Porter's Five Forces Model - Essay Example

Even though we have better expertise in managing our hospitality business, banking is entirely a new business segment for us. So, before entering banking industry, it is necessary for us to analyze our business prospects in banking industry based on Porter’s five forces model. My organization’s management asked me to prepare a report about our business prospects in banking industry. This report analyses the strengths and weaknesses of our organization in doing banking business based on Porter’s Five Forces model.

Banking industry and Porter’s Five Forces model According to Michael Porter, there are five competitive forces that may affect any organization doing business in any sector. These five forces are; Threat of substitute products, Threat of new entrants, Intense rivalry among existing players, Bargaining power of suppliers and Bargaining power of Buyers (Porter’s Five Forces Model, 2009). The figure given in the next page explains Porter’s five forces theory. (Porter’s Five Forces Model, 2009) Even though our organization has a good brand value in the market, it should be noted that our brand value is in hospitality industry alone. . In other words, competition in British banking industry is going to be toughened because of the potential entrants from overseas countries.

The threats from substitute products are also growing day by day against banking industry all over the world and British banking industry is also not an exception. Substitute products are products which are entirely different from banking products, but capable of providing alternative options to the customers. For example, products such as mutual funds, insurance and term deposits are currently offered by many non-banking institutions. These non-banking institutions are offering attractive terms and conditions to the customers so that many of the customers are currently approaching these institutions for baking purposes.

In short, the threat for banking industry is currently coming not only from the banking sector, but also from outside as well. Rivalry or competition is not a good market condition most of the firms like to have. In fact all the business firms like to establish monopoly in the market in order to control the price mechanisms. Monopoly is a market condition in which a single firm controls the entire market. Banking industry can never establish a monopoly in Britain because of the huge number of banking service providers in the market.

In fact, banking is an industry in which rivalry exists at its best. Many new generation banks are currently raising stiff challenges to traditional public and private sector banks in Britain. Recent recession has destroyed the financial back bone of many of the prominent banks. Many prominent banks such as Lehman Brothers, bank of America were forced to close down and many others are struggling to stay in the market.