Goldman Sachs Porter Five Forces Analysis

Published by MBA Skool Team, Last Updated: March 07, 2022

Porter’s Five Forces Analysis of Goldman Sachs covers the company’s competitive landscape as well as the factors affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and competitive rivalry.

Goldman Sachs Five Forces analysis helps to analyze its current position in the market based on multiple internal and external factors like competitors, customers, suppliers (vendors and partners), financial strength, future scope & alternate solutions.

Let us start the Goldman Sachs Porter Five Forces Analysis:

Threat of New Entrants:

The threat of new entrants in the Goldman Sachs Porter Five Forces Analysis can be explained as follows:

Goldman Sachs is an investment banking & financial services company based out of the United States. There are multiple players in the industry already, such as JP Morgan Chase, Morgan Stanley, etc. Any new entrant to the industry has to cross the barriers of entry into the industry and establish themselves. Any new entrant into the industry will not be able to operate at a scale Goldman Sachs operates. Post the 2008 crisis, the regulations have become even more stringent on the investment banks so that banks that are relatively small in size of operation will not be able to contend with their larger counterparts such as Goldman Sachs. These restrictions, in addition to the stringent monitoring in place, will make them cost-inefficient in bidding for larger customers in the field of IB. This added with the little to no brand equity of new entrants into the industry with established players will prove as high barriers to entry. Hence, we can say that threat of new entrants is low for Goldman Sachs.

Image: company website

Threat of Substitutes:

Below are the threats of substitute products of Porter’s Five Forces analysis of Goldman Sachs:

In the investment banking industry, the scope for having a substitute is narrow.

A substitute is any product or service that has the potential to replace the products or services offered by Goldman Sachs. As previously mentioned earlier, there is a huge number of restrictions put in place and continuous monitoring as well in case of investment banking against frauds. These restrictions make it inflexible for any substitutes to operate and thrive. As for P2P transactions, Goldman Sachs can handle them with ease. And in the case of exchanges and securities, there is limited scope for the existence of substitutes due to the regulations put in place. Hence, we can say that the threat of substitutes is low.

Bargaining Power of Customers:

In the Goldman Sachs Porter Five Forces Analysis the bargaining power of the customers can be explained as:

In the field of investment banking, a major chunk of customers for Goldman Sachs is the high-net-worth individuals and corporates who work with transactions in high amounts. In contrast to the case of the personal banking sector, where the transaction amounts are relatively lower as well as the balances, in the case of Goldman Sachs, the values are on the higher side. It must be noted that the company also has a wing of retail banking where the customers do not have much bargaining power. Losing such a single customer might prove to be costly, and Goldman Sachs cannot risk losing them. The other kind of customers they deal with are the corporates which again deal with huge amounts. These also cannot be lost.

In such cases, the company has less bargaining power, and hence we can say that the bargaining power of the customers is moderate to high in this case.

Bargaining Power of Suppliers:

Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Goldman Sachs:

In the case of suppliers as well, the case is similar to customers. The suppliers of Goldman Sachs can be categorized into two. The depositors and the human resources. Depositors invest their money into the firm and are the source of capital for the firm. Similar to the case of customers, there are again two types of investors, individual and corporate/High net worth individuals. As expected, the bargaining power of the individual investors is minimal, but there is considerable bargaining power of corporates and high net worth individuals, similar to the case of customers. As for the employees, they do not have specific bargaining power themselves, but there is a chance of forming trade unions and collective bargaining, in which case, the bargaining power can be considered. There is also a chance of them leaving the firm, which will be a considerable force if done in bulk. With all the above-mentioned factors into consideration, we can say that the bargaining power of suppliers is low to moderate.

Competitive Rivalry:

The impact of key competitors in the Goldman Sachs Porter Five Forces Analysis is as follows:

As previously mentioned, there are multiple players in the financial services and investment banking market, such as JPMC, Morgan Stanley, etc. The competitors of Goldman Sachs can be categorized into the following ways. There are players based out of the US and operating worldwide just like the ones mentioned previously. There are also firms based out of other countries and are operating worldwide, such as Deutsche Bank, for example, which is based out of Germany and is operating worldwide. There are also many local players in the countries operating, in many cases are market leaders there as well. The value proposition of most of these firms is the same, and all of them have high brand equity. The switching costs are also low in some cases, which makes it easy for the customers to transition to the competitor. This makes the competition tougher, but given the amount of brand equity Goldman Sachs itself holds, it can sail through easily.

Hence, we can say that the competitive rivalry is high.

To conclude, the above Goldman Sachs Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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