Five force analysis in banking sector.
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This sector attracts lots of attention in most countries because it touches on people's financial needs, one of the most basic needs, and many customers are not entirely satisfied with the service (quality, waiting lists, etc.). Might say financial sector has a strategic problem, both at the national level and at the organizational level. These problems seem to exist irrespective of the system in use in a country. In most European countries governments have an indirect (to reduce tax, reregulation of mortgage, etc.) controlling influence in economic growth.
Porter's five forces analysis as described in Exploring Corporate Strategy.
Threat of new
Power of suppliers Power of buyers
Threat of Substitutes
Products or services
Rivalry among existing firms
Threat of entry
Currently one of the most effective barriers to entry in most countries is legislation. Most governments have a final say in whether or not a new bank can be opened. A subtler way of entering a new market is to try to get new customers from other countries. This is already happening in some countries where customers, because of long queue, high interest rate, tax in personal savings, mortgage loans etc., decide to get treatment on the other side of the border. If there are no barriers of government (licenses, regulation, law etc.), the new competitors can enter the free market without going through the bureaucratic procedure of establishing a new bank.
The strong provider of commercial baking services it is buy no means the strongest provider overall. HSBC must continue to attract top salespeople, in order to provide above industry average customer service. Attracting to quality employees represents opportunities for HSBC's strengthen its customer service rating within the UK banking industry. If HSBC is able to consistently attract high performers who are well informed and dedicated, buyers will difficulty to find same level of service elsewhere.
In last five years, HSBC net profit margin lower than its industry average and turnover is dramatically high and capital growth is higher than industry average. The lower profit margin and higher turnover meant bigger market share with customers. HSBC can attract the customers with competitive service and price, these are showing how strong bargaining power HSBC has, if compare it to competitors in financial sector in the UK.
Threat of substitutes
Nowadays most of companies are competing each others with technological development for reducing cost and high deliver service, high performance, high turnover etc.
Technological developments may lead to substitution of some of the services provided by the sector.
So long as the influence of government on the sector stays high, the level of competitive rivalry will not increase dramatically. The baking sector is
The impact of technology on the intensity of Competition
Banks were some of the first companies in the world to adopt computer technology; it first began with advances in telecommunications. These initial steps allowed banks to link their branch networks on both a national and an international scale. The more recent onset of internet technology has lead to even greater movement in operational efficiencies. With quicker access to more information, banks are in a much better position to monitor risks and provide improved service.
Improvements in technological capabilities have allowed banks to centralize much of their data processing. Many of the banks, including HSBC, have centralized the security preparation process for residential mortgages. More specifically, all of the mortgage security documentation is sent to one location where a specialized team is responsible for ensuring that everything is in order and filed correctly. HSBC trials the major banks slightly in this area; however, it will likely centralize its security administration in the near future.
It is important to note that many of the centralization initiatives require substantial capital investments. Consequently, economies of scale must be factored into the decision; the combined cost savings must warrant the investment. This makes sense for many larger institutions but tougher to justify for smaller ones.
Another strong technology-related benefit for the banks is the increased ability to outsource certain functions. For instance, many of the banks now use independent companies to conduct flooring audits on their automotive customers. As another example, several UK banks are also looking to outsource the margining process for lines of credit. Technology allows both the banks and outsourcing company to effectively communicate in a timely manner. As a result, many time-consuming and expensive duties are being completed by outside companies with expertise in these particular fields. Outsourcing of duties provides the banks with significant cost reductions.
Internet banking, ATM, debit cards and telephone banking have all resulted in a reduced need to physically be in a branch to conduct business. Customers can now perform many banking activities form almost anywhere in the world, twenty four hours a day, seven days a week. From a commercial banking perspective, these alternative methods of banking are extremely useful for transfers, bill payments and payroll services. However, it is important to remember that most businesspeople still prefer to conduct negotiations and develop rapports with their commercial relationship managers on a face-to-face basis.
From the banks' perspective, the various methods of electronic banking represent cheaper alternatives to many in-person services. Herein lays a strategic opportunity for HSBC over its competitors. HSBC has a much smaller branch network; therefore, it can place a greater reliance on technology to reach its expanding customer base. Although HSBC continues to expand its branch network, it can do so on a smaller scale without sacrificing its growth objectives. The bank can offset partially the need to open branches by encouraging customers to use various methods of electronic baking. Therefore, HSBC should be able to open fewer and smaller branches while still meeting objectives for customer growth. Branches that are being opened should be smaller because of greater centralization of many back -office processes. With fewer and smaller branches, HSBC's cost-to-income ratio should continue to be lower than the competition's. Ultimately, it will grow its customer base and improve its customer service with less up-front capital costs and lower operating expenses (i.e. lower salaries).
Many think the next biggest technological advancement in banking will be smart card technology.
Market positioning of HSBC bank
SWOT analysis of HSBC
The bank is well capitalised and this has enabled it to perform relatively well against other banks in recent economic events.
The level of capitalisation means that, going forward, the bank is unlikely to need to borrow from the UK government: this will enable it to retain more autonomy.
The bank has a strong presence in emerging markets, putting it in a good position to take advantage of future growth in those economies.
The bank's global presence in Europe, Asia and South America helps to spread risk and offers significant economies of scale.
Despite rebranding relatively recently (1999), the HSBC brand has become well-established and is considered particularly valuable within the industry.
HSBC associates itself strongly with investment in the small business sector, but the current economic situation has led to increased risks, potentially compromising the activity levels in this area of the operation.
The bank was involved with sub-prime markets in the US and has had to write off large figures lent to high-risk borrowers.
Despite falls in the UK interest rate, HSBC has increased its mortgage rates. This may be perceived negatively by borrowers and potential borrowers, adds pressure to an already depressed housing market and could ultimately lead to more defaulting as borrowers struggle with higher repayments.
A redundancy programme announced recently may affect morale among staff, leading to decreased production and loyalty.
HSBC's branding emphasises its global presence, and this may be seen negatively by some customers in its implication of homogenisation and lack of personalisation.
HSBC's high level of capitalisation places it in a strong position to acquire assets
Banks finding trading conditions particularly difficult at present may be available at low cost
HSBC also has adequate capital to purchase stronger banks such as Bank Ekonomi in Indonesia, in which it has purchased a stake to continue its Asian expansion despite challenging economic times.
HSBC's generally strong position presents the opportunity to outperform competitors during the economic downturn and to build a reputation for being one of the safer banks for depositors, helping to increase resources for lending.
Negative press coverage of competitors such as HBOS may encourage customers to choose HSBC instead.
Trust in banks has decreased due to financial losses suffered by investors, who may be more inclined to invest elsewhere.
Financial losses affecting banks and investors on a global scale have resulted in less credit being available to customers. In the UK this is coupled with increases in living costs resulting in less money being saved.
The falling property market has created a rise in numbers of homeowners with negative equity. If a property is worth less than was borrowed to finance its purchase, there is little likelihood that the bank will recoup all its losses if owners default.
Claims have been made that HSBC has understated losses resulting from US sub-prime markets, and this could undermine confidence in the bank.
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