Porter's Five Forces Analysis

One of the key contributors to India's GDP is the services sector. Over the years, India has moved from
an agricultural to a service-based economy. The service-based sector contributes close to 55% of the
GDP. This sector has lifted the Indian economy and attracted considerable investments in FDIs and FIIs.
Moreover, one of the key contributors to the services sector is the Indian IT Services sector.
The Indian IT services sector has been there since the early post-independence era. If you see, a
company like Tata Consultancy Services and Infosys were set up in 1968 and 1981, respectively.
However, there was not much contribution then. Then in 1991, the Indian economy opened up and
allowed foreign players to come in. That also provided Indian IT services companies access to find
customers across the seven seas. Indians soon became one of the most favored destinations for
outsourcing IT work. This was primarily due to the following reasons:

● Our education system was in good shape. We had educated and skilled engineers
● English as a language was not a barrier as our engineers spoke well
● Furthermore, the 12-hour time difference means that companies could work round the clock.
Ever since, the Indian IT services industry has seen tremendous growth. So much that India is the
world's largest sourcing destination, accounting for approximately 55 percent of the US$ 185-190
billion market in 2017-18.
Five Forces Analysis of the Indian IT Service Industry

Threat to New Entrants

The threat to new entrants is pretty low in the Indian IT service landscape. One of the primary reasons is
that the deals that come in have a specific ticket size. And not every company will be able to deal with a
project at that scale. Moreover, about 4-5 players have built the capability to deal with multi-million dollar
deals. The startup culture exists, but these startups play in a very niche field. Things like Fintech,
AgriTech to Deep Neural Networks are the areas these startups deal with. So in a way, large corporations
create a barrier to entry, making it difficult for any new entrant to come in and take the project.

Bargaining Power of the Customer

The bargaining power of the customer is high. That is primarily because the Indian IT services companies
can handle work of that nature and size. Though there is only a handful, the customers have a sizable
option to choose from as each company gets something different on the table.

Bargaining Power of the Suppliers

This one can be debatable. For instance, if we talk about software vendors providing licensed software.
These vendors give bulk licenses to the Indian IT services companies, but they are still in a position to
demand a price for the software they provide. On the other hand, you have hardware manufacturers who
cannot be commanding because of the sheer size of orders placed for hardware components. Moreover,
with Cloud services kicking in, this model is got to change.

Industry Rivalry
Industry rivalry is a high force in the Indian IT Services industry landscape. As mentioned, there are only
a handful of large IT services companies, and there is rivalry between them regarding the deals they win,
the market share they grab, and the bottom line they can showcase. This high industry rivalry has also
helped the Indian IT services sector grow as it paved the way for innovation, and each company came up
with innovative solutions.
Threat of Substitutes
At the current economic condition, when the economies of the world are slowing down, there is a high
chance of substitution. Otherworld economies like the Philippines are bidding for IT services projects
globally as they can provide the work at a cost cheaper than the Indians. Also, if you think the companies
giving the projects to the Indian IT services industry can do a backward integration and set up their own IT
solution company. For instance, IBM, Accenture, etc. These companies were primarily consulting
companies, and today they boast their IT solution arm. Both of them have offshore centers to cater to the
world.

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 in emerging technologies like Artificial Intelligence, Machine Learning, Data
Science, etc.