Porter's 5 Forces & the Russian Commercial Banking Sector and Wealth Management Industry

PORTER'S 5 FORCES & THE RUSSIAN COMMERCIAL BANKING SECTOR AND WEALTH MANAGEMENT INDUSTRY

Today's Russian Federation is characterized by low competitiveness in the context of firm strategy and rivalry, a supportive infrastructure for industries, a mixed bag when factor or input conditions are assessed (human resources, capital resources physical infrastructure, etc....), and a polarized consumer base, where some hold most of the wealth, while the rest are quite average or below the poverty line. It is an overachieving country, with high income compared to low competitive index. In Porter's Diamond-E Framework, Russia is in the Efficiency-Driven Stage; it is an investment-driven economy.

This is not congruent with the general analysis of the banking industry worldwide, when looking at it through Porter's Five Forces Model. Applying the model to this sector yields high barriers of entry, a moderate power of suppliers in terms of their ability to lure away human capital, increased power of buyers in terms of switching costs, many substitutes, and a high competitive rivalry.

To better assess the entry of The Royal Bank of Canada (RBC) into the Russian market, one must also consider Canada-Russian relations. Being the two largest Artic countries, Canada and Russia share many common opportunities and challenges. The countries have a long history of cooperation on issues such as science, energy and environmental protection, and in 2012, promising areas of cooperation include energy, mining, transport, communication technologies and the aerospace industry. Russia's key industries include agriculture, forestry, oil & gas to name a few. In regards to the banking sector, there are numerous opportunities in the country to boost Canada-Russia cooperation in the due to the latters need for more financial services. RBC would help greatly in terms of the management of new businesses in the aforementioned industries, both those entering from Canada and those already existing and operating in Russia.

Barriers to entry in Russia's Corporate Banking Sector and Wealth Management Industry, both of which RBC would engage in, are moderate to low. Note that RBC does not wish to enter the Retail Banking Market, as it does not appear to be a healthy or profitable venture within Russia. The country offers foreign firms in the financial sector material commercial opportunities. It has a strong desire to attract Foreign Direct Investment (FDI) into the sector "in order to obtain additional capital to finance a plethora of infrastructure projects and to modernize its banking system."

In Russia's Financial Sector, market share is about the same for both the public sector and the national private sector, while the share of foreign-controlled banks is lower than for any European transition economy. This bodes well for RBC, as Russia wants more Canadian FDI and desires continued and growing economic relations with Canada. These relations are based on the Agreement on trade and commercial relations (1992), the Agreement on stimulation and mutual protection of capital investments (1991), the Agreement on economic cooperation (1993), and the Agreement on evading mutual taxation (1995).

RBC has successfully entered and maintained operations in China, a country similar to Russia. Comparing both countries' financial sectors sheds light on the likelihood of RBC's success in the latter. The four largest state-owned banks in China account for 53% market share as opposed to 41% for Russia. In Russia, domestic private