Question

5. Your job as an analyst is to carry out industry analyses for your investment firm. Your current focus is on the financial services industry with specific focus on asset management sub-sector. (In no more than a paragraph)

a. Conduct a brief Porter’s five competitive forces analysis on this industry and summarize the implication of your analysis in terms the ease of profitability.

b. What stage in the industry life cycle do you think the financial service industry is? Corroborate your choice with a brief discussion of industry evidence.

c. Present in a brief discussion, the important macroeconomic variables to consider when analyzing the financial services industry and why you think those variables are important to your analysis.

d. What type of competitive strategy would you expect the top performing firms in the industry to follow?

Answer 1

a). Porters five forces model comprise of the five competitive forces in the market that affect the industry.

The five forces are:

1. Threat of new entrants: Asset management industry is a very research based intensive industry that requires a lot of experience and is not easy to enter. So the threat of new entrants is comparatively low in this industry.
2. Bargaining power of the buyers: The buyers do not have a lot to choose from as there are only selective companies that do well in this industry, so the buyers don’t have the say in fixing the fee amount. So they have low bargaining power.
3. Bargaining power of the suppliers: This industry works on knowledge, they don’t have any supplier’s form which they need to get raw materials of any sort. But the few suppliers that are available that might provide various essential information about the companies to invest in might have high bargaining power because they are few in number.
4. Threat of substitute products: there are very few substitute products in this industry; three threats of new substitutes are very low.
5. Rivalry among the competitors: Rivalry among the existing competitors is very high, because they provide similar but unique products , they have constant battle among themselves to be ahead.

So, one can say that this industry is a very profitable industry to be in , if you have the right knowledge and expertise for the industry.

b).

Asset management industry is in the growth phase currently, because this industry is just staring as people are now aware about the industry and taking part to be a part of it. This industry will grow a long way as people will always need a guidance to invest their money.

This industry is growing , there are various tax benefits one get from investing in various schemes which encourages people to take more involvement in the industry thus helping the industry to grow.

c).

Some of the important Macro-economic variables that affect the investment industry are:

• Investors’ confidence and desire to invest.
• Government Regulations.
• Economic Level of the country
• Awareness among the people
• Current economic condition

These are the few most important factors that affect the finance industry. Each has an important role, because they determine the investor’s condition and willingness to invest in the market.

If the government regulations are in favour of investing, like they provide tax benefits to the investors, this will encourage investments among the o=people.

If the GDP level of the country id high means people have money to invest also if the inflation is high meaning people will not spend the money in investments now.

Similarly the awareness of the people about the investment industry is very important as this will lead to attracting people and help them in taking proper judgment abut the industry.

d).

The top performing companies usually follows the basic following Competitive strategy:

• Differentiation: All the firms provide differentiated products that are similar but different from each other thus providing the unique products to the customers.
• Customer service: As this is a service industry the firms who provide best customer service retain in the market. The firms that have regular check on the customers, quick answers to the queries and easy access to data to the customers always have mlre number of customers.
• Focus on different market segment: The top performing firms don’t focus on only one segment like the rich. The have policies for different segments of the market to reach the audience in vast. They always try to reach different market segments and focus on them to increase their customer base.