China Huarong Asset Management is a state-owned Chinese financial asset management firm focusing on managing financial services and distressed debts. The organization was formed in 1999 by the Government of China and has its headquarter in Beijing, China. As of the first half of 2020, the firm has expanded its operations with 33 branches covering almost 30 provinces with its services with total assets of almost 1730 billion RMB and revenue of 45 billion RMB (Chamc, 2021). Considering the financial services industry of China, an overview of the Porter five forces would be of immense value to recognize the firm’s strategic position in the Chinese market.
Competitive Rivalry in the Market
The competitive rivalry in the financial sector in the Chinese market is high because the Chinese were able to accumulate assets and wealth due to the continuous economic development. The country’s business and financial structures are much bigger and are mounting at an yearly growth speed of 4.8 per cent. As a result of this growth, many banks and investors have entered the market to provide financial services related to asset management to customers, resulting in fierce competition among major corporations. The organization’s major competitors are the China Cinda Asset Management and China Orient Asset Management. According to Chen, Xiong and Huang (2015), China’s asset management business has expanded to $2.8 trillion in total assets under management, with far more than $6.12 trillion when investment and bank wealth-management solutions are factored in. Over the last 20 years, China’s asset management industry has considerably improved due to the efficiency of policymakers and market players. Therefore, making the competition force higher in the market.
Threat of Substitutes
The threat of substitutes is considered to be low in the financial services industry, specifically asset management. Financial services offered by such firms are of great importance to consumers that are hard to ignore in today’s contemporary society and environment. With modern technology, many developments are being made to provide different products and services, imposing every other firm to adapt to change in terms of their dealing with the consumers for attraction. (Black et al., 2017). Moreover, there seems to be no natural alternative other than providing products and services as far as financial services are concerned. Therefore, the threat of having substitutes in context to the financial industry is low.
The Threat of New Entrants
The threat of new entrants in the financial industry, specifically the asset management sector, is low because barriers to entry make it a genuine hurdle for the investors to cope with the burden. Moreover, legal regulations and policies by the government matter the most and require much time and money to establish a setup in the established sector, and it becomes hard to attract enough clients to reach breakeven. It requires hundreds of millions of dollars to meet the capital equipment, technology adaption among the business process and industry expenses to make an image of the firm and get healthy returns for smooth operations (Fang, 2016). As a consequence of these barriers the threat of new entrants is low.
Bargaining Power of Buyers
The bargaining power of buyers in such a context is reasonably high as buyers are becoming more institutionalized. Consumers can use the information available in abundance over the internet and advertising in the best possible terms and can avail themselves the customized plans to manage their assets and wealth through such firms. Moreover, most of the firms charge almost the same amount or with littler variations with product differentiation that consumers can choose to select and with low switching cost (Seabrooke and Wigan, 2017). The availability of various options from different organizations makes the consumers negotiate better, influencing buyers’ bargaining power in the financial services industry.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the financial services industry and the asset management sector is moderate as it involves the wealth and assets of consumers and different stakeholders. Similarly, in the Chinese market, government plays a vital role in maintaining the demand and supply of capital and investments required to operate the industry, including several suppliers, lending institutions or banks, etc. When it comes to negotiation, supplier exchange rates and market dynamics considerations may affect suppliers’ role in the enterprise setting. (Peters, 2014). In such a context, the bargaining power of suppliers can be termed as moderate.
References
Black, S.E., Devereux, P.J., Lundborg, P. and Majlesi, K., 2017. On the origins of risk‐taking in financial markets. The Journal of Finance, 72(5), pp.2229-2278.
Chamc, 2021. About Huarong. [online] Chamc.com.cn. Available at: http://www.chamc.com.cn/gyhr/gsjj/index.shtml.
Chen, Z., Xiong, P. and Huang, Z., 2015. The asset management industry in China: its past performance and future prospects. The Journal of Portfolio Management, 41(5), pp.9-30.
Fang, L., 2016. ENTRY BARRIERS, COMPETITION, AND TECHNOLOGY ADOPTION. Economic Inquiry, 55(2), pp.794-805.
Peters, C.T., 2014. Bargaining Power and the Effects of Joint Negotiation: The” Recapture Effect” (No. 14-3). EAG Discussion Paper.
Seabrooke, L. and Wigan, D., 2017. The governance of global wealth chains. Review of International Political Economy, 24(1), pp.1-29.