Porter's 5 forces analysis - Entering into new technology

Below is an example of Company X, which has entered into blockchain implementation. This analysis will give my opinion about the competition in blockchain marketplace and tips for you to develop strategies for company X to get success. Company X is based in India. Majorly works in BFSI domain and recently started hunting for blockchain implementation projects. This company is 15-year-old and total revenue is now around USD 500 million.

Competitive rivalry: High

he blockchain market is estimated to grow from USD 210.2 million in 2016 to USD 2,312.5 million by 2021, at a Compound Annual Growth Rate (CAGR) of 61.5%.

Company X possess high technical as well as marketing capability and is growing very fast compare to Indian peer companies with revenue around USD 500 million. The company took the right decision at right time to enter into blockchain. However, company X is/would be facing strong competition in the market. In blockchain, it has competition with big Indian companies like Infosys, TCS, Wipro. These companies have started blockchain PoCs 2 year before company X and have better footing now. Despite having good technical skills, company x needs very aggressive marketing and complete PoCs as fast as possible to reduce time to market. Competition is tough on rates as well.

Rivalry can be reduced by

1. Differentiate your product.

2. Create a strong brand.

3. Build loyalty.

4. Increase switching costs for customers.

Bargaining power of suppliers: Medium

Blockchain experts are not easily available in the market. Expert human resources are having more bargaining power due to their demand in the industry. Hardware and software are available at standard cost. However, bargaining power is not very high because many options are available to implement the blockchain and it can be cloud based as well.

Hardware supply and services providers are no longer costly. Company X is also shifting toward cloud-based services.

Bargaining power of customers: Very High

Company X sells software and consulting services predominantly in BFSI domain. Bargaining power of customer is relatively high because of a large number of competitors in the industry. The blockchain is evolving technology and use cases identified are limited & mostly known in BFSI domain only. Other industrial sectors are still working to freeze the use cases. Blockchain implementations are in B2B space and projects are a large amount per one time, therefore, buyers get more power of negotiation. Another reason is that the big companies are financially very strong and they sometimes pay switching cost also to the customers as an additional benefit to win the orders.

This can be minimized by

1. Partnering

2. Increase loyalty

3. Increase incentives and value added

Threat of new entrants: Medium

Company X is established in 2001 and now settled with the client base in US and Europe. All startup companies see the US and Europe for setting up their business. It is difficult for Indian startup to go in Europe and dent Company X. It is true that Europe represents a lucrative market for tech companies looking to expand their operations further, but punitive employee laws (in some countries), legal issues and the challenges that often arise from these and vast business cultural differences is a big test. This has led many technology businesses to exit Europe prematurely, despite heavy investment into the market, as they have experienced a poor return on investment (ROI) and a lack of understanding of the legal and cultural differences they are likely to face.

The number of European and American new entrants in Europe market is increasing as the European IT market is estimated over USD 300bn in 2017. They may work more efficiently and effectively in Europe due to cultural and legal awareness. They may be the better choice for the customer to provide support after the sale for a long time.

Creating a strong brand and increasing efficiency of operations may reduce the impact from threats.

Threat of substitute products: High

The customer always the best buy. They want world class services at lowest price. A new generation of customers keep switching cost very low and keep multiple vendors for their big projects. Also, entering new vendors for handling their projects. In IT product and services, finding a substitute is easy. Till now company X is getting competitive advantage of skills and technology. It must be maintained at the same pace and keep the up-to-date resources.

Other emerging offshore locations like Philippines, China, Eastern Europe are offering more cost advantages and creating threats for projects from the Asian region. Price quoted for projects are the differentiators for the same quality of projects and services.

The regular customer survey is very important to understand their preferences and change the offerings accordingly certainly help in getting continuous business.

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