Matching Dell Case Analysis

Topics: Personal computer, Computer, Hewlett-Packard Pages: 5 (1686 words) Published: July 5, 2013
1. Synopsis
After the emergence of personal computer in1990, Dell emerged as a strong business entity in the computing industry. With the advent of personal computing, the major players in the industry were IBM, Compaq and HP. Between 1994 and 1998, Dell's growth was faster and twice its major rivals (IBM, Compaq, Gateway, and Hewlett- Packard). It provided high performance PC at a very low price. Through the introduction of Dell's Direct Model, it enjoyed high competitive advantage and earned quite a success. Using the “Direct Model”, Dell sold primarily to customers directly. Dell's competitors were suing distributors, resellers and retail site at that time. Once orders were received from the customers, Dell rapidly built computers as per the customers` requirements and shipped them directly. Therefore, Dell had such a relationship with the suppliers that it was able to arrange "just-in-time delivery" of parts. Another major strength that Dell possessed was distinct customer categorization: Relationship buyers and Transactional buyers. Later, this was further subdivided. With the new competitive leverage, Dell became a billion dollar business, residing along with the IBM for the personal computers. Following the zero channel distribution and just in time supply chain management in the industry when major competitors were hovering for the multiple channel distribution, Dell was able to gain low cost operation in compared to its competitors. 2. Industry Analysis

Industry Analysis is done through Porters Five Forces. A detail of the analysis is drawn below:

a. Threat from new entrants:
As the PC industry was still in the growth stage during the 1980s and the early 1990s, threat from new entrants was high. This added to the low cost to enter the market as capital of $1 million was enough to establish an assembly line to produce 250,000 PC. b. Threat from Competitors:

Dell faced competition from four major rivals. They were IBM, HP, Compact and Gateway. When Dell entered the market, IBM had majority of market share of 28%, followed by Apple (14%) and Compact (7.5%). This was in the year 1987. By 1998 Dell was able to increase its market share to 13.2% only trailing to Compact which has 16.7%. The main threat to Dell was from HP, IBM and Gateway. In the context of the worldwide market share Dell was behind Compaq and IBM at 8.6%. Due to this high level of competition, the profit margins were very slim. Despite this Dell was able to make more profit than its competitors. c. Bargaining power Suppliers:

The main two components used by Dell and its competitors were provided by Microsoft and Intel. Hence it can be said that the suppliers had huge bargaining power. And as the same suppliers were used by Dell’s rivals, they were all in the same playing field. The suppliers for the hardware components used by Dell were selective and worked very closely with Dell to prefect "just in time" system. So in case of hardware suppliers, suppliers would have high bargaining power as to replace the current supplier would be difficult. d. Bargaining power of Customers:

Dell sold directly to its customer and had highly diversified customer base. No single customer represented more than 2% of its sales. However, in the scenario of Dell’s competitors, it was different. Dell’s competitors did not sell directly to its customers. They sold their PCs through distributors, resellers and retailers. Therefore, these were the initial customers of the competitors. They were also provided with price protection and buy back agreement in case the product did not sell. e. Threat from substitute:

The case does not provide much information about Dell's substitute. However, it can be said that PCs manufactured by Apple is a substitute in certain aspects. They were very different compared to “Wintel” computers. During the time frame provided in the case, it can be said that threat from substitute was low as switching between...
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