Project: Bajaj Finserv Limited

A report submitted to
Prof. Shaleen Gopal

In partial fulfilment of the requirements of the course

Strategic management

By
Group B13
Section B

Ashish Kumar Shakya, 188052

Chiranjib Mukherjee, 188077
Deepa Chaudhary, 188082
Sumit Kumar Singh, 188250

On
05-02-2019
Industry Analysis:

Since our company, Bajaj Finserv Limited is a company operating in the space of providing

financial services, we will be analysing the attractiveness of the financial services industry in

India. The company is engaged in providing asset management, wealth management, lending

and insurance services. The new rules in the industry such as relaxation in foreign

investments in the sector have further changed the dynamics of the Indian financial services

industry.

Factor 1- Rivalry Among Competitors:

a) Number of Competitors: Significant Rating: 1

Since the company operates in asset management, credit services including lending,

insurance services and wealth management space, the company has to face

competition from companies operating in the Non-Banking Financial Services Space

(NBFCs), Banking Companies, Mutual Funds and various small and large players in

the financial services domain. Hence, the company faces significant number of

competitors and there is rivalry in this industry to snatch away customers by

providing better and more alluring schemes and offers, for example, a half percent cut

in lending rate.

b) Industry Growth: Good Rating: 4

The financial services industry in India has grown with an annual compounded

growth rate of 15. 51 percent over the last ten years. The industry has a total worth of

US $342 billion as of 2019. Apart from that, the wealth management services industry

is growing as the industry experiences a surge in the number of High Net Worth

Individuals with total value of US $127.33 billion as of 2018.

c) Fixed Costs: Comparatively lesser but still significant Rating: 3

The fixed investments required in this industry are lesser as compared to aviation

industry or manufacturing industry but are still significant if a company wants to be

seen as a comparable player as fixed costs are required for setting up offices at

various locations, setting up infrastructure such as call centres, computers and

software access.

d) Differentiation: Minimal (Commoditised Services) Rating:

The attractiveness of this industry in terms of differentiation in the services provided

is quite low since the services provided are commoditised services like lending, asset

management, wealth management, insurance etc. so it does not matter to the clients

much which company they choose. Hence, there is differentiation only on the basis of

reputation and trust in the firm.

e) Switching Costs: Significant as huge financial resources committed Rating:

The switching costs from this business to any other business are comparatively lesser

as the company can sell of its assets in the market but still the cots of offices and

infrastructure and offices, call centres set up and contracts with employees are still

significant. Hence, switching costs are still significant because apart from that huge

financial resources are also committed.

 f) Openness of terms of Sales: Open Rating:

The terms of providing the services are explicitly written and are highly regulated by

rules as regulations such as RBI’s minimum lending rate, asset requirements etc. The

services provided are basically based upon contracts formed with clients, hence the

firms have little discretion to tailor their offerings.

g) Excess Capacity: Nil Rating:

The most valuable advantage of this industry is the ease to meet with excess demand

and lack of any spare capacities. If a company faces excess demand, they can easily

scale up and cater to more clients either internally or can also outsource some part of

the offerings with ease.

h) Strategic Stakes: Medium Rating:

Most of the firms in the financial industry operate in this industry only, while there

are many firms, including Bajaj Finserv which have other businesses also, but still, to

remain in this industry the companies have to commit huge financial resources, hence

the strategic stakes in this industry are significant.

Factor 2- Barriers to exit:

a) Asset Specialisation: moderate Rating: 3

Asset specialisation is moderate, can be easily accessed in the market. Hence this is

not a significant barrier to exit.

b) Cost of exit: significant Rating: 3

 The costs of exit in this industry as compared to any other business are comparatively

lesser as the company can sell off its assets/infrastructure in the market but still the

cost infrastructure is significant. Hence, exit costs are still significant because apart

from that huge financial resources are also committed.

c) Government restrictions: significant Rating: 3

As per the Government norms firm first have to settle all the due if any and they can

easily exit the sector. Hence significant government restriction to exit are there in the

industry.

Factor 3 – Barriers to Entry:

a) Brand Identity: Important Rating:

Since the services provided by companies in the financial services industry are

commoditised services, the clients would receive the same service from any firm, but

most of the business is attracted on the basis of reputation and trust earned by the

company. Hence, to stay relevant in this industry, brand identity is important.

b) Economies of Scale: Significant Rating:

The economies of scale in the financial services industry are not too large but are

significant as when a company gets more and more clients and businesses, the costs of

serving clients come down as the company utilises its fixed resources and employees’

abilities more, hence it can bring its costs down by serving more clients.

c) Product Differentiation: Minimal

Rating:1
 As already discussed, the services provided by companies in the financial services

industry are commoditised and are almost exactly identical, for example credit

services by firms are almost identical. Any new firm can come and provide those

services, hence minimum product differentiation acts as a constant entry threat to

incumbents.

d) Switching Costs: Significant Rating:

As already discussed, apart from investments in infrastructure like setting up offices,

infrastructure etc, huge financial resources are also committed in this industry, hence

there are significant switching costs involved.

e) Access to Channels of Distribution: Easy

Rating:1

The financial services provided are mostly provided directly by the firms but there are

tie-ups also involved with various companies such as manufacturing companies,

automobile companies etc, but the access to those companies is also comparatively

easier. Hence, it is not difficult to access customers in this industry.

f) Capital Requirements: Medium Rating:

The capital requirements basically involve the funds required to set up offices at

various locations to ensure visibility and accessibility, other infrastructure such as

software and technological infrastructure apart from financial resource commitment.

 But a new company can start small and scale up over time, hence it is not that

significant a barrier to entry.

g) Access to Technology: Easy

Rating:1

The technological infrastructure and software etc required in this industry are easily

sold in the market and can be accessed by any new firm. This is again not a significant

barrier to entry.

h) Access to Raw Materials: Easy Rating:

The raw materials in the financial industry can be considered services such as

telephone, software licenses etc, and these can be easily purchased and employees

having relevant skills to work in this industry, which are abundant in numbers and can

again be easily hired. Hence, access to the resources required to operate is easy.

i) Government Policies: Significant Rating:

Government policies and regulations in the financial services industry are significant

like credit norms, capital requirements etc and different licences need to be obtained

before providing various financial services which can hinder firms from entering in

the industry, hence government policies in this industry are a significant barrier to

entry.

Factor 4 – Threat from Substitutes:

a) Availability of close substitutes: Low Rating: 4

 Close substitutes of the Financial Services industry are not available. People has to

invest in various raw material and precious materials.

b) Switching Cost: High Rating :4

Switching cost for the financial services industry to other investment or insurance area

is costly for the companies.

c) Substitute’s price value: Medium Rating :3

Price value of substitute’s services is low as comparable to the price value of financial

service. This is true for almost all the companies that are operating in this industry.

This is because, a sharp difference in price values would mean catastrophic for

companies in terms of customer acquisition and retention.

d) Profitability of the producers of substitutes: Medium Rating:2

Profitability of the producers of substitutes is comparable to this industry, even

though the market of substitutes are heavily fluctuated on the basis of demand and

supply.

Factor 5 – Bargaining Power of Buyers:

a) Number of Buyers: High

Rating:1

As in these industry, buyers are individual customers who takes this financial

services.

b) Availability of substitute: Low

Rating:4

Substitutes for the financial service industry are very less.

c) Buyer’s Threat of Backward Integration: Low

Rating:4
 As the entry barriers and government regulation are very stringent so the buyer’s

chances of forward integration is negligible for this industry.

d) Industry’s Threat for Forward Integration: Low

Rating:4

As industry is product based as similar to the commodity market so the industry

players cannot forward integrate.

e) Contribution to Cost: High

Rating:4

For the buyers of this industry, product offered are very important for them so the

contribution to cost from the buyer’s perspective for this industry is high.

Factor 6 – Bargaining Power of Suppliers:

Input material for this industry are PCs, Software services, Human resource, Telecom

services etc. Most of these items are commodity products and abundance of the suppliers are

available for supply these products and services.

a) Number of Suppliers: High

Rating:5

b) Availability of Substitutes: Low

Rating:2

c) Switching Cost: Medium

Rating:3

For some of the input material switching cost is very less i.e. telecom services, PCs

but for the software services and licences, switching cost very high.

d) Supplier’s Threat of Forward Integration: Low

Rating:4
 As this industry is one of the market for the supplier, so the threat from the suppliers

for the forward integration are negligible.

e) Contribution to cost: Medium

Rating:3

Contribution to cost for the this industry for these raw materials are range between

medium to high as if we consider the financial statement of firms operating in this

sector, significant chunk of operating cost are for the input materials i.e. Human

resources, licence fees and software services.

Factor 7- Government Actions:

a) Industry protection: significant Rating: 3

Various government policies are there in for the firm protection, for example

government has approved new banking licences and increased the FDI limit in the

insurance sector. Hence industry protection is significant.

b) Industry regulation: significant Rating: 3

As the industry involves have many stakeholders including common people, hence

there are many regulations for the safety of the various stakeholders, for example

safety of their finances. Hence significant regulations exist in the industry.

Overall Assessment of the Indian Financial Services Industry:

Sr. No Factors Avg. Score(Max 5) Weights (%) Weighted Score

1 Rivalry among competitors 2.75 20 0.55
2 Barrier to entry 2.11 15 0.32
3 Barrier to exit 3 10 0.30
4 Threat of substitutes 3.25 15 0.49
5 Bargaining power of Buyer 3.4 15 0.51
6 Bargaining power of Suppliers 3.4 15 0.51
7 Government Actions 3 10 0.30
Total Score 2.97
Over all industry attractiveness score: 2.97 out of 5

As per our analysis of Indian Financial Services Industry, we can conclude that overall

industry attractiveness is vary from medium to high. In the industry, the rivalry among

existing companies are high and the barrier to entry into this sector is low, these both factors

lowered the industry attractiveness. But the Low bargaining powers of both buyers and

suppliers coupled with supportive government regulations are the motivator for the industry

players and in turn raising the industry attractiveness.