This document focuses on the analysis of the banking industry in Singapore in which case Oversea Chinese Banking Corporation (OCBC) has been used as the brand of choice. According to 3E Accounting (2018), Singapore is among the leading finance hubs in the world courtesy of its banking system. The banking industry is regulated by the Monetary of Authority of Singapore. Singapore also has the fourth largest foreign exchange market in the world after London, New York, and Tokyo. OCBC Bank is local bank in Singapore which was established 1932 from the merger of three local banks.
The document discusses into details the following issues; analysis of the industry competition in which it analysis the number of players in the industry, their market position, product differentiation, among other issues. Secondly, dominant economic features such as market size, growth rate, economies of scale, and industry segments, among others. Thirdly, market space analysis using external environment scanning and Michael Porter Five forces approach. Fourth, the key Success factors that influence success of banks in the industry.
Scope of industry competition refers to the breadth or narrowness of the level of competition in a particular industry (Fu et al. 2014). Singapore’s banking industry is very competitive since it is one of the best finance hubs in the world. The main areas of competition include; management in which banks compete to hire the most skilled and talented individuals whose input will give the bank a competitive edge. Secondly, market share in which banks compete to dominate both the local market and the global markets. Thirdly, product and service innovation in which every bank strives to have the most unique and attractive products in the market (Fu et al. 2014).
The banking industry in Singapore according MAS (2018) consists of 6 local banks and over 150 foreign banks. The foreign banks are further classified into four categories which are; full banks consisting of 27 banks, Wholesale banks consisting of 53 banks, offshore banks consisting of 37 banks, and merchant banks consisting of 42 banks. The major players in the industry measured by assets are; DBS (Development Bank of Singapore), OCBC, UOB (United Overseas Bank), HSBC (The Hong Kong and Shanghai Banking Corporation), Standard Chartered Bank, ABN-AMRO Singapore, Maybank, BNP Paribas, and Citi bank (MAS 2018). OCBC bank has managed to secure the second position in terms of assets since it has total assets of about 184 billion Singapore dollars (OCBC 2018).
Product differentiation refers to making a product to be unique so that it can be more attractive in the market than what the competitors’ products (Camgöz Akdag and Zineldin 2011). The major banks in Singapore have leveraged on technology to differentiate their products. The major ways in which OCBC bank has differentiated its products include; introduction of the OCBC Pay Anyone technology that allows customers to pay using phone numbers, email, or even Facebook accounts. Secondly, FRANK by OCBC which offers customers with over 100 card designs. FRANK cards also enable customers to get discounts at various online retail shops (The Financial Brand 2018).
OCBC bank competitors vary in their level of competition depending on their scope of operation. The major competitors are Development Bank of Singapore and United Overseas Bank since they are both local banks just as OCBC is, therefore, they have the same operational privileges (MAS 2018). The second largest competitors of OCBC bank are the foreign bank under the category of full banks such as Citi Bank, Standard Chartered, HSBC, Maybank, ABN AMRO and BNP Paribas. This is because these banks are allowed by the banking law in Singapore to offer a full range of banking services. The least competitors are the foreign banks under the category of offshore banks since they do not deal with the Singapore dollar, therefore, they cannot offer competition in the domestic market (MAS 2018).
OCBC bank can employ several competitive strategies to outsmart its competitors. The strategies according to Tanwar (2013) include; Cost leadership which will involve reducing the overall cost of operations without compromising the quality of their services. This will enable OCBC to offer its products such as loans at favorable rates than its competitors thus attracting more customers. Secondly, OCBC can differentiate its products by continuously innovating and adding new features to the products so that they can be the most appealing in the market. Thirdly, OCBC can adopt market development techniques such as agency banking. These techniques will help OCBC to increase its geographical market coverage, increase its market share, strengthen its brand, and benefit from mass selling.
Market Size refers to the total number of potential customers in a particular market (Berry and Waldfogel 2010). Singapore’s banking sector has a very large market size since, in a country of about 4 million people above the age of 15 years (Department of Statistics Singapore 2018), 96% of them have a bank account. Also, Singapore’s banks serve the entire Asian continent whose population can be estimated to be approximately 4.5 billion (Worldometers 2018). This shows that there are still opportunities for Singaporean banks to expand their market penetration rates and customer base.
The banking industry in Singapore is progressing well having registered a growth rate of 3.9% in 2017 and the rate is expected to increase to about 4.2% by the end of 2018 (MAS 2018). The industry life cycle consist of four stages which are; introduction, growth, maturity, and decline (Martin and Sunley 2011). The banking industry in Singapore is currently in its growth stage. This can be justified by the fact that the industry is registering increasing growth rates every year and continues investment in technology to improve operational efficiency.
Economies of scale refers to the cost advantage experienced by an organization when it buys, produces, distributes, and sells products and services in large scale (Hughes and Mester 2013). In Singapore’s banking industry, many banks enjoy economies of scale in areas such as; product advertisement in which the adverts target a wide local and global market thus reducing the cost of advertisement per unit. Product distribution in which case the banks have adopted technology-based banking which enables them to serve a wide customer base at a lower cost.
The banking sector in Singapore has been segmented into two major segments which are local banks and foreign banks. Foreign banks are further classified into full banks, Wholesale banks, offshore banks, and Merchant banks (MAS 2018). OCBC Bank is in the category of local banks and this gives it a competitive edge in the sense that, by being a local bank it is given full banking rights by the banking act, unlike some foreign banks which are not allowed to handle the Singapore dollar (MAS 2018).
The PESTEL analysis of Singapore’s banking industry is as follows; Political factors include; labor laws, trade restrictions, and taxation laws. Economic factors include inflation and deflation which affects the value of money (OCBC 2018). Social factors include change in customer behavior and demographics which forces banks to develop new products or continuously improve existing products. Technological factors include the rapid growth of banking technology which forces banks to increase their investment in technology (3E Accounting 2018). Environmental factors have no much impact on the banking industry in Singapore. The legal factors include; legislation such as the banking act of Singapore which dictates how banks should conduct their operations, the Securities and Futures act which affects the banks that deal with capital markets services (MAS 2018).
Competitive rivalry: OCBC bank faces competition from both local and foreign banks although local banks such as DBS bank offer the highest competition. Threats of new entrants: Singapore is an attractive financial hub and an open economy, therefore, new banks can easily be established (MAS 2018). Threats of substitute products; the banking industry has minimal threats from substitute products due to the nature of its products. The power of suppliers: the suppliers of OCBC bank are the people who save their money in the bank. Their power ranges from medium to high due to presence of other banks. The power of buyers; these are people who obtain loans. They are less powerful due to the high switching cost.
The forces that are likely to strengthen include; competitive rivalry due to continues product improvement and technology used by various banks. Secondly, threats of new entrants due to favorable economic situations that attracts foreign banks. On the other hand, the force that is likely to weaken is the bargaining power of buyers due to the high switching cost associated with shifting from one bank to the other. This includes the creditworthiness profile and credit terms, among others (Karim et al. 2010).
The forces differ across segments in the sense that, OCBC bank faces higher competition rivalry from the segment of local banks than from the segment of foreign banks. Secondly, OCBC faces higher threats of new entrants from the foreign bank segment than from local bank segment. This is due to the fact that many global banks that are not currently operating in Singapore can easily start their operations in the country since the country has an open economy (MAS 2018).
Industry attractiveness refers to the future profit potential of a market in relation to ease of making profit. The banking sector in Singapore is very attractive since it is among the leading global financial hubs. Thus it will be easy for banks based in Singapore to expand their operations all over Asia and increase their profitability (Haw, et al. 2010). Also, the industry is growing at a good rate which provides an opportunity for a firm to position itself in the market.
Understanding of consumer trends gives an organization a competitive edge. In Singapore, the latest consumer trends in the banking sector include; many citizens in Singapore are preferring online banking platforms to over-the-counter services so that they can remotely access their bank accounts (Deloitte 2018). Secondly, the foreigners who work in Singapore are preferring to have the travel credit cards so that they can easily use them in their home countries.
The main industry issues that affect success of banks in Singapore’s banking industry include; Technology adoption which is the ability of a bank to offer its products using information technologies such as mobile banking and online payment (3 E Accounting 2018). Accessibility to everyone which refers to the ability of a bank to offer products that are differentiated to suit the interest of different market segments (Deloitte 2018). Diversification which is the ability of bank to offer other products and services such as insurance and capital markets services. Cross-border presence which refers to the acceptability of a bank in the Asian-pacific region.
Some Key success factors such as adoption of technology and Cross-border presence are consistent across segments. This is because whether a bank is a local or a foreign bank, it has to invest in technology and be socially acceptable in the region in order to succeed in its operations. On the other hand, some Key Success factors such as diversification and accessibility to everyone may not apply to banks in the foreign banks segment. This is because not all foreign banks have been licensed to operate as full banks in Singapore. Thus, some cannot venture into capital market services (MAS 2018).
The various stages of an industry lifecycle demands unique strategies in each stage in order to guarantee success (Stark 2015). In the introduction stage, the bank mainly focuses on a particular line of products. Thus diversification does not apply. In the growth stage, investment in technology is the major success factor for many banks (Deloitte 2018). In the Maturity stage accessibility to everyone is the major key success factor that many banks focus on. In the decline stage, the banks diversify their operations in order to serve new markets and sustain their operations in the industry.
References:
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