Application Exercise

Apply the five forces analysis to a selected product market/division and assess the attractiveness of that industry. Compare the attractiveness of the industry five years back versus today.

Guidelines for the assignment Choose any one product market/ division in your organization for the purpose of this assignment. Give a brief introduction of the selected product market/division, its activities and the external markets/segments it caters to. Consider each force individually. Take each component in it and explain its role. Based on the above explanation, there can be components of a force that threaten the attractiveness of your industry but are not mentioned by Porter, do include such components. (Template if shown in class may be used for a structured approach but the spirit of the analysis matters more than mere form). Finally rate the overall effect of the force on the industry attractiveness. In the above industry, consider the effect of other factors e.g., Government regulations, complements, technology and innovations, which indirectly shape the industry forces. Highlight (with reasoning) how each threat was different 5 years back (if it was not, state this) and indicate the shift in the level of threat on that force. Conclude by o Assessment of overall attractiveness of the industry for the existing players. o Recommendation on how your organization should position itself to gain competitive advantage, given the 5 forces. The assignment submission should not exceed 5 pages

I work as Presales Manager in Tejas Networks Ltd. It is majorly involved in making optical networking equipments for Telecommunications industry. We are sole optical networking company based out of India competing against global giants such as Ericsson, Nokia Siemens, Huawei, Alcatel Lucent etc. I would be taking for consideration the Optical networking industry in India, in which we had reportedly 12% market share in FY12(Source V&D 100). A brief on Optical networking industry in India, competitors, focus area Optical Networking Customers: Optical networking industry majorly constitutes of the telecom service providers such as BSNL, Airtel, Vodafone etc., majorly followed by the Infrastructure companies such as PGCIL, Railways, etc. Service providers constitute chunk of this market with 75-80% wheras the Infrastructure companies form 20-25% of this market. The networks are used by these companies to provide telecom services across the country by the providers, whereas the infrastructure companies have internal networks also working on them. Competitors: Major competitors involve large telecommunication equipment providers such Ericssson, NSN, ALU, Huawei etc. which have capabilities of providing E2E network solutions to operators, and hence have major share in the service provider segment. Specialized Optical networking companies such as Ciena, ECI, Tellabs, Fibcom also form a major competition. Currently Huawei has the major market segement in Optical transmission with 43%, followed ALU(23%), ECI(12%), Tejas(12%) and others having the balance market share Focus Area: Our concentration is majorly on providing customized network solutions based on Indian requirements. Having our R&D team based out of India, helps us in fine tuning the solutions based on Indian market and providing cost effective network solutions. The introduction of new services such as 3G, 4G is seeing a major shift in the networks towards data services, and compared to voice services previously. So our product line is seeing shift from Voice (TDM) services to Data (Packet) Services to meet this changing market scenario.

Analysis in Porter five force framework:

1. Threat of new entrants:

In todays scenario: Threat of new entrants is medium. Due to the changing scenario of TDM to Packet Services, creates an opportunity for new entrants to make in this segment. But again as these services form the backbone of the major service delivery, the operators are reluctant to use new entrants in this segment. Also, their effectivity in the whole E2E solution scenario needs to tested and proved over a long term before they can be seriously considered. But, telecommunications vendors which has tried and tested solution in other markets, surely form a threat as they are new to India market, but well entrenched in global markets. Also, since the cut throat competition the margin are already driven very low, making poor business opportunity for new entrants. Five year back: Threat of new entrants was low. Five years back, the operators were primarily expanding their voice networks to capture majority of Indian markets. In such expansion phases, they only played with tried and tested vendors, The use of new entrants was only driving down prices, but due to hassles involved in working multi vendor scenario, operator basically stuck to incumbent vendors.

2. Bargaining power of the Suppliers:

In todays scenario: Bargaining power of the Suppliers is high. Being a high tech industry, there are not many suppliers who are investing in the R&D for the new technologies(3G, 4G etc.). So the dependency for the components for telecom vendors has been high. Major players are overcoming this threat by backward integration, but for smaller companies have to be heavily dependent due this large chip manufacturers. There is little or no threat of forward integration from the suppliers, as they basically deal in bulk manufacturing. They have very low expertise on the services, so they generally dont venture in direct supplies to the customers, but find it easier to supply technologies to these vendors, who further integrate and provide end products to the operators. 5 years back: Bargaining power of the Suppliers was medium. During this period, as mentioned before the major focus was in expanding voice services, so no new R&D was required to the exsiting products. Only need was to make components available on cheaper to facilitate these expansion projects. During this period, it was easier to procure components from any of the vendor as the technology had matured, there were multiple suppliers giving equivalent solutions.

3. Bargaining power of the Customers:

In todays scenario: Bargaining power of the Customers is high. Due to the limited operators present in this segment, the customers have very high bargaining powers. Indian customers have gone a step ahead introducing managed services of networks, which make the vendor responsible for all technical operations and maintenance and networks, and then being paid purely on usage. This has made the vendors power for bargaining for new technologies even lesser, as they need to provide upgrades at much lesser cost than they would have provided earlier. Also, the options provided by Chinese vendors of low cost solutions, has made the customers even more aggressive in price negotiations with the customer. Again, there is increasing threat of backward integration, as operators are looking more into options such as software defined networking, which allows them carry out our equipment functionality by using some software development on the existing server hardware. But since this require very high technical abilities to carry it out and longetivity of these solutions is doubtful, threat of such integration is very limited.

5 years back: Bargaining power of the Customers was medium.

During that period, the dominance of European vendors, and doubts on Chinese vendors, played a lot in the hands of the incumbents. The operators also were going thru major expansion phases so were trying to leverage the advantage of quantity only. Technology was still driven by the vendors and they had major benefits in providing new feature upgrades. Also, during that period managed services concept was not in fully functional mode so the operator dependency on vendor for managing their network was higher.

4. Threats of Substitutes:
In todays scenario: Threat of substitutes is medium. As mentioned previously too, SDN(Software defined networking) forms a major threat of substituting the existing network equipment industry. Development in this industry will lead to complete shift of the network management on telecom vendor hardware to simply servers capable of running these programs. But since this is very highly technical, bulk deployement is still low more years away. But continuous development from the vendors would be required for keeping customer interested in deploying these products. 5 years back: Threat of substitutes was low. During this period, it was majorly competition between existing telecom vendors and the new upcoming Chinese vendors. There was no threat of substitutes, as the operators dependency on the telcom vendors was high/

5. Rivalry among competitors:

In todays scenario: This segment has become very competitive as Indian market is seen as the major area of growth still. The Chinese vendors has gotten over the customer perception of being of low quality and gaining more and more market share. Thus, we have to compete these companies thus reducing over margins drastically. But also, the introduction of managed services has provided us a new market opportunity to act as OEM/supplier for European vendors which do not have cost effective solutions in this segment.So in this way, we have collaborated with them to increase our presence. 5 years back: Five years back, we were the relatively new entrants and were competing with the existing European vendors on pricing. We also leveraged our presence in India, as a major lure for customer to develop customized solution unheard of at that time. So it was more like we were hunter 5 years back, to being hunted by the Chinese vendors in the current scenario.

CONCLUSION:
Attractiveness of the Optical Networking Industry: Optical networking industry is not very attractive, due to the slump particularly in the telecommunication market in India. Worldwide also there is drop in the growth rate in the industry as due to economic slowdown and hence reduction in expansion/upgradation plans of the networks. But this makes exciting times for low cost substitutes such as SDN, as they can provide similar services at much cheaper upfront cost, but requires high skills in maintaining it. Overall, the industry provides steady growth for the incumbents due to the growing network requirements, but doesnt provide great opportunities for the new vendors.

Recommendations on how Tejas Networks should position itself to gain competitive advantage: One of the major factor which doesnt get covered in the above Porters analysis is the intervention of the Indian government to provide growth stimulus to Indian hardware companies. They have asked for helping the growth of Indian industry all PSUs to start buying from Indian vendors only. Since we are the only Indian vendor in this segement, if passed the New National Telecom Policy(NTP12) can really boost the companies oppurtunities. NTP12 also mentions special rewards to private vendors which buy from Indian companies, or India manufactured products. This will give us advantage, which our competitiors have been leveraging since years in their home countries. Growth of the OEM segment further collaborating with European vendors, to get our equipments in other markets would help us grow our footprint. Also, using our software skills available in Indian market, we should use SDN as our advantage to counter threat from Chinese vendors.