Taifook Securities Group Limited (Taifook) is one of the leading local brokerage firms in Hong Kong which provides various financial services for both individuals and corporate customers. Taifook gained a number of certifications and awards in the past few years, which included the ISO 9001 & 9002 Quality Management Systems Certificate and "Best Brokerage Company" award from Capital magazine.
Our project group conducted a study about Taifook Securities Group. From the result of the study, we have learnt that Taifook's business model consist of both Business-to-Customers (B2C) and Business-to-Business (B2B).
Our group has used four different analysis models to analyze the business strategy of the Taifook Group. By using the Porter Five Forces model, we found the rivalry of the retail brokerage industry is quite high. We also used SWOT Analysis to determine the internal capability and external environment for Taifook. We found that the strength of Taifook is very strong, but it is very sensitive to the external environment. We also found Taifook's primary value chain activities are heavily supported by information technology (IT) in the value change analysis. At last, we have discovered that Taifook landed in the "Cash Cow" quadrant of the BCG matrix model.
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Online trading and Wireless Application Protocol (WAP) are two of the IT applications which are offered by Taifook to their customers. We have used the application portfolio model to analyze these two applications. We found that the Online Trading falls into the Strategic information system category; and the WAP service falls into the Support category of the application portfolio model.
From the result of our study, we found that TaiFook.com, the web portal of Taifook Group, is the key factor for the organization's success. We recommend the company to expand their business model by providing analytical services to their customers through their existing TaiFook.com platform. The applications such as E-Advisor, E-Analyst and Financial Knowledge Base Management System (FKBMS) would be able to further strengthen its customer base and increase the market share.
Business of Taifook Securities Group
In Hong Kong, there are many brokerage firms which provide securities and futures contracts, broking and trading, the provision of margin and other financing services. Our analytic company also covers all these services; it is Taifook Securities Group Limited (Stock ID: 665).
The principal activities of Taifook Securities Group Limited are broking securities, futures, options and gold bullion contracts and the provision of margin financing to margin customers. Other activities also included are the provision of corporate advisory, placing and underwriting services; investment holding and fund management, provision of custodian and handling services, insurance broking and sale of saving plans. Broking accounted for 49% of fiscal 2003 revenues; margin financing and money lending, 34%; corporate advisory, placing and underwriting, 14%; trading and investment and others, 3%.
Taifook is solidly funded with strong capital base. The renowned Cheng Yu Tung family, the principal shareholder of Chow Taifook Enterprises Limited and New World Development Company Limited, backs this leading brokerage firm. Taifook is one of the pioneers in Hong Kong which can offer comprehensive IT-driven services to its clients. In its online electronic trading system, clients can place orders either through the Internet, interactive voice response telephone system or mobile phones. Based on mobile service, clients can also use the PDA (Personal Digital Assistant), WAP (Wireless Application Protocol), Mango Stocks Phone, through the different channels to apply more value-added services.
Taifook has an extensive distribution network with 13 branches in different regions. There are ten branches in Hong Kong and Macau, three branches in the major cities of Mainland China including Beijing, Shanghai and Shenzhen. Recently, Taifook has launched local and global online futures trading platforms and has established a 24-hour Investment Center at Causeway Bay branch to provide global investment services around the clock. In addition to the traditional equity products, Taifook will expand the range of investment products, such as debt, derivatives, foreign exchange and other commodity instruments.
Taifook anticipates that there will be great potential for developing its corporate finance and asset management businesses in Mainland China, such as China equity investments and Corporate Financing. The company is looking at China for future growth and is expanding its presence on the mainland through the planning of the fourth representative office in Guangzhou. As quoted from Mr. Peter Wong, Managing Director of Taifook, "the company plans to play an active role in exploring the Pearl River Delta market". Over the years, Taifook has developed an expertise in dealing in H-shares and listing of the mainland's state-owned and private enterprises. The company expects revenue from investment banking services to drive up profits. With the benefit of Closer Economic Partnership Arrangement (CEPA), it allows Taifook to develop more business opportunities in the mainland China for the group.
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We are using 2 different analytical models to analyze the business strategy of the Taifook Group. The 2 models are Porter Five Forces, SWOT Analysis. After these analyses, we will have a better understanding of Taifook's current situation.
Porter Five Forces
We are using the Porter Five Forces to identify the rivalry of the investment services industry. After the analysis, we will be able to determine the competitiveness of the industry.
Degree of Rivalry
The rivalry of the industry in Hong Kong is very high due to the following reasons:
- Large Amount of Competitors: There are over 400 of small to medium sized broker houses in Hong Kong. And there are also many retail banks which are able to provide broker service for their customers.
- Slow Market Growth: The market does not have much room for expansion since this industry has been fully developed.
- Low Switching Cost: There are many banks that can provide broker services with very competitive service charges.
Power of Buyers
Since there are numerous of institutions, such as banks and broker houses, which can provide exactly the same service - equities trading. Investors have high power over the company by means of selecting a broker house.
Power of Suppliers
The supplier of the Taifook Group is the Hong Kong Stock Exchange (HKEX). Since there is only one stock exchange in Hong Kong, this makes the power of suppliers very high.
Threat of Substitutes
Nowadays, there are many different types of investment products such as real estate, currency, government bonds, global funds and equities. However, equity is considered one of the most liquid investment products comparing with the others. The threat of substitutes is medium for this industry.
Threat of Entry
The threat of entry of this industry is medium. The reason being is because it is not simple to obtain a broker license in Hong Kong and the initial cost is very high. For instance, there are many regulations to follow before one can obtain a license. However, there are many retail banks already obtained the license and able to provide the service to their existing customers.
From the result of the Porter Five Forces model, we have found the following:
l Degree of Rivalry - High
l Power of Buyer - High
l Power of Supplies - High
l Threat of Substitutes - Medium
l Threat of Entry - Medium
The result has indicated that the rivalry of the investment services industry is quite high. Therefore, the overall industry attractiveness is low which is less favored for new joiners to enter the industry.
We are going to use the SWOT Analysis to identify the internal capability as well as the external environment of the Taifook Group. We are going to find out the strengths and the weaknesses of the company by looking at its internal capability. We will also try to determine the opportunities and threats by reviewing the external environment.
Long History in the Industry
Taifook was established since 1973 in the retail investment industry. Due to the long history, the company has established a good customer base.
Taifook has received many different awards over the years, such as the followings:
l "Best Local Equity House" by FinanceAsia (July 2004)
l "Web Care Award 2004" by iProA (May 2004)
l "The Best Equity House in Hong Kong" by Asiamoney (May 2003)
l "Best Brokerage Company" by Capital (Nov 2002)
l "Best Domestic Equity House Award" by AsiaMoney (June 2002)
Pioneer of Online Trading Platform in Hong Kong
Taifook has established its online trading platform since year 2000 which was one of the pioneers of online trading platform in Hong Kong. In year 2001, Taifook Online Brokerage Services earned the first ISO 9002 Certificate on Quality Management Systems in Hong Kong.
Net Loss in Past 2 years
According to the annual report in year 2001 and 2002, Taifook was found a net loss of over 100 million dollars due to the volatile external environment such as the incident of "September 11 terrorists attack" in 2001.
Closer Economic Partnership Arrangement (CEPA)
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The Chinese government has started the CEPA which allows Taifook to expand their business district from Hong Kong to Mainland China.
Individual Travel Schema
The Individual Travel Schema has brought million of travelers from China to Hong Kong. Taifook can be benefited by having more travelers to open their own accounts for trading.
History Low Interest Rate
The low interest rate in Hong Kong also forces some of the money in the bank to the equities markets. Since the saving interest rate in Hong Kong is less than 1%, many people may reallocate some of their money from bank savings to blue chip equities in the market. For example, investors may choose stocks such as the HSBC or Hang Seng Bank, which yield high dividends and have stable growth.
Substitutes by Other Product
There are many investment products, such as funds and insurance, which are provided by many institutions, like banks and insurance companies. These types of products can easily substitute the equities trading business of Taifook.
Sensitive to External Environment
According to the history, this industry is very sensitive to the external environment. For example, the "September 11 Terrorists' Attack" and "SARS outbreak in Hong Kong" had huge impacts on the company and caused a net loss of over hundred millions of dollars. Any kind of external events, such as War or presidential election of the United States, can affect the earnings of the company.
Increase of Interest Rate
The cycle of the interest rate increase has already begun in the United States. This will slow down the economic recovery of Hong Kong, which will have direct impact to the stock market in Hong Kong. In this case, the profitability of the Taifook Group may be reduced.
History High Crude Oil Price
Recently, the crude oil price has reached US$46 per barrel in New York commodity market. The historic high crude oil price will slow the global economic growth and this may affect the business growth of the Taifook Group.
After examining with the SWOT Analysis, we find that good reputation and a large customer base have both provided strengths for the company. However, the net loss of over hundred million dollars in the past two years has become a weakness. As a result of the two new arrangements between Hong Kong and China, the CEPA and Individual Travel Schema, these will provide new business opportunities for the company. Due to the sensitive nature of the industry, any external environmental changes can affect the performance of the group and this may introduce threats towards the profitability of Taifook.
- Current system Review
- Common Practice in the industry
- Proposed System
- Solution Benefit
Evaluation of Two Existing Applications
In the past five years, Taifook offered comprehensive IT-driven services to its clients. As mentioned in the director prospects of Interim Report 2003, Mr. Peter Wong stated,"Our firm commitment in establishing our IT capability and online trading platform should bear fruits ahead". This indicates that Taifook will continually develop its IT infrastructure to become its core competence.
In this section, we are going to use the application portfolio model to analyze two of the existing IT applications which Taifook is currently offering to its customers. The two applications are Online Trading and WAP. We will classify the two applications into the four different categories of the application portfolio model. And we will use the result to determine the resources allocation of our new suggested application in the following sections.
Online Trading Platform
Taifook established the online trading platform since year 2000 and obtained the first ISO 9002 certificate for the online brokerage service in Hong Kong. According to the latest survey by the Hong Kong Stock Exchanges (HKEx), online trading grew to 8.5% of retail agency trading value, the contribution from the online trading platform has accounted for a much bigger component of the overall cash market business. According to a Journal of Financial Economics, the trading frequency increased double via internet trading over 18 months. The online trading platform can promote more trading activities, which in turn generate more revenue for the group.
Last year, the outbreak of SARS in Hong Kong and China had a major impact on the local economy. Not only affecting the Taifook Group but as well, most of the local brokerage firms. However, during the outbreak, the Taifook's online trading platform was still able to provide trading service to its customers. As quoted from the Interim Report 2003, "Online trading has captured an increasing share of our broking business in both equity and derivatives products trading". This had clearly demonstrated the trend of the increasing usage of the online trading platform.
The online trading platform is the key to sustain the success of the Taifook Group and support its future business strategy. In other words, the group success is directly related to the online trading platform. The sophisticated online trading platform can create competitive advantage for the group. Therefore, the online trading platform is classified as the Strategic information system in the Application Portfolio model.
Wireless Application Protocol (WAP)
In addition to the online trading platform, Taifook also offers Wireless Application Protocol (WAP) service to its customers. The existing WAP service offers the following services: real-time quotation, trading service, trade status enquiry, account enquiry, and worldwide indices. WAP service offers similar service of the online trading platform with the mobility convenience. However, it is not proven to be a popular service due to the high communication cost and the culture of mobile users in Hong Kong. Furthermore, the WAP service is overlapping with the traditional Interactive Voice Response System (IVRS). Users are reluctant to change their behaviors since the IVRS has existed many years.
WAP service is merely another option provided by Taifook. However, due to its low popularity among the users and not crucial to the business, it is classified as Support system in the Application Portfolio model.
From the above analysis using the Application portfolio model, we learnt that the WAP service is classified as the Support system. Its existence is not crucial to the company's success. Consequently, we advise the company to allocate the basic support to its WAP service. On the other hand, the online trading platform is classified as the Strategic information system. It is crucial for the company to sustain its success and to support future business strategy. Therefore, we suggest that the company should allocate more resources to enhance the development of its online trading platform. The following sections will suggest two new applications which are able to enhance the existing online trading platform.
Online Trading in the Industry
As discussed in previous section, the primary business model of Taifook is providing a Business-to-Customer (B2C) platform for its customers to trade in the stock and financial markets. This section will suggest various value-added services that the company can provide to its customers in order to strengthen its existing customer services and increase market share. The suggested solutions should benefit both Taifook's customers and the company itself by assisting customers to profit from the securities market.
Currently, Taifook provides many tools for its customers to access account profiles and the corporate trading system through various platforms. The company is running a portal to provide massive information for user such as indices figures, stock movement charts, company reports, research reports issued by Taifook's analysts. However, there are still lacks of appropriate analytical tools tailored for individual customers. As mentioned, there are many investment portals in the market. However, customers need to locate, retrieve and filtering information in order to meet their own needs. Since different investors have different investment goals and risk tolerances, the information provided to their customers is simply non-processed data which may become meaningless to them. E-Advisor and E-Analyst are the two applications we suggested to enhance their current web portal and online trading platform to create trading incentives for their customers.
Nowadays, personal investment advisory service is commonly provided by many financial institutes and banking corporations. A professional advisor is dedicated to look after the portfolio of a number of customers' investment accounts. This kind of product, however, usually targets for customers with large amount of investment fund dedicated to the investment accounts. Therefore, the objective of our suggested E-Advisor application should be able to provide tailored, filtered, analyzed and reliable advice for all subscribers at a low cost basic. In order to achieve the objective, E-Advisor should be a centralized system built to automatically analyze user profiles, identifies customers unique goals and risks tolerance. This can be done by providing electronic questionnaires, analyzing user's trade histories and preferences. In the event of users having doubts in identifying their goals, built-in wizards should also be provided in order to assist them.
Non-processed information is merely data and may not be interpreted by the customers. To the contrary, processed data becomes much useful information. Once the goal and risk tolerance are identified, E-Advisor should be able to filter all market information and display analyzed information only. For example, a long term investor may not be interested in day-trade tips and daily stocks price movement information. For a day-trader, company analysis reports may not sound interesting; gossip floating around the market, functionalities such as electronic price alert such as email alert and SMS alert may become much more useful. Of course, user has the right to customize the information to be displayed. The system must be flexible enough for users to customize their information portal. Besides, E-Advisor should introduce suitable investment products available in the market to the appropriate users.
In order to achieve customers' goals, a portfolio planner is suggested as a part of the E-Advisor service. Portfolio planner is a common service provided by many financial institutes, especially investment banks. The portfolio planner should assist users to build their own portfolio using the suggested investment products. The planner should provide information and guidelines to customers in order to balance risks towards goals. The critical success factor of the planner is the ability to subscribe the suggested product easily. The planner should integrate to existing corporate trading platform and integrate to third party platform for other financial product if necessary.
E-Advisor is a tool to assist users for better decisions making, minimizing loses from the market by identifying goals, providing analyzed information by integrating and increasing the usefulness of the existing information portal.
E-Analyst is a tool which allows limited number of analysts to serve as much customer as possible. One of the advantages of Taifook securities group limited over other securities agent is that it has numerous professional securities and financial analysts. In order to allow the analyst team to serve the customers, a platform is required to allow the analyst team to broadcast their analytical reports to the target customers. This is accomplished by the E-Advisor application which requires users to identify their investment goals and acceptable level of risk. One of the major duties of the analyst team is forecasting and predicting the trends in stock prices. Based on the market forecast conduct by the analyst team, analysts should be able to setup rules to influence the advice generated by the E-Advisor application.
The functionalities illustrated above are regarded as client-push features. These products push information to the client side. Another feature of E-Analyst is the client-pull ability which allows users to request specific information from the analyst team, and of course, with a fee. For example, the specific information can be an analytical report of a specific company or groups of company. It can also be a request for an analytical report of the portfolio of the user issued from the E-Advisor system or requests for stock price prediction and etc.
E-Analyst is a tool integrating with the E-Advisor application to further strengthen the analytical services provided by the company. The analytical result produced by the analyst team should be stored in order to build a knowledge base. E-Advisor should make use of the knowledge base as part of the information in order to provide more accurate advice to the subscribers.
Financial Knowledge Base Management System
Financial Knowledge Base Management System (FKBMS) is another tool to assist in decision making. Existing information is stored in manageable manner. A superior search engine to the FKBMS is provided in order to provide easy access to target information. For example, a long term investor can easily request a list of quality stocks which provide highest interest rate to stock holder every year. FKBMS can be used to support both E-Analyst and E-Advisor to further enhance the user experience. FKBMS is also important to the organization since knowledge is properly stored and becomes valuable asset to the company. As a result, knowledge will be stayed with the company unlike any employees may leave the company. The subset of FKBMS can be reused as customer support application which provides better customer services.
Expanding the Business
The new suggested applications, E-Advisor, E-Analyst and FKBMS can integrate with the existing online trading system in the web portal. These three applications can further increase the trading incentives of the customers which in turns generate more revenue for the company. These applications will benefit all range of customers and increase the value to the customers and the company and as a result of better customer relationships. The suggested value-added services will strengthen the current B2C business model and introduce new opportunities to the organization.
- Interview with CIO
- Taifook Homepage
- Annual Reports
Taifook was established since 1973 and provided retail brokerage services. From the study of this company, we learnt that the retail brokerage industry in Hong Kong has been fully developed which does not have much room for expansion. In order to expand the business, Taifook is focusing to develop its business to encompass on the high growth mainland China market. Taifook's online trading platform becomes the key tool to extend its territory to China.
Taifook's online trading platform was launched in year 2000 and earned the first ISO9002 certificate in Hong Kong. By using the application portfolio model, we find that the online trading platform is the key strategic tool to achieve the company's vision. The existing online trading platform becomes one of the core competences of Taifook. We suggest enhancing the online trading platform with two new IT applications - E-Advisor and E-Analyst.
The E-Advisor and E-Analyst provide necessary information for users to make successful trades. Both tools will encourage increased transactions made by the customers. As a result, E-Advisor and E-Analyst will aid in increasing commission income and strengthening the corporate revenue model. These products also provide a win-win situation for both the customers and the company.
The goal of the suggested solution provided in this section is to transform the existing portals into a single point of service to fulfill all investment needs for the customers. These tools allow the company to maintain long-term relationships with the customers. However, the suggested solution is not sufficient to lock-in a customer, but it is a very good starting point and provides the company the opportunities to extend its business model; stepping forwards to provide value-added services such as analytical services to the customer.
TaiFook.com and online trading platform are the key solutions for the company to expand its market share in Hong Kong and the mainland China. Being a leading local securities firm, Taifook should further provide valued-added services to customers through the use of Information Technology.
- Quotation from AFX News (Asia) on June 16, 2004.
- Journal of Financial Economics 2001 - How does the Internet affect trading? Evidence from investors behavior in 401(k) plans by James J. Choi, David Laibson, and Andrew Metrick.