Question

Evaluate the Information Technology, hardware and services industry using Porters Competitive Forces.

Answer 1

Bargaining power of buyers: The bargaining power of the buyer is high in the information technology industry. Larger and more established firms will offer a better product has lower prices and hence customers would like to pay a lower price for the product. Also, in the technology industry there is a need for constant up gradation of the systems in place which should be covered by service costs. Hence the customer requires a quality product with upgrades at reasonable prices.

Bargaining power of supplier: Here the supplier can be the hardware manufactures. For a company like Dell which manufactures computer it requires a motherboard. For this there two main competitors: AMD and Intel. AMD gives dell a price advantage and in turn can offer the product to customers at lower price whereas Intel comes at price disadvantage. So Dell must carefully choose between the two suppliers and hence the bargaining power of suppliers is most important.

Threat of new entrants: Because of the rapid growth in the IT sectors, new entrants are attracted into this industry. Established and large players are unaffected by these new entrants. However, small sized firms which cater to smaller business will be at threat if the new entrants have the ability to provide the same service at a lower cost through innovation.

Threat of substitutes: In the It industry there is no substitute today as more and more digitization happens. However, the IT companies must innovate and incorporate latest technology in their products and services.

Rivalry: The large companies which are established and have a strong customer base try to complete with the other large firms and get hold of a larger footprint through massive advertising and brand campaigns to attract customers away from rivals.