Fubon Financial (FB) is a holding company that operates mainly in the financial services industry. The company is headquartered in Taipei, Taiwan, it was incorporated in 2001. The company operates in the Asia Pacific, with a focus on banking, insurance and asset management. The company has expansive networks of subsidiaries through them it operates in commercial banking, securities, corporate banking, securities, and assets management. FB has pursued growth by acquisition strategy and its goal is to be one of Asia’s first-class financial institutions. The company has made it to the Fortune 500 global companies list for the consecutive third year (Fubon, 2021). The company has other achievements to its name; the company has ranked 378 in the top 500 most valuable brands (Fubon, 2021). Sustainability policy is central to the company’s operating strategy, in 2020, Fubon Financial Holdings made it onto CDP’s prestigious Climate A-list for the first time and received the highest A ranking in Supplier Engagement Rating. Porter’s five forces model is a valuable tool to identify threats and opportunities faced by FB in the financial services sector.
Competitive Rivalry in the Market
The global financial services sector is highly competitive and the same situation persists in Asia. Many international financial services companies have an operational base here in Asia; in addition, domestic flag bearers are competing in the sector. FB’s major competitors are Taishin Financial Holdings (TFH), Cathay Financial (CF) and E.Sun Financial. In 2020, FB has ranked 403 in the Fortune 500 global companies. It has reported revenues of $31,013 million and a profit of $1,892.7 (Fortune, 2021). In a similar period, TFH earned a profit of $468.7 million with revenue of $2.1 billion (Forbes, 2021). In the financial year 2020, CF reported revenue of $24.2 billion and revenue of $2 billion (Forbes, 2021) and E.Sun Financial reported profit and revenue of $650 million and $2.6 billion, respectively (Forbes, 2021). The business is evolving fast to be more customer-oriented and fulfilling customer needs. The high return on investment has made the financial sector magnet for international corporations; therefore, it intensifies the competition.
Threat of Substitutes
The threat of substitutes is low in the shorter-term horizon, but it is moderate to high over a more extended period. When there are better alternatives available in terms of price and services or products they offer, the threat elevates. Technological progress created an upheaval in every industry and financial services are no different. It has enabled high-spirited technology, specifically financial technology startups to compete with the established corporations. For now, incumbents have the advantage of high financial prowess and they offer bundled products and services, whereas disruptors are only targeting one product. As other incumbents are disrupted by the startups, such as Uber and Air BNB, Fintech is trying to disrupt the financial services industry (Saeed Azhar et al., 2016). Incumbents need to evolve and embrace change, otherwise risk being left out. However, in the short-term, there is a low to moderate threat to traditional banks
The Threat of new Entrants
The industry deters newcomers implicitly and explicitly, there are inherent barriers including stringent regulatory framework and massive capital required to enter the industry. Another deterrent is the presence of well-established mega-corporations. There are stringent regulatory requirements for the sector to comply with, and these are in place to protect the larger public interest as if left otherwise would have unintended consequences. Financial services firms spend $180.9 billion on financial crime compliance (PR Newswire, 2020). Another barrier is the high capital required at inception and high working capital requirement. Other than these, the issue of product differentiation exists and the presence of huge corporations operating in the industry. However, in the short term, companies in the sector face moderate to a low threat.
Bargaining Power of Buyers
Generally, consumers can exert high bargaining power in the financial services sector. Technological progression and the maturity of smart devices have started a new chapter of digitization and all industries are impacted by it. Services industries have to adapt to stay relevant for the customer, otherwise, a consumer will switch to a better service provider. In financial services, convenience and speed are at the forefront of all companies. The sector is already crowded and the digital banking platforms are increasing the competition (Darwin Jayson Mariano, 2020). Another reason for buyers to exercise higher power is the lack of product differentiation and availability of alternatives. Due to the nature of services, there is minimal to no brand loyalty, therefore, customers can switch among with ease and low switching cost makes this decision more prompt. High competition is forcing incumbents to compete with startups those are waging price wars. In the financial sector, buyers have high bargaining power.
Bargaining Power of Supplier
The bargaining power of the suppliers depends upon a few of the underlying factors, one of those is what they are offering to the business and another one is the nature of the product or services offered. The main sources of supply are customer deposits, deposits or extended loans from the financial institutes and human resources in form of financial experts. Financial institutes have higher bargaining power because their deposits are subjected to risk premiums and strict due diligence. Consumers are aware of their importance for the banks and thus command higher bargaining power. When consumers are aware of their importance to the business, they can exercise high bargaining power (Dess et al.,2005). On the other hand, financial professionals are in abundance and they want to gain experience at the best institutes, so they do not command higher bargaining power. Considering the facts, suppliers have moderate to high bargaining power.
References
Azhar,S. Zaharia, M. (2016). In race to be Asia’s fintech hub, Singapore leads Hong Kong. Reuters. Available at: https://www.reuters.com/article/us-singapore-fintech-idUSKCN0ZJ10P
Darwin Jayson Mariano. (2020). Will the arrival of digital banks shake up Singapore’s traditional banking industry?. Digital banker Online Available at: https://digitalbankeronline.com/magazine/will-the-arrival-of-digital-banks-shake-up-singapores-traditional-banking-industry/
Dess, G. G., Lumpkin, G. T. and Eisher, A. B (2006). Strategic Management. Text and cases. International edition. London: McGraw-Hill.
Forbes. (2021). Cathay Financial. Available at: https://www.forbes.com/companies/cathay-financial/?sh=d40af5f1b7af
Forbes. (2021). E.Sun Financial. Available at: https://www.forbes.com/companies/esun-financial/?sh=861e0045c97f
Forbes. (2021). Taishin Financial Holdings. Available at:https://www.forbes.com/companies/taishin-financial-holdings/?sh=7e4f6b6369e3
Fortune. (2021). Fubon Financial Holding. Available at: https://fortune.com/company/fubon-financial-holding/
PR Newswire. (2020). Financial Services Firms Spend $180.9 Billion on Financial Crime Compliance, According to LexisNexis Risk Solutions Global Study. Available at: https://www.prnewswire.com/news-releases/financial-services-firms-spend-180-9-billion-on-financial-crime-compliance-according-to-lexisnexis-risk-solutions-global-study-301036194.html