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current profitability while providing a framework for anticipating and influencing competition (and
profitability) over time. A healthy industry structure should be as much a competitive concern to
strategists as their companys own position. Understanding industry structure is also essential to
effective strategic positioning. As we will see, defending against the competitive forces and shaping
them in a companys favor are crucial to strategy.
Porters 5 Force Model is a framework that one can use for initial analysis of an industry or a sector.
7. Access to distribution
8. Customer loyalty to established brands - HIGH
9. Absolute cost - HIGH
10. Industry profitability LOW. Most of them are running in Loss
Buyer propensity to substitute LOW. But we can say Thermal Plants shall be replaced by
Nuclear/Renewable Sources like Solar, Wind, Tidal etc
D. Bargaining Power of Suppliers: MEDIUM BUT Uniform for almost all Power Manufacturers
Supplier competition - ability to forward vertically integrate and cut out the BUYER
The Indian market has seen healthy growth in recent years with the exception of 2010 when it
declined. The electricity market is expected to grow further in terms of value with moderate but rather
steady growth rates throughout the years up to 2016.
The Indian electricity market had total revenues of $77.9 billion in 2011, representing a compound
annual growth rate (CAGR) of 5.2% between 2007 and 2011.
In comparison, the Chinese and Japanese markets grew with CAGRs of 14.5% and 1.3%
respectively, over the same period, to reach respective values of $425.8 billion and $170.8 billion in
2011.
The performance of the market is forecast to decelerate, with an anticipated CAGR of 4.7% for
the five-year period 2011 - 2016, which is expected to drive the market to a value of $97.7 billion by
the end of 2016.
The Electricity Act of 2003 makes provisions for 100% FDI in the Indian power sector under an
automatic approval scheme and offers incentives such as 16% assured post-tax return on equity in
current dollars and a five-year tax holiday.
In spite of this, FDI inflows in power have been very moderate and have not shown a trend to increase
over the years. Indias total FDI inflows are about a fourth of those of China.
According to comments by Indias largest thermal power producer NTPC, the low FDI inflow in the
power sector is indicative of concerns of the foreign investors over the governments slow
progress in dealing with the sectors structural problems.
According to Economywatch.com, factors deterring foreign investment in India include unevenly
developed physical infrastructure which results in investments flowing to certain states, but not to
others, the slow development and improvement of railways as well as water supply issues.
Currently, the ceiling on the margin stands at 4 paise per unit for power
being sold at rates up to Rs 3 per unit and at 7 paise for power being
sold at rates above Rs 3 per unit.
Reforms undertaken:
1. Unbundling and privatisation: Generation, transmission, distribution
and marketing have all been unbundled and separate entities have
been set up to manage each function. Following the restructuring,
electricity assets have been privatised (largely through a public
bidding process).
2. Deregulation of the industry: Suppliers have been allowed to set
tariffs, and consumers have been permitted to choose their
electricity suppliers.
3. Creation of a competitive market in power generation and
marketing.
4. Opening up of the domestic electricity markets to foreign
investment.
5. Creation of electricity pools and independent system operators.