Bank of Jiangsu (BOJ) is a large provincial corporate bank. The bank was incorporated in 2007 after the merger of ten commercial banks in Wuxi, Suzhou and Nantong. The bank is headquartered in Nanjing, China. BOJ has a vast presence in the province; it has 13 branches inside Jiangsu and four branches outside the province. In total, BOJ has 541 business offices and employee 14,000 peoples. BOJ was listed on the Shanghai Stock Exchange through an IPO in August 2016 (Bank of Jiangsu, 2021).
BOJ has the mission of providing high-quality financial service for customers and guided by the enterprise culture of extreme integrity and professionalism. BOJ has many accolades to its name, including being ranked at 117th place among the top 1000 banks by Banker in 2017. Porter’s five forces model is used to assess the business and financial risk Bank of Jiangsu is exposed to.
Competitive Rivalry in The Market
The financial services industry is inherently highly competitive, and a similar situation is prevalent in China. Chinese banks are among the world largest banks; it is partially attributed to the massive infrastructure and consumer market. The major competitors of Bank of Jiangsu are China Merchants Bank (CMB), ICBC and Bank of Shanghai (BOS). For the financial year 2020, BOJ has reported a revenue of $14.9 billion and earning a profit of $2.1 billion (Forbes, 2021). In 2020, CMB earned revenue of $60.4 billion while earning a profit of $14.1 billion (Forbes, 2021).
In the same fiscal year, ICBC, one of the biggest Chinese banking company has reported $190.5 billion and a profit of $45.8 billion (Forbes, 2021). Bank of Shanghai has earned $14 billion and $2.7 billion, respectively, in 2020. Due to the massive banking infrastructure in mainland China, there is stiff competition in the financial services sector.
Threat of Substitutes
The financial services industry faces immense pressure from the newly minted fintech companies; they take advantage of the technological advancements. There is a moderate threat in the long-term horizon, and a minima threat exists in the short-term period. Financial services remain part of the society for the countries and have an important part of business and working community. There is potential for improvements in the industry, and these companies are trying to take advantage of this vacuum.
The industries data-intensive nature makes it a prime candidate for innovative solutions to improve the processes. However, these new companies lack is the product mix; they are challenging one-off product offered by the traditional banking companies. The existence of the financial services industry is inevitable because of its importance in society (McWaters et al., 2015). However, due to the non-existence of a real alternative, the threat seems to be low.
The Threat of New Entrants
The threat of new entrants is moderate in the financial services industry. The threat is directly proportional to certain factors, including the capital requirement, regulatory requirement and the established incumbents. There are stringent financial regulations globally, and strict compliance is required; there is an additional layer due to the authoritarian government’s oversight in China. Another deterring factor is a high capital requirement at inception; the industry is highly capital intensive, and significant funds are required to smooth the operations.
However, the high capital investment to compete and the risk of sunken cost poses a barrier to entry. The established incumbents also act as an important discouraging factor for the newcomers; it will be difficult to break through and gain market share. According to (Bloomberg, 2020), as of 2019, 19 of the top 100 banks were based in China, and they reportedly have $25 trillion in assets. Therefore, the threat remains moderate to low
Bargaining Power of Buyers
The bargaining power of customers is assessed to be strongly moderate to high in the industry. The bargaining power is directly dependent upon the underlying factors, including buyers’ concentration, competition in the industry and the availability of better alternatives. China has the largest consumer market, so is the number of megabanks. There is stiff competition among bank, which lends consumers leverage. If the industry competes for the market share, customers have higher bargaining power (Masocha et al., 2011).
Digitization has raised customer expectations, and convenience and customer services are the top priorities among them; buyers can use that to their advantage in the competitive state. There is a lack of differentiation and low switching cost among competitors; this makes it easy for the consumer to switch services providers. Therefore, customers have higher bargaining power.
Bargaining Power of Suppliers
The supplier’s risk is moderate in the industry. It is directly proportional to the importance of supplies, the nature of supplies, suppliers, concentration, and the risk of forwarding integration. The primary sources of supplies are human resources, institutional investors, and retail investors. The suppliers do not have the benefits of forwarding integration, and they lack the infrastructure for that; thus, the risk remains low. The individuals have less bargaining power as more individuals are looking to work in the sector than available vacancies.
The institutional investors bring large chunks of funds and have caveats associated with investments; they cover their risk by seeking higher risk premiums and therefore hold higher bargaining power. When suppliers know their importance, they can exercise higher bargaining power (Dess, 2006). The individuals have moderate bargaining power as they are necessary for the business, but the individual customer cannot affect the potential business on their own. Therefore, suppliers have moderate to high bargaining power.
References
Bank of Jiangsu. (2021). About us. Available at: http://www.jsbchina.cn/EN/aboutus/aau/index.html?flag=0
Bloomberg. 2020. Chinese Banks Remain World’s Largest in Latest Global Bank Rankings. Available at: https://www.bloomberg.com/press-releases/2020-04-17/chinese-banks-remain-world-s-largest-in-latest-global-bank-rankings
Dess, G. G., Lumpkin, G. T. and Eisher, A. B (2006). Strategic Management. Text and cases. Internationaledition. London: McGraw-Hill.
Forbes. (2021). Bank Of Jiangsu. Available at: https://www.forbes.com/companies/bank-of-jiangsu/?sh=244d01a6748f
Forbes. (2021). Bank Of Shanghai. Available at: https://www.forbes.com/companies/bank-of-shanghai/?sh=5e0b67d73339
Forbes. (2021). China Merchants Bank. Available at: https://www.forbes.com/companies/china-merchants-bank/?sh=268f4a986263
Forbes. (2021). ICBC. Available at: https://www.forbes.com/companies/icbc/?sh=1e7a4ce41679
Masocha. R., Chiliya. N., and Zindiye. S. 2011. The impact of technology on competitive marketing by banks. A case study approach. African journal of marketing management. 3(3):68-77.
McWaters, J., Bruno, G., Lee, A., & Blake, M. (2015). The Future of Financial Services-How disruptive innovations is reshaping the way financial services are structured, provisioned and consumed. In the World Economic Forum. Junio de (Vol. 2105).