final analysis 401

8/2/2019 Final Analysis 401

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An Assignment

on

Industry Analysis and strategy analysis

Prepared For:Prepared For:

Md. Emdadul IslamLecturer

Department of Banking

University of Dhaka

Prepared By:Prepared By:

NAME ROLL NO

Sonjib Talukder 13-017

Afroja Akther 13-020

Mithun Kumar Biswas 13-043

Dulal Chandra Pattak 13-057

Ruma Mondol 13-082

Date of submission: 7th August, 2010


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Industry Analysis

The Porter "Five Forces" analysis is only approximately applicable to the banking industry.

Certainly, banks do compete with each other, but they also must cooperate with one another inmany respects. There is an underlying problem in that the major banks of the world are so similarthat there is essentially nothing one of them can do that the others cannot easily duplicate.Because, contrary to some beliefs, bankers are perfectly normal human beings they do haveindividual abilities and interests that may have a perceptible influence on their institutions, but inthe final analysis, all are essentially the same.

The Five Forces model of Porter is an Outside-in business unit strategy tool that is used to make an

analysis of the attractiveness (value) of an industry structure


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Porters five forces analysis and interpretation:

Rivalry among existing firm:

There are two "real" areas in which banks can compete, price or interest rate and credit quality. As

the market becomes stronger, more lucrative, all the participants will become more aggressive.They will offer more and more attractive rates to clients and pursue clients more aggressively.

There is obviously a finite number of really prime credit risk clients in the market at any point, so

to increase market potential it is necessary to increase market size. The only way to do this at any

give time is to accept less credit worthy clients. In an expanding market environment which

implies an economic upturn, the perceived risk of lending to less credit worthy borrowers is lower

because of the strength of the economy where everyone is employed and earns increasing amounts

of money.

There are cases of one or a few banks developing a particular service of class of services ahead of

rivals. Internet banking in the early days was such a service, and the first banks to develop it had a

competitive advantage briefly, but after a few years virtually all banks offered Internet application

packages to customers and the ability to bank on line. The futility of trying to build sustainable

competitive advantage in retail banking is demonstrated by a classic banking joke. One bank,

frustrated by its competitors offers of gifts in exchange for deposits offers, "Bring us your toaster

and we will give you a $1,000 deposit." The other classic ploy in retail banking is the addition of

branches. The concept is that the additional branches attract additional clients. The result is a

bank on each of the four corners of an intersection complete with bricks and mortar investment and

personnel costs.


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d. Exit Barrier 5.00% High 5 5

Moderate to high 4

Moderate 3

low to moderate 2

Low 1

Criteria Weight Parameter Score Actual

parameter

B.1 Rivalry among existing firms 20%

a. Industry Growth Rate 5.00% High 5 4

Moderate tohigh

4

Moderate 3

low tomoderate

2

Low 1

b. Economies of scale 5.00% High 5 4

Moderate tohigh

4

Moderate 3

low to moderate 2

Low 1

c. Degree of differentiation 5.00% High 5 4

Moderate to high 4

Moderate 3

low to moderate 2

Low 1


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Industry growth rate:

The number of banks is still increasing but at slower rate in Bangladesh. There are lots of people

outside this market which indicates a big scope for existing and new banks. Now-a-days thenumber of banks is not growing so quickly. The main reason may be the lack of infrastructure.

Thats why the growth rate of banking industry is moderate to high.

Economies of scale:

Mainly it is more applicable in the production industries. But in banking industries it is hard to determine

the economics of scale. Here if the product or service is sold at a high volume than the profit of the bank

will increase. We found that in case of banking industry the effect of economies of scale is moderate to

high.

Degree of differentiation:

Banking products normally provide the same or unique benefit to its customers- the need of

money. But different banks always try to differentiate their products by name, terms & conditions,

maturity security etc. so from the analysis we see that the degree of differentiation in case of bank

services is moderate to high.

Exit barrier:

Bank faces the most exit barrier than other financial institutions. They have to go through so many

rules and regulations to exit from the market. The deposited money of the people would be

returned, the credit would be returned to the creditors which may not be profitable or possible also.So exit barrier is assumed to be high.


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The Threat of new entrants:

There is no real problem in the formation of a new bank, and it is not even an unusual occurrence.

It is also not unusual for an entity to offer very bank like services to clients. The market is so large

and so fragmented, that the significance of a new entrant or even entrants is minute. If the concept

of the combination of existing participants into what amount to "new entities" the importance of

the concept changes, but only slightly. The ""new entity" is nothing more than a combination of

formerly existing entities, and its immediate effect on the market will probably me minimal.

Longer term, its increased size and financial strength may alter the market situation slightly.

b. Capital Requirement 4.00% High 4 4

Moderate to high 3.5

Moderate 3

low to moderate 2Low 1

c. Brand loyalty 4.00% High 4 4


Moderate 3

low to moderate 2

Low 1

B-2. Threat of new firms 20.00%

a. Access to technology 4.00% High 4 4


Moderate 3

low to moderate 2

Low 1

d. Legal Barrier 4.00% High 4 3


Moderate 3

low to moderate 2Low 1


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Access to technology:

Now-a-days technology is the most important thing. For better service technology is a must.

Though the infrastructure is not so developed, most of the banks are trying to adopt modern

technology. Today the banks are providing ATM services, online banking services etc where

technology is a must. Technology plays a key role to differentiate one bank from others. So the

profitability by access to technology is high.

Capital requirement:

According to government regulation the paid up capital of a bank must be 200 million to be run in

our economy. This amount is very high. This requirement reduces the profitability of quick

entrance of new bank which increases the profitability of the existing banks. So the profitability of

bank for capital requirement criteria is assumed to be high.

Brand loyalty:

In banking industry customers are normally loyal to brand name. This increases the profitability of

existing bank. So the profitability by brand loyalty is high.

Legal barrier

There is also legal barrier in this sector. This is actually the requirements for the bank. The government

has set a set of rules for many reasons because the banks deal with public money. So if the government is

unable to save the public interest, it indicates the governments disability. Thats why there is moderate

legal barrier in the banking industry that indicates 3 points.

Government price regulations:

Government price regulations are good parameter for this analysis. In the banking industry, Bangladesh

bank controls the price of banking industry and that is interest rate. The price of the banking industry is

actually the interest rate. Bangladesh bank also controls the money supply of the economy. SometimesBangladesh bank tells that loan should be given to the agriculture at 8% rate. Or at least a specified

percentage of deposits must be given loan to specific sector. Thats why the ranking is 3.5 that indicates

moderate to high.

The threat of substitute products:

e. Government Price Regulations 4.00% High 4 3.5


Moderate 3

low to moderate 2

Low 1


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For the most part there is no real threat of substitute products in the banking industry. It could beargued that a personal loan is a substitute for a loan of a leasing company, but in reality both areloans and the loan is taken out because the customer wants money. The same can be said of otherbank products, and even institutions. A leasing company is a substitute for a bank, but it is thesame product offered by an alternative vendor. There is a good chance the leasing company is

owned by a bank holding company in any case. The only question is the origination of the loan.They serve approximately the same function as checks and some of the new Internet bankingservices are actually transfers. There probably will be a continued evolution of products frompaper to electronic in coming years. This is an area of potential competition, and probablyinnovation, but the final services, moving money from account A to account B will not change.

B-3 Threat of substitute 20%

a. Profitability of Substitute Industry 5.00% High 1 1

Moderate to high 2

Moderate 3

low to moderate 4

Low 5

b. Price performance relationship of substitutes 5.00% High 1 2

Moderate to high 2

Moderate 3

low to moderate 4

Low 5

c. Buyers willingness to substitute 5.00% High 1 2

Moderate to high 2

Moderate 3

low to moderate 4

Low 5


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d. Cost of switching to substitute 5.00% High 5 2

Moderate to high 4

Moderate 3

low to moderate 2

Low 1

Profitability of substitute industry:

The financial sector of Bangladesh is very much diversified now. Different types of institutions are

coming with new substitute products. Rather the insurance companies and microcredit institutions

are also proving the same service like banks. So the substitute products are decreasing the

profitability of the existing banks. So the rating is 1.

Price performance relationship of substitutes:

In banking industry price of the substitute products is almost same. Banks have the low chance to

discriminate price of the banking services. If a bank could provide quality service at low cost, it

could increase the profitability of that bank. So the price performance relationship of substitutes is

moderate to high.

Buyers willingness to substitute product:

Buyers willingness to substitute product is moderate to high that indicates the point of 2. It

actually indicates that there is almost high willingness to substitute products. The availably and

good supply of substitute products have made this possible. Now a man can easily satisfy his

financial need from finance company, leasing company, non schedule banks etc instead of

commercial banks.

The cost of switching to a substitute:

The cost of switching to a substitute is low to moderate that indicates 2 points because there is a

lot of a bank. And they are providing same products with almost same price and features. The

products are not diversified. Rather every bank is providing all products we need. So if anybodydoes not like the home loan of Brac Bank ltd, he can easily take this product from Bank Asia Ltd.

And the cost of switching is not high.


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The bargaining power of customers:

Retail customers, ordinary individuals, have no bargaining power whatever as a negotiator. Aclassic bit of banking wisdom is, "If you owe the bank tk.10, 000, you have a problem. If you owethe bank tk.10, 000,000, the bank has a problem. The disparity in size and power of the bank andthe client is so great in most cases that the client has essentially no bargaining power. Even in thecase of large corporate clients, the bargaining power of the client is limited. Any negotiation ofterms and conditions of a banking deal will take the form of a win/win negotiation where bothsides are attempting to develop a "deal" that is optimum for both participants. The client wants themoney a loan represents, and the bank wants interest on the loan. The price of credit and the creditstanding of the client are pretty much givens. The structure of the loan such as the term and therepayment must be structured in such a way that the client can meet the requirements in term ofcash flows and the bank is assured of repayment. The price of the credit may be negotiated a few

basis points in one direction or the other, but both parties know going into the negotiationapproximately what the outcome will be.

B-4 Bargaining power of Buyer 20%

a. Number of buyers and volume ofpurchase

5.00% High 1 3

Moderate to high 2

Moderate 3

low to moderate 4

Low 5

b. Concentration of buyers 5.00% High 1 5Moderate to high 2

Moderate 3

low to moderate 4

Low 5

c. Buyers Knowledge 5.00% High 1 3

Moderate to high 2

Moderate 3

low to moderate 4

Low 5


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d. Price Sensitivity 5.00% High 1 4

Moderate to high 2

Moderate 3

low to moderate 4

Low 5

No. of buyers and volume of purchases:

There is large number of buyers in banking industry. But the volume of their purchase is very low.

Sometimes big institutional investors hold a significant portion of purchases of services of some

banks. So considering all these things we assume moderate grade for this criteria.

Concentration of buyers:

Bank customers are not concentrated. So concentration of buyer is assumed to be low which

increases the profitability of bank and the rating is 5.

Buyer knowledge:

Generally the people of our country have little knowledge about bank services. Only educated

persons or the city dwellers are concerned about some specialized services of banks. The rural

people still avoid banks because of lack of knowledge. But the scenario is changing very fast

because of the increase of educated people. So we assume that the knowledge of customers about

banks product is moderate.

Price Sensitivity:

Price is not a dominant factor in banking service. Price of same product of different bank is nearlysame. The customer only expects better service and good behavior from the employee of the bank.

Customers are service sensitive rather than price. Here price sensitivity is low to moderate.


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Bargaining power of suppliers :

A bank has three suppliers of its product, money:

1. Its depositors

2. The credit market

3. The central bank

The first source, depositors, has no bargaining power whatever in reality. If they make timedeposits the bank will set the price or interest rate it will pay. If they have a demand deposit thebank pays nothing or effectively nothing for the deposit. It is possible that there may be somevariation in services as a form of competition, but a demand account (DDA) is not subject to greatvariation and most customers simply want an account and don't even know the exact terms of theiraccount.

Larger clients, corporations, government agencies, and wealthy individuals are offered packages ofservices in what is actually a form of "market orientation" in current management terminology.The bank is still the dominant party, even with very large clients, but the client can make the threatof going to another bank, and if he/she/it is large enough, the threat may have some significance.There is a distinct element of competition for the business of large accounts, but even here it wouldbe very difficult for any entity to offer anything significant that its competitors could not duplicatealmost instantly. This part of the business becomes very much one of personalities and individualsas opposed to "marketing initiatives."

The credit market as a source of supply of the raw material, money, is open to all at all time if theyare qualified participants. The source of supply can be argued to be infinite.

The Central bank is effectively the resource of last resort. Apparently, at least for the moment, itwill continue to supply liquidity to the banking system in virtually unlimited quantities at veryreasonable cost.


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B-5 Bargaining power of Supplier 20.00%

a. Availability of substitute products 5.00% High 5 5Moderate to high 4

Moderate 3

low to moderate 2

Low 1

c. Portion to supplier business 5.00% High 1 5Moderate to high 2

Moderate 3

low to moderate 4

Low 5

d. Criticality of buyer business 5.00% High 1 2Moderate to high 2

Moderate 3

low to moderate 4

Low 5

Availability of substitute products:

b. Concentration 5.00% High 1 4Moderate to high 2

Moderate 3

low to moderate 4

Low 5


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Today nearly 50 banks are running in the economies of Bangladesh. All the banks are proving thesame service. Besides the insurance companies and microcredit companies are also proving thefinancial services like banks. So the Availability of substitute products is high in bankingindustries.

Concentration:Bank customers are not concentrated. So concentration of buyer is assumed to be low whichincreases the profitability of bank and the rating is 4.

Portion to supplier business:

The depositors are the supplier of banking industries. The numbers of suppliers are many. A singledepositor deposits a little portion of banks fund. So the portion to supplier business is low inbanking industry.

Criticality of buyer business:

Banks have high influence on the business of the loanee. The rating for these criteria is moderate to

high.

Rating at a glance:


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Bank strategy analysis

Rivalry among

existing firms

17

Bargainingpower of

suppliers

15

The threat ofsubstitute

products

7

The bargaining

power of

customers

16

The Threat of

new entrants

18.5

TOTAL IndustryAttractiveness

73.5 (A-)Moderately

Attractive


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Basically there are two types of strategy that are followed by most of the business organization.

First one is cost leadership that means providing the products and services at lowest cost compare

to others. Second one is differentiation which means providing innovative and quality product or

services rather than cost. In case of bank there is limited chance to be cost leader, because we

know that interest rate is the significant part of the cost of a bank product. And this interest rate is

determined by the central bank. So the interest rate is same for all the banks. Generally,

Interest rate = Rf + Rp + I + Other cost

Rf= Risk free rate of return

Rp = Risk premium

I = Inflation

Other cost = including processing fee, hidden cost, brand value etc.

Here, Rf, Rp and I are almost same for all the banks. The variation is only in the other cost like

processing fees, hidden cost, brand value etc. This variation is very insignificant. So, it is very

difficult for a bank to be a cost-leader.

Differentiation:

As there is limited scope for the banks to be a cost leader, they go for differentiation to sustain in

the competitive world.

The success of Uttara Bank limited can be attributed its differentiating strategy. The bank

differentiated itself on four basic parameters.

Knowledge banking approach

Human Resources

Modernization

Favorable environment


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Knowledge banking approach

Uttara bank limited decided to follow an innovative approach to break into the heavily

cluttered Bangladesh commercial banking system.

Knowledge banking ---a unique method of acquiring customer and retaining them.

The bank provides specialized service to the emerging sectors of economy through better

understanding of its clients business and industry.

The bank focused on providing the customer with specialized banking service depending

upon their requirement.

The bank identified some sectors of economy which had growth prospect:

1. Agriculture

2. Industrial

3. Commercial

4. Real estate

5. Lease financing

6. Bills discounting and purchase

7. Special program and

8. Others

Human Resources

The banks human resource policy is to recruit and build up quality man power having skill

and professional expertise. Skilled human resource is like blood for development of any


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service industry. Keeping this universal truth in mind, human resource development has

always been receiving special emphasis in this bank.

Key initiative by bank to recruit and train manpower:

Own training institute with sophisticated instruments

Guest speakers specialized in banking are hired to train employees

A number of executives and officers were sent to various Training Institutions

including Bangladesh Institute of Bank Management (BIBM), Bangladesh bank and

abroad for higher training.

Modernization

Uttara bank limited is one of the private sector banks having wide network of branches in the

country. The branches of the bank are operating through computer network using the banks

own software in day to day banking. Banks specialties are:

Speedy services in International Business E-mail is in operation in Head office and

in almost all branches

International Division of Head office and 38 branches under SWIFT operation

Own web site

Favorable environment


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This bank provide favorable environment to its customers as well as its employees. It

provides prompt service to its customers and clients. All the branches are well decorated and

the banks differentiated things are as follows:

Well-labeled counters

Separate pay-off & withdrawal counters etc.

Customer convenience

Uniformity of appeal to all segments of customers

Noise free working environment for the employees

Employees are friendlier not only with the customer but also with their staff.

Conclusion:


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Every industry follows the normal distribution of business cycle including four stage introduction,

growth, maturity and decline. The banking sector of Bangladesh has crossed the growth stage. It is

now in a stable position. The banking business is very much customer oriented. Customer plays a

key role for the profitability of a bank. Most of the people have little knowledge about bank

services. From our analysis, we found that the score is 73.5 which indicate the banking industry is

moderately attractive. But still we have the shortage of banks because long line in the government

and non-government banks proves that the present banks are not sufficient to meet up the growing

need of the people. This problem will be more severe if the village people are fully engaged in

banking services.

final analysis 401

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