Software Companies in India

It's the technological revolution that at times brings surprising opportunities for some
nations. India, though not among the front runners in terms of economic growth, has
successfully utilized such opportunities in the revolution to become an IT hotspot. For the
past several years, India has been an increasingly favored destination for customized
software development. As a result, a number of software companies in India have come
up. Not only the number of players has increased in the Indian IT market, but at the same
time, Indian software companies have done considerably well in the global market. Such
huge success of software companies in India has given birth to a new speculation –
whether other developing countries should imitate Indian example and whether the
success of India would constitute a competitive challenge to the software industry of the
developed world or not.

The Software Industry in India

With the huge success of the software companies in India, the Indian software industry in
turn has become successful in making a mark in the global arena. This industry has been
instrumental in driving the economy of the nation on to a rapid growth curve. As per the
study of NASSCOM-Deloitte, the contribution of IT/ITES industry to the GDP of the
country has soared up to a share of 5% in 2007 from a mere 1.2% in 1998. Besides, this
industry has also recorded revenue of US$ 64 billion with a growth rate of 33% in the
fiscal year ended in 2008.

The export of software has also grown up, which has been instrumental in the huge
success of the Indian software companies as well as the industry. In fact, software export
from India accounts for more than 65% of the total software revenue. The domestic
software market largely depends upon sale of software packages and products, which
constitute major part of revenues. Products account for almost 40% of the domestic
market. On the other hand, more than 80% of revenue from software exports comes from
software services like custom software development and consultancy services etc.

Reasons behind Success of Indian software companies

There are a number of reasons why the software companies in India have been so
successful. Besides the Indian software companies, a number of multinational giants have
also plunged into the India IT market.

India is the hub of cheap and skilled software professionals, which are available in
abundance. It helps the software companies to develop cost-effective business solutions
for their clients. As a result, Indian software companies can place their products and
services in the global market in the most competitive rate. This is the reason why India
has been a favorite destination for outsourcing as well. Many multinational IT giants also
have their offshore development centers in India.
IT Business Sectors

Most of the software companies in India are into varied types of business. There can be
several types of business in the IT sectors:
• Infrastructure Software: These include OS, middleware and databases.
• Enterprise Software: These automate business process in diverse verticals like
finance, sales and marketing, production and logistics.
• Security Software
• Industry-specific Software
• Contract Programming

Top Software Companies in India

There are plenty of software companies in India which have been doing well. However,
some of the top Indian software companies can be listed as:
• Tata Consultancy Services
• Wipro Limited
• Infosys
• HCL Technologies
• Tech Mahindra
• Patni Computer Systems
• i-flex Solutions
• MphasiS
• L&T Infotech
• IBM India

Software Companies in India

o Aditya Technologies Pvt Ltd
o Asset Infotech Ltd
o Atari Informatics Ltd
o Baan Info Systems India P Ltd
o HCL Infosystems Ltd
o Hexaware Technologies Ltd
o Iflex Solutions Ltd
o Igate Global Solutions Ltd
o Infosys Technologies Ltd
o Larsen & Toubro Ltd
o Mastek Ltd
o NIIT Ltd
o IBM India
o Aftek
o Nucleus Software
o Vakrangee Softwares
o Cybertech Systems
o Eonour Technologies Ltd
o Patni Computer Systems (P) Ltd
 o Polaris Software Lab Ltd
o B-commerce Infosystems Pvt Ltd
o Cerulean Information Tech. Pvt Ltd
o CMC Ltd
o CMS Computers
o HCL Corporation Ltd
o Satyam Computer Services Ltd
o Tata Consultancy Services
o Tata Infotech Ltd
o Wipro Ltd
o Cranes Software
o Geometric Software Solution
o Computech International
o Encore Software
o DSQ Software
o Digital Globalsoft
o Danlaw Technologies

Porter's 5 Forces analysis

There is continuing interest in the study of the forces that impact on an organisation, particularly
those that can be harnessed to provide competitive advantage. The ideas and models which
emerged during the period from 1979 to the mid-1980s (Porter, 1998) were based on the idea
that competitive advantage came from the ability to earn a return on investment that was better
than the average for the industry sector (Thurlby, 1998).

As Porter's 5 Forces analysis deals with factors outside an industry that influence the nature of
competition within it, the forces inside the industry (microenvironment) that influence the way in
which firms compete, and so the industry’s likely profitability is conducted in Porter’s five forces
model. A business has to understand the dynamics of its industries and markets in order to
compete effectively in the marketplace. Porter (1980a) defined the forces which drive competition,
contending that the competitive environment is created by the interaction of five different forces
acting on a business. In addition to rivalry among existing firms and the threat of new entrants
into the market, there are also the forces of supplier power, the power of the buyers, and the
threat of substitute products or services. Porter suggested that the intensity of competition is
determined by the relative strengths of these forces.

Main Aspects of Porter’s Five Forces Analysis

The original competitive forces model, as proposed by Porter, identified five forces which would
impact on an organization’s behaviour in a competitive market. These include the following:

• The rivalry between existing sellers in the market.

• The power exerted by the customers in the market.
• The impact of the suppliers on the sellers.
• The potential threat of new sellers entering the market.
• The threat of substitute products becoming available in the market.

Understanding the nature of each of these forces gives organizations the necessary insights to
enable them to formulate the appropriate strategies to be successful in their market (Thurlby,
1998).

Force 1: The Degree of Rivalry

The intensity of rivalry, which is the most obvious of the five forces in an industry, helps determine
the extent to which the value created by an industry will be dissipated through head-to-head
competition. The most valuable contribution of Porter's “five forces” framework in this issue may
be its suggestion that rivalry, while important, is only one of several forces that determine industry
attractiveness.

• This force is located at the centre of the diagram;

• Is most likely to be high in those industries where there is a threat of substitute products; and
existing power of suppliers and buyers in the market.

Force 2: The Threat of Entry

Both potential and existing competitors influence average industry profitability. The threat of new
entrants is usually based on the market entry barriers. They can take diverse forms and are used
to prevent an influx of firms into an industry whenever profits, adjusted for the cost of capital, rise
above zero. In contrast, entry barriers exist whenever it is difficult or not economically feasible for
an outsider to replicate the incumbents’ position (Porter, 1980b; Sanderson, 1998) The most
common forms of entry barriers, except intrinsic physical or legal obstacles, are as follows:

• Economies of scale: for example, benefits associated with bulk purchasing;

• Cost of entry: for example, investment into technology;
• Distribution channels: for example, ease of access for competitors;
• Cost advantages not related to the size of the company: for example, contacts and expertise;
• Government legislations: for example, introduction of new laws might weaken company’s
competitive position;
• Differentiation: for example, certain brand that cannot be copied (The Champagne)

Force 3: The Threat of Substitutes

The threat that substitute products pose to an industry's profitability depends on the relative price-
to-performance ratios of the different types of products or services to which customers can turn to
satisfy the same basic need. The threat of substitution is also affected by switching costs – that
is, the costs in areas such as retraining, retooling and redesigning that are incurred when a
customer switches to a different type of product or service. It also involves:

• Product-for-product substitution (email for mail, fax); is based on the substitution of need;
• Generic substitution (Video suppliers compete with travel companies);
• Substitution that relates to something that people can do without (cigarettes, alcohol).

Force 4: Buyer Power

Buyer power is one of the two horizontal forces that influence the appropriation of the value
created by an industry (refer to the diagram). The most important determinants of buyer power
are the size and the concentration of customers. Other factors are the extent to which the buyers
are informed and the concentration or differentiation of the competitors. Kippenberger (1998)
states that it is often useful to distinguish potential buyer power from the buyer's willingness or
incentive to use that power, willingness that derives mainly from the “risk of failure” associated
with a product's use.

• This force is relatively high where there a few, large players in the market, as it is the case with
retailers an grocery stores;
• Present where there is a large number of undifferentiated, small suppliers, such as small
farming businesses supplying large grocery companies;
• Low cost of switching between suppliers, such as from one fleet supplier of trucks to another.

Force 5: Supplier Power

Supplier power is a mirror image of the buyer power. As a result, the analysis of supplier power
typically focuses first on the relative size and concentration of suppliers relative to industry
participants and second on the degree of differentiation in the inputs supplied. The ability to
charge customers different prices in line with differences in the value created for each of those
buyers usually indicates that the market is characterized by high supplier power and at the same
time by low buyer power (Porter, 1998). Bargaining power of suppliers exists in the following
situations:

• Where the switching costs are high (switching from one Internet provider to another);
• High power of brands (McDonalds, British Airways, Tesco);
• Possibility of forward integration of suppliers (Brewers buying bars);
• Fragmentation of customers (not in clusters) with a limited bargaining power (Gas/Petrol
stations in remote places).

The nature of competition in an industry is strongly affected by suggested five forces. The
stronger the power of buyers and suppliers, and the stronger the threats of entry and substitution,
the more intense competition is likely to be within the industry. However, these five factors are not
the only ones that determine how firms in an industry will compete – the structure of the industry
itself may play an important role. Indeed, the whole five-forces framework is based on an
economic theory know as the “Structure-Conduct-Performance” (SCP) model: the structure of an
industry determines organizations’ competitive behaviour (conduct), which in turn determines
their profitability (performance). In concentrated industries, according to this model, organizations
would be expected to compete less fiercely, and make higher profits, than in fragmented ones.
However, as Haberberg and Rieple (2001) state, the histories and cultures of the firms in the
industry also play a very important role in shaping competitive behaviour, and the predictions of
the SCP model need to be modified accordingly.

How to write a Good Porter's 5 Forces analysis

The Porter’s Five Forces model is a simple tool that supports strategic understanding
where power lies in a business situation. It also helps to understand both the strength of a
firm’s current competitive position, and the strength of a position a company is looking to
move into. Despite the fact that the Five Force framework focuses on business concerns
rather than public policy, it also emphasizes extended competition for value rather than
just competition among existing rivals, and the simpleness of its application inspired
numerous companies as well as business schools to adopt its use (Wheelen and Hunger,
1998).
With a clear understanding of where power lies, it will enable a company to take fair
advantage of its strengths, improve weaknesses, and avoid taking wrong steps. Therefore,
to apply this planning tool effectively, it is important to understand the situation and to
look at each of the forces individually.

In conducting an analysis of Porter’s Five Forces, it is required to brainstorm all relevant

factors for the company’s market situation, and then check against the factors presented
for each force in the diagram above. The next step is to highlight the key factors on a
diagram, and summarize the size and the scale of the force on the diagram. It is suggested
to use signs, as for instance, “+” and “--" signs for the forces moderately in company’s
favor, or for a force strongly against.

After identifying favourable and unfavourable forces for the company’s performance and
industry’s attractiveness, it is important to analyse the situation and examine the impacts
of the forces. One of the critical comments made of the Five Forces framework is its
static nature, whereas the competitive environment is changing turbulently. Are the five
forces able to foresee industry expansion? Is it the corporate strategist's goal to find a
position in the industry where his or her company can best defend itself against these
forces or can influence them in its favour, or is the goal to become part of the ongoing
commerce with the intention to produce innovative ideas that will expand the size of the
industry? Is it true that the environment poses a threat to the organisation, leading to the
consideration of suppliers and buyers as threats that need to be tackled, or does it offer
the ground for a constitutive industry player co-operation?

By thinking through how each force affects a company, and by identifying the strength
and direction of each force, it provides with an opportunity to identify the strength of the
position and the ability to make a sustained profit in the industry (Mind Tools, 2006).

Limitations of Porter’s Five Force Model

Porter’s model is a strategic tool used to identify whether new products, services or
businesses have the potential to be profitable. However it can also be very illuminating
when used to understand the balance of power in other situations.

Porter argues that five forces determine the profitability of an industry. At the heart of
industry are rivals and their competitive strategies linked to, for example, pricing or
advertising; but, he contends, it is important to look beyond one’s immediate competitors
as there are other determines of profitability. Specifically, there might be competition
from substitutes products or services. These alternatives may be perceived as substitutes
by buyers even though they are part of a different industry. An example would be plastic
bottles, cans and glass bottle for packaging soft drinks. There may also be potential threat
of new entrants, although some competitors will see this as an opportunity to strengthen
their position in the market by ensuring, as far as they can, customer loyalty. Finally, it is
important to appreciate that companies purchase from suppliers and sell to buyers. If they
are powerful they are in a position to bargain profits away through reduced margins, by
forcing either cost increases or price decreases. This relates to the strategic option of
vertical integration, when the company acquires, or mergers with, a supplier or customer
and thereby gains greater control over the chain of activities which leads from basic
materials through to final consumption (Luffman and et al., 1996; Wheelen and Hunger,
1998).

It is important to be aware that this model has further limitations in today's market
environment; as it assumes relatively static market structures. Based originally on the
economic situation in the eighties with its strong competition and relatively stable market
structures, it is not able to take into account new business models and the dynamism of
the industries, such as technological innovations and dynamic market entrants from start-
ups that will completely change business models within short times. For instance, the
computer and software industry is often considered as being highly competitive. The
industry structure is constantly being revolutionized by innovation that indicates Five
Forces model being of limited value since it represents no more than snapshots of a
moving picture. Therefore, it is not advisable to develop a strategy solely on the basis of
Porter’s models (Kippenberger, 1998; Haberberg and Rieple, 2001), but to examine it in
addition to other strategic frameworks of SWOT and PEST analysis.

Nevertheless, that does not mean that Porters theories became invalid. What needs to be
done is to adopt the model with the knowledge of their limitations and to use them as a
part of a larger framework of management tools, techniques and theories. This approach,
however, is advisable for the application of every business model (Recklies, 2001).

Porter's Six Forces model and its relationship to the standard Five Forces
model

Porter’s Five Forces model actually has an extension referred to as Porter’s Six Forces
model. It is considerably less popular than the Five Forces model as its acceptance has
been less positive than the Five Forces model. The Six Forces model though is very
similar to the Five Forces model with the only difference being the addition of the sixth
force in the framework. This sixth force in the model is termed as the relative power of
other stakeholders, and can refer to a number of other groups or entities, depending
on the factor which has the greatest influence including:
• Complementors – One school of thought looks at the sixth force to be
complementors, which are businesses offering complementary products to the sector in
focus and being analysed (Grove 1996). The author states that these complementary
businesses, as a sixth factor, affect the industry as changes in these businesses (such as
new techniques, approaches or technologies) can impact on the dynamics between the
industry and the complementors.
• The government – The sixth force in the framework can also be considered to be the
government, and is included in the framework if it has potential to impact on all the other
five forces (Gordon, 1997). Thus, the government can have direct impact in the industry
as the sixth force, but can also have indirect impact or influence by affecting the other
five forces, whether favourably or unfavourably.
• The public – Yet other viewpoints look at the public as the sixth force in the model,
particularly if the public has a strong influence in the dynamics of the sector resulting in
changes to the other forces or in the sector as a whole.
• Shareholders – This group can also be considered potentially as the sixth force. This
is more important in recent years where shareholder activity has increased significantly in
the boardroom, and management of firms has been scrutinised much more and even given
‘threats’ if certain actions favoured by the shareholders were not pursued.
• Employees – Employees could also be considered as the sixth force if they wielded
extraordinarily strong influence on the firm in a particular sector. The status of employees
seems to follow similar rules in certain sectors, and thus could be considered a strong
influence in these sectors. For example, in the automobile sector in the US, a large part of
the work force are unionised, and thus could be considered the sixth force instead of the
government or complementors.

While a sixth force has been added to Porter’s original Five Forces model, the acceptance
of this framework has been somewhat limited. This could be for two reasons. First, is that
there is no definite and specific sixth force in all sectors, as it is different for each sector.
Second, while a sixth force could be defined for all sectors, the influence of this factor
can also be captured in the other five forces and thus the necessity of having it in the
framework is less compelling.

Where to find information for Porter's 5 Forces analysis

In conducting the analysis it is crucial to examine the existing literature:

• Periodicals, business articles on the industry performance, etc;

• Analyst reports and trade organisations;
• Company annual reports and its publications on the main suppliers an distribution
network;
• Anything that will give the exposure to the market situation, competitors present in the
market, new emerging companies in the industry.
It is important to make sure that the sources are reliable and relevant to the current
condition of the industry. It has to be viable, reliable and valid, in order to make conduct
a good analysis of the model. For this purpose, the gathered data and information has to
be checked and be applied to the current business conditions. Further limitations could be
present in the nature of market forces that reduce the applicability of the information
sources to present situations; and the amount of detailed information required. This can
be prohibitive to its practical use. For example, the level of competitor information
required is very detailed and may not always be available.

Conclusion

Any company must seek to understand the nature of its competitive environment if it is to
be successful in achieving its objectives and in establishing appropriate strategies. If a
company fully understands the nature of the Porter’s five forces, and particularly
appreciates which one is the most important, it will be in a stronger position to defend
itself against any threats and to influence the forces with its strategy. The situation is
fluid, and the nature and relative power of the forces will change. Consequently, the need
to monitor and stay aware is continuous.

Some issues during the implementation of these Five Forces are crucially important for
organizations to build long-term business strategy and sustaining competitive advantages
rather than simply list the forces. Successful use of the Porter Model Analysis includes
identifying the sources of competition, the strength and likelihood of that competition
existing, and strategic recommendations for the action a company should take to in order
to develop barriers to competition.