Chapter 3.2. Five Forces and Value Net
The industry structure is the central point of the broader external analysis. Knowing and understanding the competitive forces in an industry environment is crucial to fully identify the opportunities and threats confronting a company.
Michael Porter from Harvard Business School has developed a framework known as the Five Forces model that tackles the main factors that impact the industry structure. Porter’s model tries to describe the industry structure and the competitive conditions by assessing the following factors: the risk of new entry in the industry, the degree of rivalry among established competitors, the bargaining power of buyers and suppliers, and the threat of substitute products.
According to Porter’s theory the stronger are these forces the tougher are the market conditions and the competition within the industry. Stronger competitive forces represent a threat in a way that the possibility of differentiation against the competition is very limited as well as the capability to raise prices and to earn great profit margins.
This analysis considers the overall world market in which Citigroup operates. The industry could be defined as the financial institutions that operate in global markets. Table 2 presents analysis of competitors, entrants, substitutes, suppliers, customers, and complementors per Citigroup global business as of today.
Table 2. Value net analysis per Citigroup business
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Consumer Banking |
Corporate and Investment Banking |
Global Wealth Management Group |
Citigroup Alternative Investments |
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Many established strong brand names, seasonality of the market |
Many established strong brand names, and local players |
Few global players, relatively weak competition in world markets |
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High capital, brand, as well as know-how requirements to enter the business |
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Little choice for customer searching financial services |
Little choice for customer searching financial services, alternatives such as governmental subsidies, tax wavers are difficult to obtain |
Little choice for customer searching financial services, performing wealth management on its own can be more difficult and more riskier than relying on the bank |
Businesses still require cash, especially on the earlier stages, there are often few choices of where to source cash |
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In retail banking, often the suppliers are also the customers with low loyalty, low switch costs, difficult to lock in |
Data suppliers, as well as customers have relatively limited bargaining power |
As in retail banking, often the suppliers are also the customers with low loyalty, low switch costs, difficult to lock in |
As in corporate banking data suppliers, as well as customers have relatively limited bargaining power |
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Low loyalty among the customers, low switch costs, difficult to lock in |
Usually big deals are done by a group of investment banks, limiting the bargaining power of customers |
Low switch costs, difficult to lock in, though the brand name is very important |
Excellent track record will keep customers loyal |
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High potential for cross-selling, e.g., mobile top-ups in UK trough ATMs, other consumer items through direct mails and internet banking |
Cross-selling, advisory, and ranking can be an issue and subject to many regulations |
High potential for cross-selling, e.g., seminars for children of rich individuals, other luxury items through direct mails and internet banking |
Possible alliances with other investors in emerging markets |
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Legend (cell colour depicts the level of attractiveness from Citigroup prospective):
– Unattractive
– Neither attractive nor unattractive
– Attractive