Porter five forces enable a company in developing of business strategy. This model helps to determine the market attractiveness of the particular industry. The assignment deals with Technology industry, which is operating in the region of Australia having overseas investment and operation all over the World. The company will determine many industries. It will face and the profits it will incur. The Porter model will help to determine the company’s profit. It is a useful tool, which is powerful and helps in determining the profitability of the industry and the ways to maximize profit (Yunna and Yisheng,2014).
Porter five forces model was applied to the market in Australia, the exchange rate for this country is AUD, which is a developed country. The IT industry helps to transform their own business models so deal or accommodate when the customers shift their choice. This will make the industry successful and it is a promising for the technology industry. The Australian industry made huge investment in local and overseas market as USA is trying to discover new solutions for strict rules that it can stop from basic doings, such as keeping the technology sector forward, thereby overseas investment helps in making improvements in the sector (Delgado, Porter and Stern, 2014).
Information Technology Industry from Porter’s view
The IT industry has gone through many difficulties and thereby achieved success in the future and in coming times. The IT industry have attained a greater success and its success attributed in having the ability to innovate and bringing the product that will make the IT industry in Australia very successful in the coming times. The product development used in the industry helps in dealing with major forces in the market and thereby helps in increase in the profit and market share of the industry (E. Dobbs, 2014).This model helps in the competition and thereby it gives power to negotiate to the suppliers. Suppliers having more power can negotiate there prices, in that case it gives them an upper hand which is a negative point for the customer. (Lai et al, 2014).
The level of competition in these IT companies competes with other IT companies. These companies invest a lot on their research and development and marketing for improvement. The competitive force for the industry is strong, it is very competitive, and the cost of changing from one industry to the other is low. It actually does not require for the consumers to switch over from one work to the other (Hu and Yang, 2016). The threat in this market is a matter of concern for the companies operating in this industry, one has to continuously develop and research on new products and increase its market strength. The IT industry in the local market of Australia is growing rapidly ad is very effective and the reason behind the growth is the rivalry among the existing persons which have led the new entrants not to enter the market. The large-scale industry and the investors get benefit from economies of scale, which is very valuable. Products are branded in this sector and sometimes they might even face legal and advertising rivals. In case of changes in AUD, rate which will have a great impact on the industry prating in the market. There is local as well as overseas investment and this will helps in the industry improvement.
Negotiating limitations of customer
In case of IT industry the number of customer is very large so is the number of service provider. Customers are very sensitive to the price of the products and they are willing to buy goods with quality. The interaction between buyers and IT companies because of the need to upgrade on technology and advertising (Rothaermel, 2015).The technology is something which people depend on and therefore there will customers throughout the year even if there is differences in exchange rate. All the people depend on technology to live their lifestyle so phones and computer have to be imported from outside and all countries have IT operation.
Problem of entrance of new companies
Problem of entrants does affect IT industry. The factors are additional cost establishment cost. The capital and the R&D cost required to develop and produce the product and then bring the product in the market and generate revenue (Adi, 2015.).The new entrant faces strong competition within the industry and in some new companies with financial banking from the Government will face challenge and such a challenger arising is remote. The IT industry is trying to improve where it stands at this moment and these changes will help in maintaining the value of the company in the future by making overseas import and export of their product. This industry will be attractive for new comers and will grow at a rapid base. At the same time, the industry faces customer base and the advantage on significant amount of capital invested. The IT industry is not very attractive but it is the routine and profitable sector for people to enter and invest in this industry whether locally or overseas throughout the World. Even many firms enter the industry but they are not very famous (Kearney et al, 2014).
Negotiation capability of supplier
In the IT industry the negotiating power of the supplier is very little. The supplier is in no situation to negotiate May that be the rate or other things what so ever. As there are huge number of supplier already present in the market, switching from one company to other is very easy. Suppliers are important to the buyers, thus they will not want to end their relationship at the first instance (Crum et al, 2016).
Threat of substitution
These are the products which are similar to the products that are offered by the companies and they have very little difference amongst them. They have similar qualities, attributes and performance. So we can conclude that the competition is very high as it gives chance to the customer to change the choice of product very easily. In the digital arena the country rely on IT to run the business and even lives of the people. Nothing can actually replace the big vast industry and the culture (Rosenzweig et al, 2013).
While industry analyzing in the region of Australia, the competitive structure of the industry and profit potential of the market.
The threat of Substitutes of Porter forces are:
- Consumers switch cost
- Substitute products are equally competitive
- Substitute product is superior to the other products
- Substitute products are competitive in the market
- Substitute products are expensive than industry product
- Sometimes substitutes are not available
Whenever there is a decrease in exchange rate, then other companies and the substitute companies which operates within the IT industry will be profitable. This change in exchange rate will bring in investment for the companies which are situated USA. The threat of substitutes for this industry is very low. The switching cost in the IT industry between the services is very less so it gives the consumer a chance to explore other products.
A person who is using a website to get some service he can easily shift any other website providing similar services unless there is a cost associated for discontinuance.
The IT sector is very large and it’s growing bigger each and every day. There are enormous numbers of companies who are delivering similar services and the difference in quality is very minimal. This makes the consumer vulnerable to change. If the consumer does not feel satisfied with the service provided and easily shift.
Impact of overseas investment in the industry if the AUD exchange rate differs
In case of foreign overseas investment when there is a fall in the USA dollar rates then import from USA will be cheaper whereas if there is a increase in the exchange price of USA then the investment by overseas would be profitable. The exchange rate is dependent on the market and the Government controls the rate. The reason is that the exchange rate is strong in USA as compared to Australia. The effective rate in both USA and Australia shows an image over the years. There are many causes of change in exchange rate, the change in the rates causes much bad effect but it would have been worse in case the exchange rate wouldn’t have fall. Once there is currency exchange rate lowers then it can be sent for overseas investment and then investment in IT industry helps in the future growth of the industry and as well as the company. The system of transfer of domestic and international money transfer, and this system help in overseas investments of funds in the sector.
The model that is suggested by Michael Porter is very helpful in nature but it does have some issues. It assumes that the potential to make profit does not change. It suggests that in order to make profit the share needs to be transferred in that case it has to earn profit from supplier or a buyer etc. It tells that the industry remains same and there is no change that is increase or decrease is not calculated.
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