Industry Structure

Industry level Analysis

The Industry Structure

No of Players As per Capitaline: 11 Players

Total market size As per Capitaline: 5 Players

Nature of competition: OLIGOPOLY

Differentiation practiced by various players: Pricing Product differentiation

The Spectrum of Industry Structures

Concentration- Few Firms Entry and Exit Barriers-Significant

Barriers Product Differentiation- High Information- imperfect information

flow.

Oligopoly competition

Conduct and Practices

Industry and Firm level Analysis

Industry Conduct

A) INDUSTRY AND FIRM-LEVEL PRACTICES

Pricing: Price planning that takes into view

factors such as a firm's overall marketing objectives, consumer demand, product attributes, competitors' pricing, and market and economic trends.

Pricing strategies

Pricing strategies are one of the most important challenges and decisions for today's IT service providers.

CONT…..

Pricing strategies for IT services have traditionally focused on:

Covering costs. Achieving desired margins . Meeting the competition.

CONTI…

In order to be successful in today's competitive business world, the service providers need to define their pricing strategies by considering the customer's perceived value from the service they receive rather than using traditional cost-based pricing strategies.

PRICING STRATIGES FOLLOWED

EARNED VALUE CONCEPT: Earned value is a related cost-based concept that is used for

trailing a software's adherence to the original project budget.

COST-BASED CONCEPTS OF VALUE The conventional software pricing model addresses

customer value which is often calculated as profit. Profit is figured out by deducting the software's development cost from its price (i.e., the total value to the customer).

 

CONTI…..

COST-BASED SOFTWARE PRICING Pricing disputes is the most quarrelsome issues that arise

between software vendors and their customers. Pricing resistance originates from high software prices and perceptions that the vendor puts its own interest ahead of those of the customers.

  FLAT PRICING Users pay a fixed price for limitless usage of software

product. This idea enables customers to more easily know in advance for what they will pay for the software usage. The fixed price is usually restricted to a specific user or machine

CONTI…

TIERED-PRICING Tiered-pricing tries to package software benefits according to

user necessities and their willingness to pay.

USER-BASED PRICING This is another cost-based pricing method that have the

tendency to benefit the vendor more than the user by maximizing license fee revenues.

CONTI…

PER-USER PRICING These are prices to the individual user who in a typical

manner can use the product on an unlimited basic for the term of the license . The price is basically set on assumptions about product costs and customers usage.

HIGH WATER MARK PRICING In this charges are based on the maximum number of parallel users over a given time frame. 

CONTI….

PER CLIENT PRICING This is similar to per user pricing, except that the license is

designated to the workstation and can be used by a assigned number of users

USAGE-BASED PRICING In usage-based pricing customers pay only for what they

actually use on a transaction basis. This model is also known as network-based pricing model. It is often connected with an application service provider.

CONTI….

VALUE-BASED PRICING The answer to value-based pricing favorable outcome is the

recognition that the price the customer is willing to pay depends on the customer's value requirements, not the vendor's. Buyers make decision about benefits and prices and select those products that maximize their perceived values.

PENETRATION PRICING STRATEGIES

The penetration strategies aims market segments where buyers have a high level of price sensitivity Price-sensitive buyers in a typical manner have low reservation prices.

CONTI…..

LOW-PRICE LEADER low-price leader aims buyers with low reservation prices. This

idea targets the mass-market buyers with reasonable features at a low price. The competing pricing objective recognizes that the market has reached maturity.

BUNDLING This strategy have more than one applications that are

packaged together and priced as a single product. It also aims buyers with low reservation prices

CONTI….

SKIM-PRICING STRATEGIES Skim strategies aim buyers that are relatively insensitive to

price These strategies have high search costs

PRICE SIGNALING This idea is often used for segment differential pricing of new

products where time is a main factor in the decision process.

CONCLUSION

As software markets have become more competitive and buyers are faced with more options, cost-based pricing models that ignore customer-value necessities can no longer assure a favorable rate of return to the soft ware marketer.

A systematic analysis of customer value drivers indicates the cost-based models attracts to price-performance value drivers with assurances of improved return on investment(ROI) for the customer while neglecting other potentially more significant value drivers that are more

impalpable in nature.

SWOT Analysis Of IT Industry

Strengths: Highly skilled human resource Low wage structure Quality of work Initiatives taken by the Government (setting up Hi-Tech Parks and implementation of e-

governance projects) Many global players have set-up operations in India like Microsoft, Oracle, Adobe, etc. Following Quality Standards such as ISO 9000, SEI CMM etc. English-speaking professionals Cost competitiveness Quality telecommunications infrastructure Indian time zone (24 x 7 services to the global customers). Time difference between India

and America is approximately 12 hours, which is beneficial for outsourcing of work.

     

CONTI..

Weaknesses

Absence of practical knowledge •  Dearth of suitable candidates •  Less Research and Development • Contribution of IT sector to India 's GDP is still rather

small. • Employee salaries in IT sector are increasing

tremendously. Low wages benefit will soon come to an end.

 

CONTI..

Opportunities High quality IT education market Increasing number of working age people India 's well developed soft infrastructure Upcoming International Players in the market

Threats Lack of data security systems Countries like China and Philippines with qualified

workforce making efforts to overcome the English language barrier .

IT development concentrated in a few cities only .

EXPORT INTENSITY

Export Intensity (%) Total Forex Earnings / Net Sales

2006 2007 2008 2009 2010HCL 0.9872 0.9887 0.9849 0.978 0.9782INFOSYS 0.9586 0.9244 0.9259 0.9788 0.996TCS 0.9013 0.9224 0.9171 0.9299 0.9238WIPRO 0.6901 0.7962 0.7297 0.7691 0.7322COGNIZANT TECH1.0022 1.004 0.9892 0.9922 0.9838

EXPORT INTENSITY

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

EXPORT INTENSITY

HCL INFOSYS TCS WIPRO COGNIZANT TECH

IMPORT INTENSITY

Import Intensity (%) Total Forex Spending / Net Sales

2006 2007 2008 2009 2010HCL 0.2499 0.2424 0.2261 0.1502 0.1355INFOSYS 0.3694 0.4102 0.4148 0.3973 0.3973TCS 0.4026 0.4134 3.502 0.35 0.3189WIPRO 0.3378 0.3185 0.2946 0.2674 0.3875COGNIZANT TECH0.065 0.034 0.0056 0.0159 0.1224

IMPORT INTENSITY

2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

IMPORT INTENSITY

HCL INFOSYS TCS WIPRO COGNIZANT TECH

GROWTH ANALYSIS

The growth of the companies in the industry was analyzed on the basis of the Sales Growth Rate.

2006 2007 2008 2009 2010INFOSYS 9028 13149 15648 20264 21140WIPRO 10264.09 13758.5 17658.1 21612.8 23006.3TCS 11236.01 14942.09 18292.68 22406.08 23044.84COGNIZANT 1540.53 3267 3820.3 5313.7 6237.54HCL 3032.92 3768.62 4615.39 4675.09 5078.76

SALES

2006 2007 2008 2009 20100

5000

10000

15000

20000

25000

SALES

INFOSYS WIPRO TCS COGNIZANT HCL

PROFITABILITY TREND

Profitability gives us the earnings available to the investors and owners of the company after taking into account all the expenses incurred during the business operations. Profitability is calculated as:

Profitability (%) = Profit after Tax (PAT) / Net Sales

The trend in the Profit (%) for the companies is analyzed over the period of study.

Firm level Analysis

NET PROFIT

2006 2007 2008 2009 2010INFOSYS 0.316 0.456 0.1901 0.295 0.0432WIPRO 0.4106 0.3405 0.2834 0.2239 0.0645TCS 0.3956 0.3298 0.2242 0.225 0.0285COGNIZANT 0.51 1.1207 0.1694 0.3909 0.1739HCL 1.096 0.2426 0.2247 0.0129 0.0863

NET PROFIT

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

NET PROFIT

INFOSYS WIPRO TCS COGNIZANT HCL