KB financial group is the holding company that provides services in the financial sector; it is one of the largest financial groups in South Korea with its overseas holdings spawning in Southeast Asia as well as the United States and United Kingdom (Nikkei Asian Review, 2020). The group was incorporated in 2008 and operates through its twelve subsidiaries and offers services in the form of retail banking, securities and investments, credit cards and corporate banking (KB Financial group, 2020). The group has consolidated total assets in line with other major groups in South Korea. Porter’s five forces model is a useful tool to identify threats and opportunities faced by KB financial group in the Korean financial services sector.
Competitive Rivalry in the Market
In South Korea competition among the financial services sector is regarded as high. According to Jan Bellens (2018) active financial participating population is 25 million and there are many companies those are offering financial services; thus, increasing the competition among incumbent financial services providers. Kb group’s annual revenue for the year 2019 is $ 29,000 million (Fortune, 2020); whereas, its major competitors Shinhan Financial Group and Hana Financial Group have annual revenue of $ 23,916 million and $ 14,301 million respectively (Nikkei Asian Review, 2020). According to the Bank of Korea (2020), there are 9 financial holding companies, as well as 52 commercial banks and 5 specialized banks. The presence of local financial powerhouses, as well as international banks, has increased competition that results in the high competitive rivalry.
Threat of Substitutes
The financial services industry existed for the past few centuries. It has been through the process of continuous evolution since inception. Services offered by financial services institutes are of significant value to customers that they are hard to ignore and they will continue to be the part of the fundamental fabric of society (McWaters et al, 2015). Now, with the advancement of technology and an increase in funding from venture capital they are facing competition from new financial technology startups known as fintech, their goal is to unbundle financial services and provide a valuable alternative to products offered by financial services industry. They are developing niche products and posing competition to one of the products and services offered by financial services institutes. In response, these institutes are embracing change and are adapting. There seems to be no real alternative in the short term to the financial services industry; thus, reducing the threat of substitutes.
The Threat of New entrants
The financial services industry is inherently highly regulated and in the aftermath of the financial collapse of 2008, there are strict compliance frameworks that are to be adhered to by industry with stringent oversight by the state (BSA, 2017). It is a capital intensive industry and comparatively high initial capital is required. The products and services offered by financial services institutes are the alike at the core and they do not vary much, it poses a challenge for new entrants to compete for market share in an existing competitive market (BSA, 2017). The strict compliance and oversight along with the need for higher capital and state oversight reduce the threat of new entrants.
Bargaining Power of Buyers
Customers always have higher bargaining power when they have plenty of options. There is high competition in the Korean financial services sector and customers are aware of that fact. Another factor that contributes to the higher bargaining power of the customer is the standardized products, with no or minimum variance in price (Vyas and Raitani, 2014). Low switching cost from one financial service institute to another financial institute increases the bargaining power of the customer. They can leverage all these factors to bargain the best suitable price for services
Bargaining power of supplier
There are usually three major sources of supply for financial services, which includes sector lending from other institutes or banks in forms of loans, deposits from the customers and the expertise of employees or human resource capital that is at the disposal of the institute to execute its business. Lending institutes have rigorous due diligence processes before they extend loans to any other institute, they consider credit ratings of the potential creditor and then decide appropriate risk premium. They usually holds moderate bargaining power. Customers have high bargaining power due to the abundance of choices at their disposal and low switching cost from one to another, thus they have high bargaining power. They are many people available with financial services background or people aspire to work in the financial services sector with suitable educational background. Considering all these factors suppliers have moderate bargaining power.
References
Bank of Korea. (2020). Financial Institutions. Available at:https://www.bok.or.kr/eng/main/contents.do?menuNo=400097
BSA. (2017).Review Of Barriers to Entry, Expansion, and Exit in Retail Banking. Available at:https://www.bsa.org.uk/BSA/files/97/97d78dbb-e8aa-4f8c-8b26-8c7ea7d95ce9.pdf
Fortune. (2020). Global 500. Available at:https://fortune.com/global500/2019/kb-financial-group/
Jan Bellens. (2018). How a social media firm created Korea’s fastest growing bank. Available at:https://www.ey.com/en_gl/banking-capital-markets/how-social-media-firm-created-south-korea-s-fastest-growing-bank
KB Financial Group. (2020). About Us. Available at:https://m.kbfg.com/Eng/about/info.htm
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).
Nikkei Asian Review. (2020). Finance. Companies – Hana Financial Group, Inc. Available at:https://asia.nikkei.com/Companies/Hana-Financial-Group-Inc
Nikkei Asian Review. (2020). Finance. Companies – KB Financial Group, Inc. Available at:https://asia.nikkei.com/Companies/KB-Financial-Group-Inc
Nikkei Asian Review. (2020). Finance. Companies – Shinhan Financial Group, Inc. Available at:https://asia.nikkei.com/Companies/Shinhan-Financial-Group-Co.-Ltd
Vyas, V. and Raitani, S. (2014). Drivers of customers’ switching behaviour in Indian banking industry. International Journal of Bank Marketing Vol. 32 No. 4, 2014 pp. 321-34.