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SM in class assignment

Mohammed Imran Ali
20BBA0110
Explain the impact of 5 forces model on the banking industry.
The development of business strategies is often primarily dependent on the forces that exist in an
industry, as they can determine how successful a company will be in operating. The five forces model
was developed by Michael Porter to analyze such forces, and it remains one of the most influential
frameworks for strategic thinking and planning. In this blog post, we explain the impact of this model on
the banking industry.
Five Forces Model
Porter's Five Forces Model comprises five individual met AArics that are used to analyze an industry or
market. These metrics include: 1) threat of entry; 2) bargaining power of suppliers; 3) bargaining power
of buyers; 4) threat from substitutes and 5) competitive rivalry among existing firms.
Impact on the Banking Industry
The five forces model played a major role in determining how businesses in the banking industry
operate. The banks are the main providers of financial services that individuals and businesses across
the globe need to transact daily. However, there were two factors within the banking industry that
posed threats to market growth: 1) emergence of alternative financial service providers and 2) growing
popularity of electronic banking.
As a response to these factors, banks have taken different approaches in their strategic planning. They
have either offered friendly relationships with some consumers and businesses by delivering attractive
products and services or they have tried to compete by lowering their fees and offering innovative
solutions for funding for consumers, small businesses and large corporations. Most of their efforts were
geared towards countering their two main threats.
Impact on the Financial Industry
The threat of entry is one of the key forces that determine a company's competitive position in the
market. The top firms have successfully raised barriers against potential competitors, which has enabled
them to increase market shares and generate significant revenues. As a result, there has been
tremendous growth in sales for financial services companies and consequently, larger profits. The other
four forces have also played a vital role in determining overall growth in this industry, which shows no
signs of slowing down anytime soon.
Impact on the Economy
As more people started using banks as a medium for funding, security and payment transactions, the
economy experienced tremendous growth. Banks also ensured that members were able to transact in a
secure manner by offering attractive products and services. In addition, they quickly rose to become the
most powerful companies in financial markets. These factors have enabled banks to play an important
role in nearly every aspect of daily life: from financing families, investing in businesses and providing
financial products such as loans or mortgages. Together with the income generated from these services,
banks have been able to support their operations through investments in commercial properties,
securities and securities trading.
Impact on the Financial Markets
The popularity of the five forces model in businesses has slowly been spreading to all segments of the
financial markets. Traders and investors have increasingly taken note of these forces and used them to
make profits through identifying opportunities when one or more of the forces is expected to shift. The
growing influence of financial analysts has also played an important role in improving market efficiency
and encouraging investors to use analysis like that used by Porter's Five Forces Model. This success is
attributed mostly to the improved planning, scheduling and execution of effective market strategies,
which have helped investors avoid losses while making reliable profits.
Conclusion
Numerous factors that affect an economy have caused the banking industry to consolidate in the past
decade. This has been attributed to many factors, but most experts agree that the main driving force is
competition within and outside the banking industry. Currently, there are numerous banks competing
for clients and this competition is expected to increase in future years. Meanwhile, banks are expected
to increase their total assets by more than 50% from 2008-2018, which is a clear indication of growth
and profitability within this industry. All these factors have made it possible to sustain a robust financial
market and maintain strong economic growth.