Evaluation of Banks Using Porter's 5 Forces
This report will investigate how Porter’s five forces might be used to evaluate the future potential of modern banks, such as Tesco Bank and Virgin Money. This question has occurred through recent research into market structure and has highlighted its significance in the current market place by introducing more competition to traditional banks, supermarkets and other businesses. However, this also gives customers more choice in today’s climate, where in some cases banks have lost customers’ trust.
Porter makes clear that when there is competition in the market place, every business should have a strategic plan so they are able to manage the competition. The plan should include the additional four factors; customers, suppliers, potential entrants and substitute products. These factors will form the “competitive interaction within an industry” (Porter, 2008:3-8) and will ultimately give an insight into how successful these new banks could be.
Barriers to entering the banking industry include regulators such as the Financial Services Authority. Banks have a number of regulations they have to meet in order to get a banking licence. This takes a lengthy period of time to comply to prove “that they have the integrity, financial and managerial resources necessary to run a bank, that they are worthy of the trust that people expect to be able to place in the bank that holds their deposits and in many cases, their life savings” (Buckle & Thomson, year:page no). (The UK financial system: theory and practice By Mike Buckle, John L. Thompson) Thus it is very costly. Likewise this is not the only cost, when banks start-up they need a wide range of specialist contractors, buildings, and I.T. For example Tesco Bank recently built a new building in Glasgow creating 200 new jobs, thus it is pricey. However unlike some “barriers such as asset specificity” (Wengler, 2006:176) banks tend not to have this problem because although the buildings are costly and they have a lot of highly
Porter makes clear that when there is competition in the market place, every business should have a strategic plan so they are able to manage the competition. The plan should include the additional four factors; customers, suppliers, potential entrants and substitute products. These factors will form the “competitive interaction within an industry” (Porter, 2008:3-8) and will ultimately give an insight into how successful these new banks could be.
Barriers to entering the banking industry include regulators such as the Financial Services Authority. Banks have a number of regulations they have to meet in order to get a banking licence. This takes a lengthy period of time to comply to prove “that they have the integrity, financial and managerial resources necessary to run a bank, that they are worthy of the trust that people expect to be able to place in the bank that holds their deposits and in many cases, their life savings” (Buckle & Thomson, year:page no). (The UK financial system: theory and practice By Mike Buckle, John L. Thompson) Thus it is very costly. Likewise this is not the only cost, when banks start-up they need a wide range of specialist contractors, buildings, and I.T. For example Tesco Bank recently built a new building in Glasgow creating 200 new jobs, thus it is pricey. However unlike some “barriers such as asset specificity” (Wengler, 2006:176) banks tend not to have this problem because although the buildings are costly and they have a lot of highly