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In the last two decades, there have been numerous changes to the computer demands of the world requiring manufacturers to adopt radical changes to their processes. For most manufacturers, the need to adopt a more open approach to assembling their products has been the answer to meeting the needs of the consumers. Yet, in order to ensure that the competitiveness of the market remains in their favour, manufacturers need to maintain the quality that consumers want with low costs.
The changing dynamics of the personal computer (PC) industry has prompted changes from all manufacturers competing in the market. On one side lies the increasing demand by the consumers, which has seen PCs become a necessity more than a privilege. On the other side, the increase in manufacturing organizations has resulted in an increase in competition, prompting a reduction of prices. In link with the second factor is that need for organizations to find cost-effective ways of manufacturing their components and products, in order to raise revenue for growth, research and development.
Industry Sector Analysis
The PC industry is one of the highly competitive ones in the world, with numerous large organizations main players in the market. The fight for new customers and markets is more than ever, prompting organizations to take steps into implementing new ideas and innovating to exploit the demands of the consumer and expand the reach of the organization.
Cost and quality have played a big part on the sales of all the major players in the PC industry. This has prompted a massive overhaul in manufacturing practices in the last few years, with organizations undertaken research into changes in processes and practices.
Additionally, the advent of globalization has allowed corporations to look pas their national borders to the establishment of facilities in other nations. There are several underlying reasons to this. While there is the conception of new markets being explored to allow growth in sales and revenue, as well as a more diverse product portfolio being presented to the expanding consumer base, the key factor that has influenced PC manufacturers to look past the developed world is the cost of manufacturing. With skilled labour available at a lower cost in developing and under-developed nations, the setup of manufacturing plants has allowed these PC corporations to share the savings with the consumer-base worldwide, while enjoying the rise in product sale in the developing markets.
The competing corporations in the PC industry include:
- Hewlett-Packard (HP): With 19.8% of the global market share in PCs for early 2009, HP has made a strong foundation for itself with strong success at both ends of the market; consumer sales as well as enterprise and business sales.
- Acer: The Taiwanese electronics giant has revolutionised its products for the international market in a bid to grow and gain market share. Based on the figures for early 2009, Acer held 13% of the world's PC market through the sale of its products, which in recent years have been focused on the notebook and net-book variety (Hickins, 2009).
- Lenovo: It has been a remake for IBM's PC division, taken over by the Chinese manufacturer Lenovo. The remake has allowed the company to capture 6.6% of the global PC market. However, the consumer acceptance for Lenovo is not the same as for IBM, with figures showing a drop in sale since 2008.
- Dell Inc: Once the world's premier PC manufacturer, Dell has lost out to HP in the global market, by holding a 13.1% market share for early 2009. While the company remains an active player in the affordable PC market, its appeal among consumers seems to have been affected due to technical and logistical glitches (Hickins, 2009).
There are several other manufacturers who make up the rest of the global market for PCs. These include Sony, Apple, Toshiba, Samsung, Gateway, MSI, Asus, and others. But there are some changes in the operating dynamics of these organizations. For example, Apple and Gateway hold a stronger sway in the United States (US), compared to the rest of the world. Apple has been on an aggressive push to increase the appeal and purchase of its products in recent years, with the adaption of Intel chips in its hardware. However, it is still considered a pricey purchase and one that needs significant cost to ensure constant updates. On the other end, Gateway has taken steps to scale back its international operations in order to focus on the US market. This has meant a drop in sales, but a stable outlook for the future due to the presence of a strong following in the US. Sony, too, has followed Apple to install itself as a premier manufacturer of PCs, establishing the niche luxury computer market. Its appeal is seen more on the high-priced end of the spectrum, with the cost relevant of the quality and product guarantee. It is also aiming to focus more on the business and enterprise market segments, compared to the home user.
The current technology has revolved around portable computing equipment, with sales of notebook computers, often referred to as laptops, and net-books on the rise. Net-books are laptops specially designed to suit one purpose for the user; accessibility to the internet. While they contain other features found in normal laptops, they are cut down in size and weight to be more portable. This means that several components like optical drives end up being absent in the devices.
On the desktop computer front, the preference has been to introduce machines that are workhorses, with higher specifications of graphics and storage capabilities. This is in line with demand from consumers, who are actively pursuing online gaming and other forms of entertainment, with the hope of their PC system able to cope with the needs of the ever-changing software industry (Kharif, 2005).
With innovations extremely rapid in the PC world, there is a strong focus on making portable devices that can cater to all the needs of the consumers. Apple's introduction of the iPad tablet is seen as revival of the tablet market, earlier entered by Toshiba and others. The demand for touch-based products and greater functionality, without added weight and dull design, seems to be taking the PC manufacturers by storm. In terms of desktop computing, the demand for power and looks seems to still have precedence, although the increasing research into sensory applications has yielded a strong interest from the consumer-base.
There are also changes at the enterprise front. With companies growing each year, the demand for storage and solutions for automation of processes has increased. This has placed a demand on PC manufacturers to offer innovative ways of economically offering ways for companies to develop services through the introduction of information systems.
Recommendations for Industry Sector
For the PC manufacturers to stay competitive in the global market there is a strong need to undertake research in the needs of consumers and the demands placed by enterprises, as the population grows. Also, with innovation at a rapid pace, companies in the industry have to introduce processes that can help align them with changing demands.
They key to gaining and maintaining market share remains with ensuring quality and costing. Due to the emergence of several small players, utilising the same technology as large PC manufacturers, consumers are faced with more choice and the availability of a large price scale. This has required manufacturers to respond with added incentives for their products.
After-sales support remains a top choice for many PC manufacturers as a way of enticing customers to their products. This is especially vital when dealing with enterprise clients, but has steadily gain credence with home and personal users too. Several manufacturers have devised plans for several years on top of the standard 1-year international warranty as a means of portraying their products' quality and durability.
In terms of costing, it is inclusive of several components. There is the cost of manufacturing the finished product, as well as the independent components that form part of each product produced by all PC manufacturers. The need to find locations around the world to produce the products at the lowest cost, while ensuring that quality standards are adhered to is becoming imperative for the organizations to remain viable in the strongly competitive PC market.
Background of DELL Inc
What began as a $1000 investment into the dream of a 19-year old student became a multi-billion dollar enterprise and one of the world's largest corporations in the personal computer technology industry.
Dell Inc. today follows one of the most dynamic business models, allowing it to be the largest online retailer of computers and related equipment. By offering its customers entire customization with the product on offer, Dell ensures that customers are involved in the choosing of specifications, thereby creating a new step in computer purchase known as personalisation. The feature has now been adopted by many other PC manufacturers, but still remains Dell's primary approach to retailing.
Analysis of DELL Inc
Dell became the leading PC Vendor of the world in 2001. One of the most unique proposition of Dell is the by passing of reseller through a direct to final buyer strategy. This accounts for 90 percent of its sales leading to the reporting of higher profitability and revenues for the company. This direct to buyer results in a consumer intensive strategy is called by many as the key to the success of Dell's model of business.
The direct relationship with consumers not only allows for reduced costs, better inventory decisions and increased revenues but also allows for a better understanding of what the customer requires. The PCs are therefore built to the exact specifications as required by the customer. This is a sharp contrast to the conventional model of PCs which are based on vendors who make attempts to predict the demands of the market.
This built to order strategy helps Dell in multiple fronts, reducing overheads and increasing return on investments at the same time as allowing for a better understanding of the market and consumer needs. This specific strategy comes with several complications in operations. The operations need to make sure that all parts and components are quickly available so that customized configurations can be handled quickly. The capabilities of production and logistics of supplies must be optimized in order to make sure that there are quick turnarounds and orders are processed efficiently.
The requirements of such an operations means there is an interesting structure of logistics. There is a focus on outsourcing of activities which are non-strategic while the emphasis is laid down on key strategic areas. There is a relationship intensive strategy with partners who provide the components and elements of the Personal Computers so as to provide value added products (Schmid and Kelber, 2005).
The actual production network of Dell is spread around the world ranging from America, Europe to Asia. Some of the production cycles are outsourced to other manufacturers. There is also a reliance on the supply of several components such as CD ROMs and Disk Drivers to outsiders. Partnership with software providers such as Office also allows it to further increase the value of final product. Outside partners are also used for installation, repairs on the site and integration of the overall systems. Resellers are used for recommendation of the product to consumers (Dell, 1999).
In order to better analyse Dell Inc., we need to undertake a deeper look into its strengths, weaknesses, opportunities and threats (SWOT).
- The business model of dell which focuses on a built to order framework where the middleman is removed and PCs are sold directly to the end buyer
- Strong strength of sales strategy through a variety of mediums ranging from conventional to e-commerce
- Elimination of the mark ups added by the reselling party through the direct sales to end buyer resulting in lower costs to consumer without cutting down margins for Dell
- Reliability that comes out of a built to order model - reduction of over-heads related to large inventories and finished goods.
- One of the industry leads in the Personal Computer market
- Considerable number of manufacturing units across the world
- Strong brand value and power in B2B as well as B2C
- Significant margins over costs of production because of the direct sales to the end buyer
- A highly relationship intensive strategy starting from the consumer sector and extending to the corporate and government sectors
- Holds a large share in the market of personal computers
- Through the built to order model of production, Dell is able to achieve a quick turnover as well as decrease the stock required in the inventory
- High level of quality assurance through extensive testing in the production process
- A wide array of customers including specific market segments such as hospitals and universities
- Top ranked Server on Intel technology by the publication Technology Business
- Strong understanding of individual customer segment needs
- Wide array of methods of advertising and marketing
- There are not a lot of production units and regional offices in the west - including the United States
- For some consumers it is an inconvenience that Dell PCs cannot be purchased through retail outlets
- It has not been able to penetrate into several international segments as a leading supplier even though the number of locations in the international market are great
- In the printer market it does not produce its own products - rather purchases it from Lexmark
- There is a strong dependency on outside suppliers from foreign lands which leads to a strong dependency on fuel supply and their prices leading to fluctuation
- The size of the company comes in the way of faster growth
- There is a continuing demand for personal computers
- There is a strong and evolving market for notebooks and tablets
- There are strong opportunities of partnership in the market including one potentially with Microsoft
- There is a strong margin of expansion in consumer electronics
- Consumer spending on technology is relatively untouched compared to other products
- Strong growth in the market of colour printers
- There are more mergers and acquisitions happening in the industry - a threat of strong consolidation trend in the PC industry
- The influence and dependency on outside suppliers means increasing oil prices are crippling the spending of the consumers on PCs
- The demand of commercial usage of PCs are not increasing at the same pace
- Strong competition continues to act as a threat
- The growth of the market has slowed down
- Strong fluctuation in price
- Computing power fees has reduced
- The market has widened
- The fluctuating value and devaluation of currency continues to happen in the international market
Source: (Kharif, 2005) and (Schmid and Kelber, 2005)
There are also significant external environment factors that play a role in the operations of Dell and its push to regain the top spot in the PC manufacturing. These include political, economic, social and technological factors, which are visible in the following PEST analysis.
The political factors include legislature, government regulations and other restrictions/provisions of political nature. This directly implicates the conditions under which Dell has to operate. Political factors have caused certain restraints from time to time because of the political instability.
Some of the political factors include the ones that come as a direct result of signing of World Trade Organizations. Market access is one such factor. For example, Texas and Malaysia, two of the top choices for Dell in the region are central to U.S. Tennessee and to the Asia Pacific region respectively. Ireland, another hub of Dell, is in close proximity to United Kingdom, Germany and France.
Tariff-free access to markets is one of the biggest political incentives to Dell. Political changes which cause an impact on market access and their conditions can have consequences on pricing strategy of Dell as well as supply choices. Political incentives such as tax holidays provided by Malaysia are another such political factor. Low corporate taxes, financial incentives, land support and per capita grants per employee are other such factors which contribute to the political dynamics of the operating environment for Dell.
The economic situation around the world, especially in specific regions, has a direct impact on two things.
A) The changing economic situation and landscape has a direct impact on the pricing strategy and profit margin of Dell.
B) Economic turmoil such as the one faced right now by the world decreases consumer power to buy the Dell products. Currency fluctuation and Changes in Oil prices are another factor which causes strong disruption in pricing models of Dell.
Strong dependency on foreign supply means these two factors become all the more critical.
Demand for computers has a strong dependency on several social factors. One of the most critical of these social factors is the level of education that prevails within a country. Higher education standards lead to strong demand for the PCs around the globe.
Technological changes in environment include the advancement of components, more efficient parts, internet access, newer ways to market the product and the pace at which products keep getting smaller and faster. This change in speed and size is central to the changes that are required on a regular basis by Dell in order to keep up with the business environment.
Till date, Dell remains devoid of any retail strategy, apart from the online store that it operates. This is seen as the most cost-effective way to bring the products to the consumers, with the added advantage of allowing the product to be customized by the customer.
What seems to be Dell's primary competitive factor is manufacturing products once an order is placed by customers. This minimises the wastage of products on sale, as only a certain amount are assembled based on orders, needs and demands.
The other factor to keep costs under control is the location of manufacturing. With competition among PC manufacturers moving from the developed world to the developing world, there is ever more need to cost the products in a way which helps to gain a stronger foothold in the market.
The short-term strategy for Dell Inc should be to continue increasing manufacturing operations from Malaysia, in order to take full advantage of the cost-benefits being offered by the local government. Additionally, this will help Dell push its products into the local Asian market.
In the long-term, Dell will need to innovate its products further to take advantage of a changing computer world, especially with regards to laptops, net-books and tablets. This will require further changes in the manufacturing processes, as the company should consider investigating into manufacturing plants closer to the larger markets of US and Europe.
With niche products entering the market, Dell should remain committed to the ones with more consumer demand, and aim for more efficient manufacturing of its core products allowing it to compete further with the other organizations.