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STRATEGIC INDUSTRIAL ANALYSIS-IT INDUSTRY PORTER’S

FIVE FORCES MODEL GENERIC STRATEGIES MICRO AND

MACRO ENVIRONMENTAL ANALYSIS

NITHYA.J 1 KOMALA.J

2

1 Faculty Member, Department of Commerce and International Business, Dr.G.R.Damodaran College

of Science, Coimbatore. 2 Research Scholar, Department of Management, S.N.R & Sons College, Coimbatore.

ABSTRACT

A comprehensive industry analysis requires a small business owner to take an objective view of the

underlying forces, attractiveness, and success factors that determine the structure of the industry. The

dynamics of IT industry is changing and IT firms are now preparing themselves to meet new

challenges. In this research paper, the porter‘s five forces model, the generic strategies, PEST analysis

with respect to the Micro and Macro environmental analysis are done for the selected companies in

the IT industry. Infosys has the right blend of broader segment to cater wide variety of customers,

broader differentiation of product range, Cost effective solution and Focused delivery. IBM Global

Technology Services (GTS) helps clients plan, implement and manage an efficient, resilient, flexible

IT infrastructure.

Key Words: Broader differentiation, Niche market, Customer value strategies, Focused delivery.

INTRODUCTION

India is the world's largest sourcing destination for the information technology (IT) industry,

accounting for approximately 67 per cent of the US$ 124-130 billion market. The industry employs

about 10 million workforces. More importantly, the industry has led the economic transformation of

the country and altered the perception of India in the global economy. India's cost competitiveness in

providing IT services, which is approximately 3-4 times cheaper than the US, continues to be the

mainstay of its Unique Selling Proposition (USP) in the global sourcing market. However, India is

also gaining prominence in terms of intellectual capital with several global IT firms setting up their

innovation centres in India.

The IT industry has also created significant demand in the Indian education sector, especially for

engineering and computer science. The Indian IT and ITeS industry is divided into four major

segments – IT services, Business Process Management (BPM), software products and engineering

services, and hardware.The IT-BPM sector which is currently valued at US$ 143 billion is expected to

grow at a Compound Annual Growth Rate (CAGR) of 8.3 per cent year-on-year to US$ 143 billion

for 2015-16. The sector is expected to contribute 9.5 per cent of India‘s Gross Domestic Product

(GDP) and more than 45 per cent in total services export in 2015-16 .

INDUSTRY ANALYSIS

A market assessment tool designed to provide a business with an idea of the complexity of a particular

industry. Industry analysis involves reviewing the economic, political and market factors that

influence the way the industry develops. Major factors can include the power wielded by suppliers

INTERCONTINENTAL JOURNAL OF MARKETING MANAGEMENTISSN:2350-0891 -ONLINE ISSN:2350-0883 -PRINT -IMPACT FACTOR:1.235VOLUME 3, ISSUE 9, SEPTEMBER 2016

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AN OPEN ACCESS, PEER REVIEWED, REFEREED, ONLINE AND PRINT RESEARCH JOURNAL

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and buyers, the condition of competitors, and the likelihood of new market entrants. A comprehensive

industry analysis requires a small business owner to take an objective view of the underlying forces,

attractiveness, and success factors that determine the structure of the industry. "Once the forces

affecting competition in an industry and their underlying causes have been diagnosed, the firm is in a

position to identify its strengths and weaknesses relative to the industry," Porter wrote. "An effective

competitive strategy takes offensive or defensive action in order to create a defendable position

against the five competitive forces." Some of the possible strategies include positioning the firm to

use its unique capabilities as defense, influencing the balance of outside forces in the firm's favor, or

anticipating shifts in the underlying industry factors and adapting before competitors do in order to

gain a competitive advantage.

OBJECTIVE OF THE STUDY:

The objectives of the study are as follows:

1. To identify and apply the porter‘s five forces model on the IT industry.

2. To analyse the generic strategies of the IT industry

3. To find the micro and macro strategies of the IT companies.

RESEARCH DESIGN:

The five companies in the Industry of Information technology were selected for the analysis. Dell,

IBM, INFOSYS, HCL and TCS were companies under consideration. The companies were selected

on the convenience sampling methodology.

PORTER’S FIVE FORCE MODEL FOR IT INDUSTRY

1.Threat of new entrants

a.Very high. This becomes the predominant influencer in deciding competition in IT industry.

The resources who are experts in specialized/inert domain may detach from their organization and

have a startup of their own. Such specialized companies will be a threat to a diversified business

houses.

2.Threat of substitutes

a.Customers can go for packaged products instead of service. For example, an ERP package will be a

threat to a standalone application. There lies a mutual threat to both the ERP service providers and the

stand alone application developers.

b.Ready available tools like MS Excel and MS Access can suit any business operations.

3.Bargaining power of buyers

a.Simple and smaller IT projects will be treated as fillers till a bigger one comes in. The service

providers will be expected to fulfill them at a lower cost.

b.New comers will not be in a position to demand a price for their service and it will be highly

influenced by the buyer.

4.Bargaining power of suppliers

a.In most of the cases, the suppliers will not be in a mood to adjust the pricing towards selling their

products to the IT service providers.

b.Unless the service provider is also a major player in a focused field, they will never get a discounted

price. For example, Microsoft marks some of its customers as gold partners. These partners will be

working closely with Microsoft towards creating/designing/fine tuning their products. As a mark of

continuing this relation, they offer a discounted price to them.




http://www.businessdictionary.com/definition/buyer.html

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5.Competitive rivalry

a.Whenever a customer is need of an IT application, they will look out a solution to be prototyped by

more than one partner. In such a case, there will be a heavy competition among all the partners.

Whoever comes well in terms of solution and cost, will be chosen to implement it.

FIVE GENERIC COMPETITIVE STRATEGIES

As such, the competitive strategies are based on two aspects – each of which in turn comprises of two

categories. They are as follows,

1. Target market segment

a. Broad segment

b. Narrow segment

2. Competitive advantage

a. Low cost advantage

b. Differentiation advantage

It is schematically represented as follows.

Overall low-cost provider

Ex : HCL

Focused low-cost

Ex : TCS

Focused differentiation

Ex : Dell

Broad differentiation

Ex : IBMBest cost

Ex : Infosys

Lower cost Differentiation

Broad segment of

buyers

Narrow segment of

buyers

Generic Competitive strategy

Target market segment Competitive advantage

Let us look at each of the combination.

1. Broad segment – Low cost

a. These companies cater to a wide variety of customers.

b. Their product line is not so huge but have a diverse business presence

c. They are not market leaders and hence will not be able decode the price

d. Their market presence is high influenced by the cost advantage

e. Example: HCL. They are into IT, Hardware and Software services. Global presence,

but not a market leader.

2. Broad segment – Broad differentiation

a. These companies have the widest set of products to offer.




b. They serve as the one-stop-shop for anyone

c. Example: IBM. Being a long term player, they have conquered almost all the

dimension of the IT industry.

d. Be it a hardware product or a software product, their influence is felt even in their

competitor‘s product.

3. Narrow segment – Low cost

a. These companies will have a focused segment dedicated towards a particular

operation. Ex: TCS mobile app development.

b. Such a segment need not target a niche market, but will go with a potential market. ie,

the market may not be upcoming, but on a pre-niche stage.

c. With such a scenario, the cost advantage will only favor their survival and not the

variety. It will more be of an experimental in nature.

4. Narrow segment – Focused differentiation

a. These companies are specialized in their respective areas and have a wide variety.

b. They are among the market leaders and have considerable influence on the pricing

c. Example: Dell. Wider product range. They can support IT, Hardware and services

and are into the leader‘s league.

The best strategy is the one to be marked as the combination of all the four strategies. Infosys has the

right blend of them. They have a,

1. Broader segment to cater wide variety of customers

2. Broader differentiation of product range

3. Cost effective solution and focused delivery

Dell

Dell has always positioned itself as a trend setter rather than a follower. Since its inception as a

customized hardware builder, they have entered several markets across the globe and were successful

in winning customers in all the places. Some of the key strategies are as follows,

1. Direct market entry – Hardware & IT operations

Dell has never partnered with any local player while entering a new geography for selling

their hardware. They carry over their reputation on their global brand to wherever they go.

2. Indirect market entry – Software services/ Specialty product software

With the acquisition of Perot systems, Dell announced its arrival into the software services

industry.

3. Change the way customers purchase

Indian market is the best ever example of Dell‘s strategy on changing customer‘s purchasing

behavior. A typical Indian customer would always prefer to see or touch their purchase before

buying it. Dell broke this barrier and entered the Indian market through online purchase.

4. Changing itself

For the first time in its history, Dell changed its strategy to sell products through a retail

channel. India has the distinction to host the first ever retail outlet. This was started solely to

meet the customer‘s demand who seek to ‗touch-feel‘ their product before a purchase.

5. Customization

They go places in customizing their hardware where most other players stick on to a pre-

defined and limited configuration, thereby gaining a competitive advantage.

Only after getting consent from the customer on their configuration, Dell starts to build the

machine. It brings up a sense of intimacy between the customer and the machine on the front

that it has been manufactured on their wish.




It has proved to be the most effective channel in reaching out to people.

6. Direct to customer

Dell predominantly follows the policy of directly meeting the people. Be it a purchase or

product supply, it is all about customer to Dell and Dell to customer.

A customer can make a purchase by simply browsing over their site and ordering it. The

machine will be shipped to the customer within the dictated duration. This model has been

successful in wherever they go.

7. Knowing customer needs

With a dedicated workforce to interact closely with the customers, they are able to know the

pulse and react accordingly. Such a workforce is well trained to support customer queries and

respond immediately.

Dell keep a track of each and every transaction. This history is used by the analytics team for

various forecasts.

8. Act fast

A customized order has an advantage of meeting the customer‘s expectation on their

purchase, but at the same time it has a disadvantage in the form of time factor. Some

customers may not be comfortable in waiting long to get their purchase on hand. In order to

satisfy those people.

9. Long term relation

A strong working model on customer intimacy is being followed by Dell across the globe and

this helps them to stand long in a market much long after entering it.

Frequent interactions with the customers in the form of updating their hardware with service

packs/patches or suggestion on upgrading the hardware to a newer technically advanced one

strongly substantiates it

International Business Machines Corporation,IBM

Strive to lead in the invention ,development and Manufacture of the industry‘s most advanced

information technologies including computer systems software, storage systems and

microelectronics

Translate these advanced technologies into value for customers through professional

solutions, services and consulting businesses worldwide.

Customer Value Strategy: Innovation that increases competitiveness and differentiation,

sparks customer centricity and drives growth.

Global Technology Services

IBM Global Technology Services (GTS) helps clients plan, implement and manage an efficient,

resilient, flexible IT infrastructure. IBM GTS is the partner of choice for infrastructure services –

be it transformational outsourcing tied to business outcomes or integrated managed services or

discrete services.

Strategic Outsourcing- Value Creating Transformational Outsourcing

Integrated Technology Services-Driving Productivity & Enabling Growth

Technical Support Services-Ensuring Maximum Uptime for Multi-Vendor Environments.

Smart IT Infrastructure-The foundation for a smarter planet

Customer centric strategy: Strategies to help you focus on customer experience and care




Channel transformation: Strategies and approaches to help implement experience and care

activities across any and all applicable channels

Social media strategy: Strategies and approaches to create meaningful customer experiences

and drive deeper customer relationships in the social web space

Digital brand & presence strategy: Strategies and approaches are better leveraged and

manage IBM brand in a digital, web-based world

Smarter sales & marketing: Consulting services to help IBM understand how to improve

revenue and manage the sales and marketing organization through more intelligent,

instrumented and interconnected marketing and communications activities

The IBM Difference

IBM‘s leadership position in India and across the globe is backed by 4 decades of innovation,

best quality R&D facilities, unmatched expertise, flexible engagement models, and an

uncompromised commitment to deliver and create value for clients.

IBM‘s delivery methodologies use automation tools that enable better, faster, customized

delivery while consistently managing across processes, automation, tools and analytics across

heterogeneous IT environments.

Our wide reach across the India/South Asia ensures that location, time or geography is never

a constraint for our clients. Our highly skilled technical consultants provide out-of-the-box

solutions to solve local issues using globally tried and tested solutions.

INFOSYS

INFOSYS –BUSIENSS STRATEGY

DIFFERENTIATED TALENT:: They are capable to collaborate and consult client

organization

PROVEN EXPERTISE IN TOOLS AND FRAMEWORKS:

Transformation of data into user-specific and decision-context-specific insights

ABILITY TO DELIVER VALUE ON AN ENTERPRISE SCALE:

Using technology that enables scalable implementation of insights-driven decisions into core

business processes

CORPORATE LEVEL STRATEGIES:

Global Delivery Model: Producing where it is most cost effective and selling where it is most

profitable.

CLIENT FOCUSED STRATEGY:

Infosys has adopted a client-focused strategy to achieve growth Focuses on limited number of

large organizations throughout world Infosys commands premium margins Company has a

image of quality driven model rather than cost-differentiating model Increase business from

existing and new clients.

LITTLE DIFFERENTIATION AND LOW COST END SERVICES:

Little differentiation in low-end services of value chain; high differentiation in high end

services of value chain like software products and package solutions. Focus on quality,

customer relationship management, timely-delivery.

LOW COST PARTER STRATEGY:

More focused on computer hardware than software, and more on the home market than

exports—i.e. it was a local optimizer

THE COMPETITIVE ADVANTAGE -INDIA‘S LOW-COST PROGRAMMING TALENT




ENJOYS LATE-MOVER ADVANTAGES relative to their Western competitors Focus on

Quality, Customer relationship management, timely delivery.

GLOBAL SOURCING STRATEGY IS ALIGNED WITH BUSINESS STRATEGY.

Enhancing operational efficiency and delivering value added services. Structuring processes

and services into modules thus leading to enhanced flexibility and productivity. Aggressive

focus on ERP solutions like Oracle and SAP.

TATA CONSULTANCY SERVICES -TCS

Generic Business Strategy

LOW COST GLOBAL DELIVERY 24X7 MODEL.:Focus on customer relationship

management, customer retention .Timely delivery with the help of proven delivery & quality

framework - iQMS.

DIFFERENTIATION STRATEGY IN SERVICES: Differentiation in low end services

in terms of cost, resources.

Differentiation in high end services such as consulting in term of niche offerings, expertise.

Due to its strong knowledge management system and resource strength-cost leadership in the

industry.

FOCUSSED STRATEGY:TCS more focused strategy where they are going as per local

needs of customer and their nature of business.

• Focus on the Centers of Excellence (CoE)

PIONEER IN THE INDUSTRY & BRAND

Having started in 1968, TCS has established himself as the industry leader. Being part of the

trusted Tata group is also a big differentiator for TCS giving it a strong brand strength.

INTEGRATED FULL-SERVICES PLAYER

Portfolio of offerings extends from consulting to implementation, testing and support; from

engineering services to BPO; from products to end-to-end solutions.

COLLABORATION WITH MULTIPLE STAKEHOLDERS

Having worked on large global scale enterprise projects, TCS appreciates the need for

flexibility to work with multiple stakeholders from customers, partners, and other service

providers. TCS have developed innovative engagement models that have proven

• TCS‘ ability to deliver significant value to its customers in managing their projects as

the sole solution provider, or prime/lead partner, or supporting partner.

GLOBAL NETWORK DELIVERY MODEL

Unique network of 79 Delivery Centers in Brazil, Uruguay, Chile, China, Hungary, UK,

Japan, ,Australia, Singapore and India that operate at the same quality, security and skill




levels, giving customers the same experience of certainty across the organization globally

with a lower total cost of ownership.

HIGH QUALITY AND MAXIMUM SECURITY

In 2005, TCS was awarded enterprise-wide triple certification for: Quality (ISO 9001:2000),

Security (BS 7799-2:2002) & Services (BS 15000-1:2002)

INNOVATION NETWORK

TCS has established 19 labs with strong links to start-ups, academia and alliance partners to

continuously develop innovative solutions for their customers.

HCL

IT Strategy

Well-defined and maintained organizational IT strategy aimed at both short-term and long-

term business goals.

GROWTH- Strategic application collaboration.

Identification of the existing gaps current and future state IT architecture

Establishment of an enterprise-wide integrated IT architecture to fill in the identified gaps

Setup of a future-ready and flexible IT infrastructure strategy that can adapt to changing

trends and technologies

UNIQUE VALUE PREPOSITION- design, development, implementation, infrastructure and

support, both voice and non-voice

strategic initiative.

Alliances -drive for ecosystem-based innovation-global technology vendors, customers, and

niche solution providers. ALLIANCE WITH MICROSOFT,CISCO,EMC AND SAP

achieve highest level of customer satisfaction leading to repeat business and good referrals,

brilliant acquisition strategy to reach out to new product market & service segments and an

aggressive on the ground execution strategy that never leaves anything to chance

INBOUND LOGISTIC-in these services would be considered as goods from the suppliers.

They are being produces by the employees and then delivered to its customers.

OPERATION- these include the production process, testing, packaging and other activities

that transform the input in finished product. The product is tested before being delivered to

the customer. OPERATES IN high value addition and high margin business

OUTBOUND LOGISTICS-now the product has to be made available to the customer so

company advertises its product to create its awareness

MARKETING SALES-through this medium the product is being sold to customer through

advertising, product promotion. Through this the product is available for the targeted market.

CUSTOMER FEEDBACK/ AFTER SALES SERVICE-After the product has been sold to the

customer, product‘s value is measured in the form of after sales guarantee, warranties,

updating etc.

PROCUREMENT- The resources are made available at best prices. The challenge which is

faced is to obtain best quality available.




Technology- technology helps the firm to gain competitive advantage. Technology can be

used in various ways like R&D, production to reduce cost and 24/7 access to the firm.

Through technology the firm was able to create transparency within the organization.

HUMAN RESOURCE- the company has to recruit, train and develop its employee for the

company. To make its employee engaged in its operated the company invented Trust Pay and

360 dimension evaluation.

FIRM INFRASTRUCTURE- to maintain the firm‘s infrastructure, company has to make sure

that management structure work efficiently

PEST ANALYSIS:

POLITICAL:

Political stability: Indian political structure is considered Stable enough expect the fact that

there is a fear of Parliament with no clear majority.

U.S. government has declared that U.S companies that Political outsource IT work to other

locations other than U.S. will not get tax benefit.

Government owned companies and PSUs have decided to Give more IT projects to Indian IT

companies.

Terrorist attack or war.

ECONOMICAL:

Global IT spending (demand).

Domestic IT Spending (Demand): Domestic Market grow by 20%

Currency Fluctuation

Real Estate Prices: Decline in real estate prices has resulted reducing the rental expenditure

Attrition: Due to recession, the layoffs and job-cuts have resulted in low attrition rate

Economic attractiveness: Due to cost advantage and other factors

SOCIAL:

Language Spoken: English is widely spoken language in India. English medium is the most

accepted medium of education

Education: Large number of technical institutes and universities over the countries provide IT

education.

Working age population.

TECHNOLOGICAL:

Telephony -India has the world lowest call rates

Expected to have total subscribers base of about 500 million by2010.

India has the second largest telephone network after china. Enterprise telephone services, 3G,

Wi-max, VPN, poised to grow.

Internet Backbone: Due to IT revolution in 90‘s India is well connected with undersea optical

cables. (+ve) New IT Technologies: Technologies like SOA, web 2.0, High definition

content, grid computing, and innovation in low cost technologies is presenting new

challenges& opportunities for Indian IT industry.




SUCCESS OF INDIA’S SOFTWARE INDUSTRY:

• Software industry can be built entirely on human capital. Requires limited infrastructure and

upfront investment. Has good cash flows and is highly profitable.

• India had an early-mover advantage: repeated positive experience built trust in outsourcing

and validated the Indian brand.

• Role of human capital, including software engineers, project managers and corporate leaders

• Early investments in engineering education and privatization of education created a large

talent pool.

• Software industry faced no internal competition for technical talent. Competition from MNCs

came when indigenous firms were prepared.

CONCLUSION:

Understanding the company's operating environment in this way can help the small business owner to

formulate an effective strategy, position the company for success, and make the most efficient use of

the limited resources of the small business. The dynamics of IT industry is changing and IT firms are

now preparing themselves to meet new challenges.

India has firmed up its position in the global software industry and global software companies too are

setting up huge R&D facilities in the country. However, India still accounts for only about 2.5% of

the global IT services market. Infosys has the right blend of Broader segment to cater wide variety of

customers, Broader differentiation of product range, Cost effective solution and Focused delivery.

IBM Global Technology Services (GTS) helps clients plan, implement and manage an efficient,

resilient, flexible IT infrastructure.

Tata Consultancy Services (TCS), Infosys Technologies and Wipro Technologies, have become

global brands, competing head-to-head with multinational IT service providers.

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1.Armstrong, G. and Kotler, P. (2005). Marketing: an introduction. 7thedition.United States of

America: Pearson Education, Inc.

2.Atuahene-Gima, Kwaku. (1995). The influence of new product factors on export propensity and

performance: an empirical analysis. Journal of Global Marketing. 13(2): 7-30.

3.Haji Abdul Adis, Azaze @ Azizi. (2005). The impact of strategic and environmental factors on the

Malaysian furniture industry export marketing performance. Unpublished Masters Thesis. School of

Management, Selangor, Universiti Putra Malaysia.

4.Meybodi, Mohammad Z. (2003). Strategic manufacturing benchmarking, The TQM

Magazine.17(3): 249-258.

5.Malhotra,K.(1998) Marketing research, Agra Book Depot.

Web References:

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