B. Industry Analysis (Porter’s Five Forces)
1. Rivalry Among Competitors
The competition in personal computer industry is very intense and fierce. The five main manufacturers namely IBM, Dell, Apple, HP and Compaq are in competition to produce the least expensive and most efficient machine. Apple focuses more on innovation while Dell focuses on distribution channel and services, which create differentiation to some extent. Price competition has become severe in the industry as PC has become a more commodity-like product. This in turn has drives the industry to embrace any cost-cutting measures in an effort to increase their decreasing profit margin. Since the quality of a personal computer is largely determined by the microprocessor and application system installed, the profitability and prosperity of the industry is dependent of the profitability and prosperity of ...view middle of the document...
However, this treat would be low since the companies have created strong branding awareness.
3. Bargaining Power of Buyers
Organizations, governments and schools that purchase computers in a large volume have bargaining power in relation to price, feature and service plans. While personal computer buyers are price sensitive and do not exhibit strong brand loyalty. The switching costs are low. This situation places the buyer power in a strong position that can only be countered by manufacturer with strong product differentiation that would increase the switching costs. As long as buyers see little difference in the quality and features of available computers, price will determine their purchasing choice. Hence, the bargaining power of buyers can be consider as strong.
4. Bargaining Power of Suppliers
Personal computers are comprised of various components such as the microprocessor, motherboard, memory storage and peripherals like monitor, keyboard and mouse along with bundled software. Most of the components are highly standardized and widely available from many suppliers. Thus, suppliers of those components have low market power. An exception to these suppliers is INTEL whose has a strong influence over the personal computer industry as it is a single major supplier of microprocessor. The bargaining power of suppliers is moderate because the suppliers are in direct competition with each other to obtain exclusive contracts with the manufacturers to have them use their products.
5. Threats of Substitute products
The features of a personal computer has make it a necessity for many businesses and individuals as it taken many functions away from other products to become a substitute for products such as television, calculators, newspaper, fax machine and so on. However, substitutes of computers do not have as many features and capabilities as a personal computer. Hence, threat from substitutes is moderate in the personal computer industry.