Question

Industry Analysis using the follow below for a Finanical Services(Banks)

Threat of new entrants. refers to economies of scale, capital costs, switching costs, retaliation,

Bargaining Power of Supplier and Buyer

Threat of substitutes. refers to if the quality and performance substitute products (outside of the industry) are equal to or greater than the existing products of firms within the industry.

Competitive rivalry. refers to strategic stakes, exit costs, storage costs

Answer 1

ANSWER:

INDUSTRY:

• An industry is a group of companies which produce similar goods\services.

INDUSTRY ANALYSIS :

• Industry analysis is a toll that facilitates a company's to understand its position relative to other companies that produce similar products.
• Industry analysis enable companies to identify the threats and opportunities around it.
• Industry analysis helps in forecasting of future trends.
• The industry analysis can be perform in two ways:
  1. Qualitative Analysis
  2. Quantitative Anaysis

1. Qualitative Analysis : Qualitative Analysis includes Porter's five forces which are explained below:

• Threats of new entrants.
• Threats of subsitutes.
• Bargaining power of Buyer.
• Bargaining power of supplier.
• Competitive Rivarly.

2. Quantitative Analysis: Quantitative Analysis includes both financial and non-financial analysis.

• Financial Analysis: Ratio Analysis, Activity based Analysis, Economic Value Added.
• Non-Financial Analysis: Market Ranking, Absentism rate etc.

Before doing an industry analysis we should get to know the porter's five forces which are explained below:

1. Threats of new Entarnts:

• Market is full of competition, not only existing firm pose threat of the business but the arrival of new entrantsis also a challenge.

2. Bargaining Power Of Suppliers:

• Any industry needs raw material for producing, therefore the producers have to build a relationship with its suppliers.
• Suppliers have power in their hands to sell raw material at higher prices by influencing producing
• industries.

3. Bargaining Power Of Buyers:

• In the market position of the buyer is very strong and he sets prices.
• Buyer compels the industry to reduce the prices.
• The buyers may also demand higher quality product at low price from industry.

4. Threat Of Subsitutes:

• Threat of subsitutes can be defined as the products of other industries that have the ability to satisfy similatr needs.
• Example: Coffee & Tea.
• When the price of a subsitute product changes, the demand of related product increased.

5. Competitive Rivarly:

• competitive rivarly inside the industry.
• For most industries the intensity of competitive rivarly is trhe major determinant of the competitiveness of the industry.

Now we are going to do an Industry analysis which can be useful for any Financial services like Banks.

1. Threats of New Entrants :

• In financial services, the threat of new entrants is low due to stringent norms.
• The market is always open for entry or exist therefore so many new banks are entry in to the market each year.
• The threats of new entrants includes Economies of Scale, Capital Requirement and Government Policies.
• The entry of foreign banks also affects the new entrants.

2. Bargaining Power of Suppliers:

• In financial services the bargaining power of suppliers is high.
• The suppliers provide customer deposits facilities and mortage loan and securities.
• It further includes loans from other financial institutions.
• The power od supplier is based on the market.
• The factors like Rise in investment avenues, interest rates, Role of RBI affects the bargaining power of suppliers,

3. Bargaining Power Of Buyers:

• The bargaining power of buyers is relatively high switching costs.
• The internet has greatly increase the power of the buyer in the banking industry,
• The customer loyality plays main role in bargaining power of buyers.
• The factors like long-term finance, multiple options, retail lending affects the bargaining power of buyers.

4. Threat Of Subsitutes:

• Some of banking industry's largest threats of subsitution are not from rival banks but from non-financial competitors,inbestors.
• There is also the threat of payment methods subsitutes and loans are relatively high for the industry.
• The factors like close customer relationships, switching costs affects the threats of subsitutes.

5. Competitive Rivarly:

• The banking industry is considered highly competitive.
• The factors like storage costs, low market growth rates,price competition affects the competitive rivarly.

NOTE:

In the above, meaning of industry analysis and industry analysis for financial services is explained in detail.