The Agricultural Bank of China- ABC is one of the leading banks om China. It is also called as AgBank, established in 1951. Its headquartered is in Beijing. ABC has branches across mainland of China, London, Hong Kong, New York, Tokyo, Seoul, Frankfurt, Singapore and Sydney. It has around 320 million retail clients, around 2.7 million corporate customers, and almost 24000 branches. It is known as one of the biggest lenders of China by assets (Nachrichten, 2010, Abchina, 2019). It became public limited in 2010 and fetch the world’s largest IPO- Initial Public Offering at that time and overtaken by other Chinese company named Alibaba (Demos, 2014). Bank of China also includes many services like fund management, investment banking, life insurance, and financial leasing. At the year end of 2015, ABC had the assets worth of RMB 13,538,360 million, and the ratio of capital adequacy was 13.40% (ABchina, 2019). Agricultural Bank of China is successfully competing in the banking industry and can maintain its position. Strong competition, bargaining powers of suppliers and buyers, threats from the entrants and substitute products are the main external factors that the bank must consider, and Porter five forces easily provide the analysis. Here is the Porter’s five forces analysis of Agricultural Bank of China;
Bargaining Power of Buyers
High bargaining power of buyers means Bank must lower down its prices because customers might switch to other banks which are fulfilling their demands. This limits the potential profitability level of the Agricultural Bank of China. Hence the bank will not be able to earn sustainable revenue. However, switching cost for the individual customers would be high, which does not give them enough power to bargain with the Bank, and so with the corporate clients, as it is risky that other banks would provide huge sum of loan or not, what will be the time, etc. Thus, Agricultural Bank of China has high switching cost, which does not allow customer to bargain much (Blueocean, 2019).
Bargaining Power of Suppliers
The strong bargaining power of suppliers means bank has to pay extra as per the demand of the suppliers, and they extract the higher prices intentionally. This will greatly impact the potentiality of Agricultural Bank of China’s costs and profit level in the Regional banking industry. However, ABC has listed its dedicated suppliers for certain things. Furthermore, suppliers are numerous in the industry, thus Bank has the advantage of low bargaining power from suppliers (Resa, 2016).
Threats of New Entrants
Banking industry has high barriers to entry because of the high capitalisation requirement, and strong brand development, which requires numerous resources and that is quite expensive. If in the banking industry, threats of entrants are high, regional banks have to lower down their prices, in order to retain their customers, and this effects their profitability level negatively. Agricultural Bank of China is a big name in the banking industry, thus any new entrant need huge capital and strong brand name to compete with the Bank (Blue ocean, 2019).
Threats from the Substitute Products
In the banking industry, if the threats from the substitute products are high then it is necessary for the banks to bring something new and innovative in the market to retain the customers. Agricultural Bank of China invest more in the research and development department to compete with the new entrants, as they bring new services and innovations, that attracts more consumers. Switching cost of Agricultural Bank of China is also high which also retain the customers (Resa, 2016).
Rivalry of Existing Players
Agricultural Bank of China is not alone in the industry, there are four other banks too; China Construction Bank, Bank of communication, Bank of China, and the Industrial and Commercial Bank of China. They are the big five banks in the industry, thus, very difficult for the ABC to maintain its market share and position, this effect the sustainable profit level of the Bank. Hence, small banks can be takeover or merged by the Agricultural Bank of China (Blueocean, 2019).
References
Abchina, 2019. Company overview. [Online], Available at: http://www.abchina.com/en/investor-relations/company-overview/, [Accessed on: 2nd April, 2019].
BlueOcean, 2019. Agricultural Bank of China Porter Five (5) Forces Analysis. [Online], Available at: http://blueoceanuniversity.com/frontpage/portercoanalysis/24501-agricultural-bank-of-chi, [Accessed on: 2nd April, 2019].
Demos, T. 2014. Alibaba IPO Biggest in History as Bankers Exercise ‘Green Shoe’ Option. [Online], Available at: https://www.wsj.com/articles/alibaba-ipo-biggest-in-history-as-bankers-exercise-green-shoe-option-1411334271, [Accessed on: 2nd April, 2019].
Nachrichten, M. 2010. AgBank to pay dollar 248mln in IPO fees lowest of big four. [Online], Available at: https://www.finanznachrichten.de/nachrichten-2010-07/17406803-update-1-agbank-to-pay-dollar-248mln-in-ipo-fees-lowest-of-big-4-020.htm, [Accessed on: 2nd April, 2019].
Resa, J. 2016. THE IMPACT OF PORTER’S FIVE FORCES MODEL IN RESPONDING TO COMPETITION IN THE BANKING INDUSTRY. [Online], Available at: https://www.academia.edu/26530960/THE_IMPACT_OF_PORTERS_FIVE_FORCES_MODEL_IN_RESPONDING_TO_COMPETITION_IN_THE_BANKING_INDUSTRY, [Accessed on: 2nd April, 2019].