Dell case study analysis five forces
Abdullah Coskun
MQM 385 – Section 6 DELL
The Personal Computer Industry The personal computer industry is a very highly competitive industry. There are many companies out there that are manufacturing personal computers. IBM launched its first PC in the year 1981and in two years was able to hold 42% of the market. As demand for IBM PC’s went through the roof, many other competitors started entering the market. Most of these companies relied on resellers and retailers to reach their consumers. Throughout the 1980’s and 1990’s, new advancements in PC performance helped drive down prices rapidly. In the United States, the personal computer industry was a $74.6 billion industry in 1998. About 45.5% of households in the United States owned a personal computer in 1998 and this figure was projected to rise to 49.5% by 2000. Household ownership was lower across the rest of the world but growth was seen in Europe and Asia.
Threat of New Entrants The threat of new entrants is low for the personal computer industry. This is because of the big barriers to entry related to the industry. For a company to enter the industry, they require a large initial capital investment due to the nature of the million dollar manufacturing facilities needed for producing PCs. Also it is not easy getting the proprietary technology some PC manufacturers have. With the use of robots it is much easier to put together PCs. For a new entrant, if this technology is not available to them, it would be very expensive to use labor to assemble PCs. Also if a company might be producing some of its own hardware components which put it at an advantage a new entrant cannot achieve. Without access to some distribution channels it can be very difficult because many established companies have contracts with key distributors who control a majority of the market. This especially applies to operating system and microprocessor distributors. Also barriers to exit are moderately high because if a firm has a
MQM 385 – Section 6 DELL
The Personal Computer Industry The personal computer industry is a very highly competitive industry. There are many companies out there that are manufacturing personal computers. IBM launched its first PC in the year 1981and in two years was able to hold 42% of the market. As demand for IBM PC’s went through the roof, many other competitors started entering the market. Most of these companies relied on resellers and retailers to reach their consumers. Throughout the 1980’s and 1990’s, new advancements in PC performance helped drive down prices rapidly. In the United States, the personal computer industry was a $74.6 billion industry in 1998. About 45.5% of households in the United States owned a personal computer in 1998 and this figure was projected to rise to 49.5% by 2000. Household ownership was lower across the rest of the world but growth was seen in Europe and Asia.
Threat of New Entrants The threat of new entrants is low for the personal computer industry. This is because of the big barriers to entry related to the industry. For a company to enter the industry, they require a large initial capital investment due to the nature of the million dollar manufacturing facilities needed for producing PCs. Also it is not easy getting the proprietary technology some PC manufacturers have. With the use of robots it is much easier to put together PCs. For a new entrant, if this technology is not available to them, it would be very expensive to use labor to assemble PCs. Also if a company might be producing some of its own hardware components which put it at an advantage a new entrant cannot achieve. Without access to some distribution channels it can be very difficult because many established companies have contracts with key distributors who control a majority of the market. This especially applies to operating system and microprocessor distributors. Also barriers to exit are moderately high because if a firm has a