Question

Using Michael Porter's Five Forces Model as a framework, analyze Dell's competitive landscape.

Answer 1

Porter’s 5 forces model is an analytical tool that helps in analyzing the strength of competition in an industry and consequently, identify the potential profitability in that sector for a particular firm. This model will be applied to Dell to identify its competitive market with the help of the five forces, namely, power of buyers, power of suppliers, threat of competition, threat of substitutes and threat of new entrants.

Power of Buyers- This refers to the buyers’ power of lowering the prices of the products or demanding high quality from the producers at the same price. It also indicates the power of shifting to other brands if the switching costs are low. Dell is one of the most well-reputed companies with a strong brand image in the electronics market and it has been serving customers with its high quality products and services. Customers prefer to buy these gadgets from reliable companies or brands. Thus, the bargaining power of buyers is low to moderate for Dell.

Power of Suppliers- This indicates the power of the suppliers to raise their prices for the companies, which in turn might decrease the profits of the company. There exists a large number of buyers in the computer industry, while fewer brands to which they sell. Furthermore, Dell carries put quality audit regularly for complying with the quality and sustainability standards in the industry. Thus, the supplier power is low, as it cannot pressurize Dell for raising its prices.

Threat of Competition- This identifies the competitiveness and profitability of a particular industry where firms need to compete aggressively for market share. The intensity of competition in the computer or electronics industry is high due to the presence of other international brands such as Lenovo, Asus, Apple, HP, Acer and others. This forces Dell to produce innovative products with distinguishing features for competing in the market.

Threat of Substitutes- It refers to the threat of buyers finding similar products in the market with better quality and attractive prices with low switching costs. The presence of substitute products in the PC industry is high due to the introduction of similar products such as laptops, tablets and smartphones for playing games, surfing the internet, or watching online videos. International companies like Dell or Apple have lost their market share and profits in the past years. Thus, the threat of substitutes is moderate in this industry.

Threat of New Entrants- This indicates the force of how easily a new company can enter into a particular industry. The PC industry requires the presence of huge capital investments, technological infrastructure and skilled professionals in the firms that want to enter. Furthermore, it consists of international players like Dell, Apple, HP, Asus, Lenovo and others with high customer loyalty dominating the market. Thus, the threat of new entrants is low in this industry.

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