PUBLIC BANK BHD

TOPIC 3: INDUSTRY ENVIRONMENT

1. Introductions

The model of the Five Competitive Forces was developed by Michael E. Porter that
becomes an important tool for analysing an organizations industry structure in
strategic processes. This model is applicable to the banking industry. Public Bank do
compete with the other financial institution in Malaysia, however they also must
cooperate with one another in many respects. There is an underlying problem which
is the banks in Malaysia are so similar that there is essentially nothing one of them
can do that the others cannot easily duplicate. 

2. Five Forces Analysis

a. Threats of new entrants

Malaysia has not put a ‘barrier to entry’ for any financial institution manly
banks in Malaysia, thus making it easy for any financial institution to
penetrate into the industry.

b. Bargaining power of suppliers

A bank has three suppliers of its product, money:

1. Its depositors
Depositors, has no bargaining power whatever in reality. If they make
time deposits the bank will set the price or interest rate it will pay.
2. The credit market

The credit market as a source of supply of the raw material, money, is

open to all at all time if they are qualified participants. The source of
supply can be argued to be infinite.

3. The central bank

The Central bank is effectively the resource of last resort. Apparently,

at least for the moment, it will continue to supply liquidity to the
banking system in virtually unlimited quantities at very reasonable
cost.
 c. Bargaining power of buyers

In the banking industry, customer have has very limited bargaining power.
However the customers may option in changing to other banks that they
think is offering a better offer than Public Bank.

c. Threat of substitute product

For the most part there is no real threat of substitute products in the banking
industry.  However there probably will be continues evolution of products
from paper to electronic in coming years.  This is an area of potential
competition for whomever banks that choose to use it in their services.

d. Rivalry among competitors

Generally all banks offer somewhat the same products and services to their
customers, thus there is not much differentiation between Public Banks and
the other competitors. This is making the competition much higher. Public
Bank is actually ranked as the top banks earners in Malaysia in 2009
alongside with Maybank, Bumiputra Commerce, RHB Capital and Hong Leong
Bank.

3. Table 1: Method used to identify opportunity and threat for Public Bank using
external environment factors and industrial environment factors. (Factors under
industry environment are derived from Porter’s Five Forces).

A B C D E Threat

(1-10) A/∑A (1-10) (B x Opportuni (F)

C)/∑A ty
Factors Importanc Weighte Capabilit Larges
e in the d y score Weighte (E) t
industry d
average Largest (A-C)
Capabilit
(D)
y

External Environment

Social 3 0.03 2 0.06

 1) Corporate
responsibility

2) Changing
customer
4 0.04 2 0.08
preferences

3) Different 4 0.04 2 0.08

cultural values
from foreign
employees

Political

4) Government 8 0.09 9 0.81 O2

policy

5) Organized crime
(money
3 0.03 2 0.06
laundering)

6) New law 3 0.03 2 0.06

Economic factor

7) Economic 10 0.12 10 1.20 O1

growth

8) Financial crisis 4 0.04 2 0.08

Technology

9) Affective 4 0.04 2 0.08

delivery channel

10) E-crime 4 0.04 2 0.08

Competitive factors

11) Awards and 7 0.08 8 0.64 O3

accolades

12) Market share 6 0.07 7 0.49 O4

Other

13) Fierce 4 0.04 2 0.08

competition
 14) Customer credit 3 0.03 2 0.06
risk

15) Competent 4 0.04 2 0.08

employees

Industrial environment

Threats of new entrants

1) Product/ service 4 0.04 2 0.08

differentiation

2) Low switching 5 0.06 2 0.06

cost

3) Government & 2 0.02 2 0.2 T4

legal barriers

4) Brand loyalty 3 0.03 2 0.06

Customer’s bargaining
power
4 0.04 2 0.06
5) Customer are
price sensitive

6) Low switching 5 0.05 6 0.3 O5

cost

7) Substitute is 4 0.04 2 0.08

available

Suppliers bargaining 4 0.04 2 0.08

power

8) Product/service
differentiation

9) Switching cost 5 0.06 1 0.06

10) Substitute 5 0.06 1 0.06

product

Threats of substitute
product
1
11) Substitute
product /service
 are available 0.01 1 0.01 T1

12) Substitute 5 0.06 1 0.06

product/service
price

13) Substitute 2 0.02 2 0.02 T2

performance

14) Low customer 2 0.02 0.02 T3

switching cost

Rivalry 2 0.02 0.02 T5

15) Exit barriers

Total 81 1

Based on the table above, the opportunities (largest value) and threats (smallest value) are
identified for Public Bank;

4. Opportunities

1. Economic growth

Malaysia had definitely have been more economically stable and improving, thus
financial institution such as Public Bank are needed to aid the overall development of
the country.

2. Government policy

Encouraging borrowings, loans, investment and consumption demand.

3. Awards and accolades

Through recognition, Public Bank can project a positive image to their customers.

4. Market share

Public Bank has the highest market share for the private sector unit trust business, thus
having a larger customer base.

5. Low switching cost

 Nowadays it is easy for any customer to switch to other banks with just a click away,
making the switching cost to be faster and cheaper, making it easy for the customers to
switch to Public Bank.

5. Threats

1. Substitute product/ service are available

There is a potential competition to whomever banks that choose to upgrade their

product and services to cater to their customers need. Maybank for example provide a
customer friendly interface through their website “www.maybank2u.com”, and it
became the most visited website in Malaysia.

2. Substitute performance

Maybank, Bumiputra Commerce, RHB Capital and Hong Leong Bank are Public Bank’s
competitors and each is recognized for their performance. This will make the
competition even higher.

3. Customer switching cost

Other than being an opportunity, switching cost can also be a threat for Public Bank as
the customers can also easily switch to other financial institution.

4. Government legal& barriers

There are no barriers that the government put for any legal financial institution to enter
in the industry, making any new entrants penetrate into the market share easily.

5. Exit barriers

High exit barriers in the industry are making the competition between Public Bank and
the other competitors are even higher.

6. Conclusion

Porter Five Forces Model are used to identify how the forces affect the attractiveness and
profitability of Public Bank, and through this forces, the factors that influence these forces
are used in the table 1, to identify Public Bank opportunities and threats. By identifying
Public Banks industry environment, the company can improve and sustain their product and
services for their customer, ultimately improving their performance.