Porter's forces analysis is a framework for industry analysis and business strategy development that draws upon industrial organization economics to determine the competitive intensity and overall industry profitability. These forces are 1) potential entry of new competitors, 2) bargaining power of suppliers, 3) bargaining power of buyers, 4) substitute products, 5) rivalry among competing sellers in an industry, and 6) power of stakeholders. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information and adjust strategies.
Threat of New Entrants
The first force, potential entry of new competitors, measures the barriers to entry in a particular market place and whether or not new players can easily transition into the industry. If this is low then there is low level of threat of new firms entering the industry and vice versa. As it has been stated by Michael Dell, his only fear about his business empire is the possibility of new entrants to the market who could adversely affect his business. And moreover, Dell’s new strategy is the product diversification; therefore, almost all electronic companies are potential entrants to this new market. Due to the lack of legal governmental barriers and low economies of scale, threats of new entrants are moderate. There is low capital investment for independent stores as well as low product differentiation. However, unrecognized brand names may cause a barrier for entry. MODERATE
The Bargaining Power of Suppliers
The second force, bargaining power of suppliers, determines the amount of influence that suppliers of raw materials, components, labor, and services have on firms in a given industry. When there are few substitutes this can be a source of power over the firm because of the uniqueness of the supplier’s product. In this case the level would be high, and if opposite conditions exist the level would be low. According to common assumption, power is high where the brand is powerful. Therefore, Dell is assumed to have far higher bargaining power than the suppliers. Dell has been successfully managing its competitors in terms of getting the needed supply of inventories and get them produce the inventories according to the specifications of the company. And the CEO of the company, Michael Dell also mentioned that Dell Company never sticks to one supplier forever, as they always change the suppliers if the suppliers are not meeting the demands of Dell. And the company always goes to the supplier which is innovative and cost competitive among other rival suppliers. Therefore, it again indicates that Dell has higher bargaining power than its suppliers. Bargaining Power of Suppliers: HIGH
The Bargaining power of Customers
The third force, bargaining power of buyers, determines the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to changes such as price. If the consumers can easily and often dictate what firms in the industry do in terms of strategy then this level will be high, and if the opposite is true then it will be low. One of the competitive advantages Dell has gained has been through offering in-person relationships with corporate and institutional customers. This is done by telephone; internet purchasing, customized computer systems where corporate clients can go to Dell’s special website called Premier Dell.com and configure computer systems in regard to the price and specifications. Moreover, they have post sales online supports which are online and in some cases the company engineers can even visit the customer sites. As long as the company has been serving giant companies such as governments, and huge companies such as Cox communications, EDS and etc, they tend to be permanent customers as it costs massive money for the customers to switch from Dell to another company....