Read this case study and answer the questions
Dell Computer and the Personal Computer Industry
The global personal computer industry is very competitive. On a global basis, Dell was the
worldwide market share leader in 2005 with 18.1%, followed by Hewlett-Packard (15.6%),
Lenovo (6.2%), Acer (4.7%), Fujitsu (4.1%), and Apple (2.2%). The remaining 49% of the
market is accounted for by a long list of small companies, some of which focus on local
markets and make unbranded so-called white box computers.
The long list of small companies reflects relatively low barriers to entry. The open
architecture of the personal computer means that key components, such as an Intel compatible
microprocessor, a Windows operating system, memory chips, a hard drive, and so on, can be
purchased easily on the open market. Assembly is easy, requiring very little capital equipment
or technical skills, and economies of scale in production are not particularly significant.
Although small entrants lack the brand-name recognition of the market share leaders, they
survive in the industry by pricing their machines a few hundred dollars below those of the
market leaders and capturing thàmhdnd constant pressure on the prices that brand-name
companies can charge.
Moreover, most buyers view the product offerings of different branded companies as very
close substitutes for each other, so competition between them often defaults to price.
Consequently, the average selling price of a PC has fallen from around $1,700 in 1999 to
under $1,000 in 2006, and projections are that it may continue to fall, fueled in part by
aggressive competition between Dell computer and Hewlett-Packard.
The constant downward pressure on prices makes it hard for personal computer companies to
have big gross margins, and this factor results in lower profitability. The downward pressure
on prices has been exacerbated by slowing demand growth in many developed nations,
including the world’s largest market, the United States, where the market is now mature and
demand is limited to replacement demand plus an expansion in the overall population.
To make matters worse, personal computer companies have long had to deal with two very
powerful suppliers: Microsoft, which supplies the industry standard operating system,
Windows, and Intel, which supplies the industry standard microprocessor. Microsoft and Intel
have been able to charge high prices for their products, which has raised input costs for
personal computer manufacturers and thus reduced their profitability.
In sum, the personal computer industry is not particularly attractive. The combination of low
entry barriers, intense rivalry among established companies, slowing demand growth, buyers
who are indifferent to the offerings of various companies and often look at price before
anything else, and powerful suppliers who have raised the prices for key inputs all come
together to make it difficult for established companies to earn decent profits. Against this
background, the performance of Dell Computer over the last decade is nothing short of
remarkable and illustrates just how strong the company’s business model and competitive
advantage had been.
Questions:
1. How is the nature of competition in the personal computer industry?
2. In recent years, which of the five competitive forces has become more positive for personal
computer producers?
Trong 5 force; có 1 force mạnh hơn 4 cái kia (Less posittive)
Cái force mạnh hơn là Subsitude ( sp thay thế ):
3. In recent years, which of the five competitive forces has become less positive for personal computer
producers?
Hoàng 1. Low barriers to entry: The case emphasizes the ease of entry due to
Việt open architecture and readily available components. This creates a
Long fragmented market with numerous small players, many adopting a
"focus strategy" by targeting niche segments or local markets.
Cutthroat price-based rivalry: This is the dominant theme. The case
states competition "defaults to price," average selling prices constantly
fall, and "aggressive competition" from Dell and HP keeps pushing
prices down further.
Low customer switching costs: Consumers view PCs as "close
substitutes," implying low brand loyalty and high price sensitivity.
Powerful suppliers: Microsoft and Intel specifically exemplify this force.
Their market dominance allows them to command high prices for
essential components, squeezing PC manufacturer profits.
Slowing demand growth: This exacerbates rivalry, forcing firms to fight
harder for shrinking market share.
2. Threat of substitutes
3. Rivalry among existing competitors
