SWOT AND PORTERS 5 FORCES ANALYSIS OF BARCLAYS BANK

Abstract

The banking industry is one of the most competitive and risky industries globally. However, Barclays bank has been a major player in this industry for a long time. According to FTSE 100 index, Barclays bank is among the strongest organizations, ranked at the 16th position.

This paper analyses the competitiveness of the company using the SWOT and PORTERS 5 forces tools of analysis in an attempt to establish its current position.

From the analysis, it is seen that the performance of this bank is well above average, but its inadequacy is evident among low income earners. The future success of the company and maintenance of its competitiveness is dependent on increased focus on these areas.

Introduction

Barclays is one of the largest financial institutions globally. Barclays is listed in the London Stock exchange and is among the FTSE 100 index. Its FTSE rank as of 2nd august 2013 is position 16. This paper intends to analyse the company’s competitiveness based on the examination of its strengths and weaknesses in relation to the industry using SWOT and PORTERS 5 FORCES analytical tools.

External Factors: Porters 5 Forces

The Bargaining Power of Suppliers

According to Porter, the power of the suppliers is highest when the cost of supply accounts for a larger proportion of the total organization’s expenditure, the suppliers have no competitors, and when the suppliers are very few. The depositors are the main suppliers of Barclays bank. Deposits from customers account for the largest part of the institution’s working capital. However, the company has global outreach providing it with a huge number of suppliers. In addition, the suppliers still control the institution's interest rates as the world has become more corporate. Therefore, the bargaining power of suppliers is high.

The Bargaining Power of the Buyers

Customers in the banking sector have more power due to more concentration and availability of knowledge of the market as well as the huge number of alternative financial institutions. The advantage of Barclays bank is founded on the king of products and services it offers. It offers insurance services, e-banking and free credit cards as some of the services that differentiate it from its main rivals. In general, the power of the buyers is high.

The Threat of Potential New Entrants

A market with more barriers to new entrants minimizes this threat. Some of the main factors that are considered to obstruct new entrants into the market are switching costs, capital requirements, product differentiation, and economies of scale. In the banking industry, the statutory financial capital requirements are the main barriers for new entrants. The huge financial base accumulated by Barclays due to many years of operation and globalization of its services cushions the bank form this threat. This is because many potential new entrants are unable to measure up to the standards of capital. However, micro finance institutions are a major threat to the operations of Barclays as it targets the lower end of the market, which accounts for the largest part of the global market. Thus, the threat of new entrants is low.

The Threat of Substitute

The presence of substitutes affects the demand for a specific brand in the market. The availability of substitutes does not necessarily replace the brand, but may affect the profits by lowering the price. Major issues examined in this case are; the cost of additional services to curb customer switching, the ease of customer switching to the substitute, and the threat of obsolescence. The environment in which Barclays operates is very complex since its competitors provide similar products and services. Some of these products and services are mutual funds, insurance and fixed returns securities. However, the major threat to the sustainability of Barclays bank is the availability of non-banking financial institutions that provide similar services and products. This makes the threat of a substitute to be high.

The Extent of Competitive Rivalry

The extent of competition is dictated by the degree of product differentiation, the growth rate of the industry, the degree of concentration in the industry and the number of competitors. With the increasing number of financial institutions, the extent of competitive rivalry is very high.

Internal Factors: Swot Analysis of Barclays Bank

Strength

The Barclays brand is well established and known. The bank has established effective ways of promotion such as the sponsorship of the English premier league. Barclays bank has a global presence providing it economies of scale and effective ways of spreading risk. More so, the bank is linked with most of the innovations in the banking industry such as the development of the credit card in 1966. In addition, the bank has opened several flagship branches globally, which provides it with a strong presence.

Weakness

Its link to the sponsorship of the Zanu PF individuals in Zimbabwe affected investors’ confidence due to increased concerns on the code of ethics. The bank also provides hefty bonuses to the management, which has attracted huge negative attention globally. Additionally, failed plans to expand on its operations in Asia have also impacted the global operations of the bank negatively.

Opportunities

The acquisition of Lehman’s assets at an affordable cost provided it with a better investment opportunity. The current strategy of providing all its services globally will increase on the opportunities of its operations . The planned expansion of its operation in the Asian market is an opportunity for quick expansion. More so, the bank’s plans of increasing its welfare services globally will ethically revitalize the brand.

Threats

The global financial recession is a major threat that the bank faced. The bank has also experienced a prolonged economic downturn. Even more, the bank has been associated with loss-making investments, which are a major risk to investors. The broad nature of the bank may limit its operations as many customers may prefer specialized institutions.

Conclusion and Recommendations

Barclays bank is one of the few banks with the capabilities of being the market leader in the industry. However, there are several factors that limit its scope. Some of these factors can be controlled by the bank while others are uncontrollable. The current situation of the bank is above average, but it has not fully exploited its potential.

Its many years in service provide it with a brand that is trusted globally. However, the increasing competition, brought about by the openness of the global market, demands the bank to increase its product differentiation and after sale services so as to boost customer loyalty. The bank also needs to increase its significance in low income areas to increase its market share and significance. Finally, the bank needs to invest on employee motivation in order to guarantee their loyalty and commitment to the bank.

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