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Why analyse your markets? Components of the external analysis



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Why analyse your markets?

Quickly go through the following points:

To understand your markets and their needs

To identify your strengths and weaknesses

To make sure to have the right approach

To organise your structures

To identify new business opportunities

To prevent unwanted risk

But also ask trainees their own experience of new decisions or initiatives taken based on such an analysis.

Components of the external analysis

To assess the level of understanding by trainees in external analysis concepts, ask them the main information they would need to obtain in doing so.

Local economy and industry

State control & infrastructure

Legal , political, fiscal environment

Cultural aspects

Consumer behaviour

Demography

Competition

The growth sectors

The growth companies

The well organised infrastructures (roads, airports, close to large megalopolis…)

The areas with fair safety level (few troubles, violence, political crisis…)

Local economy and industry

How developed is the local industry and economy? How diversified is business? Does the economy entirely rely on one large local industry (major weakness in this case), or is there a set of diversified industries with economic cycles not strongly correlated (reduces risk as a crisis may not affect all activities in the same time)?

State control & infrastructure

Who are the owners of major local industries or businesses? Are they Government-owned, or privately held? Caution in dealing with Government-owned companies.

How well organised is State infrastructure? Is administration working properly? Or does this power belong to local landlords?

In this infrastructure topic, we can even include elements such as existence and extent of money supply. Is the money supply sufficient to do business in a regular manner, under monetary form? Or to the contrary, is money scarce and solutions for dealing in a non-monetary environment necessary? The way of operating will be radically different.

Legal, political, fiscal environment

The greatest risk when you do business lies in the small printed characters at the bottom of the sheet of paper, where you put your signature. Then, what will happen? In the case contractual obligations are not met, who can enforce what? Is the legal framework sufficient for the specific businesses you want to do? Or will you find yourself in a legally empty area?

Also, what is the political stability of the area? Its impact on business and investment? Are political shifts of heavy impact on local business?

Finally, how does the tax system work in the area? Weight of tax burden? Ability of local authorities to collect taxes? Maybe the choice of business partners, the choice of banking products, and the client selection you will make will rely on this.

Cultural aspects

This very important factor deals with local attitude of people and how they do business. Fitting with a local culture is a key for success and it requires to involve local people, or at least people with strong understanding of local culture, at commercial level.

Consumer behaviour

This aspect is closely linked with the above one. According to the regions you deal with, priorities will be different, as well as client expectations.

Demography

How fast is the population changing? How is the birth rate changing? What is the pattern of migrations? If a given area loses its population, its economic momentum is of course losing and banking business needs to be reduced.

On the other side, areas with high birth rate or gathering populations from other regions will face challenges such as housing finance needs, consumer credit demand, etc. and will affect bank products profile.

Competition

Who are the other banks in the area? What is their specific business, where are they good or bad? How much business can you do under this competitive pressure, and how can you succeed in being different from the others if you need to differentiate to do a reasonable amount of business?

The growth/non growth sectors

In the economy, which are the growth sectors, which develop and, in parallel, will require increasing business with banks?

The growth/non growth companies

Within the above-scrutinized sectors, what are the discrepancies? Identify the developing companies and the ground-losing companies.

Be careful enough to examine companies in growth sectors, but also growth companies in non-growth sectors. They are often overlooked and may prove to be interesting business partners.

The well organised infrastructures

How good is infrastructure? Is transportation possible in decent conditions? All along the year? How about the regularity of maintenance, renovation, at least for essential pieces of infrastructure? How close are producers and users of goods?

The areas with fair safety level

What is the level of physical risk in the areas you work in? Criminal records, accidents, etc. How frequent and strong are social events? Political crisis? Which are the areas with lowest risk compatible with a fair development of banking business?

The geographic analysis can be conducted by a comparative analysis of regions. How are they attractive or repulsive to your business? Which regions to look at and which ones to avoid?

A form of regional rating, at least, quickly gives indications on regions to avoid:

Regions Local economy knowledge Involvement in local corruption Connections with administrations Economic growth
1
2
3
4

Such a table should be made on an ad hoc basis according to each bank. Selected criteria are stated as column heads, then every region gets a rating according to these criteria.

In areas such as Russia and CIS countries, political aspects account among the most important ones to monitor. However, do not forget the economic fundamentals!


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