Royal Bank of Canada is a banking and financial service company based in Canada that operates in multiple countries. The company offers banking and financial products and services that mainly includes wealth management, insurance, personal and corporate banking, investors and treasury services. RBC is the largest bank operating in Canada and one of the largest in the world on the basis of capitalizing the market (Statista, 2018). The company employs more than 84,000 employees with more than 16 million customers in different countries in which RBC operates (RBC, 2019).
It is important for RBC to continuously assess the banking and financial service market to continuously grow. Porter’s five forces model is presented with respect to Canadian banking and financial service industry to provide valuable insights for the company to prosper.
Competitive Rivalry
The charming banking industry of Canada has attracted several companies to invest and grow. There are multiple players that are massive in terms of size and assets along with market capitalization. Banking and financial companies are coming up with offers to beat the competitors and take the edge. RBC is currently leading the market with a market capitalization of 100.9 billion US dollars in 2018. Its major competitor Toronto-Dominion Bank is not lagging far behind and has a massive market capitalization of 94.9 billion US dollars. There are several other banks and financial institutions with such massive market capitalization that mainly includes Scotiabank, The Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada with a value of 65.9, 44.1, 35.3, and 14.8 billion US dollars in 2018 (Statista, 2019). This provides an overview of the tough competition in the Candian banking and financial industry. Therefore, the competitive rivalry in the banking and financial services industry of Canada is intense.
Threat of Substitutes
The financial and banking services are as important to businesses today as breathing to human beings. The companies cannot survive without banking and financial services. The importance of these services for personal consumers can also never be ignored as it is highly significant (McWaters et al, 2015). The service of this industry has been revolutionized due to advancements in technology but the financial and aking service industry has been there since ages (Goro, 2003). There look to be no close substitute for the services in the near future that actually decreases the threat of substitute for the banking sector.
The Threat of New Entrants
The banking and financial services require a large amount of capital to set up business. The legal requirements to start a banking business also create several hurdles for the companies to enter the industry. The customers switch to new entrants when they offer something different and exceptional that does not seem to be the case in the banking industry as all banking and financial service provide the standardized core product (BSA, 2017). Therefore, the threat of new entrants is low due to the mentioned hurdles.
Bargaining Power of Buyers
The bargaining power of buyers is always high when there are a number of options available for the buyers. Another factor that contributes towards the strength of bargaining power of the buyer is the absence of differentiation between the products of competitors (Voyass & Raitani, 2014). The Canadian Banking industry posses both of these factors as there are six major competitors with massive market capitalization. All are offering the banking and financial services with little innovation and differentiation among their service but the core product or service is the same for all the companies (Clemes et al, 2010). Therefore, the bargaining power of buyers Candain banking and financial market is high.
Barraging Power of Suppliers
There are three major suppliers for a bank and financial institution that are customer’s deposits, other financial institutions that lend money, and the experts or employees that run the companies. The customers are already having the strength of bargaining while financial institutions also understand the importance of their money for commercial banks and financial institutions. Both of these factors contribute to the high bargaining power of suppliers. The experts of financial services are in abundance but it does not help to neutralize the impact of other two factors of suppliers. Therefore, the bargaining power of suppliers is high.
References
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
Clemes, M. D., Gan, C., & Zhang, D. (2010). Customer switching behavior in the Chinese retail banking industry. International Journal of Bank Marketing, 28(7), 519-546.
Goro, R. W. (2003). Strategic responses of commercial banks to the threat of substitute products. Unpublished MBA Project, University of Nairobi.
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).
Statista. (2019). The market capitalization of selected Canadian banks as of December 12, 2018 (in billion U.S. dollars). Available at: https://www.statista.com/statistics/460840/market-capitalization-of-leading-canadian-banks/
Statista. (2018).Royal Bank of Canada – Statistics & Facts. Available at: https://www.statista.com/topics/3030/royal-bank-of-canada/
Vyas, V., & Raitani, S. (2014). Drivers of customers’ switching behavior in the Indian banking industry. International Journal of Bank Marketing, 32(4), 321-342.
RBC. (2019). About us. Coporate Profile. Available at: http://www.rbc.com/aboutus/index.html