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STRATEGIC MANAGEMENT Paytm- Porters Five Forces and Value Chain Analysis

R J Mahesh B2484

INTRODUCTION Paytm is India's leading financial services company which was founded in August 2010. Paytm is headquartered in Noida, Uttar Pradesh. Paytm was founded by Vijay Shekhar Sharma with an initial investment of $2 million. The company is owned by One97 Communications Limited which is also owned by Vijay Shekhar Sharma. Paytm is available in 11 Indian languages and offers services in payment systems, shopping, banking etc. As of financial year 2019, Paytm has an active user count of 58 million and reported a revenue of US$510 million for the same year. (Paytm Group, 2020) During the COVID-19 pandemic in India, Paytm decided to contribute ₹10 to every single user who pays to the PM CARES fund via their app. It aims to donate ₹500 crore, and within ten days they have collected ₹100 crore in their app. Their 1,200 employees have contributed their 15 days or even a few months of their salaries to the fund.

PORTERS FIVE FORCES One of the models used to analyze competitive forces of an industry to determine its strength and weakness is Michael Porters five force model. The model was proposed by Michael E. Porter in 1979. The five forces are frequently used to measure competition intensity, attractiveness, and profitability of an industry or market. Porter’s five forces are: 1. 2. 3. 4. 5.

Competitive rivalry Power of suppliers Power of buyers Threat of substitutes Threat of new entrants

The analysis of Porters five forces on Paytm are as follows: 1. Competitive rivalry The availability of substitutes is a high competitive environment for Paytm. High threat of substitutes shows that customers can easily shift to competitors. Paytm faces competition from: 

Mobikwik

   

PayPal Ant Financial FreeCharge Razorpay

2. Threat of new entrants Threat of new entrants indicates how entry of new players into the market is a threat to the existing ones. There will be a high threat if the industry is profitable and barriers to entry is low. For Paytm, the threat of new entrants is moderate because: Entry into the Fintech industry requires high capital investment. There is no universal regulatory body for Fintech companies. In India, the RBI, SEBI, MEITY, IRDAI and the Ministry of corporate affairs purview the Fintech companies.  Company which wishes to enter the Fintech industry in India requires to file an application with the RBI to obtain the license. RBI has received over 41 applications out of which only 11 were accepted. (Kaur, 2020) 3. Threat of substitutes  

Threat of substitutes is high as customers can either use cash or card or UPI. Most of the people are comfortable with using and accepting cash. 4. Bargaining power of buyers

Bargaining power of buyers infer to the pressure customers can put on businesses to provide them with high quality goods and services at lower prices. Bargaining power of buyers are high because of:   5. Bargaining power of suppliers

Low switching cost Large customer base with close to 10 service providers

Bargaining power of suppliers refers to the pressure suppliers can put on companies to raise their price or to lower the quality. Bargaining power of suppliers for Paytm are high because of few payment service providers e.g. One97 Communications Limited.

VALUE CHAIN ANALYSIS A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product for the market. A value chain is a business term describing the full range of iterative activities a company uses to create a product or a service. The purpose of value-chain analysis is to increase production efficiency so that a company can deliver maximum value for the least possible cost.

Primary Activities 1. Inbound Logistics- Inbound Logistics include transferring materials from the supplier to the manufacturer. In the point of view of Paytm, inbound logistics includes activities like receiving, storing and disseminating the input of products. Paytm has outsourced most of its inbound logistics activities. 2. Operations- Operations are the activities which transform raw materials into finished product. From Paytm perspective, it can include converting consumer data to serve advertisements. 3. Outbound Logistics- Outbound logistics is the channel by which the final product is distributed to the consumers. The final product of Paytm is made available through the Paytm app.

4. Marketing and Sales- Marketing and sales activities of Paytm include – marketing, sales force management, advertising and promotion, channel selection, pricing etc.

Support Activities 1. Firm infrastructure- Firm infrastructural activities which support Paytm include finance, legal services, quality management, planning and general management. 2. Human Resource Management- HRM activities including hiring, training, compensation and development of human resource of a firm. 3. Technology Development: Paytm uses different technologies to support their activities. They use methods like Zendesk, Google forms for customer support. For product and design, software like Google fonts and balsamic are used. SendGrid, AppsFlyer are used for marketing. 4. Procurement: Procurement refers to the function of purchasing inputs used in the firm’s value chain, not the purchased inputs themselves....