Study On Competitive Strategies Of Chinese Investment Banking Industry In View Of The Strategic Barriers To Entry

On December list, 2001, China became a member of WTO, which accelerated the opening and internationalization of Chinese financial sector. As an important part of financial sector, the Chinese investment banking industry has made great progress over the past twenty years, but compared with the foreign big ones, in essence it still belongs to the infant industry. So the competitive strategy of Chinese investment banking industry must be studied as the problem to safeguard the Chinese financial sector in the frame of globalization. The study is related to the maintenance of Chinese "Core Financial Value" and "Financial Sovereignty", which forms the background of my dissertation.Technically my dissertation is based on Porter's competitive advantage model, conditioned under the internationalization of Chinese securities market and followed by way of strategic entry barriers. The dissertation demonstrates how to construct strategic entry barriers of modern investment banks so as to make it become the competitive advantage over the market. The dissertation firstly illustrates the scale strategy, cost strategy and market-demand strategy of Chinese investment banking industry systematically. The conclusion is important both to the strategy implementation of Chinese investment banking industry and to the policy-making of the supervisor.The dissertation empirically concludes that the market structure, industry size and the whole security market return have powerful explanation for the most of return of assets of Chinese investment banking industry Comparatively the concentration ratio has more impact on the industry return than the market return and the direction of the size impact is contrary to the concentration ratio and the market return. However, we don't find neither the economies of scale nor the diseconomies of scale in the investment banking industry. What's more, the scope of Chinese investment banks is too narrow and the income relies on the traditional deals too much, which makes the industry far from the economies of scope.The dissertation starts from restrict-pricing model of Spence and Bain-Sylos and analyzes the mechanism of the strategy of excessive production capacity. And based on the extended dynamic game theory of Dixit the dissertation establishes the dynamic game theory model of capital promise and entry deterrence. The dissertationillustrates the essence of scale strategy of Chinese investment banking industry: Firstly domestic investment banks should optimize the capital structure and the scale expansion by proper financing arrangement. Secondly domestic investment banks should strengthen themselves by mergers and acquisitions that happen not only among the domestic investment banks but also between the domestic ones and the foreign ones. The last but not the least important, domestic investment banks should integrate all resources to form financial holding conglomerates.The dissertation illustrates the competitive model of different costs based on Curnot-Nash equilibrium and makes an analysis of the cost strategy by way of the dynamic game process of the cost curve and surplus demand curve restriction. Then the dissertation analyzes the cost strategy of Chinese investment banking industry. The foreign investment banking industry has undergone a transferred history from income expansion to cost control. Chinese investment banking industry is now facing the key phase transiting from the extensive development to the intensive development after the earlier fast expansion. Compared with the over 100-year history of foreign investment banking industry, Chinese investment banks are still at the take-off stage. So the practical choice of present cost strategy is not to form absolute advantage but to form comparative advantage by optimizing cost structure and studying the cost-control experience of international investment banks.The dissertation illustrates the dynamic game-theoretic process of product diffusion strategy by Hotelling model and discusses how the long-term contracts between producers and customers lock the demand structure by Aghion and Bolton model. Then the dissertation analyzes the market demand strategy of Chinese investment banking industry. The first is product strategy. Domestic investment banks can develop security products and services as more as possible to occupy the spaces of market preemptively. So far as domestic market is concerned, domestic investment banks can get the preemptive advantage by innovation because foreign investment banks are now still facing entry barriers. The second is demand structure strategy. Domestic investment banks can affect the core customers' financing and investment behavior persistently by customer relationship management so as to lock the loyalty of customers and promote the industry's competitive advantage.