THE substitute of PC especially for home users.However
THE FIVE FORCES FRAMEWORK Figure – Porter’s Five Force Model for PC Industry Threat of new entrants •Established mobile phone manufacturers can also be considered as a threat to the PC industry because they can easily shift to PC manufacturing given their technical expertise •The advent of modern software capabilities like online office, online operating system, and online resources might push PC manufacturers •The relative technology and know-how needed to make PCs is low. Due to increased standardization in operating system (by Microsoft) and Microprocessors (by Intel), it is easy for any new entrant to copy and manufacture PCs with no established brand name. •Players like Dell today have shifted to negative working capital because of their strategy of build-to-order. This is an attractive option for new entrants.
As the PC industry in most nations is close to the maturity stage, the number of entrants has slowed down and industry concentration increased. Hence the threat from new entrants to the PC industry is weak to moderate.The Threat of Substitute Products and Services Anything that may replace personal computer is a substitute, which creates a threat to the PC industry. •A cell phone with an Internet web browser and emailing function is a substitute for the PC for people who use a computer only to use those functions. •Word-processor/typewriters and calculators are also substitutes. •Xbox by Microsoft, has a DVD player, high-performance games, and a standard Ethernet network card for high-speed Internet connections without PC hardware, which is a substitute of PC especially for home users.However substitutes for computers do not have as many functions as a PC and are not close in performance.
Hence threat from substitutes is weak to moderate in the PC industry. Bargaining Power of Suppliers •Most of the components for manufacturing personal computers are highly standardized and widely available from a large number of suppliers. Thus, suppliers of those similar components do not have much market power than the PC industry. •Microsoft, which does not have a ompetitor for its Windows software, dominates the industry and thus has a strong power to influence the PC industry. •Intel has a significant market power as it is a single major supplier of microprocessor and has an 80% market share. It is the suppliers that are in direct competition with each other to obtain exclusive contacts with the manufactures to have them use their products. The suppliers, therefore, are often forced to slash prices or merge with larger companies in order to survive.
Hence the bargaining power of suppliers is moderate. Bargaining Power of Buyers •Large businesses, governments, and schools, which buy computers in large volumes, have the power to bargain on price, quality and service. Personal computer buyers are price-sensitive. •But, despite several ways in which manufacturers have differentiated their products and found ways to increase switching costs, customers still see units as very similar and thus choose primarily on price.
Hence the bargaining power of buyers can be concluded to be strong. Industry Rivalry Some companies such as IBM and Apple focus more on innovation while others such as Dell focus on distribution channel and service, which creates differentiation to some extent. •High-tech companies such as PC makers succeed when they provide ever greater amount of advanced technology, while the price sharply falls. •Since the quality of a PC is largely determined by the microprocessor and application system installed, the profitability and prosperity of the PC industry’s is dependent of the profitability and prosperity of these suppliers. Low-cost production at Dell contributes its positive growth rate, while all other major firms are experiencing negative growth rates.
•The effects of intense competition are beginning to be felt as companies exit via selling to other companies or simply exiting the industry altogether. Regardless of the number of companies present, the computer industry will continue to expand and remain competitive for a number of years to come. Hence the threat to industry rivalry can be concluded to be strong. Conclusion