Understanding the competitive forces, and their underlying causes, reveals the roots of an industrys

current profitability while providing a framework for anticipating and influencing competition (and
profitability) over time. A healthy industry structure should be as much a competitive concern to
strategists as their companys own position. Understanding industry structure is also essential to
effective strategic positioning. As we will see, defending against the competitive forces and shaping
them in a companys favor are crucial to strategy.

Porters 5 Force Model is a framework that one can use for initial analysis of an industry or a sector.

It is quantitative analysis to help us understand whether how competitive the

industry is , in other words, how profitable it is to be in it.
This frame work helps in taking strategic decision about entering or exiting the
industry.

We shall focus on whether Power Industry is feasible to be in or not.

6th force Complimentor - Govt

A. Threat of new Entrants Difficult
Even though there was Electricity Act 2003, 100% FDI was allowed; still
foreign players are pretty hesitant to invest
Prime reason: Govts is slow in dealing with structural issues, and issues
with infrastructure like railways and water supply.
The growth used to be restricted in past because of lack of generation
capacities, or lack of funds with State Govts.
But now the growth can be shunted because of the weak financial position
of the market.
Growth is around 6.2% compared to 10% that it was earlier, GDP and
economy of the country matters too.
1. The existence of barriers to entry (patents, rights, etc.) Barriers Entry and Exit: BOTH HIGH.
Even Poor Performers keep fighting for the
2. Economies of product differences - NILL
3. Brand equity
4. Switching costs or sunk costs VERY HIGH
5. Capital requirements - HIGH
6. Expected retaliation

7. Access to distribution
8. Customer loyalty to established brands - HIGH
9. Absolute cost - HIGH
10. Industry profitability LOW. Most of them are running in Loss

B. Threat of Substitute Products or Services LOW

National Electricity Policy of 2005 Sets Priority on Hydropower,highlights the need for increased use
natural gas, nuclear power over thermal

Buyer propensity to substitute LOW. But we can say Thermal Plants shall be replaced by
Nuclear/Renewable Sources like Solar, Wind, Tidal etc

Relative price performance of substitute

Buyer switching costs - HIGH

Perceived level of product differentiation - LOW

Number of substitute products available in the market - FEW

Ease of substitution. : DIFFICULT

Substandard product: Govt to Private, more reliable.

Quality depreciation: Usually Low.

C. Bargaining Power of Customers (Buyers) - LOW

Buyer concentration to firm concentration ratio - HIGH

Degree of dependency upon existing channels of distribution VERY HIGH

Bargaining leverage, particularly in industries with high fixed costs - LOW

Buyer switching costs relative to firm switching costs

Buyer information availability: MEDIUM

Force down prices: FIXED PRICE

Availability of existing substitute products:

Buyer price sensitivity: LOW

Differential advantage (uniqueness) of industry products: NILL

RFM (customer value) Analysis: NA

D. Bargaining Power of Suppliers: MEDIUM BUT Uniform for almost all Power Manufacturers

Supplier switching costs relative to firm switching costs

Degree of differentiation of inputs

Impact of inputs on cost or differentiation

Presence of substitute inputs

Strength of distribution channel

Supplier concentration to firm concentration ratio

Employee solidarity (e.g. labor unions)

Supplier competition - ability to forward vertically integrate and cut out the BUYER

E. Intensity of Competitive Rivalry

Since its a HIGH ENTRY HIGH EXIT, still people bid aggressively
This is because it is low risk, stable earning kind of a sector.
Privatization meant that people started bidding very low, it could come down to anything between 25
30% of prices at which tenders were given.
This has made the market very competitive, and thus non lucrative for other sectors to come in.

The 6th elt Complementors Usually Govt.plays important.

Sustainable competitive advantage through innovation Reliance Power Plant in Goa

claimed that their power was more sinusoidal than what came from State Electricity board, this
made clients feel their machines would run better on Reliance Power and hence they could sell it,
even though they used to charge 9 INR/Unit and Govt was charging only 2 or 3 INR/Unit.

Competition between online and offline companies

Level of advertising expense

Powerful competitive strategy Govt Regulations

Firm concentration ratio

The Indian market has seen healthy growth in recent years with the exception of 2010 when it
declined. The electricity market is expected to grow further in terms of value with moderate but rather
steady growth rates throughout the years up to 2016.
The Indian electricity market had total revenues of $77.9 billion in 2011, representing a compound
annual growth rate (CAGR) of 5.2% between 2007 and 2011.
In comparison, the Chinese and Japanese markets grew with CAGRs of 14.5% and 1.3%
respectively, over the same period, to reach respective values of $425.8 billion and $170.8 billion in
2011.
The performance of the market is forecast to decelerate, with an anticipated CAGR of 4.7% for
the five-year period 2011 - 2016, which is expected to drive the market to a value of $97.7 billion by
the end of 2016.
The Electricity Act of 2003 makes provisions for 100% FDI in the Indian power sector under an
automatic approval scheme and offers incentives such as 16% assured post-tax return on equity in
current dollars and a five-year tax holiday.
In spite of this, FDI inflows in power have been very moderate and have not shown a trend to increase
over the years. Indias total FDI inflows are about a fourth of those of China.
According to comments by Indias largest thermal power producer NTPC, the low FDI inflow in the
power sector is indicative of concerns of the foreign investors over the governments slow
progress in dealing with the sectors structural problems.
According to Economywatch.com, factors deterring foreign investment in India include unevenly
developed physical infrastructure which results in investments flowing to certain states, but not to
others, the slow development and improvement of railways as well as water supply issues.

WHY SHORTFALLS in Capacity - This shortfall is the result of roadblocks in

achieving fuel linkages, poor financial health of State electricity boards (SEBs),
challenges in achieving financial closure owing to delays in clearances and land
acquisition issues.
The government launched the Restructured Accelerated Power Development and
Reforms Programme (R-APDRP) in July 2008 as
a successor to the earlier scheme of Accelerated Power Development and
Reforms Programme (APDRP) . The R-APDRP program focuses on establishment
of base line data, increasing accountability in the system, reduction of AT&C
losses upto 15% level through strengthening & up-gradation of sub-transmission
and distribution network and adoption of Information Technology.

Currently, the ceiling on the margin stands at 4 paise per unit for power
being sold at rates up to Rs 3 per unit and at 7 paise for power being
sold at rates above Rs 3 per unit.
Reforms undertaken:
1. Unbundling and privatisation: Generation, transmission, distribution
and marketing have all been unbundled and separate entities have
been set up to manage each function. Following the restructuring,
electricity assets have been privatised (largely through a public
bidding process).
2. Deregulation of the industry: Suppliers have been allowed to set
tariffs, and consumers have been permitted to choose their
electricity suppliers.
3. Creation of a competitive market in power generation and
marketing.
4. Opening up of the domestic electricity markets to foreign
investment.
5. Creation of electricity pools and independent system operators.