Porter’s Diamond Theory - ANZ Bank

Porter’s Diamond Theory Assignment #2

Group #8 - Arcadians Inc. [Chandra Vijay Dubey, Jitin Sharma,

Kamal Krishan, Kamran Mahboob, Mohammad Wamique

Siddiqui, Sher Hassan Mazari, Subhasis Pal, Surinder Singh] GBMP 528 - 01 (Instructor: Cesar Polvorosa)

GBMP 528 – 01 Group #8 - Arcadians Inc.

Assignment #2 Page: 01/13

Introduction

Michael Porter developed a Diamond model in his book 'The Competitive Advantage of Nations'.

Under which he explains about four factors which helps an industry to gain momentum over other

industries by utilizing those factors. The main objective of this report is to determine how Porter's

Diamond Theory applies to various industries and organizations. Like in our case, we will have a

clear view of how this theory fits in the world of ANZ bank. It covers all the four aspects given by

Michael Porter, they are following:-

1) Natural & Human Resources

2) Significant Domestic Demand

3) Domestic Firm Strategy, Structure & Rivalry

4) Related & Supporting Industries

The Australia and New Zealand Banking Group Limited, commonly referred as ANZ is a major

financial institution in Australia and New Zealand. It was founded in 1835 and it’s headquarter is

in Melbourne, Australia. When judged by the market capitalization, it stands at number three after

Commonwealth Bank and Westpac Banking Corporation in Australia while it is the largest bank

in New Zealand. Michael Smith is the CEO and John Morschel is the Chairman of ANZ. ANZ

deals with retail and commercial banking in Australia and New Zealand and offers other services

such as Global Wealth, International and Institutional Banking, Investment Banking etc.

The objective of ANZ is to increase its business not only in Australia and New Zealand but also

around the world. ANZ is promoting its personal services such as personal and retail banking,

loans, credit management, catering the corporate customers by providing corporate and

commercial banking services.



Australia: It is the major market for ANZ as it carries the maximum amount of customers. The

objective of bank is to increase its services which includes private banking, retail banking and

insurance products etc.

New Zealand: New Zealand division of the bank also has the primary objective of expanding its

personal and retail banking through various sales channels.

International & Institutional Banking: This part of the bank deals with the global clients across

Asia Pacific region.

1) Natural & Human Resources

A country creates its own important factors such as skilled resources and technological base. Local

disadvantages in factors of production such as labor shortages or scarce raw materials force firms

to develop new methods and this innovation often leads to a national comparative advantage.

Natural and human resources factors are very important in the determination of future growth and

prosperity. A nation’s competitiveness depends on the capacity of its industry to innovate and

upgrade. Factor of production such as skilled labor or infrastructure are necessary to compete in

any industry. The continuing shift of economic growth from the developed world to the developing

world is driving an enormous opportunity for banking sector in Australia. Australia's strong

economic performance over the last decade was due to fundamental economic reforms. These

economic reforms also strengthened the banking industry in Australia. Banks must be flexible to

respond rapidly to competitive and market changes. They must benchmark continuously to achieve

best practice. They must outsource aggressively to gain efficiencies and they must nurture a few

core competencies in race to stay ahead of rivals. The banking industry plays a vital role in the

Australian economy. Beyond providing a range of important financial services, the banking



industry is a major contributor to gross domestic product (GDP), employment and information and

technology (IT) investment. Additionally, the banking industry supports the Australian economy

by paying billions of dollars in tax and billions of dollars in dividends each year. In addition to its

geographic position in the Asia-Pacific region, close to the world’s fastest growing economies,

Australia offers:-

1) A sizeable domestic economy – the fourth largest in the Asia-Pacific.

2) A highly skilled and multilingual workforce where 1.4 million Australians speak an

Asian language.

3) Advanced business and IT infrastructure.

4) A sophisticated investor base, including the third largest high-net-worth market in the

region.

5) A stable political and economic environment, and an enviable quality of life.

6) Strong and efficient regulatory environment and legal institutions and Mature and

innovative financial markets.

2) Significant Domestic Demand

Australia and New Zealand Bank is one of the few banks in the world which has an aggressive

perception. Not only that, other banks also are very much focused on the internal markets of

Australia and New Zealand. ANZ’s roots go back to an international orientation and it is only

recently that it reflected back into the Australian and New Zealand domestic markets. But we see

a huge opportunity in these markets and an institution that had the ability to develop and fulfill its

ambitions in those markets.



There are major conditions we must understand relating to domestic demand in significance of

ANZ Bank:-

1) The competitive nature and the sources of competitive advantage differ widely among

industries and industry segments as in ANZ Bank the nature and the source changes

accordingly to the need and wants of that particular requirement.

2) The Global competitors sometimes perform activity in the value chain outside their

home country. The globalization of competition does not negate the role of the home

nation in competitive advantage but does change its character as every nation is of

different type and the scenario among them is totally different from one another, as per

competition is considered the strategies is change of ANZ which is very much

important for the bank to grow.

3) ANZ Bank has gained competitive advantage in international competition through

consistent improvement, new inventions and up gradation in the past recent years of its

workings and this has created a major difference among the competitors of ANZ which

is now is a big gap.

1) ANZ has gained advantage initially through altering the basis of competition. Other

Organizations also sustain it through improving it fast enough to stay ahead.

4) Different Firms that enhance competitive advantage in any industry are sometimes are

those that not only perceive a new market need or the potential of a new technology

but move early and most aggressively to exploit it.



3) Domestic Firm Strategy, Structure & Rivalry

Michael Porter explains the way in which companies are created, set goals and are managed is

important for success. However the presence of intense rivalry and strong competitors in the home

base is also very important and critical for any organization’s sustainability; as it creates pressure

to innovate in various adverse situations in order to obtain competitiveness edge.

Placed on a very strategic location on the globe, Australia-New Zealand region offers a very rich

and diverse business environment and culture. The economy of Australia is one of the largest

capitalist economies in the world with a GDP of US$1.57 trillion. Australia's total wealth is 6.4

trillion dollars. In 2011, it was the 13th largest national economy by nominal GDP. Australia is

home to some of the largest companies in the world, including but not limited to, BHP Billiton,

National Australia Bank, Commonwealth Bank, Rio Tinto Group, ANZ, Westpac, Telstra,

Macquarie Bank, Woolworths and AMP – which also are the 10 largest companies in Australia.

In order to obtain competitive edge over its rivals, ANZ Group introduced a new management

model focused on geographies and customer segments rather than the individual product focus of

the past.

ANZ then derived its strategies for transformation in early 2007 into one of the top performing

financial institution over its three business rivals. The scale of such transformation at ANZ over

that time has been significantly based on five key themes and a systematic yet coordinated program

of action in every area of the bank:-

1) Super Regional Building Blocks – Changes put in place early to enable ANZ to

successfully execute it strategies.



2) Global Financial Crisis (GFC) Remediation and Opportunity – addressing legacy issues

requiring significant remediation while also taking advantage of opportunities resulting

from the GFC.

3) Establishing a Real Franchise in Asia – how ANZ is moving from having a presence in

Asia to establishing a real business in the region.

4) Strengthening Australia, New Zealand and the Pacific-building strategic advantage in

its core domestic businesses through a focus on strategic growth opportunities, business

simplification and connectivity.

5) Adapting to the Lower Growth Environment – the changes are underway to ensure

Group to be successful in a lower growth world with materially higher bank capital

requirements.

In banking & finance industry, credit crisis management, Visionary leadership, and self-

accountability are key factors that play a very significant role in building a competitive edge.

Moreover, adherence to international best practices in corporate governance, risk management and

compliance standards remains a necessity. Regulation, political and stakeholder pressure,

demographic shifts and climate change also continue to have an impact on the business

environment as well. ANZ Group focused over all above stated factors, and diligently foresighted

changes ahead of time. Group’s leadership sought excellent opportunities in this complex and

rapidly changing world for success.

Under guidelines set out by new management model, ANZ restructured its sustainable business

strategy around priorities that direct its sustainability initiatives towards success and becoming a



top performing regional banking group. The priorities such as developing responsible internal

practices and minimizing environmental impact look inwards by seeking to optimize operational

management, while other priorities focus on outward impact - such as developing educational and

employment activities to further socio-economic inclusion and financial capability, and bridging

socio-economic divides between rural and urban areas in key markets.

ANZ’s super regional strategy has growing momentum and the Group’s share price is now

performing well against its domestic peers & competitors with investors are ranking ANZ highly

for its long term growth strategy. At retail and commercial levels, ANZ pursued a professional

approach towards attracting and retaining huge customer-base, through offering innovative,

flexible, beneficial, and value-added financial products.

All such stated strategies and efforts have resulted in strengthening Capital, the Balance Sheet and

Liquidity, that led ANZ to a strong positive position, where it not only survived the Global

Financial Crisis of early 2008 efficiently, but also saw its capital increasing by around $11 billion

since 2007 with the Group’s Common Equity capital ratio at 10.0% at the end of year 2012.

4) Related & Supporting Industries

When local supporting industries are competitive, firms enjoy more cost effective and innovative

inputs. This effect is strengthened when suppliers themselves are strong global competitors.

ANZ Banking is world class and global competitor in the market. They support small business,

corporate and personal banking.



The main advantages to bank with them, for small businesses are as follow:-

1) A simple, low-cost transaction account to cover your essential business banking needs.

2) Low monthly account servicing fee.

3) Unlimited free ANZ transactions.

4) Reduce your Business Mortgage Loan repayments.

5) Easy access when you need it.

The advantages for personal banking:-

1) If you're a full time student, at an Australian Educational Institution, then on application

for a fee waiver at an ANZ branch you can start enjoying your student life with the

convenience of no monthly account service fee (usually $5)3, on one nominated ANZ

Access Advantage account.

2) If you're aged 60 years or over you could enjoy benefits including domestic travel

insurance (up to 80 years old)2 and no monthly account service fee on application for

a fee waiver at an ANZ branch on one nominated ANZ Access Advantage account.

3) An everyday account with the features of ANZ Access Advantage, plus you'll get

access to a range of banking and non-banking benefits, such as mobile phone insurance,

discounted dining and roadside assistance.

According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms

become competitive through innovation. Innovation can include technical improvements to the

product or to the production process. An association of a region on the part of consumers with a



product and high quality and therefore some market power. Hence, these factor endowments can

hardly be influenced, this fits in a rather passive (inherited) view towards national economic

opportunity.

Dynamic Interaction of Porter’s Diamond Framework

ANZ strong market position sustained through increasing footprint. ANZ is one of the Big 4 (ANZ,

CBA, NAB, and WBC) banking groups in Australia. Through its wholly owned subsidiary, ANZ

National Bank Ltd., ANZ is the leading commercial bank in New Zealand. At the end of March

2011, the group had deposits of A$213.1 billion (fourth largest). The group has consistently

increased the number of its branches, offices, representative offices and agencies from 1,327 at

end FY2007 to 1,381 at end FY2011. As a result, during 2007–11, the group's revenue and

underlying profits increased consistently. The group's increasing footprint enables it to sustain

strong market position which in turn enables it sustain recurring profitable business. Diversified

product portfolio reduces the business risk of ANZ. The group offers a wide range of products and

services. It essentially follows a bancassurance model with a presence across the value chain in

retail to corporate to wealth management businesses. This business model has allowed it to

diversify its revenue streams. For instance, in FY2011, the group's largest business division, retail

accounted for 36.9% (39.5% in 2010) of the total revenues, followed by institutional segment

which contributed 29% (31%), commercial accounted for 21.7% (19.3%), wealth accounted for

7.7% (7.5%), and partnerships accounted for 1.9% (2.5%) of the total revenues. Diversified

operations and extensive product portfolio enables the group to attract an extended customer base

and reduce its business risk through carrying a range of operations. Strong financial position

providing resilience to adverse market developments. ANZ's financial position as indicated by



capital ratios, and asset growth are strong. The group's tier 1 capital ratio at the end of September

2011 was 10.9% compared to 6.7% at end September 2007. The group is well placed to meet new

capital standards being developed by the Basel Committee on Banking Supervision and the

Australian Prudential Regulation Authority. The group's assets at the end of September 2011 were

A$594.5 billion ($611.0 billion) compared to A$392.8 billion ($403.7 billion) at end September

2007. Strong financial position is providing resilience to adverse market developments.

Competitive Advantage & Opportunities to Grow:-

1) Expansion into China could provide long term growth avenues

ANZ’s plan to expand into China has now entered into operational stage. Recently, it became the

first Australian bank to be granted license to offer retail banking services in the Chinese currency.

In fact it is one among the 20 non-Chinese banks to have been given the license since restrictions

were relaxed in 2006. ANZ has been doing business in China since 1993. The group after gaining

significant knowledge and experience in Chinese markets, invested $111.5 million in China's

Tianjin City Commercial Bank in 2006 to become the first foreign bank to own a 20% shareholding

in a Chinese bank. In the same year, it also acquired a 19.9% stake in China. In May 2010, the

group received approval from the China Banking Regulatory Commission (CBRC) to establish a

branch in Chongqing in western China. The recent license gain will enable the group to compete

for the banking business of an estimated 430,000 rich individuals living in the wider Beijing,

Shanghai, Guangdong and Chongqing areas, where its branch network is centered. Further the

group has announced that it will open a new sub-branch in Guangzhou in 2012. Expansion into

China could provide the group with long term growth avenues and help it in achieving its stated



objective of sourcing between 25% and 30% of profit from Asia, Europe and the Americas by the

end of 2017.

2) Regulatory changes in covered bonds could make refinance easy and economic

The Australian government proposed a bill to amend the Banking Act of 1959, which planned to

allow financial institutions in Australia to issue covered bonds. On 20 October 2011, APRA

announced that Prudential Standard APS 120 Securitization had been amended to remove the

prohibition on the issuance of covered bonds by Authorized Deposit-taking Institutions (ADIs).

Following the regulatory amendment, it is widely believed that Australia's four major banks

including ANZ could now be able tap the market for an additional $154 billion. This could ease

the pressure on the Australia's four major banks to refinance the existing AAA-rated government

guaranteed debt worth of $192 billion, most of which matures in 2012 and 2014.

Conclusion

By going through the Porter's Diamond Model, it is clear that how every industry is benefited by

becoming competitive in some particular location. This competitive advantage comes from four

factors stated by Michael Porter in his book. This model fits in all areas whether it is a small

business, large business, corporation, public limited company or a joint venture. Not only in the

size but also in all field like IT, Tele-Communication, Banking, Insurance and Hospitality etc. Like

in the case of ANZ bank we saw that how these four factors are applicable in the banking industry:-

1) Human Resources: ANZ has more than 48000 employees making a rich and diversified

internal environment. Different people leads to different ideas and terminology which

gives rise to success.



2) Domestic Demand: Population of Australia and New Zealand makes the domestic

market more appealing which tends to create huge domestic demand.

3) Domestic Firm Strategy, Structure and Rivalry: In order to meet the growing domestic

demand ANZ regularly changes its strategy and structure which in turn leads to

compete with the major rivals of ANZ. The most common are Commonwealth Bank

and Westpac Banking Corporation in Australia.

4) Related and Supporting Industries: ANZ is a big name in Australia and New Zealand

but to become a worldwide leader ANZ has gone international. With its International

and Institutional Banking, Global Wealth and Global Services & Operations services

ANZ is growing its feet in the global market.

So we can conclude that Porter's Diamond Model clearly applies at ANZ and many other industries

which helps them to gain competitive advantage and prosper in their market and also at the global

level.



Works Cited

1) http://www.ibisworld.com.au/car/default.aspx?entid=8

2) About ANZ: Australia and New Zealand Banking Group. Retrieved 17 November 2011

from http://en.wikipedia.org/wiki/Australia_and_New_Zealand_Banking_Group

3) http://www.isc.hbs.edu/caon%20new%20zealand%202001%20presentation%2008-04-

01%20ck1.pdf

4) http://hbr.org/1996/11/what-is-strategy/

5) Porter, M.E. The competitive advantage of nations. New York: Free Press. (1990)

6) International Convergence of Capital Measurement and Capital Standards’ (June 2006).”

7) RobecoSAM AG - Josefstrasse 218 - 8005 Zürich - Switzerland - www.robecosam.com

8) “Basel Committee publications; ‘Basel III: A global regulatory framework for more

resilient banks and banking systems’ (June 2011)”

9) http://vectorstudy.com/management-theories/competitive-advantage-of-nations

10) http://www.anz.com/small-business/

11) http://www.quickmba.com/strategy/global/diamond/

12) http://www.anz.com/about-us/corporate-responsibility/employees/about/

13) "Australia & New Zealand Banking Group":

http://search.ebscohost.com.rap.ocls.ca/login.aspx?direct=true&AuthType=ip,url&db=d

mhls&AN=65E8E252-8D18-4F84-AE34-9223CF27DD0D&scope=site