Porter’s Theory and Specialization in The Banking Industry

How can Australia build a national, competitive advantage in the retail banking industry? Porter: with 3 or more elements of the diamond, it is likely that specialisation will lead to success.

Since the 1970s, the aspect of globalization has presented significant challenges in the economic policies employed by the federal and state governments in Australia. Industries are faced with the task of achieving competitiveness in the world market, where the globalized economy attracts many innovative actors (Paravisini, Rappoport, & Schnabl, 2015). One of the theoretical frameworks employed is the Michael Porter’s diamond theory. Michael Porter’s postulates that the competitive advantage developed in 1990 forms a suitable base for the banking industry in Australia. Porter’s theory proposes that for a nation to achieve success in the market, it needs to ensure a sustainable assortment of competitive industries and competitive advantage can be achieved if four diamond factor variables act together. The elements of Porters diamond include Local Demand Conditions, Related and Supporting Industries, Firm Strategy, and the Structure and Rivalry.  The porter’s theory can be used to develop the retail banking industry by initiating specialization that can lead to competitiveness in the sector.

            Specialization in Banking alludes to the undertakings where the long-held strategic priorities of the organization are changed to expand services across geographical borders, business lines, and target customers. Resultantly, the banks develop a sharper focus on a particular core business (Paravisini, Rappoport, & Schnabl, 2015). The anticipated developments include enhanced growth by facilitating the growth of emerging sectors, improved customer relationships through the provision of customized and complementary products, and increased cost efficiency (Deloitte, 2013). There are three dimensions that a bank can approach creating diversity in offering services.

Business specialization. It entails the relative focus on a particular enterprise or product. For instance, the Australian market has high levels of Lender’s Mortgage Insurance (Deloitte, 2013). In the specialization business dimension, a bank that choices to offer exclusively, these services would increase competitive advantage. Dropping other ventures can result in the doubling of the mortgage business and increased innovative undertakings to meet different consumers’ needs.Geographic specialization. In this approach, the bank focuses on particular locations. The institution can decide to wind down activities in some regions and not in others (Deloitte, 2013)…

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