Question

Consider the case of Apple Computer, Inc. The firm currently experiences the following
internal and external (i.e. market) characteristics:

·        Easy access to distribution channels, as illustrated by direct-to-the-consumer sales

·        Achievement of constant. returns to scale at relatively low levels of output (i.e. the .

firm achieves minimum efficient scale relatively quickly)

·        Unique component suppliers

·        Operation in a fragmented industry structure (i.e. 'the PC industry is fragmented)

·        Price competition is the focus 'of competitive strategic tactics used in 'the PC industry

·        High fixed costs relative to variable costs in the PC industry

·        Relatively slow growth rates of demand in the PC industry

                                                                                 .                          ,

- Using Porter's Five, Forces Model, as well as the information given above, answer the

        following questions: .'                                                   .                             '

a) Does the existence of easy access to distribution channels and small minimum efficient scale indicate high or low barriers to entry in the PC industry? Why? "

b) Do suppliers appropriate little 01; most of the value in the PC value chain? Why?

c) Is the intensity of rivalry in the PC industry high or low? Why?

Answer 1

(A)

Ans-.
There is a low barrier to entry in the industry because firms can achieve the constant return to scale at a lower level of the output. It means that with a lower level of investment in variable cost, they can compete in the industry. It is complemented by the easy accessibility of the distribution channels that can carry their product to the consumers. So, if suitably priced, new firms can compete with the big companies.

(B).

Ans-
Suppliers appropriate high value in the value chain because they provide unique components to the manufacturers. These components add value to the final products. So, association with suppliers is an important part of the strategy in the PC industry.

(C).

Ans-
The intensity of the rivalry is high due to the ease of access to the distribution channel, low variable cost giving high scope of price manipulation and quick achievement of constant return to scale. Further, the focus competition is the price rather quality differentiation.