The major focus of this report is an analysis of the computer industry focusing on the PC sales division with Dell Corp. in mind. The intent of the report is to provide an understanding of this industry, its major players, potential opportunities/threats, key success factors, and the overall attractiveness of the industry. In addition, an internal analysis of Dell, citing its major financial, operational, management strengths and weaknesses will be done. The conclusion will show the main opportunities, threats, present some alternatives, and then go through a proposed plan of action.
The industry seems to be in its mature phase and has possibly saturated the North American market in term of PC sales. Dell seems to have developed an optimal, and difficult to mimic strategy that has propelled them forward in the PC sales industry, but should be weary of it’s competition due to the nature of most oligopolies. Dell should also be aware of global economies and potential government restrictions and sensitivities. It should also fully analyze its competition before charging forward globally.
Dominant economic characteristics of the PC Industry Environment
Market Size: 350 million PC’s in use worldwide in 2000 and annual sales is 130 million units.
Scope of Competition: Primarily global competition amongst large vendors, but there is local competition as well amongst the “screwdriver shops” (i.e. generic brands) that account for about 50% of market share.
Expected market growth rate: Different views between experts.
Negative side: forecast of a slowdown of 10-15% growth range by 2005 which is down from the 20-25% range in the 1990’s.
Positive side: Hardware sales expected to grow at 15-20% in years 2000-2003.
Stage in life cycle: From mature to possibly saturation & stagnation.
Number of rivals: 6 major rivals with market shares from 4-14% worldwide who account for about 50% of sales. The other 50% of sales comes from a large group in which no one firm accounts for more than .25% market share.
Degree of vertical integration: This industry has moved from Backward Integration (producing their own hardware) to now try to mimic Dell’s style, which is an example of forward integration with the use of the Internet for direct sales, and some outsourcing techniques.
Entry/Exit: Very costly in order to compete directly with major players, but not so difficult to compete on a local level amongst “generic” PC’s. Difficult to compete with the industry leaders perfected approach.
Technology/Innovation: Production innovation highly geared toward constantly improving timeliness and speed of shipments, use of Internet, self-help and self-support tools, lower cost PC’s. Faster processors could also spawn new uses for PC’s.
Product Differentiation: Computers are weakly differentiated somewhat like an automobile would be. Customers could differentiate on the basis of brand name, level of customer service, timeliness, and other post sale benefits.
Scale Economies: Scale economies can be applicable here and have proven to result in a competitive advantage.
Capacity Utilization: Keeping low inventory levels using JIT (Just In Time) inventory system thus keeping close relations to suppliers coupled with efficient production lines can result in optimal capacity utilization.
Industry Profitability: Competition is intense and profit margins are low on industry for PC’s ($75 profit per $1300 system) which is less than 1%. Volume is important. Higher margins are available in other related areas such as sale of accessories, e-commerce, service contracts, higher end computers, etc..
Rivalry amongst competing Sellers
Rivalry here seems to be a moderate to strong force and the main tools the leading sellers are relying on are: the use of the Internet (for marketing, sales, and support), establishing relationships with suppliers, JIT inventory practices, self-help