Shinhan Financial Group offers a wide range of financial products and services in consumer finance, commercial, private banking, investments, and insurances to its subsidiaries firms across the globe. The group has roots dated back to 1982 when Shinhan Bank became the first bank in the country, and the institution was formed in 2001 and having its Headquarters in Seoul, South Korea. As of 2018, the group’s global business has generated a net income of around 342.3 Billion Won (Shinhan, 2018). Keeping in view the global financial perspective, a study of the Porter Five Powers will be instrumental in determining the company’s strategic role in the financial industry to face the challenges and sustain the position.
Competitive Rivalry in the Market
The competitive rivalry in the financial sector is considered to be high because of the presence of a large number of firms in the global economy to meet the financial and monetary demands of individuals and corporate. As a result of this demand, firms entered the market at the national and international level to provide a range of financial product and services, which resulted in strong competition among the established players in the industry. According to Statista (2021), the major competitor in terms of the group’s total assets is Kookmin Bank, Hana Bank and Kakao Bank. Shinhan group is trying to lead the market with the total assets of 378 trillion South Korean Won, while other having total assets of 414, 365 and 24 Trillion South Korean Won. Therefore, the presence of such big names in the industry makes the competition more complex.
Threat of Substitutes
Financial firms have existed for a very long, but their structure and context have evolved and changed through time, making the possibility of substitutions minimal. The presence of a large pool of firms in the industry that are providing hundreds of channels for the product and services to the community have reduced the likeliness of substitutes. However, the methods and dealing with the consumers have been innovated in providing premium services because of the influence of digital technology. As the financial sector is of prime importance to every business, no product and services are capable enough to replace or pose a challenge to the institutions (Zalan and Toufaily, 2017). Hence, the probability of substitutes in the sector is considered to be low.
The Threat of New Entrants
The new entrant threat in the financial sector is considered to be low since the industry operates with the financials of other individuals, and they usually do not want to move towards a new firm considering it risky. Given the nature of the business, customers are more willing to put their trust in well branded, possibly the best and major corporations that they perceive as trustworthy. To provide products and meet sales volumes, efficient financial system operations involve a considerable amount of capital and difficult situations such as creating communications systems, overcoming political constraints, and dealing with law and policies (Das et al., 2018). Therefore, the threat of possible entrants is minimal in the financial sector.
Bargaining Power of Buyers
The bargaining power of consumers is relatively high in the financial sector because of the so much similar business and personal products and services offered from the firms, and due to this abundance, customers have more negotiating power. Due to the advent of technology and internet, the customers have become more aware and conscious. Individuals may now compare the quality of having several accounts and the services made by various banks far more effectively and at a cheaper cost. Because there are so many companies, customers can switch to any of them if they are persuaded to new products or a lower price (Pick and Eisend, 2014). Such nature of business influences the negotiating power of buyers in the industry.
Bargaining Power of Suppliers
The bargaining power of suppliers in the context of the financial sector is medium to high because suppliers are considered the backbone to meet the demands in the community. In addition, customers’ funds, bonds and loan repayments, shares, and financing from other financial institutions keep the institutions afloat so that they can continue to offer the resources that the sector requires while also preserving adequate capital and outflow commitments to encourage suppliers to engage. Buyers, however, serve a critical role in keeping supplier conditions modest due to the industry’s continued growth. (Mani et al., 2018). In such a context, the bargaining power of suppliers can be termed moderate.
References
Das, P., Verburg, R., Verbraeck, A. and Bonebakker, L., 2018. Barriers to innovation within large financial services firms. European Journal of Innovation Management.
Mani, V., Gunasekaran, A. and Delgado, C., 2018. Enhancing supply chain performance through supplier social sustainability: An emerging economy perspective. International Journal of Production Economics, 195, pp.259-272.
Pick, D. and Eisend, M., 2014. Buyers’ perceived switching costs and switching: a meta-analytic assessment of their antecedents. Journal of the Academy of Marketing Science, 42(2), pp.186-204.
Shinhan, 2018. Shinhan Financial Group Co Ltd – AnnualReports.com. [online] Annualreports.com. Available at: https://www.annualreports.com/Company/shinhan-financial-group-co-ltd.
Statista, 2021. South Korea: major banks by total assets 2020 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/1234928/south-korea-major-banks-by-total-assets/.
Zalan, T. and Toufaily, E., 2017. The promise of fintech in emerging markets: Not as disruptive. Contemporary Economics, 11(4), pp.415-431.