Very good Analysis by Rohit on IT Industry

Warning: A long post on the competitive analysis of IT companies (low in entertainment value :) ). So please get a cup of coffee or tea before you continue further

I recently received a comment from madhav

The question I have on outsourcing kind of IT companies like NIIT, Infosys, TCS etc is, "where is the moat?".

Every company seems to be into everything that happened yesterday, today or will happen in the future. All companies are generally present in all geographies, across all industry sectors etc. To top up the challenge, the "asset" of such IT companies are their people, but the employees keep hopping between the competitors and there is hardly anything preventing them from doing so. So where is the moat or where is the long term advantage? This also leads to the question - how do you value such a company?


This is an interesting question and there are several ways to answer it. I will try to answer it, by first doing a porter's five factor model analysis on IT companies (for more on this model you will have read this book). I will then use the conclusions from this analysis to answer madhav's question and see if we can value these companies.

The porter's five factor model has the following five factors, on which the moat of a company can be analyzed (by the way, I do this analysis for every investment I do)

Entry barrier : Level of entry barriers in the industry to a new entrant
Level of rivalry : Level of competition within the existing companies
Supplier power : bargaining power of suppliers
Buyer power : bargaining power of buyers
Substitute product : presence of substitute products

To read the rest. Please visit Rohit's blog by clicking the below link

 http://valueinvestorindia.blogspot.com/2009/11/competitive-analysis-of-it-companies.html