CHAPTER I - INDUSTRY ANALYSIS
1.1 Competition in the industry: HIGH
The intensity of rivalry competitors in an industry refers to the extent to which firms within an industry put pressure on one another and limitseach other’s profit potential. According to porters 5 forces industry analysis framework, the intensity of rivalry among existing firms is one of the forces that shape the competitive structure of an industry. It depends on different factors such as Number of competitors, Industry growth, Degree of differentiation, exit barriers, Client’s switching cost. Looking at each of them:
1.1.1. Number of competitors - Software industry consists of numerous players, because of the rivalry will be more intense. Presence of a large number of players in industry leads to competition and rivalry among companies. Threat from rivalry and competition poses a threat to domestic companies.
1.1.2. Industry growth - Indian software industry has registered a strong rate in the past few years. Outsourcing has played a major role in the growth of Indian software industry. Software export has registered a very strong annual average growth rate of 45%during past years. Software industry is one of fastest growing industry in India.
1.1.3. Degree of differentiation - Industry’s offerings are undifferentiated which leads to high rivalry. Industry players are providing equivalent after sales services, which includes installation, training etc. 1.1.4. Exit barriers - Exit barriers for existing software companies are low as the initial capital requirement is low in software industry.
1.1.4. Client’s switching cost- When clients switching cost is low, industry rivalry is more intense. Clients are articulate for their need and generally ask for customized product. So switching from one product to another is not taken place generally and if they switch, they generally go for the software which suits to their current platform and configuration and prefer the same vendor. So, for customized software, clients switching cost is low. Competitors of Mahindra Satyam in different categories are: * Tata Consultancy Services
* HCL Technologies
1.2. Potential of new entrants into industry: MEDIUM
As evidenced by the huge number of players in the Software field, barriers to entry are very low. Costs of developing a product are relatively low, and a few thousand dollars are all that may be needed to create a product and step into the market.Factors influencing potential of new entrants are differentiation, brand establishment, initial capital investment, and economies of scale.
1.2.1. Differentiation: Highly differentiated products or well-known brand names are both barriers to entry that can lower the threat to new entrants.Differentiation can be done in many ways but it’s costly for thecompany. Industry offerings are undifferentiated which leads to highrivalry. Industry players are providing equivalent after sale services,which includes installation, training etc.
1.2.2. Brand establishment: In software industry, branded products do not have any impacton client’s requirement. Thus, brand establishment is low & whichmakes low barrier for new entrants.
1.2.3.Initial capital investment:Initial capital investment is low in establishing new company insoftware industry. Software industry is based on intellectual property &thus it does not require higher capital investment.
1.2.4. Economies of scale: Due to financial crisis, many companies share their human resource skill to handle more than one project. By resource sharing they develop more software products. Thus an economy of scale is moderate. Another reason for high threat of new entrants is favorable government policies. Location is one of the favorable factors as such location does not have any major impact on software development &target market. 1.3. Power of suppliers: LOW
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