Introduction
Dell is a multinational company operating in the computer industry and the company has achieved great success in marketing its products in the global markets. To maintain its market position the company has embarked on manufacturing differentiated products by the application of innovative technologies.
The company has focused on marketing its products in the global market and to achieve this strategy the management has established online marketing channels, retail stores and other foreign partnerships (Ignatiuk, 2009). The position of the company in the computer industry is explained by porter’s five forces analysis.
Application of Porter’s Five Forces Analysis to Dell
Porter’s five forces provide an analysis about the external and internal environments of an organization. The forces analyzed by the Porter’s tools are: threat of new entrants, bargaining power of customers, bargaining power of suppliers, and rivalry among competitors in the industry. Dell has experienced these forces in the computing industry and these have provided threats and opportunities for the company.
Threat of new entrants
Entry costs
The cost of establishing a computer company is very high and many investors have feared incurring the huge costs of penetrating the market. In addition, there are high costs involved in promoting new products in the global markets to enhance acceptance. The market has been unfavorable to new entrants because the costs of entering the market have been very high and this makes the existing companies to continue dominating the market (Ignatiuk, 2009).
Speed of adjustment
There is great need for companies to adopt better technologies in order to adjust from one products or system to another in the computer industry. This has made it impossible for new companies to enter the market because they lack the technologies required to adjust from one product to another (Ignatiuk, 2009).
Sunk costs
Starting up a computer industry requires large capitals. In addition, the investors should have adequate capital to sustain the business before profits are made. Many companies have found it challenging to sustain them in the market because there are high costs incurred before they start making profits (Gilad, 2011).
Economies of scale
The computing industry requires manufacturing products at large scale in order to make profits. This has restricted investors from penetrating the market because it is not possible to enter the market when a company manufactures small quantities of products. Companies without enough capitals to produce in large quantities cannot sustain themselves in the market in the long term (Kotler & Lee, 2005).
Network effects
The customers for Dell products are sparsely distributed and there is no single market with excess concentration of customers to an extent that they can influence the marketing polices of the company. The customers in the market have little or no control over the prices and quantity of products offered in the market (Lucas & Kirillova, 2011).
Reputations
Firms in the computer industry are working on promoting their brands so that they can maintain a high level of reputation. Consumer loyalty is earned when the products of a company have a good reputation. As such, Dell has applied various methods, such as online retail marketing, advertising, and other strategies to promote its products (Lawton & Michaels, 2001).
Switching costs
There are high switching costs for the consumers in the computer industry. Switching costs refers to the extra costs that consumers must incur to shift from purchasing a certain product to another. For a customer to change from using Dell products to other products higher costs will be incurred and this makes customers loyal to specific companies (Fields, 2004).
Government restraints
The government has encouraged a competitive environment in the computer industry to ensure that companies offer the best products at the best prices possible.
Power of input suppliers
Supplier concentration
There are many suppliers in the computer industry and there is no single supplier with complete dominance on the supply of materials and equipments. Many companies have entered the market and are offering competitive prices for their supplies. Therefore, the suppliers have no power to control the pricing of supplies in the market (Gilad, 2011).
Price/productivity of alternative input
There has been a stiff competition among suppliers in the computing industry and this has made prices to be as low as possible. Many suppliers compete in terms of lowering prices to attract more companies. Dell has enjoyed favorable prices for its supplies and this makes most of its products to be sold at fair prices (Gilad, 2011).
Relationship-specific investments
Dell has invested in a wide variety of businesses which are related. The company manufactures computer hardware, software, computer peripherals and other related products. As such, the company has been able to influence the suppliers in the market because it makes bulk purchases. As such, the company has been able to bargain successfully for cheaper and high quality supplies because of the control it has in the market (Kotler & Lee, 2005).
Supplier switching costs
Suppliers find it difficult to switch from one company to another. This has been contributed by the high costs of promoting, entering new markets among other associated costs (Lawton & Michaels, 2001).
Government restraints
There are few restraints on the supply of computer devices. Many governments encourage investment in technologies especially in the computer industry to ensure new products are developed. This has caused the development of competitive products in the market. Thus, input suppliers are free to manufacture and sell their products locally and globally (Kotler & Lee, 2005).
Rivalry among competitors
The computer industry has experience a very high level of rivalry among the existing firms. Product differentiation is a major aspect in the industry. Companies in the industry have developed variety of products which are differentiated as a way of promoting their market position in the global markets. There is free flow of information in the industry and there is no specific company with the monopoly to manufacture specific products. This increases the level of competition ion the market (Lawton & Michaels, 2001).
Switching costs for consumers are low and this makes them change easily from purchasing from one company to another. More firms are entering the market and the level of concentration is increasing. This has increased the level of competition in the market. To position their products effectively in the market, firms in the industry are focusing on improving the quality of products, reducing prices and manufacturing in large quantities to enjoy economies of scale (Lawton & Michaels, 2001).
Conclusion
Dell has a good market position in the computer industry and the management should focus on continuing with the strategies adopted. Threat of new entrants into the market is low and the company should not fear the entrance of new companies in both domestic and global markets.
Suppliers to the company have low influence on the strategies adopted by the company. It is important for the management to focus on offering competitive prices while ensuring that the quality of products is high. This can only be achieved by regulating the activities of the suppliers.
Bibliography
Fields, G. (2004). Territories of Profit: Communications, Capitalist Development, and the Innovative Enterprises of G.F. Swift and Dell Computer. Stanford, CA: Stanford University Press. Retrieved from Questia database: https://www.questia.com/read/108982845/territories-of-profit-communications-capitalist
Gilad, B. (2011). Strategy without intelligence, intelligence without strategy. Business Strategy Series. 12 (1). pp. 4-11.
Ignatiuk, A. (2009). Analysis of Dell’s Business Strategy. Germany. GRIN Verlag.
Kotler, P. and Lee, N. (2005). Corporate social responsibility: doing the most good for your company and your cause. New Jersey: NJ, John Wiley and Sons.
Lucas, M. T. and Kirillova, O. M. (2011). Reconciling the resource-based and competitive positioning perspectives on manufacturing flexibility. Journal of Manufacturing Technology Management. 22 (2). pp. 189-203.
Lawton, T. C., & Michaels, K. P. (2001). Advancing to the Virtual Value Chain: Learning from the Dell Model. Irish Journal of Management, 22(1), 91+. Retrieved from Questia database: https://www.questia.com/read/1P3-88097056/advancing-to-the-virtual-value-chain-learning-from