In any industry there are groups of firms with relatively similar competitive strategies and market niches. Categorizing the dimensions of competition is one way of analyzing the structure and competitive forces within the industry. A firm’s competitive profile may differ along any of a number of dimensions:
• Participation in and share of various market segments
• Breadth of product line
• Quality of products and services
• Other differentiating characteristics of products, such as customer services, the nature of the distribution system, etc.
• Degree of vertical integration
• Financial structure
• Corporate goals and objectives
• Corporate diversification into related or unrelated businesses
• Customer base
The firms’ differences along these dimensions will affect their behavior, their costs, and their profitability. These characteristics thus provide a basis for understanding the market’s competitive structure and predicting the most likely direction of any future change. The following segment explains the various dimensions of competition as they apply to the investment banking industry.
Components of competition in services offered by investment banks
In investment banking industry or more specifically in the corporate negotiated public underwriting market, firms perform several relatively distinct services:
Origination: Originating and managing a new financing issue involve determining the security’s issue price, timing the issue, and recruiting the firms that will distribute the securities. Closely related to issue management is the provision of corporate financial services, ranging from consulting on corporate capital structure to advice on mergers and acquisitions.
Underwriting: underwriting involves absorption of the risk assumed when the underwriter contracts to purchase an issuer’s securities at a fixed price in spite of the uncertain price at which the securities can be reoffered to investors.
Distribution: distribution involves selling the securities to the ultimate holders. Distribution divides naturally into two parts: distribution to institutional investors and distribution to individuals. Distribution is usually performed by firms that are active brokers in the secondary corporate securities markets. These secondary markets service the liquidity needs of investors and provide the underwriter with up-to-date information to aid in pricing a new issue. The secondary market function could alternatively be categorized as a separate, fourth service performed for corporate clients as a component of the maintenance of access to the public capital markets.
Advising: Many investment banks also provide advice to their clients throughout the origination stage. Investment banks provide advice on the timing, amount and terms of future financing and recommendations on the appropriate type of financing. In case of corporate financing, the advisory group is often termed mergers and acquisitions (M&A) where advice on mergers and acquisitions is provided for the client.
Investment banking firms differ significantly from one another in the degree of their participation in these three services, including the secondary-market brokerage and advising function. These are also the factors responsible for competition among the different investment banks in a certain industry.
Investment banking in Bangladesh
Investment banking companies in Bangladesh are of two types: open-ended and closed-ended. The open-ended ones, generally referred to as mutual funds, repurchase shares in any quantity as and when holders offer them for sales. Thus, the amount of shares of the open-ended investment companies in market changes continually in response to public demand. Closed-ended investment companies sell only a specific...