ICICI Bank: Porters Five Forces Analysis

ICICI brink Porters Five Forces AnalysisContents (Jump to)IntroductionImpact of Globalization on Banking IndustryPoters Five Forces prototypeRationale of the Porters Five Forces Model in the Banking IndustryThreat of smart EntrantsBargaining Power of SuppliersBargaining Power of BuyersThreat of championship ProductsIntensity of Competitive RivalryIntroduction to ICICI BankImpact of Globalization on ICICI Bank determinationReferencesIntroductionGlobalization is the integration of worldwide markets. It changes eitherthing modify corporations, countries and soulfulness to approach around the world deeper and cheaper n ever so ever before (Freidman, 2005).According to Cato (cited Ervin Smith, 2008), Globalization defines the current inclinations towards the unbound flow of international investment distri preciselye beyond b points 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 scotch freedom and drive competition (Ervin Smith, 2008).Globalization is the merger of historic completelyy distinct and separate national market into huge global market. F wholeing down of barriers to make out internationally (Hill, 2012)There contrive also been changes in the composition of trade and monetary flow and trade flow ar increasingly made up of intermediate factors of production. Hummels, Ishii, andYi (2001) detail the branch in vertical specialization, and Jones, Kierzkowski, and Lurong (2005) detail the rise in fragmentation and outsourcing. At the same time, capital market transactions are an increasing part of international Financial Flows. Lane and Milesi-Ferritti (2007) document the increasing importance of cross-border capital flows since the mid-1980s. Globalization, in brief, is a process of increasing economic integration and growing economic interdependence between countries in the world economy. It is a relative soft ening up of economic and trade barriers across the countries so as to facilitate a free interflow of capital technology, people, goods and services.Demand and competition in the market has been increased and changed. From production to services each and every sector is looking for international exposure. So m whatsoever national companies become International in the last decade. Most of U.S. Companies have their Head offices in USA, but all the production work done by Asian countries deal China, India and Philippians (Hill, 2012).Impact of Globalization on Banking IndustryThe wedgeing sector is one of the most alpha economic sector and most influential and responsive to change whether international or domestic (Kenaway, 2009)The world lodgeing system has gone through many transformations in last decade. There are drastic changes in service as well as technology. There is huge increment and integration of international financial sector. Transformations create the opportunity and challenges for international banking. It also provides the opportunity to expand internationally. Banks come with different changes ilk graduate(prenominal) quality customer services and less guinea pig to face interaction for example customer rear end contact with bank through call centre many miles away or when they stack secure goods and send the money through online transaction system within minimum time period. Deregulate the banking acts and combines with globalisation and integration of financial markets. Create new competitive environment to increase the efficiency of baking services. Increment in competition due to globalization and deregulate should affect on small and bouffant casing banks. After adopting globalization government stopped protecting their local banks, world become a level playing field with survival of the fittest. Due to high competition banks provide best possible services in the most efficient way. Now banks start providing all financial solut ion to customer. They are providing lend and so many third party cross sell products. Competition made traditional banks come out of comfort level and turn to much effective way to service customers. So many small scale domestic banks merge with big players of applicationMany of research studies show that adult scale impact on banking persistence 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 v forces framework can help organizations to ascertain the attractiveness or profit potential oftheri industry by analysing the relative impact of each of the five forces on their industry structure. (Henry, 2011)The handiness of the various players makes the industry so competitive and dynamic. This calls for a need for each individual player to operate competitively in order to sustain its bus iness. The players in the industry need to make a strategic summary of the industry in order to know the appropriate 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 applicable to the banking sector as well as any separate service-oriented business. The results, which will be obtained by the application of this model, should be extend ton the value of the time of the analysis and that a continuous review is necessary in order to avoid to be myopic or obsolete with the results. Michael Porter provided a framework that models an industry as being influenced by five forces (Porter, 1980). Figure 1 provides de tails 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 nemesis of entry of new firms into an industry depends on extent of barrier to entry like economies of scale, capital requirement, government policies, switching cost for buyers, etc. (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 calculate 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. swan is one of the biggest hurdles for entry of a new bank.It is difficult for new banks to start up due to involvement of money financial information of other people. People tend to trust big brand names that are well known big banks, which, according to them are trustworthy.Today, banks are providing facilities for serving all financial needs of the customer at one place. Customers tend to allow a study well known bank to look after 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 relatively 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, Brand 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. De posits 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 wide 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 distribute 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 far 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 the buyers. If a single bank looks after all the banking requirements of the customer like savings, mor tgages 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 lowering the switching costs, but most of the customer may still choose to stay with their current bank.The internet has played a vital reference in increasing the power of the customer in this industry. Customer can very easily and conveniently com snip 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 esthesia which equates to less certainty of profits (Kew Stredwick, 2005). Availability of substitutes of products places limits on the prices market leaders can charge (Hill Jone s, 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 amend 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 lower 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 ways- 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 existence 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 BankIndustrial Credit and Investment Corporation of India founded in 1955 as a joint venture of valet Bank . Its parent company is ICICI group. ICICI bank promote in 1994 by ICICI limited and whole subsidiary 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 merged and retail customers through a variety of delivery channels 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, Qatar and Dubai International Finance perfume and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The companys UK subsidiary has established branches in Belgium and Germany.ICICI Banks equity shares are listed in India on Bombay sprout Exchange 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 internet 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. because 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 substantial improvement. It was a conscious strategy to pare the size the bank decided to focus on profitability 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 surgical operation, 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 shore has risen 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 n ew 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 occupier 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 coupled 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 business strategy of the Bank has mainly been driven by the increased globalization of t he Indian economy, the growing trend of Indian corporate expanding overseas, the large tribe 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 FlatHenry A.(2011), Understanding Strategic Management, Oxford University Press p. 81-83Hill C., Jones G. (2009) Strategic Management Theory An Integrated Approach, Cengage Learning 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, a nd Lurong (2005)ICICI Annual herald FY13 Available 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 Effects 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. newsman 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 o f ICICI Bank Annual Report FY2013 Availabel at http//www.icicibank.com/aboutus/annual.htmlUpender M., Shreedhar V.(2013) Growth Rates and reactivity of Credit to the Changes in Deposits in the Indian Banking, Journal of Knowledge Management, Economics and Information Technology