Application of Porter's Five Forces in Banking at Tanzania

Topics: Bank, Dar es Salaam, Tanzania Pages: 28 (7379 words) Published: June 24, 2010

By Dr. Elisante Ole Gabriel (PhD) Head of Entrepreneurship Development Centre Faculty of Commerce Mzumbe University P O BOX 6 Dar es Salaam Tanzania : Tel. +255-754-434412

Abstract: The banking industry of Tanzania has been growing fast during the last decade. There are so many things happening within the industry after the liberalization of the sector. The aspect of competition is now crucial for the operators who are within the banking industry. Porter’s Five Forces Framework is one of the strategic models used to assess the attractiveness of the industry (being service or manufacturing). This model is defined by the five key forces which are; Rivalry among the existing firms, Threat of new entrants, Threat of substitutes, Bargaining power of suppliers and bargaining power of customers. The banking industry of Tanzania has 22 full-fledged banks, 5 Regional unit banks, 5 Financial Institutions and 102 bureux de change operators. The rivalry among the existing banks, threat of new entrants and bargaining power of customers is found to be unfavorable forces to the industry. Threat of substitutes and bargaining power of suppliers are found to be favorable forces to the industry. The industry is therefore of two starts, hence not attractive. Those who are already in the industry need to operate competitively by using a differentiation strategy to win the confidence of the customers who have higher bargaining power. A good customer service is necessary. This can be achieved through synergy and Total Quality Management (TQM) approach. The forces are not and will never be static but dynamic, hence a need for the banks to be reviewing their strategies from time to time.


Introduction: The banking Industry in Tanzania has tremendously changed its dynamics for the last one decade. Many banks have joined the industry both local and foreign. Notably, the nobanks financial institutions have been mushrooming by an alarming speed. For this very reason the players in the banking industry need to consider their competitive positioning and repositioning strategically. In mid 1960s the industry had only one bank, National Bank of Commerce. It can therefore be said that in 1960s the industry had a monopolistic structure. In 1986, Corporate and Rural Development Bank (CRDB) was established hence to make the industry to experience a duopolistic market structure. In any industry, including the banking industry, the nature of competition is always a function of the market structure. The trend today is a perfect competition and the central bank has withdrawn from managing the market forces. Banks are now working on their own about what are relevant products and rates to be offered to the market. In this regard the need for the assessment of the attractiveness of the industry becomes a necessity. Porter’s Five Forces Framework has been widely used in analyzing the attractiveness of an industry. Any firm (in this case a bank) needs to answer two fundamental questions; (i) What makes an industry attractive? (ii) What positions within an industry lead to superior performance? Answering these two questions is vital for any firm, which needs to compete competitively. This article makes a clear discussion of the banking industry in Tanzania and how the Porters Five Forces can be used as a tool of analysis for profitability.

The Banking Industry of Tanzania The industry has various key players. These to include; Fully fledged banks (commercial and non Commercial), Regional Unit Banks, Financial Institutions, Regional Financial Institutions, Regional Unit Financial Institutions and Bureaux de Change. As of December 2005, the banking supervision of the Bank of Tanzania has approved and register the key players of the banking sector of Tanzania as follows: Fully Fledged banks (22),...
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