Competitive Advantage of Commercial Banks in Nepal : Generic Strategies

Commercial Banks can attain a competitive advantage either by following a cost leadership or a differentiation strategy. Cost leadership strategy enhances competitive performance and it should be applied by banking managers primarily. A good differentiation strategy seems to be very important for banks. A single strategy is not sufficient to have superior performance and to get competitive advantages. However it is not recommended which strategy is more beneficial for commercial banks in Nepal. Study of eight major Nepalese commercial banks for five years shows that those banks which adopt a cost leadership strategy are enabled to sustain superior performance more than a differentiation strategy. Similarly, cost leadership is better than differentiation strategy for increasing sales growth, ROA stability and market price per share. So cost leadership strategy is better than differentiation for commercial banks. But according to senior officers of commercial banks differentiation strategy is better than efficiency for increasing market share. So Efficiency strategy is better than differentiation for commercial banks but differentiation strategy cannot be avoided.