Chapter-3

Porter’s five forces

Porter's Five Forces is a simple but powerful tool for understanding the competitiveness of any
business environment, and for identifying the strategy's potential profitability.

According to Michael Porter the Five Forces at work inside an industry can be assessed to clarify that
industry's potential gainfulness. As an industry makes industry benefits the members of every one of
the five powers will 'plan' to siphon gainfulness from that industry. Porter Five Forces is an all-
encompassing technique system that removed key choice from simply investigating the current
competition. Porter Five Forces centres around - how Financial Services can manufacture a reasonable
upper hand in Credit Services industry. Directors at Financial Services cannot just utilize Porter Five
Forces to build up a key situation with in Credit Services industry yet in addition can investigate
productive open doors in entire financial sector.

Porter’s five forces are

 Competitive rivalry
 Supplier power
 Buyer power
 Treat of substitution
 Treat of new entry

1 Competitive rivalry

There is a high level of competition in the IT sectorThe Indian IT industry is facing stiff competition
from the outsourcing companies based in different parts of the world — China, Taiwan, Philippines,
Eastern Europe and Latin America. There is tremendous emphasis on productivity, value additions,
quality, customer experience, and effective communications, meeting the datelines, domain
knowledge and agility. At the same time the technologies are moving rapidly from traditional
Java, .Net and Mainframe, to Analytics, Big Data, Artificial Intelligence and Robotics. Today a
successful IT professional will be measured by his ability to adopt new technologies, not the
number of years of experience.

There are numerous corporations withinside the marketplace providing comparable offerings and its
miles tough to distinguish primarily based totally on those carrier offerings. The current opposition
comes from each home players (Infosys, TCS, Wipro, HCL technology, Tech Mahindra, Mindtree and so
forth) and global ones (IBM, Accenture, Capgemini, Cognizant and so forth).
[Link] power

The power of suppliers is comparatively lower in an IT industry especially a software industry as the
need for raw materials are very low. Main suppliers in the IT includes company which provide the
source code the deployment tools many tools are also available through opensource policy also. In a IT
sector The bargaining power of the provider is very low, and due to the high level of standardization,
there is little opportunity for the provider to influence providers also consist of IT infrastructure
providers (servers, computers, etc.), contractors, office space providers, etc.

[Link] Power

The power of the buyer is comparatively larger in IT sector companies. The buyer has got bargaining
power since in IT sector normally the client will be larger buyer the company customise the product
according to the need of the client. With the large transaction nature and limiter number on clients the
buyer power is huge for traditional IT offerings, bargaining strength of the purchaser is huge and the
opportunity of stress on prices exists. The purchaser, having laboured with each with global IT
carriers in addition to Indian ones is essentially the rate setter and has negated to a huge extent. In
this enterprise, in case of traditional IT offerings, the purchaser is king. In new field od the IT sector
like AI, Data analytics, Internet of things could compute the power of buyer is comparatively lesser
when compared to the traditional offerings as there is differentiation and the market is new so the IT
sector enjoys better margins and power to fix prices.

[Link] of substitution

Substitution effect is the availability of cheaper alternatives. Companies from eastern Europe, the
Philippines and China are emerging and are posing threat to Indian IT industry because of their cost
advantage.

[Link] of new entry

In the context of highly commercialized IT services, there is little threat from new entrants. The new
entry from companies can be low some there will be a treat from new countries. However, the
industry is also characterized by a high level of reliance on people, and as a result, veterans may
separate from existing companies in order to invest in start-ups. One example of this is Happiest
Minds a start-up focused on big data, cloud computing etc which was launched by a co-founder of an
existing IT provider. New technologies enable new niche players who are not dependent on size or
experience restrictions.

PEST ANALYSIS

PEST Analysis is a simple and widely used tool that helps to analysis the Political, Economic, Socio-
Cultural, and Technological changes in the business environment. This helps the industries to
understand the big picture forces of change that are exposed to, and, from this, take advantage of the
opportunities that they present.

PEST analysis analyses the Political, Economic, Social and technological factors which effects the
business. This is a management method whereby an organization can assess major external factors
that influence its operation in order to become more competitive in the market.

Political factors which effect the IT industry

Political factors play a significant role in determining the factors that can impact. The IT industry. The
Indian government has been supportive and on the front line on the growth of IT services. The
political environment focuses on cost of doing business the long-term sustainability.

Government rules plays a significate role The IT act 2000 have plays a legal framework on IT sector.
The government is adhering to all the rules and regulations in the sector under World Trade
Organization norms which brings consistency in both policy making and implementations of those
policies.

Government budget

The union budget 2021 was a historic budget which was paperless it was digital from that we can
understand that the government is promoting the IT sector. The Budget 2021 is a step in the right
direction, with the tech industry being particularly impressed with the government’s ‘pro-growth’
vision to be self-sustaining and self-reliant in the days to come. After introducing schemes like PLI to
boost India’s manufacturing prowess, and expanding on the said schemes in this budget, the
government’s next big focus on innovation and R&D.
Due to deficit in budget and need to give a prime focus on health sector due to pandemic there was no
much fund allocation in the IT sector in 2021 budget. But also, there is focus on development and
digitalization in governance.

Government projects like smart city is playing a significate role on IT development. The setting up of
Special economic zones have impacted the IT sectors in a positive manner. The policies and regulation
have attracted the flow of investments both through domestic and foreign. Government focus on start-
up like start-up mission are also affecting the growth of IT sector in a positive manner

Indian IT companies are also focusing on the foreign market .US is the main market of India some
rules like Visa regulation from trump administration and impose on tax on US Companies which gives
outsourcing has impacted Indian BPO in a negative manner.

Economic factors effecting IT industry

The Macro environment factors such as – inflation rate, savings rate, interest rate, foreign exchange
rate and economic cycle determine the aggregate demand and aggregate investment in an economy.
While micro environment factors such as competition norms impact the competitive advantage of the
firm.

The Indian economy is a mixed economy so the economy has an advantage of efficient allocation of
resources. The mixed economy distributes goods and services to where they need. The mixed
economies promote control quality and improves production efficiency.

Exchange rate

The exchange rate is the value of INR when compared to another countries value normally it is
compared with the dollar. The exchange rate is very important in a economy. It is very important to
the IT industry as IT industry concentrate more on exports. The present exchange rate over dollar as
on 28 May 2021 is 0.014 this low exchange rates have both positive and negative effects but this law
rate is good for industry which does exports. In most IT companies there are large exports.

Demand shifts

Now we can see a demand Shifts from Goods Economy to Service Economy The share of services in the
economy is constantly increasing compare to the share of manufacturing, goods, and agriculture
sector. This is a good sign for IT industry.

Recession
The global economy is going on a recession due the pandemic situation caused by virus. The growth of
IT sector is linked with the growth of every other sector. For example, airways are a major client of IT
services the pandemic have hinted them so badly so this will also affect the IT companies also. At
present reports say that India is facing a worst recession since 1947. This situation will impact the
spending capacity of both individual and corporate customers.

Increasing global IT spending

The global IT spending is increasing it is a good sign for the IT sector. It is expected that there will be a
rise of 8.4% to a valuation of 4.1 trillion this year. the spending on the last year was about 3.8 trillion.
This growth is expected to grow since the increasing use videoconferencing and collaboration tools
which helped to support remote work during the crisis of social distances and lockdowns. The growth
also includes the efforts to digitalize business processes across the board and shifting them into the
cloud and another reason of seeing more growth is due to a industry recovery is seeing in the
economy.

Attrition

Attrition means the loss of employees through process like retirement, resignation, attrition degrease
the size of work-force

Some reasons for attrition are

 Unfair labour practice

Attrition in IT sector

India is seeing a high attrition in the IT sector. High attrition will have a negative impact on the sector
as it increases hiring cost and the company also loses talented employees.
The data from across 100 companies between Jan and March indicate that one million employees
would potentially resign this year which result in increased hiring costs for the IT services. the IT
industry saw a 12% attrition in 2020 amid the covid-19 created slowdown. It is predicted that by the
end of 2021 IT-BPM sector is likely to look at a 22% attrition rate. The high tread of attrition will make
increase the cash flow of employees because of higher cost of attrition.

Social Factors effecting the IT industry

Social factors include cultural norms and expectations, health consciousness, population growth rates,

Education

Education plays an important factor for the growth and development of the IT sector. India has got a
large number of institutions and universities where engineering and software skills are trained to
students with this high number of institutions a ready workforce is created in the organisation.

Literacy rate

The literacy rate is defined by the percentage of the population of a given age group that can read and
write. The adult literacy rate corresponds to ages 15 and above, the youth literacy rate to ages 15 to
24, and the elderly to ages 65 and above. It is typically measured according to the ability to
comprehend a short simple statement on everyday life. Generally, literacy also encompasses
numeracy, and measurement may incorporate a simple assessment of arithmetic ability.

India’s literacy is around 74.4 percentage Enthought this figure is smaller when compared to other
nations with this percent our country is able to meet the workforce needs

English language

English is the most important language which is needed in the IT sectors has there is outsourcing,
exports the programming languages are coded in English. Most of the source code are also written in
English. In India English language is kept has a compulsory language in all education institution.

Working population

In India the working population is determined as the people in the age category of 15-60. The share of
working age population is increasing in India this is a good sign for the overall development. Survey
shows that nearly 2/3rds of Indians are of the working age between 15 and 60.
Technological factors effecting the IT sector

Automation 

The automation of many unskilled tasks can allow companies to replace human production lines with
entirely machine ones. This can reduce costs for manufacturers, distributors, supermarkets, and many
other different businesses. This mass automation in every business is a opportunity for the IT sector
as the software and the processes required for automation will be done by the IT industries. 

Internet connectivity 

It’s undoubtable that in recent years global internet connectivity has been on the rise. This presents an
even larger market for many companies who use the internet to connect with their customers.

India has got a very good network of optical fibres so with the help of this the internet availability is
present in most part of the nation.

The internet in India is available at cheap rates. For 1Gigabyte the estimated rate is around 0.09$
which is much less to the global average of $5 per GB.

India faces a drawback of lower internet speeds. Internet speed indexes shows that India stands in a
position of 129th position for mobile internet speeds and 65th position for fixes broadband speeds.

Computer calculation speed

The speed or power of the computer is increasing with this the IT sector doors can be opened to more
areas and develop like machine learning, quantum computing, AI, internet of things and so on.

Tech driven people

Now the demand of tech is increasing people are looking more and more to technology this increases
the demand for the IT sector to innovate and develop more.