An Assessment of the Effectiveness of Competitive Strategies of Private Commercial Banks in Ethiopia: The Case of Dashen Bank and Awash International Bank
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Date
2016-12
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Addis Ababa University
Abstract
The banking industry has been facing strong challenges due to competition. After the
establishment of private banks in the country, the industry has been characterized by
adoption of modern technology and huge branch expansion. What is more is that the sector
is highly regulated by the government through the central bank known as “National Bank of
Ethiopia”. The banks are therefore under pressure to sustain their competitive position. This
situation has, therefore, entailed the banks to design their competitive strategies in a manner
to enable them become superior performers in their industry. The purpose of this study was
to assess the effectiveness of the generic competitive strategies adopted by Awash
International Bank and Dashen Bank. The research also tries to describe the effect of
generic strategies adopted by the banks under study on their performance. A case study
design was used to undertake the research. The target population for the study was
management staff of both banks located in Addis Abeba. The research used a structured
questionnaire to collect primary data. The research also used secondary source documents
in reviewing the actual performance of the banks under study to assess the effectiveness of
the generic strategies on their performance. The data gathered then analyzed using
descriptive statistics based on summarized comparisons using percentages, ratios with the
help of a computational software SPSS. The findings of this study have suggested that the
banks under study are facing challenges due to competition and the majority of the
respondents indicated that their bank applied generic strategy to mitigate the challenge. The
findings also indicated that the two banks account for one third of the private banks market
share in terms of total asset, net income and paid up capital. According to the research
findings the significant challenges identified while implementing competitive strategies were
growing needs of customers, imitation of banking services, unethical move and loss of skilled
employees to competitors. The findings show a significant relationship between the
strategies adopted by Awash International Bank and Dashen Bank vis a vis the their
performances with respect to the following performance indicators: total asset growth as
compared to the industry growth, net income growth as compared to the industry growth,
earnings per share as compared to the industry earnings per share. The outcome of the
study revealed that there is a positive association between the adopted competitive
strategies and performance. The banks under study need to pursue mixed generic strategy
to have a better performance.
Key Words: Generic Strategies and Performance
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Keywords
Generic Strategies, and Performance