This research paper discusses about value migration in 4 industries.
What is value migration?
Value migration is flow of economic value from old business model to new business model which are better able to satisfy customers. For example – Shifting of people from black and white television to colour television was value migration. For colour television industry it was value inflow but for black and white television industry it was value outflow.
Value migration happens in three stages –
Value Inflow – Companies or Industry is able to capture value from other industries or companies due to superior value.
Stability – Competitive equilibrium is established.
Value Outflow – Value move towards new industry or industry which are better able to cater needs of customers.
The four sectors covered in this paper are BFSI, Information technology, Oil and Gas, Consumer (Jewelry)
BFSI –
Shift is happening from public sector banks to private sector banks which are customer friendly. Corporate banking sector is facing challenges and public sector banks will face challenges on capitalization and growth. While private sector banks can emerge stronger because they have used digital capabilities and also expanded their branch network. They also have a strong traction in CASA mix.
Private sector banks have invested heavily in technology and have come up with various innovative products. Their CASA grew at fast pace. Also private sector banks have good digital architecture. They have higher share in digital transactions. Private sector banks have taken balanced approach. Through strategic partnership costs are under control and also profitability has been maintained.
For public sector banks, government announced recapitalization plan but most of the money will be used in provisioning requirement. FY 19 was in full compliance with Basel –III regulations; there was pressure on public sector banks to meet the capital norms.
Thus, value migration is accelerating in BFSI.
IT –
In last decade, Indian IT industry was in high growth trajectory. It was driven by cost – led value migration. But industry reached the stability phase once the market share gains and profit margins started to settle. But now the changing priorities are clearly visible. Next level of savings is offered by automation which will make location irrelevant. Client’s technology systems are changing. Digital transformation is needed to survive threat from born in cloud organizations. Indian IT industry needs to replace traditional stream revenue with new ones.
Oil and Gas –
In recent years, rising pollution is a key concern while making policies. According to WHO, half of the 20 most polluted cities globally are Indian. Various policies like Hydrocarbon Exploration Licensing Policy (HELP), Open Acreage Licensing Policy (OALP) etc. are expected to boost domestic gas production.
There’s a lack of infrastructure. But government’s focus on battling pollution by taking initiatives in gas sector can help in increasing demand. Small scale LNG is yet to take off in India. Companies have announced their intentions. But with enabling policies, improvement in pipeline infrastructure etc. whole gas sector is likely to benefit. Importers would be the biggest beneficiaries, as demand will increase and domestic gas production is unlikely to keep pace.
Consumer – Jewelry
The core drivers for jewelry such as rising disposable incomes, changing consumer preferences etc. remain relevant. Other drivers have emerged that are – GST implementation has tilted the balance in favor of organized layers. Unorganized players will have further disadvantage because of more stringent rules being introduced. Unorganized players also have lower credit availability after breakout of Nirav Modi scam. Companies are also taking initiatives in the form of exploring the unexplored segments of businesses. According to World Gold Council (WGC), gold demand was flattish or declining for past 3 quarters. Overall there was no increase in market size but Titan Company’s market share increased.
The Fundamental Mindset 