PORTER’S FIVE FORCES ANALYSIS ON TECHNOLOGY/IT SECTOR

Bargaining Power of Buyers:

In an industry as massive as Information Technology, the term "buyers" refers to almost everyone in the world.
Given the large number of buyers, it is safe to say that the customers control the IT industry. There are so
many choices for a buyer (many firms in this industry) and there are minimal switching costs, so customers
aren't typically "locked in" to one firm. Customers are sensitive to price, but IT products and services are
necessary to the success of businesses, so they are willing to spend a lot of money to get a good product. There
are typically many interactions between buyers and IT companies because of the need for training to use
products, constantly upgraded technology and an abundance of advertising.

For example, with technology-enabled systems, purchase orders can be automated, vendor selection can be
faster, and inventory management can be automated. These features along with automated billing capability
will help an organization engaged in engineering projects such as Larsen & Toubro, to reduce lead time for
procurement, improve vendor relationship, and be able to meet service-level agreements made with different
stakeholders. Thus the power of buyers has increased tremendously.

For example, with technology-enabled

systems, purchase orders can be automated, vendor selection can be faster, and
inventory management can be automated. These features along with automated bill-
ing capability will help an organization engaged in engineering projects such as
Bargaining Power of Suppliers:
 The bargaining power for suppliers is very low and since high-standardization exists, there is little scope of
suppliers having any clout. The suppliers consists of IT Infrastructure providers (Servers, computers etc.),
Recruitment firms, Office Space Suppliers etc.

Main factors:

 Software license providers- High

 Hardware & PC providers- Low
 Availability of talent pool- experienced and fresher- High

Threat of New Entrants:

In context of the highly commoditized IT services, there is little threat of new entrants. That said, the Industry
is also characterized by high people dependence and therefore can see veterans detach from existing
companies to invest in new ventures.

An example of this is Happiest Minds, which was started by a co-founder of an existing IT provider. The newer
technologies allow the possibility of new niche players that are not dependant on size or experience
constraints.
Main factors:

 relatively attractive industry to newcomers because of its rapid growth and appealing customer
base

 the industry is not capital intensive

 Conducive environment provided by Government such as SEZ.

 Any newcomer in this industry can expect a strong retaliation from existing players, which is a major
reason this industry is not too attractive.

Threat from Substitutes:

There are no substantial substitutes to IT services apart from Internal IT departments, which have lost clout
over the years and are ever thinner in numbers and significance. One argument for internal IT is retaining
control over pertinent aspects of business but the argument against would be since the main business of the
company is not IT services, it should outsource as much as possible and focus on future growth in core areas.

Main factors:

 Cheaper offshore locations such as Philippines, China etc.

 The company outsourcing can start its own IT solution unit such as TCS, L&T
 Price quoted for the projects is a major differentiator, the quality of products remain same.

Rivalry among Existing Players:

The IT industry is known for its rapid growth, effectiveness and competition. A main reason why many new
entrants are not successful is the intense rivalry between existing players. Large companies in this industry
benefit from economies of scale, which is valuable and something they try very hard not to lose. Products in
this industry are well branded and tend to have a strong customer base. Market share is unevenly distributed
among existing players, who are often in various kinds of legal and advertising battles with one another.
Main factors:

 Commoditized offering (easy to obtain)

 Low cost, little differentiation
 High industry growth
 Strong competitors
 Small number of large companies
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