A BUSINESS STRATEGY SEMINAR REPORT

School of Business, Alliance University

Industry Analysis & National Advantage Analysis

9/1/2015

Group 2 | Section B| Semester V| Bachelor of Business Management (2013-2016)

DECLARATION

We hereby declare that this Project Report submitted by our Group to the
School of Business, Alliance University, is a bonafide work undertaken by
us and it is not submitted to any other University or Institution for the
award of any degree diploma /certificate or published any time before.

CERTIFICATION

This is to certify that the Project Report title Industry Analysis & National
Advantage Analysis submitted in partial fulfilment for the award of Bachelor of
Business Management Program of School of Business, Alliance University &
was carried out by Group 2 of Section B, Semester V, Bachelor of Business
Management was under my guidance. This has not been submitted to any
other University or Institution for the award of any degree/diploma/certificate

Dr. M. Ambashankar (Mentor)

Signature of the Mentor

ACKNOWLEDGEMENT

We would like to express our gratitude to Dr. M. Ambashankar as well

as to our esteemed institution School of Business, Alliance University
for giving us the golden opportunity to do this wonderful project on
applying Porters Five Forces and Diamond Model, which helped us
in doing a lot of research and coming across so many vital
information about the Aviation and the Automobile Industries.
We would also like to thank various institutions whose findings helped
us in finalizing this project within the limited time frame.

INDUSTRY ANALYSIS

EXECUTIVE SUMMARY
The purpose of this report is to study the Indian Airline Industry on the
basis of Michael Porters Five Forces Analysis and to derive an
understanding about the challenges faced both by the players who
are new entrants and incumbent players, as well as many potential
opportunities that can be utilized by them. The report is a brief
overview of data taken from the excerpts of research done by
organizations in the likes of IBEF, KPMG, PwC, ICRA, CAPA (India)
and other institutions of high credibility.

When the buzzword is Emerging Markets, why is it that India is

ranked low when it comes to the National Competitive Advantage.
This is pursued by the second half of this report which tries to put a
brief focus on what issues do the industries in India face. For the
sake of explanation, we took the example of Automobile Industry and
we analyzed it using Porters Diamond Model.

Keywords: Competitiveness, Aviation, Porters 5 forces, IATA,

Diamond Model, Automobile

Table of Contents

Declaration ..................................................................................................................................... 2
Certification .................................................................................................................................... 3
Acknowledgement ........................................................................................................................... 4
Industry Analysis .............................................................................................................................. 5
Executive Summary ...................................................................................................................... 6
Aviation Industry Analysis ............................................................................................................ 8
Objective ..................................................................................................................................... 8
About the Industry ..................................................................................................................... 8
Porters Five Forces Analysis ................................................................................................ 12
Conclusion ................................................................................................................................ 15
National Competitive Advantage ................................................................................................... 16
India ........................................................................................................................................... 17
Diamond Analysis ................................................................................................................... 17
Conclusion ................................................................................................................................ 21
References ................................................................................................................................... 23

Aviation Industry Analysis

Objective
This report is focused on the analysis of the Airline Industry in India
using Michael Porters Five Forces Analysis. This paper intends to
analyze the various parameters outlined by Porter to understand the
environment of the Industry both from the perspective of New
Entrants as well as the Incumbent players.

About the Industry

The Indian Aviation Industry has been seeing a healthy growth in the
Passenger and Freight Traffic since the past couple of years since
2009. This steady growth with a few drawbacks in 2009 & 2013, has
resulted due to a positive correlation between Air Transportation
Development and Economic growth. According to the FICCI -KPMG
Report of 2014 the Indian civil aviation industry is on a high growth
trajectory, albeit with minor hiccups 2009 & 2013). The industry has
ushered in a new wave of expansion driven by Low Cost Carriers
(LCC), modern airports, Foreign Direct Investments (FDI) in domestic
airlines, cutting edge Information Technology (IT) interventions and a
growing emphasis on No-Frills Airports (NFA) and regional
connectivity.
Currently, the Indian civil aviation industry is amongst the top 10 in
the world with a size of around USD 16 billion.

Between 2009 and 2011, the total domestic passenger traffic in India
has grown at a Compound Annual Growth Rate (CAGR) of over 17%
and if this growth were to continue, India is estimated to be among
the top three aviation markets in the world by 2020. Freight traffic is
expected to increase six-fold over the next decade. This is consistent
with the emergence of low-cost carriers such as Indigo, Go Air and
SpiceJet, besides freight players such as Blue Dart and Deccan
Express Logistics which has provided an impetus to air and freight
traffic.

The above charts show the steady growth of passengers in the

Domestic Aviation in India. The sudden fall in 2012 is attributed to
extraneous factors which had generally affected the global Aviation
Industry.

Moreover, on the premise that the growth in Airline Industry is in

positive correlation with the GDP of the country, on the basis of
the projected GDP positions by 2030 (compiled from PwC Report),
Indian Aviation Industry has promising opportunities to both the new
entrants and incumbent players.

Even though India has 6 major indigenous airline operators,

functionally only 5 operate with Kingfisher Airlines having its license
revoked by the DGCA. Their market shares as on November 2012 is
given below:

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Indian Aviation Industry, as a part of the general attribute of the

Aviation Industry globally, is difficult to breakeven within a short
period of time incurring heavy losses at length. With the exception of
IndiGo, almost all the Indian operators have been incurring losses. As
the report from PwC states:

However, according to the IBEF study, over the next five years,
domestic and international passenger traffic are expected to increase
at an annual average rate of 12 per cent and 8 per cent, respectively,
while domestic and international cargo are estimated to rise at an
average annual rate of 12 per cent and 10 per cent, respectively.
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According to Crisil Ltd. the airlines operating in India are projected to

record a collective operating profit of Rs 8,100 crore (US$ 1.29
billion) in fiscal year 2016.

Porters Five Forces Analysis

Michael Porter provided a framework that models an industry as
being influenced by five forces. A strategist seeking to develop an
edge over rival firms can use this model to better understand the
industry context in which the firm operates.
Using the same model, we will try to understand the current
environment of the Indian Aviation Industry. The outline of the Five
Forces Model given by Porter is as shown:

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Supplier Power
The power of suppliers in the airline industry is immense because of
the fact that the three inputs that airlines have in terms of fuel,
aircraft, and labor are all affected by the external environment. For
instance, the price of aviation fuel is subject to the fluctuations in the
global market for oil, which can gyrate wildly because of geopolitical
and other factors. Similarly, labor is subject to the power of the unions
who often bargain and get unreasonable and costly concessions from
the airlines. Third, the airline industry needs aircraft either on outright
sale or wet lease basis which means that the airlines have to depend
on the two biggies, Airbus, and Boeing for their aircraft needs. This is
the reason the power of the suppliers in terms of the three inputs
needed for them is categorized as high according to the Porters Five
Forces framework.

Buyer Power
With the proliferation of online ticketing and distribution systems, fliers
no longer have to be at the mercy of the agents and the
intermediaries as well the airlines themselves for their ticketing
needs. Apart from, the entry of low cost carriers and the resultant
price wars has greatly benefited the fliers. Moreover, the tight
regulation on the demand side of the airline industry meaning that
passengers and fliers have been protected by the regulators means
that the balance of power is tipped in their favor. All these factors
make the airline industry cede power to the consumers and hence,
the power of buyers is moderate to high as per Porters Five Forces
methodology. Apart from this, the buyers can engage in price
discovery meaning that price fluctuations do not deter them as they
have multiple channels through which they can book their tickets.

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Entry and Exit Barriers

The airline industry needs huge capital investment to enter and even
when airlines have to exit the sector, they need to write down and
absorb many losses. This means that the entry and exit barriers are
high for the airline industry. As entry into the airline industry needs a
high infusion of capital, not everybody can enter the industry, which in
addition, needs sophisticated knowledge and expertise on part of the
players, which is a deterrent. The exit barriers are also subject to
regulation as regulators in India do not let airlines exit the industry
unless they are satisfied that there is a genuine business reason for
the same. Moreover, the airline industry leverages the efficiencies
and the synergies from the economies of scale and hence, the entry
barriers are high. Therefore, applying Porters Five Forces
framework, we find that the airlines pose significant entry and exit
barriers, which means that the impact of this dimension is quite high.

Threat of Substitutes and Complementarities

At first glance, alternate modes of transportation have a difficult time
competing directly with air travel because of airplanes unique ability
to cover large distances quickly. One potential substitute was
teleconferencing, which had the possibility to radically reduce the
amount of business travel required. For a variety of reasons, it didnt.
Other disruptors are high-speed rail between regional cities, which
have had some disruptive effect outside of the US.
In other industries, substitutes are more common, and are often not
obvious as they begin to take root.

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Intensity of Competitive Rivalry

As mentioned in the introduction, the airline industry in India is
extremely competitive because of a number of reasons which include
entry of low cost carriers, the tight regulation of the industry wherein
safety become paramount leading to high operating expenses, and
the fact that the airlines operate according to a business model that is
a bit outdated especially in times of rapid turnover and churn in the
industry. Apart from anything else, the airline industry is regulated on
the supply side more than the demand side, which means that
instead of the airlines being free to choose which markets to operate
and which segments to target, it is the fliers who get to be pampered
by the regulators. This is the reason why low cost carriers have
literally grounded the full service airlines and when combined with the
intense competition that was always the case in India, the result is
that the sector is one of the most competitive in the country.

Conclusion
The Indian market is severely underserved with less than 3% of its
population utilizing the air route. The growing passenger numbers
and a burgeoning middle class indicate the possibility of healthy
passenger load factors (PLFs) for all airlines in the future. Experts
believe that the strong market growth rate coupled with the expansion
of infrastructure will help the Indian civil aviation space in rebounding
as the Indian economy recovers. The latest quarterly results indicate
that Spice Jet has also made a profit and is the second airlines after
Indigo to become profitable. Therefore, this is a good time for global
players to enter the Indian market to target not just the busy trunk
routes but also explore the potential of the large unserved market
through creating a hub-and-spoke model using smaller aircraft. There
are media reports of a potential joint venture between Jet Airways
and a foreign airline. But it may be premature to say that these are
green shoots of recovery.
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NATIONAL COMPETITIVE
ADVANTAGE

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India
Currently ranked at 40 by IMD Business School in Competitive
Advantage, India has to go a long way to make its environment
industry-friendly. Whether its Ease of Doing Business, Taxation
Policies, Investor Protection or a mere approval, our country gets
beaten at all fronts; looking at countries like US (ranked 1),
Switzerland (ranked 2) or even China (ranked 21), there has to be a
serious contemplation as to what is the issue faced by the industry by
large and how can those issues be resolved. For this purpose in this
report we try to understand through the use of Porters Diamond
Analysis or National Competitive Advantage Analysis. For the
explanation purpose we take the example of Automobile Industry in
India.

Diamond Analysis
In his study of national competitive advantage, Michael Porter
identified four sources or determinants that can affect the global
competitiveness of companies located in countries.
These four sources are: factor endowments; demand conditions;
related and supporting industries; and the strategy, structure and
rivalry of the companies located in a country.
Porter created a model linking these four sources in a diamond and
argued that firms are most likely to succeed in industries or industry
segments in which the four sources are favorable. He also argues
that the sources in the diamond form a mutually reinforcing system in
which the effect of one determinant or source is dependent on the
state of the others.

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Factor conditions
They are the inputs and infrastructure necessary for competition,
which include:
Human resources: quality and quantity of skilled labour, cost of
personnel, and labour skill variety;
Physical resources: the abundance, quality, accessibility, and cost
of the nations land, water, mineral, resources, hydroelectric power
sources, and other physical traits.
Knowledge resources: market, scientific, technical knowledge
residing in a nations research institutions;
Capital resources: capital availability and cost to finance industries.
Capital resources can be affected by the rate of savings and national
capital market structure;
Infrastructure: availability and quality of infrastructure, including
communication system, transportation system, payment or funds
transfer, health care, and so forth.
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Demand Conditions
It refer to home demand condition. Porter discussed home demand
through three general attributes: the nature of buyer needs, the size
and growth rate of home demand, and the transferability of domestic
demand into foreign markets. Porter has also described in his
location competitiveness study, about the advantages arising by
having sophisticated and demanding local customers or customers
with unusual need for specialized varieties that are in demand.
Related and supporting industries
They include parts and service suppliers and distributors in the supply
chain. As Porter stated, competitive supplier industries can provide
efficient, early, rapid, and preferential access to inputs, which are
basic production needs.
Moreover, the geographic proximity with internationally competitive
suppliers in the home nation helps build coordination and a
communication network, which in turn improves production efficiency.
Based on the availability and efficiency of supporting industries, the
most significant benefit of home-based suppliers lies in the ability to
accelerate innovation and upgrade in the overall auto industry.
Firm strategy, structure, and rivalry
This part discusses the context in which firms are created, managed,
and operated, given the domestic demand conditions, factor
conditions, and supporting industry situations. In a developed
industry, firms would build on the strengths provided by the source(s)
of competitive advantage and invest in improving the less competitive
factors.
Moreover, as per his research, the fierce domestic competition forces
firms to innovate constantly and improve productivity and hence
increase national competitiveness in the industry.
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Thus, strong local and global competition not only sharpens

advantages at home turf but also compels firms in the domestic
market to sell abroad as growth strategy.
Another very vital factor is the Government which is responsible for
framing policies and regulations for all industry activities. It is
therefore responsible for improving the well-being of all its citizens,
thus achieving economic and political stability. Government can
influence all the four general determinants either positively or
negatively. As Porter (1990) pointed out, government can affect factor
conditions by imposing subsidiary policies, capital market regulations,
and educational policies. It can also influence domestic demand
conditions by establishing product standards or regulations that direct
customer needs. Competition laws, tax policy, and other regulatory
statutes can affect both supporting industries and firm structure and
strategy.

Now applying the same by taking an Industry in India and analyzing

the same from the Diamond Model perspective. The following data
was acquired from Prof Manoj Joshi from the research done by him
on the Automobile Industry:

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Conclusion

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Thank You

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REFERENCES
Porter, M. (1990). Competitive Advantage. New
York: The Free Press. CRISIL. (2012).
A.T.Kearney. (2012).
FDI Confidence Index. A.T.Kearney. [4].
A.T.Kearney. (2012).
Aviation Report FICCI KPMG
Forbes IMD Most Competitive Countries
PwC Report
IBEF Aviation Industry Report
Prof Manoj Joshi , Amity University

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