.e. SBP, commercial banks, depositors. The switching costs is low, substitute of supplier is high and no threat
of forward integration which overall pull down the bargaining power of suppliers.
Competition among the rivals in banking industry is medium to high. Every rival is in the race to get maximum share of market
although market growth is very low. Strategic groups have competition among their selves. Bankers are offering different rates
depends on the size of amount whether they lends or borrows.