Business Environment Analysis

First Individual Assignment

Submitted To: Mr. Mahendra P. Shrestha (Course Instructor)

Submitted By: Sajani Malla MBA Term 6

Date of Submission

1st July 2011

1. Assume yourself a CEO/GM of a commercial bank. Consider porters competitive model of business environment. How do you evaluate the competitive environment in the commercial bank sector in Nepal? How would you manage the overall level of competitive intensity? Assuming that I am a CEO/GM of any commercial bank. Commercial bank firstly should know about business environment which means that the factors or constraints that are largely if not totally, external and beyond the control of individual industries enterprise and its management. Business environment consists of the forces and conditions outside the boundaries of a firm. These forces change over time and thus present the firm with opportunities and threats that influences its ability to carry out its operations efficiently to attain its objectives. According to porter successful managers do more than simply react to the environment. They act in a ways that actually shape or change the firms environment. Porters model is an excellent method for analyzing the competitive environment in order to adapt to or influence the nature of competition. The porters competitive model of business environment is:

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

The five forces are environmental forces that impact on a companys ability to compete in a given market. The purpose of five-force analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is. The five forces models are brief below: Rivalry among competing firms in Industry: Its the first step in understanding the competitive environment. Commercial banks must identify its competitors to compete according to its situation. The more banks, there will be more competition so they compete against one another for increment in profit, for customers, for deposits, for better valuable products, for secured job and for investors. There is only those banks survive who are stronger not weaker ones. When commercial banks compete for the same customers, deposits and try to win market share at the others expense, all must react to and anticipate their competitors actions. Competition arises when different commercial banks use different schemes, and marketing strategies to attract the valuable customers by providing personal service, effective information from the bank to customers. Threats of new entrants: Its the second step to understand competitive environment. As its easier to enter into an industry, the more likely it is for industry prices and industry profits to be low. Thus, the higher barrier to entry, the lower is the threat of competition. With fewer competitions, it is easier to obtain customers and keep prices high. Now a day there is banks that are growing fast like a mushroom. New banks new rules and regulation as well as new products and services which provides different services which are new for the various customers. But it is complicated for the existing banks to survive in the market. So if competitors are low than demands of banks can be high. New entrant banks are: Mega bank, Civil merchant bank and soon. Bargaining power of supplier: Suppliers use power in the industry by threatening to raise price or to reduce quality. Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases. If there are only a few suppliers of an important input then suppliers can raise

the price of that input. Commercial banks may have a disadvantage if they become overly dependent on any powerful suppliers. Suppliers for banks are those whose invest funds or deposit their funds at that bank. Bargaining power of buyer: Buyers compete with the supplying industry by bargaining down prices, forcing higher quality and playing firms off of each other. If there is only a few large customers are available to buy product than they can bargain to reduce the price of that product or service. If the customers are lower than banks can earn low profit. So banks should understand or have ability to identify its main customers and produce products and survives to its customers which are expecting from the bank like providing reasonable interest rate, facilities and soon. Threats of new/ substitute products: To evaluate substitute products than products should improve price/performance tradeoffs relative to existing products. Banks can use such substitute products like scanning can be used in place of photocopy machine, electronic security systems in place of security guard as well as fax machines in place of overnight mail delivery. To manage the overall level of competitive intensity I should follow certain strategies so that all the forces can be balanced. Banks should formulate strategies and long term policies for their continued existence. The environmental analysis provides basic inputs to business strategy formulation. SWOT analysis is also one of the basic tools to analyze competitive position. General Managers need to integrate various types of influences on the banks like including people, technology, system and environment in a manner best designed to meet the needs of the bank in the specific time. They should be prepared to initiate changes as and when circumstances demand. To manage competitive intensity managers need to know about the PESTAL analysis so it gives overall information. All decisions and actions should be effective to deal with the problems. There may have marginal impact poses little threat to the bank so it need forces which require commitment of managerial time and attention as well as efforts to take advantage

of the opportunity. Managers generally follow to understand and manage competitive intensity are: Analyze opportunities and threats for their banks. Draw plan indicating how they propose to take advantage of those opportunities and threats. List the number and relative strength of the forces that may affect their bank the most. Decide what kind of resources they will need to do so.