Porter 5 Forces Analysis of Computer Industry

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Porter’s five forces analysis of the Personal Computer (PC) industry In his article “The five competitive forces that shape strategy“, Michael Porter (2008) updates and extends his “five forces” framework he first introduced in 1979 and which has influenced the academic and business research for decades. He reaffirms that “THREAT OF ENTRY”, “THE POWER OF SUPPLIERS”, “THE POWER OF BUYERS”, THE THREAT OF SUBSTITUTES”, and “RIVALRY AMONG EXISTING COMPETITORS” are the forces that shape every single industry, and a thorough understanding of such forces help analyze everything from the intensity of competition to the profitability and attractiveness of any industry. The framework has two dimensions; the vertical dimension that connects the raw material to consumers, and the horizontal dimension that reflects the way in which connection can be made. Both dimensions intersect in existing competitive rivalry. In this section, we try to gain insights about the PC industry by describing its key elements before undertaking a five forces analysis of the industry. Further discussion of the strongest forces in this industry follows in the next section. The top PC manufacturing companies consist of HP, Dell, Apple, Acer and Lenovo. Its market is highly concentrated with top five companies controlling about 70% of the global PC market. Competition within the PC industry is extremely intense and significant price competition is playing a major role in the industry's performance. Advancements in technologies and new innovations are making the industry’s competition fiercer. The PCs market includes consumers, businesses, government agencies, schools, etc. Hence, the PC users are diverse and they use their machines for different reasons. The PC is used to run businesses as well as to play games and listen to music or watch movies. The stage of the PC industry life cycle can be described as mature and companies are trying to diversify and / or globalize in a trail to overcome the slow growth rate of PC sales. According to a research released by the International Data Corporation (IDC), the worldwide PC industry which has enjoyed a rapid growth during the last two decades, is facing “tough realities in 2011 … [as] competition from new categories such as media tablets [is] heating up, [and] IT buyers are becoming more demanding” (International Data Corporation 2011). All these factors make the PC industry interesting, and invite scholars and business analysts for in-depth analysis of the industry to understand the main forces that are shaping its competitiveness.

1.1 Threat of entry
Porter (2008) argues that the threat of entry “puts a cap on the profit potential of an industry … [and] incumbents must hold down their prices or boost investment to deter new competitors” (p. 81). The large capital requirements to enter the computer industry combined with established brand identities of the current incumbents make barriers to entry high, not to mention the economies of scale and distribution channels that incumbents enjoy which make entry barriers even higher. The current PC incumbents enjoy demand-side benefit of scale in the business sector where PC buyers prefer to buy products from large trusted companies, raising the level of entry barriers. On the other hand, the following factors lower entry barriers: the customer switching costs are small as PCs are open systems with standard specifications that can be met by any manufacturer, governments don’t, usually, restrict entry to the PC industry, and previous examples tell us that industry incumbents are not expected to show vigorous reactions against new entrants.

1.2 The power of suppliers
PC makers either manufacture or buy the different components that constitute a PC. Most parts are available and can be bought from several suppliers. Unfortunately, most if not all PC manufacturers do not have the core technologies that enable them...
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