Porter’s Five Forces Model

In 1980 M.E. Porter presented the five forces model for industry or competitive environment analysis.

1. Barriers to Entry:

The UBL is providing value added services to its customers. On the other hand market is getting more saturated and other organizations are getting involved in the bank operations. For example, Telenor is offering Easy Paisa, etc. At the beginning all the functions like money exchange, currency converter, FOREX, money transfer, etc.

were relates to bank but now a day other organizations are becoming more specialized in these and hence resulted in declining of profit (commission income or service charges).

2. Bargaining Power of Supplier:

Because of concentrated competition and new entrance of foreign banks in the industry the investors are becoming more conscious in providing the funds for deposits. The funds are dispersed among the banks because every bank in the industry wants to capture these funds (from potential investors) hence to increase its market share and to generate more and more profit. It is the fact that supplier’s funds are more critical to market success. Due to which the bargaining power of supplier has been increased.

Financial statements of UBL reveal that deposits with the bank are decreased from 83% to 79% during the last seven years.

3. Bargaining Power of Customers:

Customers can be powerful when the switching cost is very low and in the banking sector the customer’s needs includes favorable profit on investment and getting banking services with low cost. All the banks in

Pakistan

are competing for healthy market share so they are trying to provide the better services from other banks by giving more incentives on their services as a result of which the bargaining power of customers has been increased. Hence the UBL is facing great difficulty in sustaining his competitive position in the market and this is done by providing more are more value added services to its customers.

4. Availability of Substitute Product:

Substitute products are also available in the market like MobiCash services by Mobilink GSM, Easy Paisa by Telenor

Pakistan

both are used for transfer of money between two customers. There is also an example of PayPal, Alert Pay, etc are best alternatives for the transferring of money all across the globe with minimum charges or service fee. All these substitute products are creating a big hurdle in earning commission and generating revenue for the bank.

5. Rivalry among the Competitors:

The intensity of competition in an industry depends upon bulk of factors such as number of competitors, the presence of exit barriers, degree of product differentiation and growth rate.

Taking only one factor in due consideration “the degree of product differentiation” it can be seen that all the banks are providing same kind of services but with different names. It means that the degree of differentiation for the products is near to zero and it is fact that when the degree of product differentiation is less the competition is high because customer’s switching cost eliminates. For example, NBP, UBL, Summit Bank, BOK etc are offering the services for transfer of money with the help of Xpress Money. And some other banks like Bank Al-Habib, MCB, Bank Alflah etc are using Money Gram for the same activity.