Michael Dell had steered his company through many phases and obstacles, making it one of the first computer manufacturers in the world. Basing the company on a direct sales model, with Dell being the only company in the beginning to do so, he grew the business many fold and simultaneously kept cost and inventory levels at a minimum (Days of inventory at 6 days, the lowest amongst peers). This formula worked well for the company till the market dynamics were more or less the same. Dell believed in selling computers as products and relied on branding based on the ability to sell computers effectively. While doing that, other companies such as HP and Apple were turning the art of selling ...view middle of the document...
For microprocessors there is either Intel or AMD and for the operating system there is mostly Windows or Linux. However, these two constitute less than 5% of the overall number of components in a final finished product on an absolute basis leading to low bargaining power of suppliers.
Bargaining Power of Buyers
Buyers have immense power in the industry. They dictate the segmentation and price points which will be accepted in the industry. This is true for both institutional and retail buyers. The fact that all companies cater their offering to the changing trends in the market mean that buyers hold power in the industry, making the bargaining power of buyers high in this industry.
Threat of New Entrants
This force is medium for the industry. Given the amount of vendors available in third world countries, who can assemble computers based on any specification, a company wanting to enter the market faces low barriers of entry in terms of unveiling the product itself. However, the mitigating factor in this case is that to challenge established companies and get market share from them, millions of dollars need to be spent to get a fraction of the share. Due to this the barriers of entry becomes higher, making the force medium overall for the industry.
Threat of Substitute Products
Threat of substitute products is low. This is because the functionality of a computer cannot be replaced with other existing technology at the moment. Even though phablets and tablets do pose some challenge to the computer overall, their processing power and lack of functions make them a weak substitute for computers.
Rivalry amongst existing competitors
This force is extremely high for the industry. The ebb and flow of the market, the fact that mergers are taking place and new companies are being formed and taking over the old companies, makes competition extremely strong in the industry. Also, the fact that the market is split between at least 5-6 competitors makes rivalry high in the industry.
Customers for all industries in the firms are broken up into two segments, mainly the institutional customers representing corporate clients and non-institutional customers represented by SME companies and retail buyers. Even though Dell has more than 19 segmentations present right now, these segmentations are mostly based on segments within these two large categories and represent needs such as gaming, heavy animation work and reliability of the systems being produced.
Main opportunities lay in enhancing the market share in the overseas market. Today most companies are focused on exploiting the US market with lesser amount of market share coming from overseas (international average 10%). They need to expand this number to achieve greater sales figures. This holds true for Dell also. Additionally, Dell needs to enhance its retail distribution network and reduce reliance on direct selling. Even though they are doing so currently, they need to strengthen it...