Cathay Financial is a holding company formed in 2001 located in Taipei, Taiwan. The groups operate through Banking, insurance, and securities. The group’s major market share in East Asia; Taiwan, Hong Kong, Cambodia not limited to those (Cathay Financial, 2020). The group operates through its subsidiaries in the world. Their financial activity involves consumer banking through Cathay United Bank, life insurance which includes traditional insurance policies. It also deals in securities which include securities brokerage as well as a separate wing for assets management. The group is one of the top 3 financial institutes based in Taiwan. Porter’s five forces model is a useful tool to identify threats and opportunities faced by Cathay holding in Taiwan’s financial services sector.
Competitive Rivalry in the Market
The financial market in East Asia is very competitive. The major threat to Cathay holdings is Fubon Financial Holding & Taishin Financial Holdings. Both of its competitors are local and hold a strong foothold by having a diversified portfolio in the financial sector. The revenue of Fubon Financial Holding & Taishin Financial Holdings is $26,276 Million (Fortune, 2019) and $ 2,041. Million (Nikkei Asia, 2019) respectively as compared to revenue of Cathay holdings $ 30,451 Million (Nikkei Asia, 2019). Insurance and consumer banking are very competitive in this region so the margin of error is less. Cathay has expanded its business in mainland China recently. Which gives its little edge over its rival. It has expanded its insurance network abroad to expand footprint in the region.
Threat of Substitutes
The dawn of the 21st century brought its own challenges. The technology has swept through all over the industries around the world. The financial sector is revamped by using technology. Fintech startups are emerging everywhere in the world. Similarly, insurtech is taking place in the insurance industry while combining technology with traditional means of business. The companies are using technology to drive new products, increase the efficiency of operation and process. It is helping them satisfy customers and increase customer experience. According to a report, 90% of customers want self-management of their policies by using digital channels. (Deloitte, 2018). Cathay financial holdings need to invest in E-Banking and insurtech to keep intact its integrity and client base.
The Threat of New Entrants
The financial industry is very competitive and scrutinized by governments all over the world. The regulators have established a strict framework to enter the financial industry all around the world. The framework is there to protect the financial industry and the economy of the countries The higher initial cost and high sunk investment make it difficult for a startup. The new startup must come with the newer product within the compliance with the rules set up by the regulators. The cost of compliance and litigation poses a massive threat to new entrants (Deloitte, 2017). This seems burdensome for the startup because established financial companies have deep pockets and they are already working on fintech and insurtech. The threat of new entrants is relatively low.
Bargaining Power of Buyers
The financial industry is directly linked with customers and the availability of a product in the market. If there are similar types of products available in the market, the customer will impose its power. The products in financial markets are usually the same. So buyers hold some power against the companies There are two types of customers one the individual customer and the other is a corporate client. Those companies are always looking for better deals. The corporate client can exert its power due to the bulk purchasing of a product as compared to the individual customer. Customers will expect higher buyer power when they purchase products in bulk. so overall buyer power is higher due to the availability of a product in the market.
Bargaining Power of Supplier
In the financial sector, suppliers are investors, brokerage, and corporate clients. Suppliers hold higher power if the industry is dominated by few suppliers, it provides more products in the market & it is future integrated. The investors are long term partners in insurance companies, they possess power. They can negotiate their terms while investing because they are the backbone of the insurance ecosystem. They can be used to protect the financial future of the company. The brokerage convinces people to opt-out for their product, so basically they can use it as there bargaining chip. The overall bargaining power of suppliers is higher due to its capacity to bring business and to provide financial security for the company’s future.
References
Cathay Holdings. (2020). About us. Available at: https://www.cathayholdings.com/en/holdings/intro/intro/about
Deloitte. (2017). The Future of Regulatory Productivity, powered by RegTech. Available at:
Deloitte. (2018) 2019 Insurance Outlook. Available at https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-fsi-dcfs-2019-insurance-industry-outlook.pdf
Fortune. (2019) Global 500. Available at: https://fortune.com/global500/2019/fubon-financial-holding/
https://www2.deloitte.com/us/en/pages/regulatory/articles/cost-of-compliance-regulatory-productivity.html
Nikkei Asian Review. (2020). Finance. Companies – Cathay Financial Holding Co, Ltd. Available https://asia.nikkei.com/Companies/Cathay-Financial-Holding-Co.-Ltd
Nikkei Asian Review. (2020). Finance. Companies – Taishin Financial Holdings Co, Ltd. Available https://asia.nikkei.com/Companies/Taishin-Financial-Holdings-Co.-Ltd