THE EFFECT OF PORTERS 5 FORCES MODEL ON BRAMER BANKING CORPORATION LTD

Introduction
Porters 5 forces model can be defined as a framework for analysing the nature and extent of competition in an industry. The banking industry in Mauritius is a very competitive sector and thus banks are finding new ways and means of gaining greater market share. This can be done through product differentiation, pricing and different marketing strategies amongst others. However, since the banking industry is a group of firms providing for the same type of products and services aimed at same customer group, it is then of vital importance for managers of particular banks to understand the competitive forces in that industry. Thus, Porters 5 forces model are as follows:

1. Threat of new entrants/competitors 2. Threat of substitutes 3. The intensity of competition among existing firms 4. The bargaining power of buyers 5. The bargaining power of suppliers

If all of those factors are high, then the industry is not attractive to enter in. Therefore, to better understand Porters 5 competitive forces analysis, it is being applied to the Bramer Banking Corporation Ltd.

Threat of new entrants

It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry. Barriers to entry may be low or high implying the fact that if the threat of new entrants is high, there are low barriers to entry and vice-versa. However, threats of new entrants might be the only force that will have a low score. This is due to the fact that

opening a bank requires a lot of capital and every member of the board of directors need to be checked and verified by the Bank of Mauritius which will usually takes a long time. The filling also takes a long time for the central bank to approve. As a result, the conditions set for registering banks are quite complex, hence entry barriers become high.

On the other hand, according to the Mauritius Bankers Association 2012, the banking sector today comprises of 20 commercial banks. This is so because with the recent setting up of the first Islamic bank Century Banking Corporation Ltd, the banking sector shows that it is expanding and continuously flourishing. This indicates that in certain cases, the barriers to entry are low as new entrants can enter the industry and provide for product differentiation.

Threat of substitutes
In Porter's model, substitute products refer to products in other industry. Substitutes can reduce the demand for a particular class of goods and services if customers switch to other alternatives. In fact, in the banking sector, there are so many products and at the same time there are so many substitute products. For example if someone is looking for a travelers cheque and that could not be provided, one might decide to opt for Telegraphic Transfer. In the case of the banking industry in Mauritius, the easiness of changing to substitutes products or services is rather medium. This is due to the fact that customers can always put money somewhere to make interests, for example bonds, mutual funds, stocks etc. Moreover, the banking sector is also faced with the threat of substitutes as nowadays there are insurance companies such as BAI, SICOM, SWAN Group, only to mention a few that can satisfy the same needs of the customers. Thus, if customers have high bargaining power, they can easily switch substitutes which provide them with satisfaction. Thus, Bramer Banking Corporation is also faced with this threat of substitutes in case its customers switch to insurance companies to put their money rather than dealing in borrowing or lending transactions with the bank. However, though there are many other financial institutions, there are some features and products of which they can only be obtained from the banks. For instance, the power of check clearing of the bank is undeniable. All the pay checks, payments go through banks to clear. As a matter of fact, the whole economy will go in halt if there were no banks to clear checks. .

 Competitive rivalry
Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. This implies that competition among rival firms drives profits to zero. However, competition is not perfect and firms are not unsophisticated passive price takers. Rather, banks strive for a competitive advantage over their rivals.

In the context of Mauritius, there is competitive rivalry in the banking industry due to the fact that there are many current and potential competitors (20 commercial banks). This implies that when there are many banks there is high level of rivalry. Moreover, since the market is expanding at a fast speed, this rapid growth leads banks to fight for market share. However, since Economists measure rivalry by indicators of industry concentration, it can be found that Concentration Ratio (CR) is one of such measures. As banks are not of equal size (some being large and others small and medium sized banks), not all of them have a large market share. It can be noted that giant banks such as MCB and SBM are the large players in the banking industry, account for 75% of the market share and thus have a high concentration ratio as compared to other rivals. Therefore, small and medium sized banks including

Bramer Bank may be reluctant to challenge the larger ones. Moreover, the fact that only MCB and SBM hold a larger market share, the competitive landscape of Bramer Bank is not intense.

The intensity of rivalry is further referred to as being cutthroat, intense, moderate, or weak, based on the firms' aggressiveness in attempting to gain an advantage. In order to gain competitive advantage over its rivals, Bramer bank can compete on the several competitive moves as follows: Price wars - lowering prices to gain a temporary advantage. Product differentiation This is possible through the investment in innovation, research and development and new products and services. Furthermore, brand identification can also lead towards customer loyalty and thus reducing the customers to switch to other banks as well. As such, it will have a unique opportunity to attract customers.

 Exploiting relationships with suppliers- Since there is only one supplier, the Central Bank of Mauritius, it is crucial for Bramer Bank to follow the rules and regulations as per the agreements and to keep good customer-supplier relationships.

Bargaining power of buyers

Customers are essential for the survival of any business. The fact that most of the Mauritians have a bank account in more than one bank, the number of customers is abundant thus implying that in this case the bargaining power of customers is low. Even in the case of large corporate clients, the bargaining power of the client is limited. Any negotiation of terms and conditions of a banking deal will take the form of a win/win negotiation where both sides are attempting to develop a "deal" that is optimum for both participants. The client wants the money a loan represents, and the bank wants interest on the loan. The structure of the loan such as the term and the repayment must be structured in such a way that the client can meet the requirements in term of cash flows and the bank is assured of repayment. The price of the credit may be negotiated a few basis points in one direction or the other, but both parties know going into the negotiation approximately what the outcome will be.

However, customers in Mauritius can easily switch to other substitutes like insurance companies that can satisfy their same needs; in such a case customers do have strong bargaining power. Therefore, buyers can threaten the price of goods and services to go down and bargain for higher quality goods and services as well. Thus, the fact that buyers face low switching costs and the fact that they can always find an equivalent product and tend to play one vendor against the other, they do have strong bargaining power.

 Bargaining power of suppliers

Suppliers are those who supply the firm with what it needs to produce the products/services. There are three suppliers of the banks products and these are 1) The Central Bank 2) The depositors 3) The credit market

The Central Bank of Mauritius, that is, the Bank of Mauritius has full control over the commercial banks. This also implies the fact that if the central bank changes the rate of interest, this can have negative effects on commercial banks as well. Furthermore,

commercial banks should also adhere to the rules and regulations and the minimum capital requirements of the central bank. Furthermore, the central bank is also the resource of last resort and may also provide loans to banks in need.

Depositors usually do not have a strong bargaining power in reality. This is so because, whatever the depositors save with the banks, it is the banks which determine the rate on interest on the type of savings made. However, if the clients are large corporations, wealthy individuals or government agencies and if they threat of switching to other banks, the threat may have certain significance.

The credit market as a source of supply of raw material is numerous in number thus only those who are qualified suppliers will be open to all at all times. This implies that the credit market has a low bargaining power as buyers can easily find other suppliers of goods.