BLUE GROUP ASSIGNMENT SUBMISSION

Section A Group Details

Assignment No 1

Batch IIMP

Session Day Thursday

Group Colour BLUE

Section B Assignment Details

Assignment Topic Strategy, Porter’s Model and its application

Training Topic Strategy

Submission Date & Time Wednesday, September 22, 2010 at 1:00pm

Section C: Group Members

No. Name Div& Roll No. PC PN AB GRADE

1 Atul D. Chavan
2 Shivanthika Murugan
3 Priya Lakhe
4 Rakshika Nagarkar
5 Nilesh R. Pawar
6 Mohd. Sadik Shaikh
7 Pratik Biyani
8 Chetan Madhup
9 Pranabdeo Mangrulkar
Div C; 10 Y A
Div C; 37 Y A
Div A; 36 Y A
Div B; 36 Y A
Div C; 46 Y A
Div C; 52 Y A
Div B; 06 Y A
Y A
Div B; 34 Y A

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 BLUE GROUP-IIMP
ASSIGNMENT NO. 1

‘HOW COMPETITIVE FORCES SHAPE

STRATEGY’

CAREER DEVELOPMENT PROGRAM

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 PART A

MICHAEL PORTER’S MODEL AND ITS APPLICATION ON

THE TRAINING INDUSTRY

Part A

1) Introduction of training industry

2) Michael Porter’s Five Forces Model
3) Application of the model to Training Industry
4) SWOT Analysis
5) Conclusions

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 Introduction of training industry

With the world-wide expansion of companies and changing technologies, Indian

Organizations have realized the importance of corporate training. Training is considered as
more of retention tool than a cost.

Today, human resource is now a source of competitive advantage for all organizations.
Therefore, the training system in Indian Industry has been changed to create a smarter
workforce and yield the best results. With increase in competitio n, every company wants to
optimize the utilization of its resources to yield the maximum possible results.

Training is required in every field be it Sales, Marketing, Human Resource, Relationship

building, Logistics, Production, Engineering, etc. It is no w a business effective tool and is
linked with the business outcome.

Michael Porter’s Five Forces Model

The model of the Five Competitive Forces was developed by Michael E. Porter in his book,
Competitive Strategy: Techniques for Analyzing Industries and Competitors― in 1980. Since
that time it has become an important tool for analyzing an organizations industry structure in
strategic processes.

Porter’s model is based on the insight that a corporate strategy should meet the opportunities
and threats in the organizations external environment.

Especially, competitive strategy should base on and understanding of industry structures and
the way they change. Porter has identified five competitive forces that shape every industry
and every market.

These forces determine the intensity of competition and hence the profitability and
attractiveness of an industry. The objective of corporate strategy should be to modify these
competitive forces in a way that improves the position of the organization. Porters model
supports analysis of the driving forces in an industry.

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Based on the information derived from the Five Forces Analysis, management can decide
how to influence or to exploit particular characteristics of their industry.

Figure 1: Porter's Five Forces Model

Application of the model to the Training Industry

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 THREAT OF NEW ENTRANTS

Power is also affected by the ability of people to enter your market. If it costs little in
time or money to enter your market and compete effectively, if there are few economies of
scale in place, or if you have little protection for your key technologies, then new competitors
can quickly enter your market and weaken your position. If you have strong and durable
barriers to entry, then you can preserve a favorable position and take fair advantage of it.

It is not only the existing firms that can create rivalry but there exists a threat of new
entrants as well. New entrants bring new capacity, the desire to gain market share and
substantial resources.

Easy to enter if there is: Difficult to enter if there is:

Common technology Patented

Little brand franchise Difficulty in brand switching
Assess to distribution channel Restricted distribution channel

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 Barriers to
new
entrants

Product
Economies Differentiatio Capital Distribution Government Experience
of Scale Requirement Channels Policies Curve
n

1) Economies of scale:
It makes barrier to entry by forcing the company either to come in on large
scale or to accept a cost disadvantage. In training industry, the research of need of
clients, marketing the features and content of training courses and services offered by
the company can pose barriers in terms of economies of scales.

2) Product Differentiation:
New entrants need to spend more money to establish its business and to
overcome the customer loyalty which is attached with earlier company. So, the old
company can make barrier by differentiating the product of providing a unique
product.
Product of training companies is mainly the courses which gives clients
knowledge about the subject and train them to use it properly. The prod uct differs
according to the segment in the industry. But it does not have a unique product to
bank upon and provide barriers. Most of the companies have the same technology and
expertise working with them. So there exists hardly any differentiation.

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 3) Capital Requirement:
New entrants need to invest a huge amount of financial resources to compete
with established ones which creates barriers to entry. Large amount of money is
needed to invest to tap the customers in training industry. Many corporate clients has
familiarity with some established ones. So, to break this and compete with them new
entrants need to advertise and carry out promotional activities which require high
capital investment.

4) Distribution Channel:
The well organized distribution channel of established companies can be
barrier for new comers. In training industry, this factor provides barrier for new
entrants. Old companies have well established distribution channel in the form of
structure and more number of centers providing the training facilities compared to
new ones. So, new entrants need to set up distribution channel which is again costly
and it provides barrier to entry.

5) Experience Curve:
According to the concept of experience curve, unit cost in industries decline
with ―Experience‖. Such Cost decline creates barrier to entry because new companies
with no experience face problems such as higher cost of operations. Experience curve
acts as entry barrier in training industry. The established training companies have cost
advantage due to more efficient workforce, facilities, technology support.

6) Government Policies:
Government can limit the entry to industries with controls like licensing,
standards and regulations. National Institute for Small Industry Extension Training
(NISIET), an autonomous arm of the Ministry of Small Scale Industries (SSI), the
Institute strives to achieve its objectives through operations ranging from training,
consultancy, research and education, to extension and information services. It offers
an easy and effective means of achieving broad based ownership of industry, the
diffusion of enterprise and initiative in the industrial field.

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 THREAT OF SUBSTITUTES

Substitutes to the training industry can be

1) Distance education Programs:

The students enroll themselves to distance education programs and they are
provided with notes and other study materials. The students interaction
between the Faculty and peers is minimal.

2) Self learning kits:

People nowadays use the self learning kits which are available in the markets.
Their advantage is that the learning can be done at the pace at which they are
comfortable. E.g.: Personal Finance for dummies, Magic for Dummies etc.

3) Virtual Classrooms:
A virtual classroom is a learning environment created in the virtual space. The
objectives of a virtual classroom are to improve access to advanced
educational experiences by allowing students and instructors to participate in
remote learning communities using personal computers; and to improve the
quality and effectiveness of education by using the computer to support a
collaborative learning process.

4) Hype rtext courses:

Structured course material is used as in a conventional distance education
program. However, all material is provided electronically and can be viewed
with a browser. Hyperlinks connect text, multimedia parts and exercises in a
meaningful way.

5) Video-based courses:
They are like face-to- face classroom courses, with a lecturer speaking and
Powerpoint slides or online examples used for illustration. Video- streaming
technologies is used. Students watch the video b y means of freeware or plug- ins.

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 6) Audio-based courses

They are similar but instead of moving pictures only the sound track of the lecturer is
provided. Often the course pages are enhanced with a text transcription of the lecture.

7) Animated courses:
This is Enhancing the text or audio course material by animations to make it more
interesting .Animations are created using Macromedia Flash or similar technologies.
These animations help understand key concepts and also allow for better retention of
learning.

8) Web-supported textbook:
These courses are based on specific textbooks. Students read and reflect on the
chapters by themselves. Review questions, topics for discussion, exercises, case
studies, etc. are given chapterwise on a website and discussed with the lecturer. Class
meetings may be held to discuss matters in a chatroom, for example.

9) Peer-to-peer courses :
These courses are taught "on-demand" and without a prepared curriculum.

COMPETITIVE RIVALRY WITHIN AN INDUSTRY

1. The major threat to the T&D industry comes from the emergence of new low cost
providers into the industry.
2. There are numerous institutes coming up in cities, which provide Corporate training
and skills like Communication, English Speaking, Personality building etc, at a very
low cost compared to highly professional training courses.
3. The current professional training institutes are continuously trying to gain competitive
advantage and hence are becoming more competitive.
4. Free enormous amount of data and information available on the internet is another
major rival to the T&D industry
5. Concepts like Distance learning/Correspondence courses also pose a challenge, as it
drastically cuts down the number of people that would take up the trainings

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6. The existing T&D industry has to find out newer and innovative ways to sustain as the
geography barriers reduce and increasing penetration of the internet.
Threats:
1. Geographical constraints
2. Need to use expensive high-end technology like Video-conferencing etc
3. Overcoming the language barriers in trainings for MNCs
4. Resources and budgets available:
i. One of the major reasons for why organisations sometimes neglect
T&D, as its very expensive
5. Loss of control in case of outsourcing T&D
6. Measuring the results and changes in the employees after trainings is difficult.

BARGAINING POWER OF SUPPLIERS

The suppliers of the Training Industry are none other than the trainers. To find out whether
they have sufficient bargaining power or not let’s look at the following questions.

1. Is the supplier group dominated by a fe w and is more concentrated than the

industry it sells to?

The suppliers of the training industry are large in number. Many trainers are
available in the industry & they provide training in various fields.

There may be a few well known institutes like KARROX but majority of the
institutes are not known throughout the country. They operate locally i.e. either in one
city or in a state. In almost every city or state, we can find institutes providing
trainings in all the fields.

The supplier group is thus not dominated by a select few except in very
specific areas or fields.

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 2. Is the product offe red unique or at least differentiated, or if it has built up
switching costs?

Many trainers are available in the market specialized in the same field. Hence
in general, the services offered by the trainers are not much differentiated.

There are very few trainers who are known for their experience & knowledge.
For such trainers the organization is known by their name & not vice versa. These
trainers have built up switching costs for them.

3. Are the suppliers obliged to contend with other products for sale to the industry?

There are many suppliers working in the same field. So ma ny a times there is
more than one supplier who would like to serve the industry. At such times the
supplier has to compete with others.

4. Do the suppliers pose a credible threat of integrating forward into the industry’s
business?

Trainers who have gained sufficient experience, knowledge and who are
renowned in the industry do pose a threat of forward integration. These trainers over
the period of years develop a strong goodwill and network in the market. Due to
which it becomes easy to start up a training institute.

5. Is the Training Industry not an important custome r of the supplier group?

Majority of the trainers belong to this industry only. Their main profession is
teaching. So they don’t pose any threat.

Nowadays many working professionals have entered into the training market
as freelancers. These professionals have a job in some other industry but they are also
interested in being a part of training industry. For these trainers the training industry is
not the only customer for their skills & knowledge. If there are trainers in this
category who have built up a switching cost for themselves then they do pose a threat.

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Looking at these questions, we can say that:

1. Suppliers in the training industry are not that powerful.

2. Most of the suppliers are undifferentiated.
3. Very few of them have built up a switching cost for themselves.
4. Those who have built up a switching cost for themselves do pose a threat of forward
integration in the industry.
5. Training Industry is more concentrated and more powerful than the s uppliers.

BARGAINING POWER OF BUYERS/ CUSTOMERS

The more options the buyer has to choose from, the more power the buyer has. New
substitutes and new entrants erode the monopoly that traditional colleges and universities
have enjoyed. Buyer power is also increased to the extent that firms themselves become
suppliers of higher education, as they introduce lifelong learning programs for employees,
reducing the ability of the universities to capture value.

The bargaining power of customers is also described a s the market of outputs: the ability of
customers to put the firm under pressure, which also affects the customer's sensitivity to price
changes.

Power of Buyers - This is how much pressure customers can place on a business. If one
customer has a large enough impact to affect a company's margins and volumes, then the
customer hold substantial power. Here are a few reasons that customers might have power:

• Small number of buyers

• Purchases large volumes

• Switching to another (competitive) product is simple

• The product is not extremely important to buyers; they can do without the product for
a period of time

• Customers are price sensitive

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When analyzing the training industry, some factors may indicate high buyer bargaining
power and some may indicate low buyer bargaining power. It plays an important role in
determining the profit potential.

Buyer Power is High/Strong if Buyer Power is Low/Weak if

Buyers are more concentrated than No Buyers are less concentrated than Yes
sellers sellers

Buyer s witching costs are low No Buyer switching costs are high Yes
Threat of backward integration is No Threat of backward integration is Yes
high low

Buyer is price sensitive No Buyer is not price sensitive Yes

Buyer is well-educated regarding Yes Buyer is uneducated regarding the No
the product product

Buyer purchases product in high No Buyer purchases product in low Yes

volume volume

Buyer purchases comprise large No Buyer purchases comprise small No

portion of seller sales portion of seller sales

Product is undifferentiated No Product is highly differentiated Yes

Substitutes are available No Substitutes are unavailable Yes

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 SWOT ANALYSIS

Strengths Weaknesses

Large number of potential customers

like students, corporate people, Large number of un-informed
institutes etc. customers
Need of trainings is increasing because
of changing environment.

Opportunities Threats

Government offers easy means of The number substitute products and

achieving broad based ownership in the services are more in training industry.
industry Changing technology encourages
increase in demand of buyers

STRATEGIC IMPLICATIONS

Industry analysis, as summarized above, suggests strategic moves that current training
institutions can take to improve performance. The primary observation is that instuties must
recognize and accept that it will be more difficult to compete in the training business in the
future. Further, it would be valuable for training institutes to develop strategies that address
the threat of entry, substitutes, rivalry, and buyer power—the four main drivers of
deteriorating industry structure.

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 Threat of New Entrants Competitive Rivalry

Threat of New Entry Geographical

Expensive to enter
into the industry. constraints
Experience needed
Some Economies Need to use
of scale expensive high-end
No technology
barriers + technology
High barriers language barriers
New entry quite
hard. Resources and
budgets

Competitive
Supplier
Buyers
+ Rivalry -
Power
Power
-

Undifferentiated
Supplier Power TheBuyer
number of Powe r
suppliers
buyers is more
Suppliers not so
powerful Competition in the
Switching cost is industry is more
high Customers
- considers the
value proposition
Threat of Substitute Give more
Distant Learning preference to word
Self Learning Kit of mouth
Virtual Classrooms Buyer power is
Peer-peer Courses more
Threat of Substitute
Threat of
Substitutes exists

The following framework can give a detailed competitive study of the

training industry. By studying each force, we can conclude how strong the force is.
For example, the force: threat of new entrants, the conclusion is new entry is quite
easy. So we have put “+“(Positive sign) indicating the threat of new entrants do not
exists. Similarly we can apply the same to other forces.

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 CONCLUSION

In response to their changing environment, training institutes should identify the full set of
functions, or products and services they offer— Sales, Marketing, Human Resource,
Relationship building, Logistics, Production, Engineering, etc.

The traditional strategic prescription would be to participate only in markets where an

institution’s strengths continue to offer a competitive advantage.

This would lead to concession of entire market segments to new entrants exploiting new
technologies, and a retreat to core educational products that cannot readily be imitated or
substituted.

On the other hand, it could be argued that institutions should embrace the new technologies,
delivery systems, and customer needs that the changing environment is generating by
entering new markets such as distance learning.

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 PART B

Application of Industry Attractiveness Questionnaire to the

Telecom Industry

Part B:

1) Application of model to Telecom industry

2) Conclusion

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 INDUSTRY ATTRACTIVENESS

1. What is the weighted average ROCE (Return on Capital Employed) in your

industry over the past five years?

Score: 16.38

Reason:

Average of ROCE for Companies

Companies Average Market Share Weight

Airtel 28.33 21.34% 44
Reliance 4.80 17.37% 31
Communication
Idea 10.80 10.84% 16
MTNL 7.77 0.81% 9

After assigning weights we got the Average weighted ROCE by using Formula.

2. What is the trend in ROCE over the past five years?

Score: (a) Falling – no points

Reason:

Trend of Major Companies in Telecom Industry:

2006 2007 2008 2009 2010

Airtel 22.89 34.22 32.15 28.60 23.82
Reliance Communication 0.16 9.23 8.66 3.74 2.20
Idea 8.96 11.33 15.57 9.79 8.32
MTNL 11.65 6.25 9.02 6.90 5.03

35
30
25 Airtel
20
15 Reliance Communication
10 Idea
5 MTNL
0
2006 2007 2008 2009 2010

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 3. How substantial are the barriers stopping ne w entrants to the industry?

Score: (d) Very high barriers – 10 points

Reason:

Huge License Fees to be paid upfront & High gestation period.

Infrastructure Setup Cost – High.
Rapidly changing technology.
Setting of towers at various locations is very difficult.
Highly Skilled labours are required.

4. What is your best estimate of the next five years’ average annual market
growth?

Score: (d) Over 10 % - 10 points

Reason:

Yearly cell phone addition 178.25 million Jan-Dec 2010.

Monthly cell phone addition 17 million (July-2010)
Current Teledensity - 58.17%
Expected Teledensity – 84% i.e., 1 billion by 2012

5. What is the current balance in the industry between customer demand, and the
total industry capacity?

Score: (a) There is serious industry over capacity, and no plans to remove it – minus 20
points

Reasons:

Service Providers started offering Sim cards for free.

Individuals started owning 2-3 Sim cards without any problem.
No shortage by network providers irrespective of the demand.
Excess focus on urban market, which led to untapped customer base of rural
areas.

6. What is the threat from substituting products, services or technologies?

Score: (d) Threats do not appear to exist & unlikely – no points

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 7. What relative bargaining powe r do the industry’s suppliers have?

Score: (d) The industry is more concentrated and more powerful than suppliers and can
dictate terms to them – 10 points

Reason:

Network Outsourcing and Maintenance

Vast number of Service Provider.
Not much distinction between the products or services provided by the supplier.
Outsourcing Deals - Call Centres, Tower Business

8. What relative bargaining powe r do the industry’s customers have?

Score: (a) The customers are more concentrated and powerful: no points

Reason:

Low Switching Costs

Cut throat Competition
Lack of differentiation among Service Providers
Easy availability of the product.

Conclusion:
Total Score: 26.38
Thus,

Score (26 to 50): The industry is not very attractive, but it is possible for segment leaders and
very well run firms to make a living

Range Of Scores:

Negative Score (-1 to -40): try to get out of the industry. If you are still reporting profits or any one is
foolish enough to buy the business, sell.

Score (0 to 25): This is an unattractive industry. If you are not the market leader, sell the business.

Score (26 to 50): The industry is not very attractive, but it is possible for segment leaders and very
well run firms to make a living

Score (51 to 60): The industry is slightly attractive or unattractive. Competitive position is all.

Score (61 to 75): The industry is attractive. If you are in it, consolidate your position and gain or
maintain leadership. If not, consider entry if it is adjacent to your business and you have the expertise
or can share costs with your existing business.

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Score (over 75): The industry is unusually attractive. If you are in it, invest heavily for leadership. If
you are not in it, you may find it difficult to enter without acquisition, but if there is a suitable way in,
take it with both

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