Porter Five Forces Analysis

1 January 2017

The entrenched position of the Indian market leaders in IT industry like TCS, Infosys, Wipro, CTS, Tech Mahindra; The changing environment demands fresh thinking to gain the cutting edge advantage. This paper attempts to look at the various macro and micro environmental factors operating in the industry using. The model of strategic analysis by Michael Porter, i. e. to analyse the bargaining power of buyers and suppliers, the threat of new entrants, threat of substitutes, intensity of rivalry, impact of technological changes, growth and volatility of the market and the influence of government and regulatory interventions.

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These variables affecting the industry have been categorised as favourable or adverse depending on the influence on the profitability of the industry. Some strategic initiatives, which can be adopted, to leverage the favorable forces and prevent the adverse ones have been identified. This paper attempts to analyse the various macro and micro environmental factors operating in the industry to provide a basis for devising strategy. IT INDUSTRY OVERVIEW INTRODUCTION India IT industry is one of the world’s successful information technology industries.

Measured by the age of many industries, the IT industry in India is still in its infancy. Yet its growth and development has caught the attention of the world so much so that India is now being identified as the major powerhouse for incremental development of computer software. The reason for this attention is not the actual size of the industry but its rapid growth rate over the nineties and subsequent decade. It has grown from US $ 150million (source: NASSCOM) in 1991-92 to US $ 64 billion in year 2008. The industry’s contribution to India’s GDP has grown significantly from 1. % in 1999-2000 to around 5% in FY06, and has been estimated to cross 5. 5% in FY2010. The sector has been growing at an annual rate of 28% per annum since FY01. The Indian IT industry can be mainly categorised into following sectors IT services, IT enabled services and BPO, Research & Development, Software Product and Hardware. IT INDUSTRY PERFORMANCE The size of the Indian IT industry, according to NASSCOM, is US$ 64 billion as of year 2008. It has been growing with an annual rate of 28% since 2001. The Indian IT industry can be broadly divided into two markets: domestic market and exports market.

The elements of each of the above forces and the extent and /or effect of each element in the context of the IT industry have been analysed and enumerated below. Porter’s framework, however, does not address three important variables variables-Government and Regulatory Interventions, Technological Changes, and Growth and Volatility of Market Demand. These variables have been included in the model proposed by George Day (Day, 1990), which evolved from Porter’s model and have been analysed in this study study. Aparna Parthasarathy –PGXPM 05-Term5 Page 5 Strategic Management – Industry Analysis Assignment 2009

 Degree of rivalry denotes the intensity of competition within the industry. As the industry is still in its growth stage, there is enough room for expansion for existing players and new entrants. With the entry of many multinational companies (MNC) are opening their operations in India to leverage the low cost advantage provided by India, has increased the completion ratio (CR) of the industry. Also as there is no huge capital investment required to start a new company, the industry see a very large numbers of small and medium-size companies operating in a niche market.

Presence of such large number of players has made the industry as one of the most competitive industry in the market. : High Commoditized Offerings low-cost, little differentiation high industry growth Strong Competitors Few number of large companies Numerous or equally balanced competitors Lack of differentiation or switching costs Capacity augmented in large increments High strategic stakes EXHIBIT:  Aparna Parthasarathy –PGXPM 05-Term5 Page 6 Strategic Management – Industry Analysis Assignment 2009  We choose the top 3 IT companies from above pie chart for the analysis.

Predicting what will come in an industry that evolves on an almost daily basis is a thankless and almost futile task.

Things change at such a rapid rate, and many of the technologies are so fluid, that a shift in direction can occur in weeks rather than months. If we think that today’s Internet and e-commerce opportunities are technically advanced, we have not seen anything yet. Not only will the existing uses of the Internet get more and more advanced, but new ways will be found to exploit the opportunities it provides. The delivery of these services will not just be dependant on new formats and programming, but also on the mediums that deliver them. For this to happen, certain changes will need to take place, not just technological, but legal as well. Protection of consumers needs to be examined, as well as

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