FINLATICS RESEARCH TASK

Sector Project 2
Technology Industry

Submitted By:
Kumardeep Singha
kumardeep.singha1999@gmail.com
Date of Submission – 5th October, 2020

Introduction –
Porter’s Five forces is a framework coined by Michael Porter (Professor of strategy at
Harvard School) for analyzing a company’s competitive environment. The number and
power of a company’s competitive rivals, potential new market entrants, suppliers,
customers, and substitute products influence a company’s profitability.
Porter Five Forces Analysis of Technology Industry –
Porter’s Five Forces analysis, following directly from the positioning school of corporate
strategy is clearly one of the most popular and powerful tool for anyone to understand the
factors affecting profitability in any industry and how then should an organization position
itself to attempt to maximise profitability. Building on the framework, we add variables that
affect the IT Industry landscape and headwinds that shape the future of the industry.
1. Bargaining Power of Buyers-
In an industry as massive as Information Technology, the term "buyers" refers to almost
everyone in the world. While there are countries that are behind technologically, a majority
of locations in the world have access to computers and the internet etc. 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. Also, because a lot of IT sales
come from companies that make large purchases, those companies are powerful and
important to the IT firms (who often provide incentives to these businesses, in order to
convince them to utilize their products over competitors). 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.
2. Bargaining Power of Suppliers-
Although companies like Intel and AMD are a part of the IT industry, for the purpose of
this project I will be classifying those companies as suppliers to the IT industry's firms.
The inputs in this industry are pretty standard, with differences being speed, memory etc.
Though the inputs are standard, new companies find it difficult (not impossible) to enter
this industry as a supplier because of the existing relationships between current suppliers
and IT firms, the ever changing and improving technologies of the world and the intense
rivalry between existing players. IT firms are very important to suppliers because they are
their primary customers, but I believe suppliers are even more important to buyers(IT
firms). Suppliers are not "locked" into deals with specific firms (contracts exempt), but
most of the relationships between the firms and suppliers in this industry are well
established, and these suppliers would most likely not want to end their relationships with
firms in the first place.
3. Rivalry among existing Customers-
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.
4. Threat of Substitute Products-
At the current economic condition when the economies of the world are slowing down, there
is high chances of substitution. Other world economies like Philippines are bidding for IT
services projects globally as they are able to provide the work at a cost cheaper than the
Indians. Also if you think, the companies that are giving the projects to the Indian IT
services industry, can do a backward integration and setup their own IT solution company.
For instance IBM, Accenture etc These companies were primarily consulting companies at
one point and today they boast of their IT solution arm. Both of them having off shore
centres to cater to the world.
5. Threats of New Entrants-
The IT industry is relatively attractive to newcomers because of its rapid growth and
appealing customer base. At the same time, the industry is unattractive to newcomers
because of the cost advantage large-scale incumbents possess, the significant amount of
capital a new firm would need, and the major established brands already in the industry.
Any newcomer in this industry can expect a strong retaliation from existing players, which is
a major reason this industry is not too attractive. The best way for a new entrant in this field
to be successful would be if they had a brand new idea for a product or service; the lack of
differentiation in the industry is one thing a newcomer could exploit. Overall, the IT industry
isn't overly attractive, but it is routine and profitable enough that a lot of people try and enter
it. Many new firms try to enter this industry, but they rarely give established names a real run
for their money.

That was the Five Forces Analysis of the Indian IT Services Industry. The industry
is at a crucial stage with the clients now moving to digital technologies. The service
companies are going all in to re-skill their employees on new emerging technologies like
Artificial Intelligence, Machine Learning, Data Science etc.

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