| The Agricultural Bank of China (ABC), the third-largest banking organization of the state, which holds over 21% of the whole Chinese banking equity, has long enjoyed a fame of trusty and has gained a full development in its service extension in the past 20 years. However, despite of its great achievements, its performance has been deteriorating since 1996. It profited 2 billion yen in 1996, 0.9 billion in 1997. 1998 was its turning point, at that year ABC suffered a loss of nearly 1 billion yen, then the outcome of the performance gets worse and worse. What is the problem with ABC? From the viewpoint of industry organization, the American professor Michael E˙Porter probes the market opportunities, profit drivers, key risks, and puts forward a whole system of competitive strategy management. This article is the application of the theory. It is accomplished under the guidance of Professor Porter's five forces model of competition. In structure, the thesis comprises four parts: impact of general environment, industry structure and profitability, internal analysis of ABC, and conclusion. When reestablished in 1979, ABC was virtually a policy bank whose business was strictly confined in rural area. It played the conflicting roles of both a for-profit organization and a department of government until 1993, during which period it expanded greatly with no regard to cost. It began the transformation process towards commercial bank in 1996, by that time its organization structure and its business character were formed.The present strategy of ABC is: 'in operation, concentrate on credit and payments function; in area, adjust confirm and enhance the rural activities.'The general environment consists of four broad dimensions: political/legal, technological, demographic, and macroeconomic. The article mainly analyzes the technological and legal dimensions. The policy environment under which banks operate governs bank operation, services offered, the manner banks expand their facilities to serve the public, and the state of interest rate under which banks operate. The deregulation of interest rate will greatly influence the existing environment and operation manner of commercial bank. Interest rate risk of which ABC has never before thought is the major risk facing it now. From the income structure of international leading banks, it is very clear that net interest income generated from credit service represents less and less percentage among the total revenues. To some banks, net interest rate income covers some 60% of the total revenues, and it covers less than 50% to some other banks. At the present stage, ABC's revenue from intermediate service accounts for only about 1% of total income, besides, it suffered a net loss over its intermediate services in 1998.Among the five forces that make up industry structure and profitability, the article probes into rivalry among existing banks and new entrants. Three factors are discussed concerning rivalry among existing banks: (1) the number of banks and their relative sizes. Data analysis suggests that joined-equity banks have stronger potential than the state-owned commercial bank. The intensity of competition among the banking industry is rising. (2) industry growth rate. The demand for banking services which has been grown vigorously all these years lows the intensity of competition to a certain degree, however, it attracts the attention of potential entrants as well. (3) degree of differentiation. ABC concentrates its service on rural area, but it contributes negative net revenue. A core service advantage is called for. Three factors determine the height of barriers to entry in the banking industry: (1) absolute cost advantage. (2) capital requirement. (3) legal barriers.The development trend of the banking industry. The history of the banking industry in developed countries shows that the competitive pressure from none-bank firms, together with operation risk and the regulation the government puts on capital requirement, drive commercia... |
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