PESTEL Analysis Example (OCBC1) – Part 2
Porter 5 Forces
Integral to this discussion, is also the more immediate environment in which OCBC is a part of. As such, the analysis of the company’s business situation in relation to PORTER’s five forces is pursued as follows:
Threat of Substitutes
As a sweeping generalization, there are relatively very low barriers for substitution within the Financial Industry. This is because banking products and services are, in retrospect, homogenous. Meaning, financial tools and services, such as loans, deposits, trade management services, derivatives and whatnot, could be offered by any bank—so as long as they have the resources and permits necessary to operate these. The only difference lies in the individual corporate strategy and marketing efforts extended by the institution in their pursuit of clients. As such, key differentiators would be the scope of the company’s network, leveraging power, relationship with clients, brand equity and company resources. The same factors would also contribute to the company’s performance amongst competitors.
Threat of New Entrants
Because of the company’s size, breadth of scope, and level of influence in both local and international markets, new players pose relatively little threat to it. Though should we define ‘new players’, as institutions that have only been newly introduced to the Singaporean Market, International Banks may pose considerable threat to the company. Notably, when Singapore liberalized the financial sector by opening up its markets to foreign banks in 2001, market share was eaten up and local banks eventually shrunk in number to half as of current. In effect, there are currently 121 foreign commercial banks in Singapore alongside the 5 remaining locally incorporated banks (MAS, 2016).
Bargaining Power of Buyers / Suppliers
In the banking industry, a unique case is presented where the suppliers and buyers come from the same pool—the clients. As such, bargaining power is much stronger on the client side versus the institution— especially given the low barriers to substitution and highly competitive nature of the industry. With this, it is integral that players remain innovative and aggressive in terms of harnessing market share. As the bank increases its deposits and client base, its leveraging and bargaining power increases.
OCBC bank’s strategy is to “Deepen Presence in Core Markets”, of which it considers to be North and Southeast Asia—especially in Singapore, Malaysia, Indonesia, and Greater China. What differentiates OCBC from smaller competitors is its breadth of coverage and the leverage it is able to acquire with its global presence. On the flip-side, OCBC’s competitive advantage over larger international banks is its ethnicity to Singapore, making it among the more preferred and dominant banks within domestic market. Its closest competitors could be considered to be Development Bank of Singapore (DBS) and United Overseas Bank (UOB) who garners the 1st and 3rd spots respectively, in terms of bank asset size.