PORTERS FIVE FORCES MODEL IN BANKING INDUSTRIES ECOBANK SIERRA LEONE

LTD
Introduction:
The banking industry of Sierra Leone has been growing fast during the last decade. There areso many
things happening within the industry after the liberalization of the sector. Theaspect of competition is now
crucial for the operators who are within the bankingindustry. Porter’s Five Forces Framework is one of
the strategic models used to assess theattractiveness of the industry (being service or manufacturing). This
model is defined bythe five key forces which are; Rivalry among the existing firms, Threat of new
entrants,Threat of substitutes, Bargaining power of suppliers and bargaining power of customers.The
banking industry of Sierra Leone has over 25 full-fledged banks, 4 Regional unit banks, 5Financial
Institutions and 10 Bureau change operators. The rivalry among theexisting banks, threat of new entrants
and bargaining power of customers is found to beun-favourable forces to the industry. Threat of
substitutes and bargaining power ofsuppliers are found to be favourable forces to the industry. The
industry is therefore of twostarts, hence not attractive. Those who are already in the industry need to
operatecompetitively by using a differentiation strategy to win the confidence of the customerswho have
higher bargaining power. A good customer service is necessary. This can beachieved through synergy and
Total Quality Management (TQM) approach. The forcesare not and will never be static but dynamic,
hence a need for the banks to be reviewingtheir strategies from time to time.
Background of the Banking industries
The banking Industry in Sierra Leone has tremendously changed its dynamics for the last onedecade.
Many banks have joined the industry both local and foreign. Notably, the no banks financial institutions
have been mushrooming by an alarming speed. For this veryreason the players in the banking industry
need to consider their competitive positioningand repositioning strategically. In mid 1960s the industry
had only two bank, StandardBank and Blacklegs Bank, Now Rokel Commercial Bank. It can therefore be
said that in 1960s the industry had a monopolisticstructure. In 1972, Corporate and Sierra Leone
Commercial Bank (SLCB) was establishedhence to make the industry to experience a duopolistic market
structure. In any industry,including the banking industry, the nature of competition is always a function of
themarket structure. The trend today is a perfect competition and the central bank haswithdrawn from
managing the market forces. Banks are now working on their own aboutwhat are relevant products and
rates to be offered to the market. In this regard the needfor the assessment of the attractiveness of the
industry becomes a necessity. Porter’s FiveForces Framework has been widely used in analyzing the
attractiveness of an industry.
Any firm (in this case a bank) needs to answer two fundamental questions; (i) whatmakes an industry
attractive? (ii) What positions within an industry lead to superiorperformance? Answering these two
questions is vital for any firm, which needs tocompete competitively. This article makes a clear
discussion of the banking industry inSierra Leone and how the Porters Five Forces can be used as a tool
of analysis forprofitability.
The Banking Industry of Sierra Leone
The industry has various key players. These to include; Fully fledged banks (commercialand non-
Commercial), Regional Unit Banks, Financial Institutions, Regional FinancialInstitutions, Regional Unit
Financial Institutions and Bureaux that Trade in Changing Currencies’. As of December 2010, the
banking supervision of the Bank of Sierra Leone has approved andregister the key players of the banking
sector of Sierra Leone as follows:Fully Fledged banks, Regional Unit Banks, Micro-Financial
Institutions, Bureux thatChange. The summary of the player is given as:
Fully-fledged Banks.
A bank is an institution authorized to receive money on current account subject towithdrawal by cheque.
It can offer various products and services including loans, letter ofcredits, guarantee, etc both locally and
internationally. A list of fully-fledged banksoperation in Tanzania with the locations of their headquarters
is given as Appendix 1.
Regional Unit Banks.
A regional unit bank is an institution authorized or licensed to operate as a regional unitbank. The
institution may receive money on current account subject to withdrawal bycheque. Since it is a regional
unit, it has no mandate to open branches in other regions.
Financial Institutions
A financial institution is an institution licensed by Bank of Sierra Leone and authorized toengage in
banking business not involving the receipt of money on current account subjectto withdrawal by cheque.
Bureaux that Change Operators
These are institutions registered by the Bank of Sierra Leone and entrusted with the task ofchanging
money over the counter. The bureaux are regulated under the Foreign ExchangeAct, 1992 and Foreign
Exchange (Bureaux de Change) Regulations, 1999. There are 20operators in Sierra Leone Freetown and
other areas within Sierra Leone. This makes a total of 20 operatorsin the Republic Of Sierra Leone (Bank
of Sierra Leone, 2010).
Licensing Conditions in the Banking Industry (See Bank of Sierra Leone Reports, 2010)
Any individual or company wishing to establish a bank or financial institution in
Sierra Leone must submit the following information to the Bank of Sierra Leone:
1. Letter of Application in prescribed format.
2. Proposed Memorandum of Association (unregistered with the Registrar of
Companies).
3. Proposed Articles of Association (unregistered with the Registrar of Companies).
4. Proof of Availability of Funds for Investment as Capital of the Proposed
Institution e.g bank certification.
5. List of Incorporators/Subscribers and Proposed Members of Board of Directorsand Other Senior
Officers.
6. Information Sheet of Every Incorporator/Subscriber and Every Proposed Memberof the Board of
Directors, and Senior Officer.
7. Proof of Citizenship of Every Incorporator/Subscriber and Every ProposedDirector and Senior Officer.
This Includes Detailed Curricula Vitae (CV),Photocopy of the First Five Pages of a Passport, a Passport
Size Photograph andHistorical Background.
8. Audited Balance Sheet and Income Statement of Every Incorporator/Subscriberand Every Proposed
Member of the Board of Directors and Senior Officer who isengaged in Business.
9. Certified Copies of Annual Returns of Every Incorporator/Subscriber and EveryProposed Member of
the Board of Directors and Senior Officer (together withaccompanying schedules/financial statements)
Filled During the Last Five Yearswith Income Tax Office for Income Taxation Purposes.
10. Tax Clearance from the Income Tax Office
11. Statement From Two Persons, (not relatives) Vouching for the Good Moral Character and Financial
Responsibility of the Incorporators/Subscribers and the Proposed Directors and Senior Officers.
12. Business Plans for the First Four Years of Operations Including the Strategy for Growth, Branch
Expansion Plans, Dividend Payout Policy and Career Development Programme for the Staff, Budgets for
the First Year Must Also be Included
13. Projected Annual Balance Sheets for the First Four Years of Operations.
14. Projected Annual Income Statement for the First Four Years of Operation.
15. Projected Annual Cash Flow Statements for the First Four Years of Operation.
16. Discussion of Economic Benefits to be Derived by the Country and the Community From the
Proposed Bank/Financial Institution.
Other Players in the Industry
There are other players, who can also be offering a challenge to the banking sector of Sierra Leone. These
to include some micro finance institutions which offer various productswhich are either similar or
substitute of what the banks are offering. The example forthese includes organizations like; Splash, Airtel
Money, Top up Money/Vocher and various NGOs. To someextent even some passenger transporters and
currier companies are providing somesubstitute products to some customers (E.g A passengers’
transporter: ScandinaviaExpress Service, offering money transfer service to various parts of the country
in Sierra Leone by charging a reasonable transfer fee = 3% of the amount to be transferred)
The availability of the various players makes the industry so competitive and dynamic.This calls for a
need for each individual player to operate competitively in order tosustain its business. The players in the
industry need to make a strategic analysis of theindustry in order to know the appropriate strategies to be
applied in order to sustain thebusiness continuity. One of the useful models in assessing the attractiveness
of anyindustry is Porter’s Five Forces Framework (Porter, 1980)
Porter’s Five Forces Framework (PFFF)
More than two decades ago, Professor Michael Porter suggested some driving forceswhich could help to
analyse the attractiveness of any industry/sector as well as itscompetitive positioning. This framework is
widely used and known as ‘Porter’s FiveForces’. Professor Porter invented this model in 1979 and this
was published in his bookin 1980. Whether the business is service oriented or physical goods, there are
alwayscompetitive forces in any perfect competitive business environment, like that of thebanking sector
in Sierra Leone.
Rationale of the Porter’s Five Forces Model in the Banking Industry
The model attempts to address key strategic issues in a wider scope. Many of the issuesmentioned in the
model, including the forces and the management of those forces, arerelevant to the banking sector as well
as any other service-oriented business. The results,which will be obtained by the application of this
model, should be given the value of thetime of the analysis and that a continuous review is necessary in
order to avoid to bemyopic or obsolete with the results. Michael Porter provided a framework that models
anindustry as being influenced by five forces (Porter, 1980). Figure 1 provides details of theframework.
Figure 1: Porter’s Five Forces Framework

Supplier Power
Supplier concentration
Importance of volume to
supplier
Differentiation of inputs
Impact of inputs on cost or
differentiation
Switching costs of firms in the
industry
Presence of substitute inputs
Threat of forward integration
Cost relative to total purchases
in industry

Barriers to Entry Degree of Rivalry Threat of Substitutes

Absolute cost advantages Exit barriers Switching costs
Proprietary learning curve Industry concentration Buyer inclination to
Access to inputs Fixed costs/Value added substitute
Government policy Industry growth Price-performance
Economies of scale Intermittent overcapacity trade-off of substitutes
Capital requirements Product differences
Brand identity Switching costs
Switching costs Brand identity
Access to distribution Diversity of rivals
Expected retaliation Corporate stakes
Proprietary products

Buyer Power
Bargaining leverage
Buyer volume
Buyer information
Brand identity
Price sensitivity
Threat of backward integration
Product differentiation
Buyer concentration vs.
industry
Substitutes available
Buyers’ incentives

Porter’s Forces model is an “outside looking in” business unit strategy tool that is used
to make an analysis of the attractiveness or value of an industry structure.
The Competitive Forces analysis is made by the identification of 5 fundamental competitive
forces:

 The entry of competitors (how easy or difficult is it for new entrants to start to
compete, which barriers do exist)
 The threat of substitutes (how easy can our product or service be substituted,
especially cheaper)
 The bargaining power of buyers (how strong is the position of buyers, can they
work together to order large volumes)
 The bargaining power of suppliers (how strong is the position of sellers, are
there many or only few potential suppliers, is there a monopoly)
 The rivalry among the existing players (is there a strong competition between
the existing players, is one player very dominant or all all equal in strength/size)

Some academics believe that a sixth force could be included – government.

SUPPLIERS’ POWER
Supplier concentration - Inputs differentiationIt is a model of pure competition, which implies that risk-
adjusted rates of return shouldbe constant across firms and industries. However, numerous economic
studies haveaffirmed that different industries can sustain different levels of profitability; part of
thisdifference is explained by industry structure. Any strategic business manager seeking todevelop an
edge over rival firms can use this model to better understand the industrycontext in which the firm
operates. The manager can then use the analysis as a basic toolfor strategic decision making for the
current situation or future. The banking sector ofSierra Leone can also consider the application of this
model for some strategic decisionprocesses. A discussion of each component of the model is as follows;
Degree of rivalry
In the traditional economic model, competition among rival firms drives profits to zero.
However, competition is not perfect and firms are not unsophisticated passive pricetakers. Rather, firms
(banks) strive for a competitive advantage over their rivals. Theintensity of rivalry among firms varies
across industries, and strategic analysts areinterested in these differences. These differences give some
firms a competitiveadvantage while to others a disadvantage. These differences also pose a challenge to
theuniform application of this model across the board. Economists measure rivalry byindicators of
industry concentration. The Concentration Ratio (CR) is one of suchmeasures. A high concentration ratio
indicates that a high concentration of market shareis held by the largest firms - the industry is
concentrated. With only a few firms holding alarge market share, the competitive landscape is less
competitive (closer to a monopoly).
A low concentration ratio indicates that the industry is characterized by many rivals, noneof which has a
significant market share. These fragmented markets are said to becompetitive. The concentration ratio is
not the only available measure; the trend is todefine industries in terms that convey more information than
distribution of market share.
If rivalry among firms in an industry is low, the industry is considered to be disciplined.
This discipline may result from the industry's history of competition, the role of a leadingfirm, or informal
compliance with a generally understood code of conduct. Explicitcollusion generally is illegal and not an
option; in low-rivalry industries competitivemoves must be constrained informally. However, a maverick
firm seeking a competitiveadvantage can displace the otherwise disciplined market.
When a rival acts in a way that elicits a counter-response by other firms, rivalryintensifies. The intensity
of rivalry commonly is referred to as being cutthroat, intense,moderate, or weak, based on the firms'
aggressiveness in attempting to gain an advantage.In pursuing an advantage over its rivals, a firm (in this
case a bank) can choose fromseveral competitive moves:
• Changing prices - raising or lowering prices to gain a temporary advantage.
• Improving product differentiation - improving features, implementing innovationsin the manufacturing
process and in the product itself. The banks can equallyreposition themselves from the ‘old way’ the
customers have been perceivingthem. Those institutions, which will differentiate their products from
others, willhave a unique opportunity to attract customers at a premium price. A goodexample for this is
the way Barclays bank is charging a premium fee forcustomers of ‘queueless category’. These customers
have no time to wait in aqueue hence ready to pay any fee for them to be treated differently.
• Creatively using channels of distribution - using vertical integration or using adistribution channel that
is novel to the industry.
• Exploiting relationships with suppliers.
The intensity of rivalry is influenced by the following industry characteristics:
(i) A larger number of firms increases rivalry because more firms must competefor the same customers
and resources. The rivalry intensifies if the firms havesimilar market share, leading to a struggle for
market leadership.
(ii) Slow market growth causes firms to fight for market share. In a growingmarket, firms are able to
improve revenues simply because of the expandingmarket.
(iii) High fixed costs result in an economy of scale effect that increases rivalry.
When total costs are mostly fixed costs, the firm must produce near capacityto attain the lowest unit costs.
Since the firm must sell this large quantity ofproducts, high levels of production lead to a fight for market
share and resultsin increased rivalry.
(iv) High storage costs or highly perishable products cause a producer to sellgoods as soon as possible. If
other producers are attempting to unload at thesame time, competition for customers intensifies.
(v) Low switching costs increases rivalry. When a customer can freely switchfrom one product to another
there is a greater struggle to capture customers. Inthe case of banking sector in Tanzania, the switching
cost has become verylow. Some competing banks a located just adjacent to one another (eg CRDB
Holland House and Sierra Leone Commercial bank). Some of the banks are locatedin the same building
(E.gStanbic Bank and African Banking Corporation,both of them in Sukari House Building, see Table
1a).
(vi) Low levels of product differentiation are associated with higher levels ofrivalry. Brand identification,
on the other hand, tends to constrain rivalry.
(vii) Strategic stakes are high when a firm is losing market position or has potentialfor great gains. This
intensifies rivalry.
(viii) High exit barriers place a high cost on abandoning the product. The firm mustcompete. High exit
barriers cause a firm to remain in an industry, even whenthe venture is not profitable. A common exit
barrier is asset specificity.
(ix) A diversity of rivals with different cultures, histories, and philosophies makean industry unstable.
There is greater possibility for mavericks and formisjudging rival's moves. Rivalry is volatile and can be
intense.
(x) Industry Shakeout. A growing market and the potential for high profitsinduces new firms to enter a
market and incumbent firms to increaseproduction. A point is reached where the industry becomes
crowded withcompetitors, and demand cannot support the new entrants and the resultingincreased supply.
The industry may become crowded if its growth rate slowsand the market becomes saturated, creating a
situation of excess capacity withtoo many goods chasing too few buyers. A shakeout ensues, with
intensecompetition, price wars, and company failures. The founder of Boston
Consulting Group (BCG) model, Bruce Henderson, generalized thisobservation as the Rule of Three and
Four: a stable market will not have morethan three significant competitors, and the largest competitor will
have nomore than four times the market share of the smallest. If this rule is true, itimplies that:
• If there is a larger number of competitors, a shakeout is inevitable.
• Surviving rivals will have to grow faster than the market.
• Eventual losers will have a negative cash flow if they attempt to grow.
• All except the two largest rivals will be losers.
• The definition of what constitutes the "market" is strategically important.
Whatever the merits of this rule (Three & Four) for stable markets, it is clear that marketstability and
changes in supply and demand affect rivalry. Cyclical demand tends tocreate cutthroat competition.
Threat of Substitutes
In Porter's model, substitute products refer to products in other industry. To theeconomist, a threat of
substitutes exists when a product's demand is affected by the pricechange of a substitute product. A
product's price elasticity is affected by substituteproducts - as more substitutes become available, the
demand becomes more elastic sincecustomers have more alternatives. A close substitute product
constrains the ability offirms (banks) in an industry to raise prices. The competition engendered by a
Threat ofSubstitute comes from products outside the industry. In the banking sector, there are somany
products and at the same time there are so many substitute products. For example ifsomeone is looking
for a travelers cheque and that could not be provided, one mightdecide to opt for Telegraphic Transfer.
Buyers’ bargaining power
The power of buyers is the impact that customers have on a buying process of theproducts from a certain
industry. In general, when buyers’ power is strong, therelationship to the industry is near to what an
economist terms a monopsony - a market inwhich there are many suppliers and one buyer. Under such
market conditions, the buyersets the price. In reality few pure monopsonies exist, but frequently there is
someasymmetry between a producing industry and buyers. The same case can as well beapplied to the
service industry, as nowadays there is no pure-manufacturing or pure service industry. The combination is
the way forward. The only vital difference is thedefinition of the ‘core product’. For instance much as we
consider banks to be under theservice industry, physical properties like furniture, building, computers, etc
are vital tomake the service a possibility.
Suppliers’ bargaining power
A producing industry requires raw materials - labour, components, and other supplies.
This requirement leads to buyer-supplier relationships between the industry and the firmsthat provide the
raw materials used to create products. Suppliers, if powerful, can exert aninfluence on the producing
industry, such as selling raw materials at a high price tocapture some of the industry's profits. In a service
sector there is no direct supplier of rawmaterial. However the supply of supporting facilities like cheque
books, furniture,stationeries, etc can give the same analogy.
Barriers to entry / Threat of new entrants
It is not only incumbent rivals that pose a threat to firms in an industry; the possibilitythat new firms may
enter the industry also affects competition. In theory, any firm shouldbe able to enter and exit a market,
and if free entry and exit exists, then profits alwaysshould be nominal. In reality, however, industries
possess characteristics that protect thehigh profit levels of firms in the market and inhibit additional rivals
from entering themarket. These are barriers to entry.
Barriers to entry are more than the normal equilibrium adjustments that markets typicallymake. For
example, when industry profits increase, we would expect additional firms toenter the market to take
advantage of the high profit levels, over time driving downprofits for all firms in the industry. When
profits decrease, we would expect some firmsto exit the market thus restoring market equilibrium. Falling
prices, or the expectationthat future prices will fall, deters rivals from entering a market. Firms also may
bereluctant to enter markets that are extremely uncertain, especially if entering involvesexpensive start-up
costs. These are normal accommodations to market conditions. But iffirms individually (collective action
would be illegal collusion) keep prices artificiallylow as a strategy to prevent potential entrants from
entering the market, such entry deterring pricing establishes a barrier. Barriers to entry are unique
industry characteristicsthat define the industry. Barriers reduce the rate of entry of new firms, thus
maintaining alevel of profits for those already in the industry. From a strategic perspective, barriers canbe
created or exploited to enhance a firm's competitive advantage. If it happens that for acertain industry
there are low entry barriers but high exit barriers, then this situation isreferred as ‘the worst situation of
competition’ in that particular industry.
Dynamic Nature of Industry Rivalry
Schumpeter and, more recently, Porter have attempted to move the understanding ofindustry competition
from a static economic or industry organization model to anemphasis on the interdependence of forces as
dynamic, or punctuated equilibrium, asPorter terms it. In Schumpeter's and Porter's view the dynamism of
markets is driven byinnovation. The banking industry of Sierra Leone is equally facing a lot of dynamism
and thedynamics will keep on changing over time at an increasing speed.
Mapping the Banking Industry of Sierra Leone within PFFF: Is it attractive?
It is imperative at this stage to make a succinct application of PFFF to the bankingindustry of Tanzania
and make an objective assessment about the attractive ness of theindustry. One key assumption needs to
be made before the mapping. This is to assumethat the model is considered INSIDE-OUTSIDE approach.
This is to say, the analysis isdone considering the full-fledged banks being in the industry already. The
analysis of theforces always does change the direction when the perspective is outside-inside.
Competition among the existing fully-fledged banks:
There are over 25 banks, which are recognized and licensed to operate in Sierra Leone (Bank of
Sierra Leone report, 2010). Looking on the trend of dates of commencement of business ofthese 25 banks,
20of them commenced just within fifteen years (2000 – 2015). This is 86%of the registered banks. This
gives a clear signal that the increase of the number of bankswithin the industry is fast and in any case
there is now a great struggle for banks to createand maintain a good market share. Though there might be
an increase of the number ofcustomers, but that cannot dilute the fact that there is a tension of competition
betweenthe existing rivals in the industry. Therefore, this element of PFFF in respect of thebanking sector
in Tanzania is now ranked unfavorable. The unfavorable forces will beindicated by a minus sign (-) while
favorable will be marked by a plus sign (+).
Threat of New Entrants:
The Bank of Tanzania has set a minimum capital requirement of 1 billion for a bank to beregistered.
However, this amount has been raised to 5 billion and it is expected that by theyear 2008, it should be
fully operational. The conditions set for registering a bank are notall that much complex, hence entry
barriers become low. There are also 5 Regional unitbanks (see Appendix 2), which stand a better chance
to convert to full-fledged banks.
There are also 5 Financial institutions, which have establishedthemselves very well hence to make easy
for them to convert to banks. All these makethe entry barriers much lower. Bearing in mind the early
assumption made (Inside outside perspective), for the banks, which are within the industry, this is an
unfavourable condition. However, for the prospective new entrants who are outside the status of full-
fledged banks, it is a favorable condition. Therefore for the analysis based on the existingfull-fledged
banks in the industry, to them, this force bears a negative sign (-)
Threat of Substitute Products:
Though there are 5 regional unit banks, 5 financial institutions and 102 bureux de changeoperators, there
are some features and products of which they can only be obtained fromthe fully-fledged banks. These to
include; broad network of operations, Current account,etc. For this reason, this force is favorable to the
full-fledged banks. It therefore bears apositive sign (+).
Bargaining Power of Suppliers:
The core business of the banking industry is ‘service’ which mainly focuses on safety ofwealth. The
suppliers do provide some tangibles like chequebooks, furniture, etc. Theimpact of this in business is not
significant since they are not really like the raw material.Therefore this is a favorable force in this
industry hence it bears a positive sign (+).
Bargaining Power of Customers:
Having the whole range of players apart from the full-fledged banks, it is evident thatcustomers can move
within the 22 operators as full-fledge banks and can also decide toswitch to the Regional Unit banks or
financial institutions. Their choice can even extendto the NGOs, depending on the nature of the product.
For instance if a customer islooking for a small amount of loan, he/she can even get the said product
fromorganizations like FINCA, PRIDE, etc. The close location of various banks is also givingcustomer a
very high bargaining power. For instance in the city of Dar Es salaam,consider the Ohio Street, off Ali
Hassan Mwinyi Road to the junction of Sokoine drive,there is only a distance of about 600 Metres. Along
that street you find the followingbanks located very close or opposite to each other;Barclays bank (close
to Akiba Commercial Bank), CRDB Bank (Tower Branch), KenyaCommercial Bank, CRDB Bank
(Holland House Branch), Baroda bank, StandardChartered (opposite to Stanbic Bank and African
Banking Corporation) and EurafricanBank. This implies 9 brands within just a distance of 600 metres.
With this concentrationthe bargaining of customers always goes high before customers start looking on
adifferentiated service. Therefore, to the full-fledged banks within the industry this is anunfavorable
condition, hence bearing a negative sign (-)
From the above analysis of the five forces as mapped in the banking industry ofTanzania, we can
summarize the outcome by showing the sign of each force as follows:
Rivalry among the existing full-fledged banks (-), Threat of New entrants (-), Threat ofsubstitute products
(+), Bargaining power of Suppliers (+), Bargaining Power of
Customers (-). This outcome can be shown diagrammatically as follows (see Figure 2).
Figure 2: The Porter’s Five Forces Framework of the Banking Industry of Tanzania
Source, Research Survey and analysisFrom Figure 2 above, the banking industry has two favorable forces
and threeunfavorable. From this analysis the industry is considered to be of TWO STARS.
Conclusion
The banking industry of Tanzania has been growing at a high speed for the last decade.
Out of 22 banks, 19 of them have been licensed within a decade. These are good news to
RIVALRY AMONG EXISTING BANKS (-)
THREAT OF NEW ENTRANTS (-)
THREAT OF SUBSTITUTE PRODUCTS (+)
BARGAINING POWER OF SUPPLIERS (+)
BARGAINING POWER OF CUSTOMERS
The customers. On the other hand this has increased a tremendous competition within the industry. The
bargaining power of the customers is high and also barriers to entry are gentle hence allowing more
entrants to get to the industry. Finally the Porter’s Five Forces Frameworks reveals that this industry is of
two starts. This implies that two (Bargaining Power of Suppliers and Threat of substitutes) forces are
favourable to those who are already full-fledged banks. Three forces are unfavourable. It is therefore
urged from this analysis that on average the industry is not attractive. This implies that for the bank to
survive profitably in the industry, it needs to choose a strategy, which can lead to a possibility of charging
premium price for some products (Kotler, 1991). Since customers have a high bargaining power, it is
imperative for the banks to make sure that they have a customer retention strategy in place. In this
industry therefore, it is about survival of the fittest. There is no room for losers but winners only. If in the
future theTanzanian Government implements the condition of the increase of the required initial capital
from 1 billion to 5 billion, this will have a direct impact on the ‘threat of new entrants’. This force might
change and become favourable to the industry for those who are already within the industry. It should be
borne in mind that these forces are not and will never be static. Therefore, when they change in the future,
there will be a shift on the attractiveness of the industry.
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