Assessing The Scope Of Competitive Rivalry Commerce Essay Example

in case any needs arise. In case of failure, companies like Dell and HP can quickly switch suppliers.

Easy Entry/Exit in the Industry:
The industry poses difficulties for those trying to enter or exit due to strong competition. Start-ups encounter significant barriers when attempting to establish themselves, while established companies like Sony can enter later on thanks to their size advantages and pre-existing structure. Without innovative approaches that enhance current business models and optimize efficiency throughout all aspects of their venture, only established corporations have the ability to penetrate this market.

Technology Invention

The industry is completely driven by innovation, as it is solely based on technology. New products are constantly being developed, on a daily basis in fact. Intel, for example, regularly releases computer processing units (CPUs) every three months. As a result, prices decrease by 5% each week. These CPUs are crucial components of computers.

Due to the rapid growth of engineering, computer companies always seek ways to reduce inventory carryover while still maintaining sufficient stock in case of high demand.
Merchandise Features: The complexity of defining computer product features arises from both the intricacy of computers themselves and the vast number of products associated with this industry. When considering the main components, the industry includes computers (servers, desktops, laptops), peripherals such as wireless routers and printers, and external storage. Computers vary in terms of processing speed, hard drive capacity, number of video display outputs, number of audio channels, and amount of random access memory based on price.
Economies of Scale: Like most industries, success in obtaining the best products at the best price is crucial for computer companies. However, there are some gray areas that exist.

AMD and Intel dominate

the personal computer CPU industry, while SIS and Centaur are less reputable competitors. Similarly, Nvidia and ATI are the primary players in the video card market, with many manufacturers using their chipsets. Both industries place a strong emphasis on marketing and advertising.

The public needs to be consistently reminded about the best computing machines to purchase. Many companies, due to cost film editing and international expansion, outsource some or most of their processes. To further reduce costs, they keep inventory carryover low.

Effects of Learning and Experience Curve

The industry is characterized by the philosophy of "learn by doing". For instance, Dell has been improving efficiencies in their business model for the last 18 and a half years (as of 2008). As a result, they are a leader in various aspects of their value chain.

The competition, despite their limited experience in this scenario, imitates Dell's approach.

Capacity Utilization

Similarly to other industries, it is essential to maintain high capacity utilization for optimal efficiencies. Given the narrow profit margins on computers and components, companies need to save costs in all aspects of their operations.

Industry Profitability

When a company is effectively managed and comprehends its customers' requirements, industry profitability can be substantial.

When processes fail or collapse, a company's profitability can quickly decline. Compaq (formerly known as HP) serves as an example of a company that suffered from poor management. Executives were unable to find ways to generate profit, leading the company to perform poorly. Despite maintaining a significant market share, Compaq operated at a loss for several quarters.

Industry Driving Forces Despite the industry having several driving forces, three stand out as the most predominant. Firstly, the significant impact of increasing globalization on assessing

company size and strength cannot be ignored. Outsourcing operations to various countries results in reduced manufacturing costs throughout the entire value chain. India, for instance, is often chosen as a hub for technical support call centers. As the world becomes more interconnected, maintaining a strong brand presence within multiple markets is essential for the sustained success of leading competitors.

The second driving force for innovation is the dissemination of skilled knowledge across various companies and countries. Like globalization, outsourcing assists in pinpointing the most cost-effective country for research and development opportunities. Collaborating with multiple minds enhances the likelihood of innovation. Consequently, developing nations offer unique perspectives and requirements compared to developed economies, which fosters new idea generation. The third driving force encompasses alterations in cost and efficiency. As mentioned earlier, understanding and implementing the "Just in Time" strategy is essential for companies in this industry.

The value of computer components is decreasing and they are becoming more energy efficient, leading to the development of newer and improved products compared to those from three months ago.
Key Success Factors: Just like the driving forces, there are several crucial success factors associated with this industry. One of them is that top competitors possess expertise in a particular technology or specialized research (in this case, computer programming).

The company's primary objective is to offer customers a selection of high-quality (or most cost-effective, depending on the business model) components. The quality of these components is crucial in determining the overall quality of computers. Additionally, it is essential to enhance production processes by reducing inventory days and improving competitiveness through decreased vertical integration. As manufacturing costs for computer components decrease, prices also go down,

resulting in lower computer prices.

Improving production processes is an effective way to maintain high profitability. Another crucial factor is having expertise in quality control. Regardless of the issue with one's computer, it is always the manufacturer's fault. If HP or Dell builds unreliable computers, customers will easily switch to another brand without hesitation. Therefore, it is essential for top competitors to prioritize quality control in their factories.

If a certain component of the computer keeps failing, then it is likely the fault of the component manufacturer, and not the "brand name" computer creator. Other key success factors include product performance, reputation/image, and customer service capabilities.

PORTER'S FIVE FORCES MODEL OF COMPETITION

Dell has stayed innovative in their approach to building computers. They proved over the years that providing differentiated, customizable computers with exceptional customer service at reasonable prices is possible. During the early years, Dell was able to outperform the competition by significant margins. When they developed strategic plans to sell computers internationally, they quickly gained some of the market share once held by super-giant IBM.

In 2007, Dell generated more than 41% of their total revenue from international sales. They expanded their business model by offering Dell branded speakers, printers, and ink cartridges in order to diversify their product offerings. Although not all diversification attempts were successful, Dell demonstrated innovation in reaching customers. Michael Dell had a clear vision for his business from the start, which has led to one of the most successful computer ventures ever.
Rivalry Among Competing Sellers:
Dell's competitors go beyond PC manufacturers.

The company competes and tracks sales in various merchandise categories such as desktop Personal computers, mobility products (laptop Personal computers and workstations), software

and peripherals (printers, monitors, TVs, projectors, ink and toner cartridges), servers and networking hardware, consulting and enhanced services, and storage products. Its main rivals in these categories include HP, Lenovo/IBM, Apple, Acer, Toshiba,Sony,Fujitsu-Siemens,Sun Microsystems , EMC ,Hitachi,Cisco,Broadcom,,Enterasys,Nortel ,3Com,Airespace Proxim,Lexmark Canon,Epson Accenture,and EDS. The competition among them is intense. If one company faces any slight weakness along the value chain,the other competitors will seize the opportunity to gain market share. For instance,in Q1 2008,Dell had a global market share of 15.7%, which increased from 14.8% in Q4 2007.

The market share of the competition, excluding HP, Dell, Acer, Lenovo, and Toshiba, experienced a 5% decrease. Although there are slight differences in figures, it is clear that the top five competitors hold a strong position in gaining market share. Dell distinguishes itself by offering a distinctive product. They take pride in delivering superior computers at prices more competitive than their rivals by directly selling to customers.

Before Dell, no other company had successfully offered such a comprehensive sales model. Sales and promotions were focused on specific software packages (such as monitor, printer, and computer all in one purchase) and outdated computer designs. Dell, on the other hand, has a distinguished track record of encouraging businesses and schools to purchase specially configured computers that can be further customized. Customers can save more by purchasing computers bundled with antivirus software, Dell guarantee, and interest-free payments for six months with a Dell premier credit card. While competitors like Sony may have similar incentive programs, none of them can rival Dell.

Despite a long period of solely focusing on direct consumer sales, Dell experienced a decrease in market share when compared to Apple due

to their absence in physical stores. To prevent losing market share to HP and Apple, Dell formed partnerships with Best Buy and Wal-Mart, even though customers would essentially have to pay extra for the same computer that could be purchased directly from Dell. Furthermore, in 2003, Dell began offering white-box PC solutions, resulting in an additional $380 million in revenue. Although this decision was questioned by some critics, it was mostly viewed as an effort to compete with white box traders based in China.

Potential New Entrants

The threat of potential new entrants is low, if not impossible. There are significant economies of scale in production and other operational areas for Dell. These include a substantial amount of marketing and advertising investment in Dell's products, as well as the ability to outsource certain parts of the business that may not be profitable by locating them in the US. Furthermore, Dell is a leader in minimizing inventory on hand. Along with economies of scale, the learning and experience effects curves must be considered. Dell has adopted a "learn by doing" approach, continuously improving efficiencies in its business model for over 18 years (as of 2008).

Dell stands unrivaled in the competition. In well-established industries, brand loyalty is robust and customers tend to remain loyal. Dell's emphasis on being a cost-effective leader ensures that they need not fret over customers switching solely due to price considerations. Customers favor a reputable brand that has demonstrated its worth over time. Consequently, HP, Dell, Acer, Lenovo, and Toshiba will persist as the foremost global contenders for numerous years ahead. However, Apple, although a

frontrunner in the US market, will encounter challenges when competing in price-conscious markets.

With the market dominated by five major players, any new competitor will face tough competition in the crowded half filled with unknown brands. Like in established industries, starting a company would require significant capital, likely in the millions or billions of dollars. Consequently, well-known brand names have remained in the market for decades. Moreover, negotiating favorable deals with distributors and retail stores would pose challenges.

What is the basis for new consumers to trust a brand new computer company? This is why Insignia failed. Even if the company resolves these issues, they will still have to comply with restrictive regulations, duties, and international trade restrictions. A new challenge will arise if the company can find a solution for each of these difficult situations.

Alternative Products

Alternative products are becoming a problem within the industry. As technology advances, yesterday's products become obsolete.

The personal computing machine is facing a major threat from the smart phone. Despite being much smaller and fitting in the palm of the customer's hand, smart phones are capable of performing many functions that a computer can. However, for users working on larger scales such as movie makers, musicians, and journalists, the computer will always be irreplaceable. Due to the increasing popularity of smart phones, computer companies are now competing in this market.

Supplier Bargaining Power

Dell has weak bargaining power with its suppliers, but there is some flexibility. For example, Dell regularly switches between Intel and AMD as its main CPU providers. These two companies are in fierce competition, so they constantly strive to offer high-quality products at competitive prices. When

Dell switched to AMD in 2006, it was because AMD could provide a better performing chip at a better price. The same kind of situations occur with peripherals like printers (switching from HP to Lexmark and then branding their own), various speaker offerings from Altec Lansing and Dell's own branding, and different suppliers for the motherboard. Dell will switch to the supplier that offers the best price as long as it does not compromise the quality of the components.

Buyer Bargaining Power Buyer bargaining power is high. There are a variety of products to choose from at lower price points than the competition. Buying points in packages leads to greater savings, especially if customers have a Dell Prime Minister account. In addition, refurbished or customer-returned computers are offered at even greater discounts.

Given that engineering constantly changes and purchaser preferences shift, merchandise versions are eventually created. Customers expect the best products at a competitive price. Should Dell fail to adhere to their own mission statement, they will lose their current market share.

Value Chain Analysis

Dell's objective is to offer affordable prices on a diverse range of customizable personal computing solutions through direct customer sales. Additionally, they have an efficient supply chain and manufacturing process, enabling them to maintain a leading position in the industry. This allows them to sell high-quality products at price points that their customers can afford.

Recently, Dell has expanded its product offerings in retail stores such as Best Buy and Wal-Mart, aiming to compete with Apple. In 2008, studies revealed that Dell was lacking in the laptop market. To address this issue, they decided to partially shift their assembly process to manufacturing facilities in Asia.

After the initial assembly was done in Asia, the partially assembled computers were sent back to the US for final completion. However, this approach resulted in higher costs compared to outsourcing the entire operation. Consequently, Dell started producing laptops entirely overseas.

Other techniques to reduce costs involve reducing the number of days of inventory on hand. As of 2002, Dell was able to minimize their inventory to anywhere between 2.7 and 4 days. These low stocking days, combined with their purchasing model, give Dell a significant advantage. When customers configure their computers online or at the kiosks, they must pay in full before their computer can be assembled.

Dell has a significant advantage as they have the funds for the computer or other products even before the customer receives the physical merchandise. They also provide special deals for professional organizations, schools, and other preferred Dell account members. By maintaining a close relationship with customers, Dell is able to provide additional value such as expanded product offerings and 24/7 customer service. In addition, Dell conducts multiple tests during the manufacturing process to minimize errors and enhance their cost reduction efforts.

At the end of the fabrication process, the computers are equipped with an operating system and various programs to enhance customer value. Essentially, when customers receive their computers, they only need to power on the device to begin using it. Dell recognizes that maintaining strong relationships with suppliers results in superior computers, which ultimately improves customer satisfaction and keeps costs down. When customer satisfaction is high, they are likely to purchase additional products from Dell, like printers. Moreover, by offering 24-hour technical support, Dell can continue highlighting the significance

of their customers to them.

Dell has discovered methods to produce products at more affordable prices by outsourcing tasks such as laptop manufacturing and customer service call centers. If Dell were to manufacture their own computer components, they would not be able to maintain their competitive advantage. The costs of research and development and production capacity would eliminate profit margins, potentially putting Dell in a financially difficult situation. Updates to their current product offerings are implemented every few months, introducing enhancements in performance, new input device technologies (such as eSata and USB 3.0), and improved energy efficiency.

Benchmarking Activities are crucial in most industries for improving efficiency and developing better products. In engineering driven industries, benchmarking is even more essential for survival. Dell has a straightforward goal: to maintain low prices by allowing customers to create their own personalized computer based on predefined specifications. By doing so, Dell avoids the need to carry pre-configured computers in inventory. While they do offer discounted refurbished models, it is not a significant part of their business. Due to their unique business model, Dell can provide customizable solutions that minimize costs, reduce the need for inventory transfer, and require customers to prepay or establish a preferred payment history before receiving the computer.

By eliminating intermediaries, Dell can pass on savings to the customer. Additionally, by constantly seeking to improve the manufacturing process, order fulfillment and shipping methods for customers, and employee training, Dell can maintain its competitive advantage.

Activity Based Costing

Dell breaks down individual activities in the value chain into various components that provide cost estimates and capital requirements. Categories include advertising, research and development, technical support (hardware and software), sales, general

administration, engineering, and logistics. Any changes in one activity can impact the other activities in the chain.

Once Dell determines their cost estimates, they can analyze their competition with companies like HP, Lenovo, and Acer. From there, they can make the necessary adjustments to maintain success.

Competitive Strength Assessment

Analyzing Dell's competitive strength appraisal is done using two criteria. First, how does Dell compare to competitors on each important key success factor that determines market success? Second, does Dell have a net competitive advantage or disadvantage compared to major rivals? Dell recognizes that in order to remain competitive, they must not lose sight of their business model. They continuously search for ways to reduce costs along every aspect of the value chain. As a result, they perform well in the competitive strength assessment.

They continue to meet their customers' needs by providing comprehensive computing solutions. This evaluation involves comparing pre-defined industry key success factors with the top competitors, such as expertise in a specific technology or scientific research, demonstrated ability to improve production processes, and knowledge of quality control compared to other competitors. Additionally, other strengths will be considered. These include product performance, reputation/image, and customer service capabilities.

After reviewing the cardinal success factors, the overall strength evaluation will be determined. Weights range from highest (strongest) to lowest (weakest). This appraisal helps identify which countries Dell excels in and highlights areas of improvement.

According to the competitive strength assessment, Dell is still stronger than HP but not as strong as Apple. However, Apple's higher ranking does not necessarily mean they sell more units. In 2007, Dell shipped 19,645,000 units in the US compared to Apple's 4,081 units. On a global

scale, Apple is not ranked, while HP shipped 50,526,000 units and Dell shipped 39,993,000 units.

Apple's merchandise line is priced higher overall than the competition, as they believe in extensively researching and developing the best combination of parts. They spend a lot of time researching components to determine which ones work best together. Customers perceive Apple computers to be more stable and have longer lifespans compared to competitors, although it is not proven if this is just a marketing claim or a legitimate fact. Regardless, customers tend to believe this is true.

Best-Cost Provider Strategy

By late 1997, Dell had established their position in the market.

Dell has emerged as a dominant player in the market by continuously finding innovative methods to improve their direct sales business model. Their objective was to deliver high-quality computers at lower prices compared to their competitors, and they managed to achieve this goal. This strategy has given them a significant advantage in the industry and has established them as a major player with a substantial market share. Dell's success can be attributed to their ability to offer customizable computing solutions at unexpectedly low prices by eliminating intermediaries.

Through the use of this strategy across multiple product offerings, a wide range of computer users, from business terminals to personal home users, were targeted. Michael Dell, the owner, accomplished this by consistently comparing the company's performance with others in the industry. He continuously sought ways to improve all aspects of the business, including improving assembly efficiency, enhancing quality control, strengthening partnerships with suppliers, implementing just-in-time inventory practices, redesigning the website, making improvements in customer service and technical support, and introducing Dell computers in retail stores. In

order to enhance value, Dell organized forums where senior management could listen to their most valued customers and determine future needs and expectations of buyers.

In 2007, Dell initiated a strategy to increase customer value through IdeaStorm, an online platform where customers can submit ideas for improving the company. This strategy resulted in significant benefits for Dell, as they were ranked as the top provider of exceptional customer service to large enterprises in 2005.

Vertical Integration

During the early stages of the industry's development, it was crucial for a computer manufacturer to have some degree of vertical integration. Failing to do so would result in customers not receiving their products satisfactorily.

Despite the shift in logic, being vertically integrated is now seen as detrimental to long-term company success. It is best for Dell to not be vertically integrated in order to efficiently mass-produce computers. Currently, Dell maintains an arm's-length relationship between specialized providers, manufacturers/assemblers, and end users. It is unlikely for Dell to ever revert back and become partially integrated again, as the industry as a whole is moving towards less integration on a daily basis.

Transaction Cost Economics

Dell strives to keep transaction costs low and constantly looks for ways to save.

When clients visit the Dell website, they can expect a predictable experience unless changes have been made to the layout. Customers anticipate affordable prices for high-quality computers, and Dell delivers on that. It is unlikely that Dell can significantly improve bargaining power with suppliers as discounts on technology can only go so far. These discounts are often regulated and controlled, and Dell has faced scrutiny for overcharging

on components.

Dell accepts various forms of payment, including PayPal, MasterCard, Visa, American Express, Discover, and their own Prime Minister account. They believe that offering multiple payment methods encourages customers to make more purchases. Additionally, there are other factors that contribute to cost savings, such as the time it takes to configure a computer online or at one of their new kiosks, the time it takes to research the best components for customer needs, the time it takes to place an order, and the time it would take for customer service/technical support if needed.

Collaborative Strategies Michael Dell believed that forming partnerships with suppliers would benefit the company more than if they were to produce their own components. As a result, they have established relationships with processor manufacturers Intel and AMD, hard disk drive manufacturers Seagate and Western Digital, speaker manufacturers Altec Lansing (often rebranded as Dell), and multimedia component manufacturer Creative Technology Ltd. Other suppliers for items like RAM, motherboards, fans, and DVD drives vary depending on who can provide the parts for the lowest cost.

When Dell purchases supplies from vendors, they must buy a specific percentage of stock per order. This allows Dell to have products readily available when needed and ensures timely delivery and service from the vendors. Additionally, many vendors have locations near Dell's manufacturing facilities and are considered part of the Dell family.

Finally, these partnerships contribute to reducing costs.

Offensive Schemes

Dell's vendors are proactive in their daily operations, always striving to keep up with evolving technology. From Dell's perspective, they are highly assertive. Although they may not necessarily be pioneering new and improved technologies, they expect their providers to deliver the latest and

greatest at the fastest possible pace. They frequently update their product line to create the illusion of constant innovation.

In addition, if there are new technologies available to reduce costs in the assembly line, Dell investigates and incorporates them. They have been the leader in direct marketing of computers and will likely remain at the top as long as they remain innovative. After all, they are the low-priced leader.

Defensive Schemes

Though Dell's defensive schemes have not always been successful, they still tried to fill a void in their product line. Responses to the changing market include Dell televisions and Mp3 players. Though these mer