Strategic Analysis of Toronto’s Financial Sector

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Table of Contents

Introduction
Porter’s Five Forces Analysis
PESTLE Analysis of Toronto’s Financial Sector
Conclusion
Appendix
List of References

Introduction

Toronto is one of the fasting growing financial economic centers of the world. Toronto’s economy plays a vital role in the economy of Canada. According to the Global Financial Centre Index, Toronto ranks at12^th amongst 46 most renowned financial centers of the world.

The financial services industry of Toronto has acted as a critical economic engine for the city generating great employment opportunities and yielding higher GDP. According to the World’s Economic Survey, Toronto ranks as the third largest stock exchange in North America. The financial sector of Toronto has contributed about 13.2 percent directly and 7.9 percent indirectly to Canada’s GDP (Bullen et al., 2011).

This indicated that Toronto’s financial sector plays a prominent role in locally and internationally. Toronto contributes about half of Canada’s GDP that is about $1.736 trillion. Furthermore, last year Toronto’s economy posted a growth rate of 2.7 percent. Its financial sector has played a significant role in Canada’s economy and therefore, holds a significant importance for investors and businesses.

Toronto’s economy is a mixed economy with no single dominating industry. Three major industries of the region ranked by the percent of GDP are the financial industry, real estate, and wholesale and retailing trade (Careless, 2002). The major contribution to GDP is made by its financial industry i.e. 14 percent.

During last three years, the financial sector of Toronto provided major opportunities for businesses and has attracted major investments, which have positively affected its position in the global arena. This paper shall analyze different aspects of the financial sector of Toronto, and it shall also critically analyze its economic significance.

This report aims to study the financial industry of Toronto (Canada). The main highlight of the report is to determine the significance of the city at both domestic and international economic platforms.

Porter’s Five Forces Analysis

In this section of the report, the micro- and macro-environmental factors that have an impact on the Toronto’s financial sector and its performance are analyzed with the help of Porter’s Five Forces Model and PESTL model of strategic analysis.

Bargaining Power of Suppliers

The incentives offered by the government to investors affect how suppliers of financial resources behave. The Canadian government offers two types of incentives to financial institutions and their suppliers, i.e. the investors. Firstly, it offers incentives to investors who are involved in entrepreneurial activities.

Secondly, it offers tax incentives to suppliers. With the government support, these investors or suppliers of the financial sector of Toronto enjoy more power. However, they demand high gains on the capital invested and less amount of taxes to be deducted from their invested amount.

Moreover, fluctuations in interest rates also determine the behavior of suppliers in the financial sector of Toronto. If the interest rates are high, suppliers tend to invest in low risk bearing options and vice-versa (Eggert, 2012; Morden, 2007).

Rivalry among Competitors

The intensity of rivalry among competitors in Toronto’s financial sector is moderate. This is because companies within the financial sector of Toronto do not favor practice of aggressive marketing tactics. Another reason is that the industry is fragmented and relies mainly on conventional tools for generating investments without significant differentiation, so there is very little evidence of innovative financial services offered in Toronto.

Global economic downturn is another reason why there is a moderate intensity of competition because financial institutions operating in Toronto tend to maintain themselves at lower levels of risks. The arrival of international financial institutions in Toronto has also neutralized the competitive landscape of Toronto’s financial service sector (Eggert, 2012; Morden, 2007).

Threat of Substitute

The threat of substitute to Toronto’s financial sector is very high as customers of this industry have numerous other forums where they can acquire financial services at lower costs. Instead of going to a financial consultant or investment manager, clients are now using the internet to reach out financial consultants in other countries who charge less and provide financial solutions within no time.

Moreover, major financial companies in Toronto are now employing their own financial consultants and investment experts which reduces chances of independent financial institutions in Toronto to attract a large number of customers. Barter trade, investments, and transactions are substitutes to the financial sector’s services in Toronto which could shrink the market share of the financial sector (Eggert, 2012; Morden, 2007).

Bargaining Power of Buyers

The bargaining power of buyers in Toronto’s financial sector is high because the customers now understand trends in the market due to their exposure to knowledge available on the Internet and also acquired through academic experiences. Even the financial packages that are offered to customers are customized and are made after analyzing each customer’s portfolio and affordability.

Moreover, customers also have various options offered by a number of local and international financial institutions to choose from which reduces the bargaining power of financial institutions in Toronto (Eggert, 2012; Morden, 2007).

Threat of New Entrants

The threat of new entrants in Toronto’s financial market is moderate. Usually, it requires a bulk amount of capital to be invested to start a financial institution. Besides, the exit barriers are also very high which bring down the morale of investors who may be thinking to start a financial business in Toronto.

On the other hand, the financial profile of both local and international businesses in Toronto enables them to divert their investments to other avenues (Eggert, 2012; Morden, 2007).

PESTLE Analysis of Toronto’s Financial Sector

Political & Legal

With the government and compliance institutions’ support, Toronto’s financial sector has grown to a magnificent level. The Canadian financial sector has grown to a position of being worlds’ most organized financial system – a system to back all businesses present within the country and generating great returns (Sable, 2008).

With complementary government policies, Toronto’s stock exchange has become the third largest market in North America. It has come near to compete with the New York stock exchange, which is the largest stock exchange in the world. This is all because of the political stability of Canada which has invited financial institutions to do their business in Toronto (the growing financial hub) (Sable, 2008).

Economical

When it comes to cost cutting and cost effectiveness, Canada is a place where businesses are established on the highest cost effectiveness level. According to a report by KPMG (2010), operational cost of businesses in the city of Toronto is lower than an average business cost of America’s twenty largest cities. Furthermore, the economic position of the country is on the rise and it is still attracting huge investments every year.

The Canadian GDP stands at $1.736 trillion in which the proportion of Toronto’s GDP is 11%. The economic stability is the reason for major investments made in Toronto’s financial sector, which has world’s top ranking banks and other financial institutions (COT, 2013).

Apart from all, Toronto is a diversified business economy where there are 11 key sectors including the financial sector contributing to the progress of the economy (Invest Toronto, 2013).

Social

Canada’s population is majorly educated, and people are aware and ready to invest in products offered by financial institutions. Financial institutions like banks are well developed in the region. They have grown rapidly just because people have trusted their professional financial services over many years (Sable, 2008).

Moreover, people living in Toronto are willing to build professional relationships with financial service providers and seek their services. This generates an attraction for other financial institutions which are planning to make their way into Toronto’s financial center. This is how the city of Toronto invites new financial businesses with new ideas and knowledge to deliver the best financial services (Sable, 2008).

Technological

As far as the technology is concerned Toronto’s financial sector is more adaptive to technology and innovation. The financial businesses in the region have invested heavily in information communication technology development, which allows them to perform effective knowledge management practices (Wolfe & Davis, 2011).

The trend in the region and particularly in the financial sector is that of wide acceptance and adaption of technology. This is to increase the effectiveness of the financial business sector, which is competing in a highly competitive and evening changing global financial market (Wolfe & Davis, 2011).

According to contemporary researches, Toronto’s financial services are linked significantly with the ICT service sector. There is a close association found between financial institutions and information technology companies which has allowed financial institutions to grow to their highest potential (Wolfe & Davis, 2011).

The potencies are of Toronto’s financial sector are prominent and these are just because of the integration of ICT technologies in operations (Wolfe & Davis, 2011).

Conclusion

From the above information and data, it can be determined that the financial industry of Toronto is one of the fastest growing industries on the global level. The easy access to financial resources and talented human capital has allowed the city’s financial sector to overcome challenges and hurdles of several financial crises in the past. Toronto holds a significant importance at both domestic and global levels.

At the domestic level, Toronto yields about half of the country’s GDP and is the hub for financial services. Financial services offered by various local and foreign companies operating in Toronto are considered to be offering finest financial services on the international level world (Konzelmann & Davies, 2013).

The magnificent performance of the region has allowed the region to emerge as a global player supporting the entire country’s economy. The banking sector has played an essential role in enhancing the financial services of the country. The city has continued to maintain highest standards of service quality and low risk profile as a result of stringent and effective policies of the country’s central bank and its government.

The financial management services of the region have further enhanced the popularity of the region in the global financial services arena (Coulbeck, 2013). This has allowed the financial industry of Toronto to gain the confidence of foreign investors and as a result, contributing massively in Canada’s GDP.

Appendix

Appendix-I

Appendix-II

Contribution of Toronto’s Financial Sector.

Contribution of Toronbtos Financial Sector in	Percentage of Contribution
Regional GDP	25.8%
Regional Employment	7.9%
National Industry’s Assets	90%
Improvement in Employement Rate	Over 230,000 employees recruited

List of References

Bullen, J, Richardson, D, Williams, M & Volpe, S 2011, OECD Territorial Reviews. Industry Profile, OECD Publishing OECD Territorial Reviews, Toronto.

Careless, J 2002, Toronto to 1918: An Illustrated History, James Lorimer and Company, Toronto.

COT 2013, Business and Economic Development facts. Web.

Coulbeck, N S 2013, The multinational banking industry, Routledge, London.

Eggert, C 2012, A Strategy Analysis Of The “Big Five” Canadian Banks. Web.

Invest Toronto 2013, Toronto Financial Services Sector. Web.

Konzelmann, S J & Davies, M 2013, Banking Systems in Crisis: The faces of liberal capitalism, Routledge, London.

Morden, T., 2007. Principles of Strategic Management. NY,London: Ashgate Publishing.

Sable, A 2008, Sector Note on the Canadian Business Services Sector, Research Report, HEC Montreal, Montreal.

Wolfe, D & Davis, C 2011, Innovation and Knowledge Flows in the Financial Services and ICT Sectors of Toronto, Research Report, Toronto Region Research Alliance, Toronto.

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