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Introduction
Al Bilad is a private bank in Saudi Arabia. The bank began its operations in 2004. Al Bilad started with a capital of 4 billion Saudi riyals. The bank provides financial services to customers in Saudis major cities. Al Bilads business model is based on Islamic banking system. Al Bilads business strategy seeks to reach clients through innovation. This paper will seek to analyze Al Bilads banking system (Bank Albilad, 2014, pp.1-4).
Analysis of Business Environment
Al Bilad bank is located in Riyadh, Saudi Arabia (Middle East). Middle East is an increasingly competitive market for banks. Saudi Arabia is especially attractive for investors due to its prime location and economic viability. The country is the largest in the Middle East with more than 30 million residents. Moreover, the country is rated among the fastest growing economies in the world with an income per capita of $24,246 (as of 2013). Saudi Arabia has one fifth of confirmed global oil reserve. The country has also encouraged private investment through privatization of its public companies. Macro environment for private business is thriving in Saudi Arabia, especially in Riyadh, which is the headquarters.
Business environment in Saudi Arabia is conducive for development of banking services. Al Bilad enjoys a dynamic as well as engaging business environment, which provides stability for its emergence. Some of the factors that influence business environment for Al Bilad bank include socio-cultural influences, competitiveness, economic factors, technological issues, natural issues as well as political influences (Britton, 2003, pp. 15-26).
Saudi Arabia has a conservative social environment, which arises from its Islamic socio-cultural influence. Socio-cultural issues in Saudi Arabia are drawn from Islamic and Sharia law. Sharia law is the most influential in banking services. Because more than 97% of Saudis are Muslims, all banks that serve the locals must follow Islamic banking system. Al Bilad works within the Islamic financial regulations. This has enabled it to survive in the market. Another factor that influences macro environment of the business is competitiveness. Saudi Arabia thrives in its oil export; this has attracted foreign investment, which has also acted to spur economic growth in the country.
Saudi Arabia is offering potential investors a red carpet offer to go into full private banking. This has increased competitiveness among banks. In fact, Al Bilad seeks to increase its branches throughout Saudi Arabia. Banks that offer competition include public and private banks such as Al Rajhi (which is the largest private bank in Saudi Arabia) and Riyad bank, among others.
Saudi Arabia is among the few countries that did not experience the full repercussions of the global financial crisis of 2007 and 2008. Financial sector has contributed greatly to the countrys economy, which relies heavily on oil export. Besides, the countrys healthy economy has also helped to improve macro environment for Al Bilad. Al Bilad bank values innovations and initiatives. This has helped it to embrace technology. The bank has managed to comply with technological requirements for its operations. In essence, the banks macro environment has been excellent and conducive for business. However, it should be noted that challenges are arising due to increasing demand for consumers as foreign competitors and local banks scramble for the countrys population.
Analysis of the Industry structure and attractiveness
Financial sector in Saudi Arabia is attractive as well as competitive. The financial service industry in Saudi Arabia comprises of various market segments such as insurance sector, commercial banks and non-bank financing institutions. Saudi Arabias financial sector was not affected widely by the 2007/2008 financial and credit crisis. This helped to shape the sector for foreign competition. In fact, Saudis insurance sector has received massive growth due to the opening up of the sector to foreign competition. Additionally, the government has been forefront in promoting private banking. Saudi government has also engaged in acts that have contributed to the deepening of the sector such as privatization of public companies, among others. Moreover, financial sector has increased its contribution to the GDP from 3.5% to 10% over the past three decades. In essence, Saudis financial sector is both attractive and competitive (CBM, 2009, pp. 1-13)
Application of Porters Five Forces of Competition framework to the industry
Banking industry is highly competitive. Moreover, private banking is even more competitive as it depends on the number of customers and entrants as well as government policies. In particular, private banks have increased in Saudi Arabia due to governments policy of encouraging privatization. Porters model of analyzing competition displays an industrys attractiveness. The following five forces can be utilized to assess the industry (Aubin, 1979, pp. 45-67).
Supplier power
Suppliers in the industry include customers who bring deposits as well as loans from other financial institutions. Banking industry in Saudi Arabia has customers with adequate resources for deposits and investments banks. The industry enjoys benefits of a conservative social environment, which encourages citizens to deposit money in Islamic banks. To this extent, it can be said that supply bargain power is moderate.
Buyer power
These include customers who take loan and customers who deposit money at a fee. Factors that influence buyers power include technology, customer loyalty, banking fees and competition from other banks. Buyers power is quite moderate since they follow Islamic law, which ensures their savings are kept and returned safely at a fee. Fees are regulated by a Sharia abiding body. In this regard, buyers power is considered moderate based on other factors like technology, among others
Competitive rivalry
As mentioned earlier, Saudi Arabias financial market is competitive as well as attractive. The market is still up for grab as companies increase their competitiveness. Banks such as Al Rajhi and Riyad have introduced various products, which targets the same market as Al Bilad. However, based on the number of banks in Saudi Arabia, competitive rivalry is still growing. Moreover, private banks are not numerous although this is expected to change in the next decade.
Threat of substitution
Banking industry faces little challenge concerning the threat of substitution. In fact, the industry is controlled by Sharia law, which determines the products, allowed in the industry. This ensures that substitutions are controlled. In essence, stability of the industry is long term.
Threat of new entry
Because of the industrys competitiveness as well as the governments goodwill, the industry faces a threat of new entrants from both local and foreign market. Banks such as HSBC are already in the market, while others are also considering entry and expansion. Government policy has promoted new entrants to improve its financial sector.
Application of game theory on the case
Game theory helps economists to come up with the best possible strategies or outcomes for businesses. Financial industry in Saudi Arabia is quite competitive and attractive as has been shown by porters five forces. In order to survive in such a competitive field, businesses need to utilize game theory and hence reap the best outcomes. Game theory has been utilized extensively to determine the best strategies to be utilized in managing business practices. Game theory applies well in banking industry. In fact, it is quite essential in establishing the best business practices since it leaves no stones unturned in its analysis. Game theory would benefit Al Bilad bank since it still has limited resources with an aim of conquering the market. Other banks like Riyad and Al Rajhi have dominated the market for a long period while Al Bilad is just about a decade old in the business (Csoka, Herings & K oczy, 2009, pp. 266 276.
Therefore, Al Bilad needs to utilize game theory to increase its competitive advantage in the market. Game theory shows all sides of a business strategy. In fact, it provides complete information based on evidence and logic. Game theory offers a reality check on the industry, it provides both the positive possibilities and negative possibilities that can be encountered whenever certain business decisions are taken. Unlike other models, game theory helps businesses to make the best possible and realistic ways of surviving in a competitive market. For instance, Al Bilad needs to intensify its management strategies to reflect their mission and values. This will give them a positive image among other competitors (Acerbi & Tasche, 2002, pp.14871503).
Recommendations
Al Bilad bank is still small and growing, it therefore needs to ensure its image brand is strong in the market to attract more customers and hence enable it expand throughout Saudi Arabia and beyond. This would be possible if they keep up with the pace of competition in the market. Nonetheless, one way of achieving competitive advantage is to ensure the brand of the company is strong in the macro environment.
Secondly, Al Bilad bank needs to conduct regular checks on its management strategies to ensure that it is relevant in the market. This is essential since the financial market is dynamic. The bank states clearly that it seeks to be innovative in its business activities. Additionally, Al Bilad states that it values initiatives with its stakeholders. These strong points should be promoted and pursued to remain relevant in the banking industry (Barnes, 2001, pp. 12-18).
Finally, Al Bilad bank also needs to develop and maintain a strong organizational culture, which would work to propel its business strategies. In a strong conservative social environment, survival depends on a strong culture that promotes conservative values of the environment. In essence, as much as the business remains innovative and as much as the business embraces technology, it needs to ensure that conservative values of its stakeholders are maintained. For instance, methods of advertisements need to match the expectations of customers in order to achieve response. In this regard, the business should ensure that customers values are given first priority in every endeavor (CGMA, 2014, pp. 13).
Conclusion
Al Bilad is a private bank, which started in 2004 with a capital of 4 billion Saudi riyals. The bank is still young given it has only operated for about a decade. However, it has experienced tremendous growth due to its attractiveness and management strategies that have targeted growth and competitiveness. However, more needs to be done to achieve results, which would help expand it to the level of Al Rajhi, which has branches both within and beyond Saudi Arabia.
Reference List
Acerbi, C & Tasche, D 2002, On the coherence of expected shortfall, Journal of Banking and Finance, vol. 26, no. 1, pp.14871503. Web.
Aubin, J 1979, Mathematical methods of game and economic theory, North-Holland press, Amsterdam. Web.
Bank Albilad 2014, About The Bank. Web.
Barnes, J 2001, Secrets of Customer Relationship Management: Its All About How You Make Them Feel, McGraw-Hill, New York. Web.
Britton, C 2003, The Business environment, 4th edn, Prentice hall, New York. Web.
CBM 2009, What is Islamic Banking? Web.
CGMA 2014, Porters Five Forces of Competitive Position Analysis. Web.
Csoka, P Herings, J & K oczy, L 2009, Stable allocations of risk, Games and Economic Behavior, vol. 67, no. 1, pp. 266 276. Web.
Do you need this or any other assignment done for you from scratch?
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