Erste Group Bank is one of the oldest serving banks in Austria. it was founded in 1819 as an Austrian Savings Bank, in 2018, the bank was split into two holdings and Erste Group now includes all companies of the group. The group went public in 1997 with its main objective to expand its retail business into Central and Eastern Europe, then the group has grown through numerous acquisitions and organically to become one of the largest financial services providers in Eastern Europe and terms of clients and total assets (Erste Group, 2021).
The group provides services to retail clients, corporate clients, group markets, and savings banks. The bank employees have 45,000 individuals. Porter’s five forces model is used to assess the business and financial risk Erste Group Bank is exposed to in the market.
Competitive Rivalry in The Market
The Austrian financial services sector is highly competitive and the banks operating in Austria have established subsidiaries in Central Eastern Europe (CEE). The market is poised and there is serious competition among the existing contenders. The major rivals of Erste Group are Raiffeisen Bank International (RBI), Bawag Group and Oberbank. In the financial year 2020, Erste Group Bank has reported revenue of $10.6 billion and has assets of $340 billion with a reported profit of $762 million (Forbes, 2021).
RBI has reported $8.3 billion in revenue and earned a profit of $830 million in 2020 (Forbes, 2021). Bawag Group in the same fiscal year has earned a profit of $324 million and reported $1.7 billion in revenues (Forbes, 2021). Oberbank has reported a revenue of $914 million and a profit of $110.7 million (Forbes, 2021). Considering the above-mentioned facts, the market is highly competitive.
Threat Of Substitutes
The threat of substitutes remains moderate in the short term. The industry has evolved with time but still is the most affected by the technological growth, it has enabled newly formed companies to take on the incumbents. That is due to the outdated practices the industry relies on upon and the intensity of raw data it has to process to process transactions and makes informed decisions.
Fintech companies are beneficiaries of this situation and are exploiting it to its benefit. As one of the world’s smartest cities, Vienna also fosters innovation in the finance sector. Five of Austria’s ten top-ranked startups are fintech and the number of companies in this promising sphere keeps growing (Brkić, 2021). However, traditional companies are responding well as stated 63% of companies responded that digital transformation is an important part of the business model. Therefore, the threat remains moderate in the short-term period.
The Threat of New Entrants
The threat of new entrants is considered to be low in the industry. There are inherent barriers to entry. The major barriers are already established incumbents, capital intensity of the industry, and high regulatory compliance costs. The primary barrier of entry is the high capital requirement as it is difficult for the companies to raise such capital without significant equity, high cost of capital makes it difficult to compete.
Firms with high capital costs tend to lose competitive advantage (Thompson, 1984). Another barrier is the presence of well-established incumbents with huge resources and deep services delivery network. It proves as a deterrent for the existing companies. Moreover, the industry is highly regulated, and there is a considerable compliance cost associated with it. Therefore, the threat is considered to be low to moderate.
Bargaining Power of Buyers
Generally, the bargaining power of the buyers is high. It can be assessed by the associated factors with the buyers such as state of competition, switching cost, brand loyalty, and buyers’ concentration. The industry is competitive, and buyers have many options to choose from, moreover, there is no switching cost associated with the exit.
Therefore, buyers have higher bargaining power as they can quite easily switch among service providers. Despite, mild brand loyalty the products in the industry are similar and lack of differentiation makes it difficult to retain customers. Low switching is one reason for customers’ higher bargaining power (Vyas & Raitani 2014). Therefore, buyers have higher bargaining power.
Bargaining Power of Suppliers
Suppliers hold moderate bargaining power. The risk is considered high if there is a high forward integration risk, suppliers are concentrated, and the supplies are specialized. In the financial services industry risk of forwarding, integration remains low because it is difficult to replicate the distribution network of the existing business. The other major supplies are in form of retail customers, institutional investors, and financial experts. Institutional investors, known as block investors, hold the highest sway because they bring significant cash flows and they have specific caveats attached with them. When suppliers are aware of their importance, they can exercise higher bargaining power (Dess, 2006).
Retail investors are not concentrated and individually cannot bargain better terms. Whereas financial experts are in excess supply than demand and therefore do not have higher bargaining power. Therefore, suppliers have moderate to high bargaining power.
References
Erste Group. (2021). About us. Available at: https://www.erstegroup.com/en/about-us
Brkić, B. (2021). Fintech at Vienna UP’21: A Tale of Virtual Coins and Unicorns. Available at: https://metropole.at/fintech-viennaup21/
Thompson, A. A. (1984). Strategies for staying cost competitive. Harvard Business Review, 62(1), 110-117.
Dess, G. G., Lumpkin, G. T. and Eisher, A. B (2006). Strategic Management. Text and cases. Internationaledition. London: McGraw-Hill.
Vyas, V., & Raitani, S. (2014). Drivers of customers’ switching behaviour in Indian banking industry. International Journal of Bank Marketing.
Forbes. (2021). Erste Group Bank. Available at: https://www.forbes.com/companies/erste-group-bank/?sh=71e1f72633b3
Forbes. (2021). Bawag Group. Available at: https://www.forbes.com/companies/bawag-group/?sh=78b5f719aad3
Forbes. (2021). Oberbank. Available at: https://www.forbes.com/companies/oberbank/?sh=3c371bf823e8
Forbes. (2021). Raiffeisen Bank International. Available at: https://www.forbes.com/companies/raiffeisen-bank-international/?sh=3232f4751275