China Merchants Bank (600036) SWOT Analysis / TOWS Matrix / MBA Resources
Regional Banks
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for China Merchants Bank (China)
Based on various researches at Oak Spring University , China Merchants Bank is operating in a macro-environment that has been destablized by – increasing transportation and logistics costs, wage bills are increasing, competitive advantages are harder to sustain because of technology dispersion, increasing inequality as vast percentage of new income is going to the top 1%, there is increasing trade war between United States & China, supply chains are disrupted by pandemic , banking and financial system is disrupted by Bitcoin and other crypto currencies,
increasing household debt because of falling income levels, increasing commodity prices, etc
Introduction to SWOT Analysis of China Merchants Bank
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that China Merchants Bank can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the China Merchants Bank, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which China Merchants Bank operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of China Merchants Bank can be done for the following purposes –
1. Strategic planning of China Merchants Bank
2. Improving business portfolio management of China Merchants Bank
3. Assessing feasibility of the new initiative in China
4. Making a Regional Banks sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of China Merchants Bank
Strengths of China Merchants Bank | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of China Merchants Bank are -
High switching costs
– The high switching costs that China Merchants Bank has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Organizational Resilience of China Merchants Bank
– The covid-19 pandemic has put organizational resilience at the centre of everthing China Merchants Bank does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Innovation driven organization
– China Merchants Bank is one of the most innovative firm in Regional Banks sector.
Ability to lead change in Regional Banks
– China Merchants Bank is one of the leading players in the Regional Banks industry in China. Over the years it has not only transformed the business landscape in the Regional Banks industry in China but also across the existing markets. The ability to lead change has enabled China Merchants Bank in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Effective Research and Development (R&D)
– China Merchants Bank has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – China Merchants Bank staying ahead in the Regional Banks industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Diverse revenue streams
– China Merchants Bank is present in almost all the verticals within the Regional Banks industry. This has provided China Merchants Bank a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Low bargaining power of suppliers
– Suppliers of China Merchants Bank in the Financial sector have low bargaining power. China Merchants Bank has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps China Merchants Bank to manage not only supply disruptions but also source products at highly competitive prices.
Sustainable margins compare to other players in Regional Banks industry
– China Merchants Bank has clearly differentiated products in the market place. This has enabled China Merchants Bank to fetch slight price premium compare to the competitors in the Regional Banks industry. The sustainable margins have also helped China Merchants Bank to invest into research and development (R&D) and innovation.
Highly skilled collaborators
– China Merchants Bank has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Regional Banks industry. Secondly the value chain collaborators of China Merchants Bank have helped the firm to develop new products and bring them quickly to the marketplace.
Training and development
– China Merchants Bank has one of the best training and development program in Financial industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
High brand equity
– China Merchants Bank has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled China Merchants Bank to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Operational resilience
– The operational resilience strategy of China Merchants Bank comprises – understanding the underlying the factors in the Regional Banks industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Weaknesses of China Merchants Bank | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of China Merchants Bank are -
High operating costs
– Compare to the competitors, China Merchants Bank has high operating costs in the Regional Banks industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract China Merchants Bank lucrative customers.
Capital Spending Reduction
– Even during the low interest decade, China Merchants Bank has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Regional Banks industry using digital technology.
High cash cycle compare to competitors
China Merchants Bank has a high cash cycle compare to other players in the Regional Banks industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Slow to strategic competitive environment developments
– As China Merchants Bank is one of the leading players in the Regional Banks industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Regional Banks industry in last five years.
Low market penetration in new markets
– Outside its home market of China, China Merchants Bank needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Lack of clear differentiation of China Merchants Bank products
– To increase the profitability and margins on the products, China Merchants Bank needs to provide more differentiated products than what it is currently offering in the marketplace.
Slow decision making process
– As mentioned earlier in the report, China Merchants Bank has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Regional Banks industry over the last five years. China Merchants Bank even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Increasing silos among functional specialists
– The organizational structure of China Merchants Bank is dominated by functional specialists. It is not different from other players in the Regional Banks industry, but China Merchants Bank needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help China Merchants Bank to focus more on services in the Regional Banks industry rather than just following the product oriented approach.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, China Merchants Bank is slow explore the new channels of communication. These new channels of communication can help China Merchants Bank to provide better information regarding Regional Banks products and services. It can also build an online community to further reach out to potential customers.
Skills based hiring in Regional Banks industry
– The stress on hiring functional specialists at China Merchants Bank has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Workers concerns about automation
– As automation is fast increasing in the Regional Banks industry, China Merchants Bank needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
China Merchants Bank Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of China Merchants Bank are -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, China Merchants Bank can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help China Merchants Bank to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for China Merchants Bank to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for China Merchants Bank to hire the very best people irrespective of their geographical location.
Low interest rates
– Even though inflation is raising its head in most developed economies, China Merchants Bank can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Using analytics as competitive advantage
– China Merchants Bank has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Regional Banks sector. This continuous investment in analytics has enabled China Merchants Bank to build a competitive advantage using analytics. The analytics driven competitive advantage can help China Merchants Bank to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Better consumer reach
– The expansion of the 5G network will help China Merchants Bank to increase its market reach. China Merchants Bank will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects China Merchants Bank can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Regional Banks industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. China Merchants Bank can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. China Merchants Bank can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Creating value in data economy
– The success of analytics program of China Merchants Bank has opened avenues for new revenue streams for the organization in Regional Banks industry. This can help China Merchants Bank to build a more holistic ecosystem for China Merchants Bank products in the Regional Banks industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Learning at scale
– Online learning technologies has now opened space for China Merchants Bank to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help China Merchants Bank to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Redefining models of collaboration and team work
– As explained in the weaknesses section, China Merchants Bank is facing challenges because of the dominance of functional experts in the organization. China Merchants Bank can utilize new technology in the field of Regional Banks industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for China Merchants Bank in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Regional Banks industry, and it will provide faster access to the consumers.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. China Merchants Bank can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Threats China Merchants Bank External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of China Merchants Bank are -
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Regional Banks industry are lowering. It can presents China Merchants Bank with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Regional Banks sector.
High dependence on third party suppliers
– China Merchants Bank high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Technology acceleration in Forth Industrial Revolution
– China Merchants Bank has witnessed rapid integration of technology during Covid-19 in the Regional Banks industry. As one of the leading players in the industry, China Merchants Bank needs to keep up with the evolution of technology in the Regional Banks sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Increasing wage structure of China Merchants Bank
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of China Merchants Bank.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, China Merchants Bank may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Regional Banks sector.
Environmental challenges
– China Merchants Bank needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. China Merchants Bank can take advantage of this fund but it will also bring new competitors in the Regional Banks industry.
Easy access to finance
– Easy access to finance in Regional Banks industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. China Merchants Bank can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for China Merchants Bank in Regional Banks industry. The Regional Banks industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of China Merchants Bank.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. China Merchants Bank will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, China Merchants Bank can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate China Merchants Bank prominent markets.
Weighted SWOT Analysis of China Merchants Bank Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at China Merchants Bank needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of China Merchants Bank is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of China Merchants Bank is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of China Merchants Bank to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that China Merchants Bank needs to make to build a sustainable competitive advantage.
