ANALYSIS N THE FIVE C MPETITIV FORCES HAT SHAPE S RATEGY (By Michael E. Porter ) ON
IBM INDIA LTD.
Under the guidance of:
Prepared By:-
Mr Shibashish Chakrabo ty
Anupam Mathur
Faculty Guide- IBS Kolka a
Anumita Banerjee Amit Kumar Dhigra Avisek Dey Attrayee Maitra
TABLE OF CONTENTS 1)
ACKNOWLEDGEMENT
2)
MISSION AND VISION
3)
COMPANY HISTORY
4)
HISTORY OF COMPANY LOGO
5)
IBM
6)
IBM INDIA
7)
BUSINESS LINES
8)
PORTER’S FIVE FORCE ANALYSIS MODEL i.
Bargaining power of buyers
ii.
Bargaining power of suppliers
iii.
Existing industrial rivalry
iv.
Threat from new entrants
v.
Threat from substitutes
vi.
Jockeying in the industry
9)
CONCLUSION
10) RECOMMENDATION 11) BIBLIOGRAPHY
ACKNOWLEDGEMENT
This report has been made possible through direct and indirect support of various people for whom we wish to express our appreciation and gratitude. Nothing in the World can be achieved without proper coordination. Every work, be it of marketing, finance, production or successful launching of a product is the result of teamwork. This project could not have seen the light of the day without the coordination of Mr. Shibashish Chakraborty , our faculty guide and Mr Kallol Kallol Sen, Business Manager- Sales, IBM (Kolkata). We would like to express our special thanks and gratitude for guiding us in our research project. Without his overall guidance and help, the project may not have been completed.
Anupam Mathur Anumita Banerjee Amit Kumar Dhigra Avisek Dey Attrayee Maitra
MISSION & VISION OF IBM:
At IBM, we strive to lead in the invention , development and manufacture of the industry’s most advanced information technologies including computer systems software, storage systems and microelectronics.We translate these advanced technologies into value for our customers through our professional solutions , services services and consulting businesses worldwide.
COMPANY HISTORY International International Business Machines Corporation, abbreviated IBM and nicknamed "Big Blue" (for its
official corporate color), is a multinational computer technology and IT consulting corporation headquartered in Armonk, New York, United States. The company is one of the few information technology companies with a continuous history dating back to the 19th century. IBM manufactures and sells computer hardware and software, and offers infrastructure services, hosting services, and consulting services in areas ranging from mainframe computers to nanotechnology.
IBM has been well known through most of its recent history as the world's largest computer company and systems integrator. With over 388,000 employees worldwide, IBM is the largest and most profitable information technology employer in the world. IBM holds more patents than any other U.S. based Technology Company and has eight research laboratories worldwide. The company has scientists, engineers, consultants, and sales professionals in over 170 countries. IBM employees have earned three Nobel Prizes, four Turing Awards, five National Medals of Technology, and five National Medals of Science. As a chip maker, IBM has been among the Worldwide Top 20 Semiconductor Sales Leaders in past years, and in 2007 IBM ranked second in the list of largest software companies in the world.
Timeline
1880s–1924: The origin of IBM 1925–1949: IBM's early growth 1950–1959: Postwar recovery and the rise of business computing 1960–1968: The System/360 era 1969–1979: The System/370 era 1980–1989: Information revolution, rise of software and PC industries 1990–1999: IBM's near disaster and rebirth 2000 and on: Recent trends
HI TORY OF COMPANY LO O
The striped logo was first used in 1967, and fully replaced the solid logo by 1972. The horizontal stripes suggesting "speed and dynamism."
The logo that was used from 1956 to 1972. IBM said that the letters took on a more solid, grounded And balanced appearance.
THE LOGO THAT WAS USED FROM 1947 TO 1956. THE FAMILIAR "GLOBE" WAS REPLACED WITH THE SIMPLE LETTERS "IBM" IN A TYPEFACE CALLED "BETON BOLD."
THE LOGO THAT WAS USED FROM 1924 TO 1946. THE LOGO IS IN A FORM INTENDED TO SUGGEST A GLOBE, GIRDLED BY THE WORD "INTERNATIONAL”
IBM India •
•
IBM India is the Indian subsidiary of IBM. It has facilities in Bangalore, Delhi, Kolkata, Mumbai, Chennai, Pune, Gurgaon, Noida and Hyderabad. Between 2003 and 2007, IBM's head count in India has grown by over 800%, from 9,000 in 2003 to 74,000 at the end of 2007. Since 2006, IBM has been the multinational with the largest number of employees in India.
Growth and future initiatives IBM stated that its India plans are for the long term & committed to invest $6 billion in the next three years in India, triple the amount invested in the three years preceding the meeting. IBM world-wide expects its revenues to be around $120 billion by 2010, of which nearly $86 billion (68%) would come from IBM Global Services alone, with an estimate of about 200,000 employees. IBM India would account for 90,000 of these. Roughly translated, IBM's Indian employees would generate $35 billion of IBM's revenues in 2010. IBM Global Services (now split to Business Services & Technical Services) was called the "jewel in the IBM crown" by the Aberdeen group in 2003. For worldwide IBM, this is the group that contributes to more than half its global revenues ($54 billion in 2005) presently and growing at a healthy rate (8% in 2005). With half of global service employees to be located in India, IBM India's importance for the global corporation can be easily fathomed. Current activities
Year Employees
2002
4,900
2003
9,000
2004
23,000
2005
38,500
2006
53,000
2007
74,000
IBM India has now grown to an extent where it poses a stiff challenge to homegrown 98,000 Software companies of India in IT global delivery and manpower attraction/retention. 2008 It now operates the following business lines from India which contributes to worldwide IBM in a global delivery deliver y framework: India Software Labs (ISL), India Research Lab (IRL), Linux Technology Center, Global Business Services(GBS), Global Technology Services (GTS), Global Service Delivery Center (GSDC), Global Business Solutions Center (GBSC), Strategic Outsourcing (SO) and Business Transformation Outsourcing (BTO). IBM India also sells its products and services for the Indian market and is the number one in Server sales and Storage Solutions (Citation required ). ). IBM India also has aggressive plans to target the Small & Medium Businesses (SMBs) market.
BUSINESS LINES Global Business Services
This division, along with Global Technology Services (which was together called IBM Global Services earlier) has the largest employee head-count and operates in a global delivery framework. Although it's impossible to quantify the value-contribution from this unit, since IBM GBS India operates in the cost recovery mode, it is considered to contribute well in excess of $1 billion per annum. IBM India's package implementation & maintenance practice – with its SAP, Oracle, Siebel, PeopleSoft, J D Edwards & Clarify practitioners is the biggest amongst all Indian IT companies. This entity is organized as a consulting company, with divisions mirroring the functional expertise within, for instance Finance Management Solutions (FMS), Customer Relationship Management (CRM), Supply Chain Management (SCM) ,Energy & Utilities and so forth. Application consultants from the fledgling SAP practice of IBM India are one of the most mobile of its workforce – frequently globe-trotting to other IBM Geographies and benefitting from the nearly 3 decade old IBM & SAP alliance. Linux Technology Center
IBM invests a billion dollars each year in its Linux efforts worldwide. This center in India contributes in R&D of Linux related IBM products. Business Transformation Outsourcing
With the acquisition of Daksh in 2004, IBM IBM now also boasts of a formidable BPO service portfolio. portfolio. Associates and analysts work out of the Embassy Golf Links, Bangalore office in out-sourced business processes of IBM clients. The company has send out more than 800 newly recruited employees in the year 2008 and the process is still going on.
PORTER’S F VE FORCE FORCE ANALYSIS MOD L FOR IBM BARGAINIONG
THREAT OF
POWER OF BUYERS
SUBSTITUTES
(MODERATELY HIGH)
(LOW)
AS IBM OPERATES BUSINESS IN B2B
SOFTWARE IS THE
MARKET, MOST
MAIN COMPONENT
ORGANIZATIONS
OF THE COMPUTER
ALWAYS BUY IN
WHICH USED TO
LARGE AMOUNT
ENABLE A
PER ONE TIME.
COMPUTER TO
THEREFORE,
PERFORM SPECIFIC
CUSTOMERS HAVE
TASKS. NOWADAYS,
POWER TO
THERE IS NO
NEGOTIATE WITH
PRODUCT TO
THE COMPANY.
REPLACE OR SUBSTITUTE COMPUTER SOFTWARE.
BARGAINING
THREAT OF NEW
POWER OF
ENTRY
SUPPLIERS (LOW)
(LOW) THE HIGH CAPITAL
IBM’S BUSINESS
INVESTMENT, HIGH
EMPLOYS A WIDE
BUDGET FOR RESEARCH
VARIETY OF
AND DEVELOPMENT, DEVELOPMENT,
COMPONENTS,
AND HIGH TECHNOLOGY OF
EXISTING INDUSTRIAL RIVALRY (HIGH)
THERE ARE MANY COMPUTER
PREVENT NEW
SOFTWARE MANUFACTURES IN
COMPETITORS TO
TODAY GLOBAL MARKET. EACH
ENTER INTO
MANUFACTURE TRIES TO
COMPUTER
DIFFERENTIATE ITS PRODUCT BY
TECHNOLOGY
CREATING NEW PROGRAMMES
INDUSTRY.
AND RAW MATERIAL FROM A SUBSTANTIAL
PRODUCTION CAN BE SEEN AS FACTORS THAT
SUPPLIES, SERVICES
THAT MAKE A COMPUTER MORE POWERFUL.
NUMBER OF SUPPLIERS AROUND THE WORLD.
BARGAINING POW R OF BUYERS (Moderately High)
(Anupam Mathur)
“Buyers compete with the ind stry by forcing down prices, bargaining for igher quality or more services, and playing compet tors against each other – all at the expense of industry profitability”
The degree bargaining power exercised by the buyers depends on the certain factors like: i.
No. of competitors th t are present in that th at industry
ii.
Availability of similar roducts and services in the market.
iii.
Position that is enjoye d by the company in that particular p articular industry .
iv.
Brand value
v.
Certain characteristics or the USP of the product or services that d ifferentiates it from other products and services that are available in the market.
vi. vii.
Quantity or volume of purchase Switching cost IBM manufactures and ells computer hardware and software, and offer s infrastructure services, hosting services, and consulting services in areas ranging from mainframe computers to nanotechnology
The bargaining power of buyers for IBM INDIA which is basically in the IT industry is moderately high beca se of large number of competitors that in p resent in the industry and are well positioned in the industry and also because IBM operates o perates in B2B market and most organizations always uy in large amount per one time. Therefore, customers have power to negotiate with the co pany. The main competitors of IBM in th IT industry are: HP
SUN MICROSYSTEMS
ICROSOFT
IBM
DELL
WIPRO
HCL
TCS
ORACLE
Thus, to emerge out as winners the company needs to offer high e nd product and services to beat the competition nd to capture market even in the presence of such fierce competitors. IBM has got certain U Ps that despite of all the factors and compe titors helps it to emerge as the market leader in the IT INDUSTRY
CHARACTERISTIC OR USPs OF IBM INDIA WHICH MA ES IT MARKET LEADER MAXIMUM PATENTS
INNOVATIO
RANKED NO-2
DISTRIBUTION LINE
WORLDWIDE IN SOFTWARE NO-1 IN INDIA
PRESENCE IN
BR ND
170 COUNTRIES
POSITION
HIGH END PRODUCTS
EMERGENCE OF IBM AS MARKET LEADER
The main clients or buyers of IBM products and services in B2B aspect are :
RESERVE B NK
CANARA BANK
WEST BENGAL OVERNMENT
B ARTI AIRTEL
BHARTI IRTEL HAS CHOSEN IBM AS ITS PA RTNER FOR OUTSOURCING ITS ENTIRE NETWOR K & IT BACKBONE – A DEAL TH T IS WORTH $750 million
BANKING SOFTWARES
The above mentioned are the main clients cli ents of IBM and although the switching cost in this industry is low but these and many more companies have chosen IBM as their partner in their business processes due to its 100+ years old legacy in INDIA as well as the whole world. The other factors that make IBM a very strong brand are:
The software that are provided by IBM are highly customized as per the business requirements of every client that can easily be integrated with the existing business model of
the company and thus are highly differentiated. The brand IBM in itself means trust, high quality, reliability, value for money and best in class . This is how the world recognizes re cognizes the brand and that is exactly what the offer to their customers.
IBM is ranked no.2 in software industry throughout the world and is India’s top IT player. Thus, it enjoys a very good position in the market.
IBM is flexible company ; they can remix their strategy base on happening. Even though variable factors make noises in linear path, IBM has potential to reduce the direct impacts of
them. The company is known for its continuous innovation process and invests a huge amount in research and development activities that helps in meeting the ever changing demands of
customers and the company remains one step forward in the dynamic environment With the acquisition of Daksh in 2004, IBM now also boasts of a formidable BPO service portfolio and IBM DAKSH is one of the top BPOs in India IBM, at a very early stage understood Value was shifting in the IT industry, driven by the rising tide of global integration, a new computing paradigm and new client needs. Economies of developing nations were growing rapidly, driven by historic investments in fundamental business infrastructure. Enterprises were looking to tap skills and expertise available all over the world and to integrate their operations globally. Change in computing architecture was rippling across the data center and the network, along with a proliferation of technology infused into all aspects of work and life. Companies were seeking seeki ng to integrate advanced technology with their business processes and operations, not only to reduce costs, but to enable innovation and growth.IBM remixed their businesses in order to move to the emerging higher- value spaces by focusing on software and IT industry. This giant leap at a nascent stage helped IBM reach the pinnacle with continuous innovations and despite of the prevailing forces like high bargaining power the company due to low switching costs and large number of competitors IBM was able to establish itself at a very formidable position in both hardware as well as the software sector in the IT industry and was able to offer differentiated products and services including a long list of patented products which makes it the most profitable information technology company and world’s largest computer and system integrator throughout the world with more than 3,88,000 employees worldwide.
THREAT OF NEW ENTRANTS (Anumita Banerjee):One of the most important competitive competitive forces is threat of new entrants entrants . It discusses about how IBM reacts to when any new entrant comes into the market.IBM is one of the leading provider of IT services. It has a very strong research and development department.ibm has a very high capital investment and enjoys strong profitability.IBM also helps clients succeed in delivery business value by becoming more • • •
Innovative Efficient Competitive
through use of business insight and information technology. We can say that competition and innovation in the computer industry is taking place not only along segmented integrated lines but also along vertical integrated lines where leaders emerge in respective domains. Examples can be cited such as Intel in Microprocessors ,Microsoft in desktop software, Novell in networking ,Hp in printer & laptops, Segate in disk drive and Oracle corporation in data base software . IBM’s dominance in personal computers is challenged by Compaq, Dell, HP,HCL etc. Now, threat of new entrants can be discussed in details. 1)Economies of scale-
These economies deter entry into the market by forcing the new aspirants either to come on a large scale or to accept a cost disadvantage .Scale economies of production, research marketing ,and service are probably the key barriers to enter in mainframe computers which is a product of IBM .even Xerox and GE tried to capture the mainframe market but failed to do so.
2)Product differentiation-
This means brand identification .IBM is an old player in the market for both hardware and software .It has its own unique features in the product .One of the most sophisticated product of IBM that we generally find in our daily life is the billing counter .It has a very strong domain in software and hardware which makes it highly efficient and durable with a long life cycle.IBM always innovates in respect to user and tries to make it user friendly .This uniqueness as well well as innovation forms the product identification part of IBM. IBM.
3)Capital requirement-
4)Cost disadvantage:
it is the need to invest large amount of financial resources in order to compete ,create a barrier to entry particularly if the capital required is for unrecoverable expenditures in upfront advertising and R&D. In case of IBM, it is a very old and highly demanded brand in the market. For the last 29 years IBM is a market leader in the field of IT. They have large capital to diversify in any new product. suppose if IBM wants to diversify in in the field of database, there will be a huge requirement of capital for R&D and also need advertisement for the sake of awareness among the companies and customer. if the cost of the product is higher than the other substitutes product having some added properties then it is very difficult to survive in the market market and also existing existing company is going to invite the other new company in the market. In case of IBM, they launched laptop having high cost cost which was was out of reach of the common people. This created market for other players like DELL, HP and HCL etc. Therefore they lost a market for their products and finally sold the laptops to LENOVO.
THREAT OF EXISTING RIVALRY::( Avisek Dey )----------------Profit is the main aspect in i n terms of success in the industry for a company. According to the porter’s theory of five forces rivalry riv alry between the companies is very important i mportant to judge the success of the industry. The relation between the force and profit is given below. Force is inversely proportionate to the profit. if the force is very intense then profit profit will be less ,and if the force is benign then then company will make good profit..Now in case of software industry the intensity of rivalry is very high. Because there are thousands of Companies Companies working in same domain and same platform. So company has to come up with some new offers to increase their profit and they have to think something out of box to provide some unique products to their client.. Rival companies of IBM in different categories are:
1. Server a. Microsoft. b. HP 2. Development of Software: Platform
Rivals
AS 400
Convergys, CTS
Mainframe
keane, Wipro Tech.
3. Products in case of software: Name a. Lotus b. Linux c. DB2
working function email client operating System Data warehousing
rival company Microsoft outlook (Microsoft) Windows(Microsoft) Windows(Microsoft) Oracle
These are very strong brand in respect r espect of competition. Now there are some important i mportant criteria on which the intensity of rivalry is judged… 1. Bundling: Bundling means giving extra privilege with the base product.. Like IBM Bundled computer hardware and software and service support for many years to get the business over the competitors like Microsoft, HP etc. So customer will go for them as they will get everything with in a single package. In other word Bundling is nothing but the offers and promotion that company provides to get the new customers. Present offers:: a. SVC Entry Edition combined with IBM System Storage DS4700 with in a single si ngle package. b. Now! Get the IBM x3400 Server & Microsoft® Windows Server bundle offerings and save thousands..etc
2. Point of parity (POP): When some of the features are same in the products of different companies is called as point of parity. So the basic of the product should be included in the final out come of the product. The mainframe Platform was introduced by IBM initially…so the clients of mainframe had the inclination towards the IBM to get their project done…But afterwards different companies came up with mainframe platform. So the projects got divided among companies companies like WIPRO, HCL Tech.etc. Te ch.etc. So the profit got affected. Same thing happened with the IBM LOTUS..IBM introduced email client clie nt server LOTUS in the ye year ar 1989.till the Microsoft outlook they were doing good amount of business. After Microsoft launch they started to run in loss.Because both the product had POP but Microsoft Outlook was more cost effective. Finally they updated the product n started to to run in profit once again…still now they keep on updating their products in regular interval ..The latest release of LOTUS is 8.5.
3. Point of difference (POD)— These are the points where where the product is different from the the same kind of product of of rival company on the basis of features of the product.This is a very important parameter in getting the success in terms of profit as well as customer. The unique features of of IBM Brand (reason for making profit profit over other software tycoons) :a. b. c. d.
Maximum number of patents. Strong distribution system. Innovation in Technology & product. Presence in 150 Countries.
4. Exit Barriers:-
Barriers of exit are obstacles in the path of a firm which wants wants to leave a given market or industrial sector. Barriers like a. High investment in non-transferable in fixed assets. b. Company reputation and high redundancy cost. c. Contract contingencies with suppliers or buyers and any penalty costs incurred from cutting short tenancy agreements Same thing happened with IBM PC market. They ran their business in loss for long time.Finally they sold it to Lenovo. But still they have stake in it.
BARGAINING POWER OF SUPPLIERS
(Amit Dhigra)
From its inception almost a century ago, IBM has ha s been based on a set of fundamental values. IBM's values shape and define its company and permeate all of our relationships--between its company's people and its shareholders its clients, the communities where people live and work, and among their network of suppliers. Supplier diversity:
IBM spends nearly $2 billion a year with diverse suppliers, for example, greater than any other technology company. Building and maintaining a community of diverse suppliers increases IBM's opportunity to hear new ideas, apply different approaches, and gain access to additional solutions that respond to customer needs. Such collaboration helps IBM deliver innovation, quality products, and world-class service to a growing global marketplace. Supplier selection: It can be done through supplier evaluation model in i n which we can look for following attributes: • • • • •
Price Supplier reputation Product reliability Service reliability Supplier flexibility
All of the above factor fact or help a company to figure out with which supplier su pplier it can move forward.
IBM products: •
•
Operating system : IBM provides its services in various different fields like Environmental, Office Supplies, Security and Utilities etc. It provides its operating system as Z/Os, Z/OSe Linux, TPF and many others. Hardware : Microprocessors and logic semiconductor electronic components including X86/CISC processors, power PC/RISC processors, core logic, graphics chips, video chips and super I/O. , DSP, network products, peripherals/controllers, automobile industry, A&d industry, health care, mobile, personal computers, point-of-sale, ATMs, servers, mainframes, midrange, storage devices and associated peripherals. It also has supplies of major product for hardware from major jaints like AMD, Intel. IBM provides world-class IBM mainframe technology to help today's enterprises respond to business conditions quickly and with flexibility. From automation to advanced virtualization technologies and open industry standards, IBM mainframes help deliver competitive advantages for th e on demand business.
Software : Commercial established catalog software to be used on PC/Work station, midrange or mainframe systems for both internal use and resale. re sale. This does not include any programming or modifications on the existing off-the-shelf software. As matter of f act software is developed by is by company itself therefore it does not require any a ny supplier for this.
THREAT FROM SUBSTITUTES (Attryee Moitra) Substitutes are the alternatives that can be used in absence of the original product. These are generally used to keep the work in motion. If any software is absent then it will always affect the performance of any program or event, this may leads to wastage of time, money and labor. In organizations time is money, they need fast n efficient work. If I f any important work gets stopped because of some important software or system failure, then this will results in heavy loss to the company. Some important alternatives alternatives were introduced so as to save the company from heavy losses These substitutes are always used as some alternatives alternatives threat to the original software, for software industry is low, as there is no replacement for the software. These various substitutes; substitutes; 1) Software piracy: software piracy is something that deals with the theft of copyright product without the prior or any kind of permission from the owner.
Demerits: •
All the features will not be available.
•
Limited trial period.
•
Crack key read to get the full version.
•
No customer service.
Merits: •
Cost effective- the software is not original so it’s not expensive.
•
Risk space effective. effective.
So, in companies people can not go for pirated version as per NASSCOM rules. So threat of piracy is low in case of software. s oftware.
1)
Software created in houses: Instead of going for costly software, company can develop their own software through through their development team according to the requirements of the software. This is a threat for the software builders,
2)
Open source: Open source is an approach to the design, development, and distribution of software
offering practical accessibility to a software’s source code. Some consider open source as one of various possible design approaches, while others consider it a critical strategic element element of their t heir operation
So to come out of these threats company has to take few steps, that are ;
1) Innovative product: product: The Company should introduce new features features to their their products. This will will stop piracy. Introducing new features from time to time will also makes the customer aware of the latest technology. 2) Cost and size effective: Customers always wants best buy. They want to get the best product at lowest price. IBM has a great research network so they spend a huge amount of money in research and development. development. The cost of their product increases because they provide best quality of products. If IBM can also provide products at lower prices then it can acquire more and more market.
Jockeying in the industry: (AVISEK DEY)
It means brand positioning in the industry..it depends on unique features of product as well as innovation. Under this Point of difference (POD) is very important. The company having maximum number of POD will do well in the market. They can snatch customer from their rival companies. To get the success in the market company has to follow following Steps:1. Brand positioning: They have to design the company’s offering and image to occupy the distinctive space in the market to maximize the potential benefit to the firm. From the point of view of IBM they keep on updating their products as well as they always come up with new products to keep a hold in the market.
2.
Marketing Strategies:
This is a very important i mportant parameter in case of success in the industry. Here under this part company need to analyze the market.They have to plan accordingly,like accordingly,like whether they should go for a new product or or they should introduce some new features. fe atures. 3. Forward & backward Integration: This is the process of providing the final product whose part is build in house.and vice versa. In case of IBM they used to provide hardware hardware ,software and service with in a same package.So all products of the package were made from f rom their company. so it was more cost effective for them to provide the maximum facility facility to the customer. Through this this way they can get the huge amount of customers.
CONCLUSION
RECOMMENDATION 1)Sometimes the product manufactured are to expensive that they are beyond the range of some consumers. 2)In our view IBM should work on some modern operating system so that IBM can cut on cost and can develop new softwares at a very low lo w cost. 3)So in our view we will suggest that instead of buying hardware from other companies,we suggest IBM to manufacture there on hardware.
BIBLIOGRAPHY
WEBSITES: •
www.ibm.co.in
JOURNALS •
HARWARD BUSINESS REVIEW (THE FIVE FORCES THAT SHAPE COMPETATIVE STRATEGY)
BOOKS •
Marketing Management (Philip Kotler) Eleventh Edition.
•
Five force analysis (Michael E Porter)
