ICICI Bank: Porters Five Forces Analysis

ICICI jargon Porters pentad Forces out(a)lineContents (Jump to) installation clashing of globoseisation on Banking IndustryPoters Five Forces Model precept of the Porters Five Forces Model in the Banking IndustryThreat of New EntrantsBargaining causality of SuppliersBargaining Power of BuyersThreat of Substitute Products intensiveness of Competitive oppositionIntroduction to ICICI BankImpact of globalisation on ICICI BankConclusionReferencesIntroductionGlobalization is the consolidation of world full markets. It changes everything enabling corporations, countries and somebody to approach around the world deeper and cheaper never ever before (Freidman, 2005). agree to Cato (cited Ervin Smith, 2008), Globalization defines the current inclinations towards the unbind flow of international investment trade beyond borders and the emerging merger of the economy around the world. Globalization hikes development standard of living of the countries that expose themselves to global market as it increased frugal emancipation and drive competition (Ervin Smith, 2008).Globalization is the merger of historically distinct and separate national market into large global market. Falling down of barricades to sell internationally (Hill, 2012)There consume also been changes in the firearm of trade and pecuniary flow and trade flow atomic number 18 increasingly made up of fair factors of harvest-feastion. Hummels, Ishii, andYi (2001) detail the growth in vertical metier, and J iodins, Kierzkowski, and Lurong (2005) detail the rise in fragmentation and outsourcing. At the equal time, cap market transactions are an increasing part of international Financial Flows. Lane and Milesi-Ferritti (2007) put down the increasing importance of cross-border capital flows since the mid-1980s. Globalization, in brief, is a process of increasing scotch integration and growing economic interdependence among countries in the world economy. It is a relative softening up of economic and trade barriers across the countries so as to facilitate a free interflow of capital technology, people, goods and goods.Demand and competition in the market has been increased and changed. From production to services all(prenominal) and every welkin is facial expression for international exposure. So umteen national companies be comply International in the last decade. close of U.S. Companies have their Head offices in USA, but all the production work d one(a) by Asian countries like China, India and Philippians (Hill, 2012).Impact of Globalization on Banking IndustryThe edgeing sector is one of the most important economic sector and most influential and responsive to change whether international or domestic (Kenaway, 2009)The world banking brass has gone through with(predicate) some(prenominal) transformations in last decade. There are drastic changes in service as well as technology. There is huge increment and integration of international mo webary sect or. Transformations fashion the opportunity and challenges for international banking. It also adds the opportunity to expand internationally. Banks come with disparate changes like high lumber customer services and slight face to face interaction for example customer kitty trace with bank through call centre many miles away or when they can buy goods and guide the cash through online transaction system within minimum time period. Deregulate the banking acts and combines with globalization and integration of financial markets. Create stark naked competitive environment to increase the efficiency of baking services. Increment in competition due to globalization and deregulate should proceed on exquisite and large casing banks. aft(prenominal) adopting globalization government stopped protecting their local banks, world become a level acting field with survival of the fittest. Due to high competition banks provide high hat possible services in the most efficient way. N ow banks start providing all financial solution to customer. They are providing loan and so many third party cross sell products. Competition made traditional banks come out of comfort level and turn to more than effective way to service customers. So many small scale domestic banks merge with big players of patience numerous of research studies show that large scale impact on banking industry in all over the world. Due to global competition many of small bank merge with large banks. For example Bank of Rajasthan merge with ICICI BANK in 2010. (Business standard.com, 2010)Poters Five Forces ModelAccording to Henry A. (2011) Porters five forces framework can benefactor organizations to ascertain the attraction or profit potential oftheri industry by analysing the relative impact of each of the five forces on their industry structure. (Henry, 2011)The availability of the various players presents the industry so competitive and dynamic. This calls for a submit for each individual player to operate competitively in order to sustain its concern. The players in the industry need to make a strategic analysis of the industry in order to know the allow for strategies to be applied in order to sustain the business continuity. One of the useful models in assessing the attractiveness of any industry is Porters Five Forces Framework (Porter, 1980)Rationale of the Porters Five Forces Model in the Banking IndustryThe model attempts to address key strategic issues in a wider scope. Many of the issues mentioned in the model, including the forces and the management of those forces, are relevant to the banking sector as well as any an opposite(prenominal) service-oriented business. The results, which will be obtained by the application of this model, should be given the value of the time of the analysis and that a continuous review is necessary in order to avoid to be myopic or noncurrent with the results. Michael Porter provided a framework that models an industry as being influenced by five forces (Porter, 1980). Figure 1 provides details of the framework.Fig Porters five forces model (Exploring Management, John R. Schermerhorn, Jr)Threat of New EntrantsAccording to Hill and Jones (2009) potential competitors are the companies that are not currently competing in the industry but have capability to do so if they choose. The threat of entry of innovative firms into an industry depends on extent of barrier to entry like economies of scale, capital requirement, government policies, switching represent for buyers, and so on (Kew Stredwick, 2005)To open a new bank, huge capital investment is required. Moreover, there are lots of regulatory issues like government regulations for licensing, etc. Despite of these obstacles, a large number of banks are entering the market so the threat of new entrants should be high. But, due to bank failures and mergers according to FDIC, the number of banks opened from 1977 through 2002 is roughly 215 per year. Tru st is one of the biggest hurdles for entry of a new bank.It is difficult for new banks to start up due to function of money financial information of other people. People tend to trust big brand call that are well know big banks, which, according to them are trustworthy.Today, banks are providing facilities for serving all financial demand of the customer at one place. clients tend to allow a major well known bank to look subsequently all of their accounts and financial needs. This centralization further makes it difficult for new banks to enter.As a result, the threat of new entrants is comparatively low in banking industry.Bargaining Power of SuppliersSuppliers are the individuals or companies that provide inputs in terms of resources and materials, services etc into the industry (Hill Jones, 2009). The power of suppliers is dependent on Number of suppliers, crisscross Power,possibility of forward integration and dependence of customers, etc.(Kew Stredwick, 2005)In banking industry, capital is the major resource and primarily there are 4 suppliers of capital i.e. Deposits of the customer, loans mortgages, mortgaged securities and loans taken from other financial institutions. Through these major suppliers, the bank can meet its requirements like borrowing needs of the customers and at the same time keeping enough money to fulfill withdrawal requirements.The power of the suppliers is widely based on the market and impact of this power is between medium to high.Bargaining Power of BuyersAn industrys buyer may be the individual or end user that will ultimately consume/buy the product of the firm or the companies that dish up the products further. (Hill Jones 2009). Buyers power depends on concentration of buyers, alternative sources of purchase, possibility of backward integrations. (Kew Stredwick, 2005)As farthermost as an individual is concerned, it is not a major threat. But, if the cost of switching is higher, then this can affect the power of th e buyers. If a single bank looks after all the banking requirements of the customer like savings, mortgages and other financial needs, then it will be a big botheration for the customer to move to some other bank.In order to persuade customers to move to their bank, the entrepreneurs may use different tactics like discredit the switching costs, but most of the customer may still choose to stay with their current bank.The earnings has played a vital role in increasing the power of the customer in this industry. Customer can very easily and conveniently compare various banks at almost no cost at all. The cost of opening and maintaining an account as well as the rates offered by different banks can be checked by the customer anytime, anywhere.Threat of Substitute ProductsThe more substitutes a product has, the demand for the product becomes more elastic. Elastic demand means increased consumer price sensitivity which equates to less certainty of profits (Kew Stredwick, 2005). Avail ability of substitutes of products places limits on the prices market leaders can charge (Hill Jones, 2009)The banking industry is not as much affected by rival banks but the non-financial organizations pose bigger threat of substitution. Although these organizations do not provide deposits, withdrawals, etc, but services such as mutual funds, insurance and fixed earning securities are offered by these companies in much convenient way.Method of payment and loans pose a threat of substitutes, which is relatively higher. For example, dealer who sell costly items like automobiles, ornaments, electronics, etc usually prefer financing expensive items. Usually, these companies give pull down rate of interest on bill payment as compared to loan taken from any bank.9Intensity of Competitive RivalryRivalry refers to the degree to which firms respond to competitive moves of the other firms in the industry (Hill Jones, 2009). Rivalry among existing firms may manifest itself in a number of w ays- price competition, new products, increased levels of customer service, warranties and guarantees, advertising, better networks of wholesale distributors, and so on Barnat, 2014.)There is very high competition is banking industry. This industry is into cosmos since hundreds of years and is servicing people since then. Due to this reason, banks need to try to inveigle customers from their rival banks. This is done through lower rates of interest on loans, higher rates on deposits, better convenient after sale services and other investment related services.The basic competition is this industry is to give best services within minimum time period. But due to this completion banks are suffering from lower Returns on Assets (ROA). Due to this nature of the banking industry, there is possibility of more consolidation of the industry. Bigger banks go for acquiring or merging with smaller banks instead of spending valuable money on advertising and marketing.Introduction to ICICI BankIn dustrial Credit and Investment Corporation of India founded in 1955 as a joint approximate of World Bank. Its parent company is ICICI group. ICICI bank promote in 1994 by ICICI limited and whole adjunct of ICICI shareholding. It is an Indian multinational bank and financial services provide based in Mumbai. ICICI have global banking operation 19 countries.ICICI Bank Ltd is Indias second largest financial services company headquartered in Mumbai, India. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery take and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank has a network of 2,533 branches and 6,800 ATMs in India, and has a presence in 19 countries, including India.The bank has subsidiaries in the United Kingdom, Russia, and Canada branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qat ar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The companys UK subsidiary has establish branches in Belgium and Germany.ICICI Banks equity shares are listed in India on Bombay Stock counterchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).Impact of Globalization on ICICI BankTo cope with globalization and increasing customer demand, ICICI was one of the new banks to start profit banking, private banking services and mobile banking services and mobile ATM services. Influenced by globalization, ICICI was the first ever bank from India to borrow Currency Units from European countries.With globalization and presence of multiple national and international firms, it was necessary to provide payment facilities through credit cards. Hence with Airtel and HPCL, ICICI bank launched multi-branded credit card to enhance customer base. ICICI has collaborated with Lloyds TSB of UK to make it easy for people of Indian origin living in the United Kingdom to access more branches and ATM in UK as well as India.In terms of profits, there has been a stiff improvement. It was a conscious strategy to pare the size the bank decided to focus on gainfulness and efficiency. It has improved the composition of funding by reducing high cost funds. There was growth in international business. The international business which was 25% of the banks balance sheet now has come down to 23%. In the UK and Canada, the loan books are flat and in Russia it shrank. In terms of financial performance, ICICI has improved its Earnings Per Share, from 2009 through 2013 EPS has grown from 33.76 to 72.22 an increase of approximately 114%. Also, the net profit margin has rise from 5.63 to 12.94 in the period of past 5 years. ICICI has reduced its total expenses by 17% and increased its income by 15% approximatelyICICI had adopted a strategy of aggressive sales and introduced new innovative expansion strategies and launched new different products which attracted the customers. ICICI had also taken over couple of companies which did give a major boost to its business and deposits recently it had also taken over Bank of Rajasthan. ICICI is successful in catering to the needs of its Indian Customers who are overseas (Non Resident Indians) by introducing many NRI services. ICICI was successful in opening many current and savings accounts and increase its deposits and has also introduced savings accounts for children as well.With this kind of exemplary performance and mate with superb customer service in a very short span ICICI had emerged and successfully became one of the leading private sector banks of India.ConclusionThe overall impact of globalization on ICICI bank is good. The net profit margin of the bank has increased by 2.5% annually in the past five years. The busine ss strategy of the Bank has mainly been driven by the increased globalization of the Indian economy, the growing propensity of Indian corporate expanding overseas, the large population of non-resident Indians and persons of Indian origin across the globe and overseas companies looking to invest in India.ReferencesBarnat R. (2014), Stratigic Formulation, available at http//www.strategy-formulation.24xls.com/Ervin J, Smith Z.A, GlobalizationA Reference Handbook, 2008Friedman T.L. (2005), The World is flat tireHenry A.(2011), Understanding strategic Management, Oxford University Press p. 81-83Hill C., Jones G. (2009) Strategic Management Theory An Integrated Approach, Cengage eruditeness p. 43-45Hill C.W. (2012), International business competing in global marketplace, McGraw-Hill Educationhttp//www.icicibank.com/aboutus/about-us.htmlHummels, D., J. Ishii, and K.-M. Yi (2001) The nature and growth of vertical specialization in world trade,Journal of International Economics, 54, 75-96 .Hummels, Ishii, and Yi (2001) Detail the growth in vertical specialization, and Jones, Kierzkowski, and Lurong (2005)ICICI Annual notify FY13 unattached at http//www.icicibank.com/aboutus/annual.htmlJones, R., H. Kerzkowski, and C. Lurong (2005) .What does evidence tell us about fragmentation and outsourcing,.International Review of Economics and Finance, 14, 305.316.Kenawy, Ezzat Molouk, (2009), Globalization and Its effect on the Banking System Performance in Egypt p. 55Kew J., Stredwick J. (2005), Business EnvironmentManaging in a Strategic Context, CIPD Publishing, p.21-23Lane, P. R., and G. M. Milesi-Ferretti (2004) .International Investment Patterns,.CEPR Discussion Paper 4499.Porter, M E. (1980) Competitive Strategy Techniques for Analysing Industries and Competitors, New York The Free Press.Reporter B.S., Bank of Rajasthan to merge with ICICI Bank, available at http//www.business-standard.com/article/finance/bank-of-rajasthan-to-merge-with-icici-bank-110051900028_1.html Last Accessed May 19, 2010Schermerhorn J.R. (2009), Exploring Management, John Wiley SonsSubsidiaries of ICICI Bank Annual Report FY2013 Availabel at http//www.icicibank.com/aboutus/annual.htmlUpender M., Shreedhar V.(2013) Growth Rates and Responsiveness of Credit to the Changes in Deposits in the Indian Banking, Journal of fellowship Management, Economics and Information Technology