PORTERS FIVE FORCES MODEL:

According to Michael E. Porters five forces model, the

business environment of an industry consists of five forces
that together decide the intensity and attractiveness of the
industry: the bargaining power of customers, threat of new
entrants, bargaining power of suppliers, competitive rivalry
within the industry and threat of substitute products.
Porters Five Forces analysis 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 maximise
profitability.
Two competitive forces competitive rivalry within the
industry and bargaining power of customers will be
elaborated.
1) Competitive rivalry within the industry:
Infosys founder N.R.Narayana Murthy in 1981, i.e. long
before software development industry became mature and
attractive enough for any Indian firm to enter into the
industry, had recognized the trend that the US based IT
service industry will be transferred to India because of the
Indias large pool of strong technical talents. When the US
Technology market ran into a period of slump, Murthy
determined that the competition from sinking IT service
industry will be reduced because of its high cost and the
competitive intensity from the developing countries will
show up in the coming years. In one of his letter to
shareholders, he predicted that India is all set to
consolidate its position as a major force on the global IT
service map to persuade the shareholders in supporting his
strategy to expand the business in term of difficulties.
The IT Industry landscape is characterised by intense
completion for conventional IT services: Application
Development & Maintenance, IT Infrastructure
Management Services, Network Management Services, and

Data-center Services etc. leading therefore

to commoditization. There are several firms in the market
offering similar services and it is difficult to
differentiate based on these service offerings. The existing
competition comes from both domestic players (TCS,
Wipro, HCL technologies, Tech Mahindra, Mindtree etc.) and
international ones (IBM, Accenture, Capgemini, Cognizant
etc.).

2) Bargaining power of customers:

For conventional IT services mentioned above, bargaining
power of the buyer is large and there is also a possibility of
pressure on rates. The buyer, having worked with both the
international IT providers as well as the Indian IT providers
is largely the price setter and has negated (to a large
extent) the offshore advantages through mature
procurement and global delivery. The international IT firms
too have negated the advantage enjoyed by Indian IT
companies through captive centres in India and also
globally. In this industry, in case of conventional IT services,
the buyer is king!
In case of non-conventional services, i.e. those that cater to
emergent technologies and technology trends (in Data
Analytics or Enterprise Mobility for instance) there is
potential for differentiation and higher margins. Also this is
the case for non-conventional, partnership-style
engagements where both risk and rewards are higher.
In terms of bargaining power of customers, because of the
increasing low cost IT service in the developing countries
such as Indonesia, it is at a trend of growing which can be
seen from the growing of the high end customized IT
service such as the consulting service and package
implementation. In recognition of the growing bargaining

power from the customers, Infosys have put more and

more effort on the customized and integrated service.