Porters 5 Forces Essay

Five Forces analysis for IT industry Wipro Technologies is a global information technology (IT) armed services telephoner. It provides custom application formu advanced and tuition, IT consulting, systems integration, technology floor out sourcing, parcel products and BPO services. Michael Porters Five Forces Model looks at five name argonas- the threat of entry, the power of buyers, the power of suppliers, the threat of deputises, and militant contendry.Threat of spick-and-span entrants New entrant in the commercializeplace whitethorn confound an effect on portion out of older counterparts Threat of renewal Due to technological advances, Quality constraints or cost effectiveness thither discount be a threat of the substitute on the industry. negociate force of customer This is the bargaining power of the customer -one who is consumer of the goodishs. Bargaining Power of suppliers This is the bargaining power of the supplier -one who supplies fountains that atom ic number 18 shooted for finished goods. comparative Rivalry within Industry It tells about extent of competition in between firms in an industry. Porters Five Forces helps to analyse how these forces act together to lay down the companionship to increase or decrease advantageousness of the smart set. The strategy of the familiarity should be to influence these forces to maximise profitability. consequently be execrable is a plain of the IT industry and study of profitability in custom application design development, systems integration, technology infrastructure homoagement segments of IT Threats and barriers to entry Economies of scale and Capital enthronization Requirements IT requires rattling disordered investment and and then we suck hundreds of startups starting both year. While it is easy to invest and start a softw are follow sustaining growth does non come easy. all(prenominal) these start-ups also play in an area where Wipro does not compete the likes o f low pass judgment fancys or in sub readed pop off. Hence they are not a threat to the profitability of Wipro. India is the favourite destination for off shoring Information Technology (IT) and IT en adequated Services.The Indian IT/ITES industry commands much than 50% of global ITES off shoring market part. The IT/ITES exports are set to cross USD 60 billion by 2010 and Nasscom (The pinchic Association for Software and Services Companies), estimates that the industry will account for USD 63. 7 billion of taxs and direct employment is expected to reach nearly 2. 3 million. The IT industry contributes or so 26 per cent of Indias total exports and was around 6. 1 percent of Indias GDP for financial year 2009-2010 (NASSCOM, 2010). 2 Customer switching costsWipro live ons across verticals like telecom, BFSI, Media and Communication, Automobiles, Government, Technology, Manufacturing, Energy, Healthcare, cordial reception etc and has several ODC or off shore up development ce ntres for nearly all stature companies in the world. These offshore development centres founder thousands of imagerys working with multi year projects earning millions of vaulting horses of r compensateue a year. The cost of shifting or switching even a part of these projects to some other companies would involve huge set up, transitioning costs with no guaranteed results.Wipro has quality certifications like Cmmi Level 5, PCMM Level 5,BS9977 etc and new entrants will see a barrier in this regard. Global abbreviates will not be given to companies with the lack of certification. The lack of security certifications will cause customers to stir security related c one timerns while sending data offshore. 3 annoy to distribution channels and technology This poses no difficulty. Many round top commerce unit heads feed previously quit from Wipro and spawned off their own follow which has grown and sometimes interpreted a part of the market share of Wipro.Since the industry sm ashs on knowledge workers when a senior person pull up stakes he takes access and knowledge of customer base and customer contacts with him. The net income is present everywhere and software technology in the era of coarse source is easily accessible to all. 4 Government Subsidies and policies Current lucky policy by government for new ITES-BPO firms is creating competitive situation for Wipro and other established workers in the India IT industry. The reforms have reduced licensing requirements and made foreign technology accessible.The reforms have also removed restrictions on investment and made the do work of investment easier. This has tremendously helped the IT industries. The Indian government is actively promoting FDI and investments from NRIs (Non-Resident Indians). FDI grass be brought in through the automatic route, based on powers accorded to the Reserve depository financial institution of India. Improvement and reach of telecommunication can aid new entrants int o the IT industry. Similary improvements in infrastructure and power sector can also aid new entrants into the IT industry.Recognizing the importance of Venture Capital computer memorying, the Ministry of Information Technology has set up a National Venture Fund for the Software and IT Industry with a corpus of Rs. 100 crore. The main aim of the venture capital Fund is to provide Venture Capital to start up software professionals and baseborn IT units. Nasscom ( roughly important promoter of the IT/BPO industry) has been playing a crucial role in helping the IT industry achieve the IT and ITES vision and make India far in advance of other players in the field of IT and BPO. however new entrants and start ups can never be in the league of Wipro which adds 20-30 new customers every draw and quarter and earns revenue in the range 0f 50-60 billon USD every quarter. 5 Brand devotion Since Wipro is in multi year relationships with most of its customers and since the relationship is d riven top down from CEO level and exists sometimes with entire IT organisation of the customer, thither is a deep brand loyalty that cannot be forsaken. Wipro trades on big board and is a well respected global companionship. Threat of Substitute charge is most often the main differentiator among key players in the software industry quality of service being the said(prenominal). Indian IT firms like Wipro face stiff competitions from their counterpart in other emerging market like Russia, Brazil, Mexico, Philippines and China. The IT providers in these markets charge competitive rates as compared to Wipro. But Wipro has development centres in China , Philippines so that they can leverage the same advantage. At the same time Wipro attracts a huge pool of resources from the some lead-in adept institutions across India .These resources are trained to work in many technologies and also are very flexible with respect to work timings. Additionally, the Wipro has been exceptionally qu ality focused being the first Indian Cmmi Level 5 company with postgraduate- expertnessed pool of knowledge workers with English speaking Hence it has an fastness edge over other offshore locations like China, Philippines or Latin American countries 1 Quality/Value proposition While start-ups work like a flash in the pan and sometimes do attract a first time IT outsourcer it is MNCs like IBM and Cognizant which can be identified as substitutes for Wipro.Cognizant with its steady and continue growth rate has taken a part of the market share of companies like Wipro. An MNC with a formidable history and background can e work as substitute for Wipro in the software industry payable to the specialization that they bring in terms of delivery models, senior population/leadership in the organisation, RD focus, steady focus on not yet mature verticals (like healthcare in Cognizants case for example) and pumping back money into the business. These MNC bring a better value to the customer and engage the customer at a more strategic level . Buyers willingness and relative price/performance of substitute As per a report in Economic Times emergent near shore rivals, including Ness Technologies of Israel, CPM Braxis of Brazil and Mexico-headquartered Softtek are increasingly decorous attractive for top outsourcing customers such as GE, Citibank and several others seeking to work with local, specialised vendors instead of sending all projects to offshore locations like India. though Wipro is gro extension phone its presence in the emerging markets of Latin America, easterly Europe and Asia, they face stiff competition from these newer rivals.For many customers who already have significant presence in offshore locations like India, its a risk diversification, Some customers having 70-80 per cent of their offshore resources in India are realising that they need to look at the third category of suppliers that are local and niche. everywhere the past two years, companies s uch as CPM Braxis, EPAM Systems, Ness Technologies, Softtek, Merchants and Spi Global have emerged as stronger rivals for Indian tech firms, in particular while bidding for an outsourcing contract being fleshed out by a first-time outsourcer.Brazilian firm CPM Braxis, for instance, which counts GE, ABN Amro and purl as clients, reported revenues of around $567 million in 2008. One of the top four Brazilian banks, Bradesco, is also among the biggest customers for the company. While these emerging outsourcing rivals are not yet in the big league of mega, multi-year contracts, they are still able to gain business because of their niche and local market expertise. On an average, these companies are able to win contracts worth $2-5 million in annual contract value. Bargaining power of customer density of buyers and sellers There are a large numbers of playes in the software industry. While India and Indian software companies with demonstrated performance are the lead runners, players across the world and especially from other developing countries like Brazil etc are in the run. Hence the customer has huge bargaining power. 2 Profitability of buyer OF late due to the cut in IT spending, while IT spend of the customers may have reduced, the number of players are vying for the same budget. Hence cost advantages become very major and customer drives the rush rates.This is because most of the projects are in upkeep or integration and quality differentiation may not be there among number of players. 3 Switching Costs But for existing projects where switching costs are amply , new amplyer billing rates have been worked on on contract renewal even in the recession period. Also with a tighter monitoring of IT spend of customers and in an effort to distribute the risks customers also rarely give an entire project to one customer often distributing the project to all key players hence igniting rivalry and competition. Forward Integration Many captive companies have le veraged the same advantage as companies like Wipro of resource availability at low costs and have opened their captive centres in India, which acts as an IT wing of their company and develops software for them. Examples are many like Shell , JP Morgan, man international banks, Bosch, Boeing etc. Bargaining power of supplier 1 Concentration of suppliers and make Since there are a large number of technical institutions campus recruitments bring in thousands of entry level people at low salaries.But at the same time attrition is very high in the software field since with experience resources may move to greener pastures. 2 Profitability of suppliers There is a huge demand for experienced professionals in key skill areas. Companies need to continually invest in resource development and training in upcoming technologies and keep them from leaving the company by attractive remunerations, trips abroad etc. Since many of the suppliers who support the IT service industry -are local and IT i ndustry earning capitalize on the rupee one dollar bill difference .The suppliers are happy to be in engagement with the IT company and are happy with what they are offered though it is a miniscule of what the IT company earns. Example are cab companies. Rivalry or Competition 1 Structure of competition The key players in the IT industry are in intense competition with each other. All the major players like TCS, Infosys etc have the same kind of delivery models, verticals focus, billing rates and also roughly the same customer base, geographical presence etc. So most of the competition is around excelling in domain knowledge, gaining thought leadership in technology areas and building customer relationships.But the large players are yet a few in number who are clear market leaders. Still Startups concentrate on niche technologies and domains and beat inroads into the IT companies market share. Start-ups thrive on a hire and fire policy where the resources are taken on at the begi nning of a project at high salaries and fired after its completion. Since there is no service differentiation the customer believes in divide and rule policy where the each key player is given a near equal piece of the pie, stagger one player against the other and igniting intense rivalry.The key to getting good projects is good experienced resources, number of people with a specific skill etc. Hence resource poaching is a common phenomenon. 2 Cost structure of the Industry Companies like Wipro have high overheads owe to its size and complex organisation structure. New companies with none of the bequest of Wipro, can come in with niche focus and take a portion of maket share related to RD, designing where creativity, technicall prowess is more key than standard processes, certifications etc.So time and again projects are lost to smaller companies who are more nimble and lean and once that happens it can plot the growth story of a new rival in that specific domain for Wipro. Wipro thrives majorly on large offshore multi-year dollar contracts in application maintenance, infrastructure management where skills are not high end. The requirement is to maintain large bench strength to quickly source these projects. This adds to the cost of most key players in the Indian IT scene. 3 strategic Objectives For the past 5 years Wipro and other key players have had relatively lesser focus on moving up the value chain.All key players are still milking the standard IT services industry demand for maintenance, testing, infra management contracts with global companies in an primarly offshore model. exploitation strategies are mainly to expand to newer geographies access the same standard IT services demand. Growth of all key players have been demand driven and more or less uniform. There have been few acquisitions but no truculent growth stories amongst competing players. It can be concluded that Wipro is a key player in the IT industry and carries on with its brand name , sheer size and momentum as also its leadership and service quality.But to up the ante key differentiations have to be brought in which postulate to be paradigm shift in the way business is done. Whether the innovation is thru new technologies like cloud computing or whether it is through the limited review of business models to emerge as a product and/or consulting company where it engages with the customer strategically change is to be brought in. Else the MNCS like Cognizant, near shore companies like Ness etc may soon catch up or take a part of the pie.