Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.
This report focuses on the personal computer industry, particularly, the laptop sector and is divided into two main parts: industry analysis and competitive advantage. The first part, industry analysis, uses different tools of analysis in order to determine the main and most important characteristics of the personal computer industry, particularly the laptop sector. Porter’s five forces represent the first instrument of analysis which establishes a significant attractiveness and a high degree of competition within the laptop sector. These forces affect the ability of a company to serve its customers and make profit. The ‘key success factors’ theory develops and characterise the main and most important aspects and activities that, without which a company cannot succeed in this sector. These factors include brand name, horizontal integration, R&D capabilities. Furthermore, the strategic group analysis emphasises the business models and strategies regarding brand recognition and price used by certain groups of laptop manufacturers.
The second part of the report presents an analysis of the major companies regarding their competitive advantage using different approaches i.e. strategic group analysis and SWOT analysis. The competitive advantage represents the result of the interaction of the company’s strengths, product portfolio and target market.
The aim of this report is to analyse the personal computer industry, particularly laptops i.e. netbooks, notebooks, and to determine the competitive intensity and attractiveness of this sector. Originally, portable computers were considered to be a small niche market, mainly specialised in field applications such as the military, accountants and sales representatives. In time, they became smaller, lighter and cheaper with larger and better quality screens.
The UK laptop market is continuously expanding and growing as many make the switch from desktop computing to a powerful, portable solution. The growth of the market is caused by several factors that include a significant decline in prices over a period of 3 years which makes laptops affordable to a wider market, arrival of a new generation of high performance microprocessors e.g. AMD Turion, Intel which enables a higher speed and entertainment functions and the spread of Wi-Fi (Mintel, 2009).
III.1. Porter’s Five Forces
III.1. a. Threat of entry
The capital costs of becoming an established company that provides laptops is large and because of this, it represents a barrier of entry in this sector. There is a need to invest large financial resources in order to compete in this sector (Porter, 1979). However, because the technological environment is very dynamic and unpredictable, an innovative product can be funded by investors because returns are usually attractive and expected to remain so. Therefore, capital can be considered a barrier of entry but it is not an important one (See Appendix 1).
This sector is capital intensive and therefore it requires large-scale operations. The problem that possible entrants have to face when entering large-scale operations is bearing the costs until breakeven point (Grant, 2010). In CPU manufacturing industry, incumbents such as Intel are protected by scale economies in research, chip fabrication, and consumer marketing and laptop manufacturers enjoy economies of scale in consumer marketing, suppliers and research.
Porter (1979) underlines the fact that brand identification forces new entrants to spend heavily in order to overcome customer loyalty. Factors that relate to brand identification can be advertising, customer service and product differences. During the late 1980s and early 1990s, a marketing executive from Pepsi, John Sculley, turned Apple into the biggest single computer company in the world, with $11 billion in annual sales. Sculley marketed Apple by boosting the advertising budget from $15 million to $100 million (The Guardian, 2010).
The product differentiation is encountered within an industry that contains established firms which possess the advantage of brand recognition and customer loyalty (Grundy, 2006). A significant presence in the laptop market has always been Apple which is positioned at the premium and fashion end of the market. Its current range is sold under the MacBook/MacBook Pro sub-brand, with a 13″ screen model aimed at the compact, high-portability market and 15″ and 17″ MacBook Pro models for the premium professional user. Furthermore, Sony is an important example because it made a big advertising push aimed at the fashion/lifestyle user, advertising its Vaio laptop range with a heavy focus on female consumers, with the multi-coloured C series in particular (Mintel, 2007).
The distribution channel is another barrier of entry for the potential entrants as they have to secure the distribution of their product. There are in fact only a few store-based retailers that specialise in computing. PC World is the largest by a considerable margin and is the only specialist retailer with real scale (See Appendix 2). Similar to Apple, Dell is a product brand that sells direct to consumers but in its case only via mail order and a virtual shop. However, in 2008 Dell changed its distribution mode to include distribution via third party retailers (DSGi and Tesco in the UK) (Mintel, 2009).
III.1. b. Threat of substitutes
The price that consumers are willing to pay for a laptop depends on the price of its substitutes (Grant, 2010). A laptop cannot be replaced entirely as it represents the combination of several devices. However, the closest substitutes for a laptop are desktops, mobile phones and tablets. Desktops are a more powerful version of a laptop as they offer higher processing speeds and can be upgraded much more easily. Many consumers who have a desktop also own a laptop because they are portable and offer the possibility of working in different environments. Mobile phones have increasingly become more powerful and engaged in various functions that a laptop provides. They have the functions that consumers need when they are outside work or at home. However, it is easier and faster to access a website and navigate on the Internet from a laptop than from a mobile phone due to a larger CPU and system memory. A closer substitute for laptops is the tablet PC which embodies most of the functions of a laptop and offers them along with a higher level of mobility. Tablets are in between a smartphone and a laptop due to the mix of functions they offer: a touchscreen, Internet navigation, e-book reader capabilities and music player. However, they are more fragile and prompt to malfunctions than a laptop.
III.1. c. Rivalry between established competitors
In this sector, rivalry takes the form of product introductions, advertising campaigns and service improvements. The high degree of rivalry is caused by the industry growth as technology develops quickly, by high exit barriers and by rivals who are committed to the business (Porter, 1991). The costs associated with outstanding inventory when leaving this sector are substantial because the inventory can easily become obsolete in such a dynamical and unpredictable technological environment. Laptop manufacturers have to find the balance between capacity and demand in order not to be forced to reduce prices due to unsold inventory (Grant, 2010).
An important aspect related to this sector is the fact that a laptop is usually a combination of products such as microprocessors, operating systems, graphics card and many others. The majority of these components are usually manufactured by a small number of companies and, therefore, these companies can influence the final price of laptops. For example, in the processors market, not only does Intel exercise considerable discretion over prices, but it is also an eloquent example of anti-competitive practices, e.g. it was fined for such practises by the European Commission with the record amount of $1.44 billion. Intel was found to have paid companies, including Acer, Dell, HP, Lenovo and NEC, to exclusively use Intel chips in their products, and therefore harmed other companies including AMD (The Guardian, 2007).
III.1. d. Buyer power
The components of laptops have to be bought from certain companies that may have an impact on the final price (Porter, 1979). The buying power of personal computer manufacturers relative to the microprocessors manufacturers (Intel and AMD) or graphics card (NVidia and ATI) is limited due to the high importance of these components i.e. CPU and graphics card markets are oligopolies and therefore they possess significant bargaining power.
Most sources of buyer power apply equally to consumers and to business-to-business customers. However, when applying the buyer power to consumers, the economic climate is expected to be considered as it affects the consumer purchasing decision (Miller, 1988). The current economic climate has decreased consumer confidence as unemployment in the UK continues to rise, credit facilities remain high and the housing market stays weak (Mintel, 2009). These factors have a strong impact on purchasing power although excess capacity will prevent some companies from raising prices. Therefore, price will be a key factor in the purchasing decision and this will take the form of a comparison between prices either in-store or online. The cash constrained consumers are less likely to be confident laptop buyers and they may prefer retailers such as Asda, Tesco or Amazon (Mintel, 2009).
III.1. e. Suppliers power
The power of suppliers results from the higher prices that they charge, the limiting quality and services provided and from shifting costs to industry participants (Porter, 1979). Microsoft is a powerful supplier for laptop manufacturers because it can remove the profitability from companies due to the fact that laptop manufacturers cannot pass on the cost increases in its own prices (The Guardian, 2007). The competitive environment allows laptop manufacturers a limited freedom to raise their prices. Another powerful supplier is Intel which has much higher prices than AMD even though they provide the same level of performance. Laptops that have Intel microprocessors are at least £100 more expensive than laptops incorporated with AMD processors. Microsoft and Intel are powerful suppliers because they are more concentrated than the industry they sell to, i.e. they form an oligopolistic market.
III.1. f. Complementors – Sixth force of Porter’s model
Complementors, Porter’s sixth force, are companies or entities that sell or offer goods or services that are compatible with, or complementary to, the goods or services produced and sold in the laptop sector of personal computer industry (Grundy, 2006). Complementary goods offer more value to the consumer together than apart. Therefore, the complementary products of a laptop are the operating systems (Microsoft Windows, Mac OS, Linux), software (Microsoft office, Windows Media Centre) and peripheral devices (mice, keyboards, printers, etc.). These goods increase the value of a laptop in the conception of the clientele.
III.2. Key Success Factors
The key success factors in the laptop sector of personal computer industry represent the interaction of several variables including economic and technological environment, supplier power, buyer power, threat of entry and substitutes. These interactions, if satisfactory, will ensure a successful competitive performance of this sector of industry (Leidecker and Bruno, 1984). A key success factor emerged from the interaction with suppliers is the horizontal integration which represents the ideal type of control for this sector (See Appendix 1). For example, Hewlett-Packard will not succeed if they start to manufacture microprocessors or graphics cards because their existing resources provide them with the greatest amount of value added. An important key success factor is brand name which has become increasingly important in this sector as it is associated with quality and the economic life of the product. Apple is the most suitable example as it best reveals the relationship between brand and quality, i.e. people buy Apple laptops because they are willing to pay extra for Apple Retinaâ„¢ screens, innovative design and premium quality materials (Datamonitor, 2010).
A third key successful factor is the relationship with business-to-business buyer group as it tends to put pressure and increase prices for own profitability (See Appendix 1). Another aspect of this interaction is the need of a horizontal integration because the components’ manufacturing companies possess very specialized knowledge which creates a concentrated market. Furthermore, the constant need to innovate and improve laptops’ technology is a pressure exerted by both consumers and the competitive technological environment. For instance, two years ago, all laptop manufacturers were using LCD screens whereas now, they sell laptops with LED screens.
III.3. Strategic Groups
There are several groups of firms within this sector of industry that are highly symmetrical with respect to price and brand recognition. The main characteristic of each group is that the price strategies implemented by the firms within that group are more similar to each other than with other firms outside the group and, because of this, they may respond to a market opportunity in the same way (Budayan, 2008).
Apple designs, manufactures and markets portables, laptops through its Mac series. The company has a strong brand image which enables it to demand a premium price for its products and offers it an advantage over regional and global competitors (Datamonitor, 2010). Apple shares similar price strategy and brand recognition with Sony through its Vaio series (See Appendix 3). However, Sony adopts a slightly different branding approach as it is not only a laptop manufacturer. Sony is known for using ‘umbrella branding strategy’ which means that it places the corporate name along with the product name e.g. Sony Vaio (Datamonitor, 2010). In this way, it allows the product to create its own identity and positioning, and also it draws strength from its corporate brand value. However, Apple and Sony Vaio are achieving performance by focusing on innovative differentiation and marketing and image differentiation. They provide high quality products to a market niche and, therefore, they are avoiding price-based competition by means of differentiation.
The following three groups have similar price strategies but different brand recognition (See Appendix 3). International Business Machine i.e. IBM was ranked second on the list of top 100 Best Global Brands ranking in 2009, by Interbrand, a brand consultancy. Hewlett-Packard was ranked 11th in the list of 100 Best Global Brands by the same brand company and Dell occupies the 32nd position (Datamonitor, 2010). These three companies have a robust market position and they adopt a price-based differentiation therefore, they compete on a price level but also on product quality and brand identification (See Appendix 3). Acer, Asus and Toshiba have a similar brand recognition level because they are in the process of developing a diversified product portfolio. They are not mainly laptop manufacturers, however, they adopt a product differentiation strategy and they are focusing on increasing brand recognition. Samsung has recently started manufacturing laptops and, therefore, it did not develop a recognised laptop brand name. Fujitsu engages in research, design, manufacture and distribution of computers, mobile phones and related information technology (Datamonitor, 2010). The company offers its product under four brands, including Acer, Gateway, eMachines and Packard Bell. eMachines is used as a name brand for low-cost laptops, Gateway filed for bankruptcy protection in early 2009, leaving the brand with a substantial damage and Packard Bell, a developing brand, owns a range of laptop models i.e. Easynote series.
In this sector, an analysis of competitive advantage can be carried out by using the strategic group graphic and by drawing a SWOT analysis of the market leaders (See Appendix 3 and 4). As mentioned before, a strategic group represents a group of firms within an industry or a sector of an industry that follows the same pattern regarding different dimensions, including scope and mode of competition, price and brand identification (Thomas and Venkatraman, 1987). A strategic group, for instance Hewlett-Packard, Dell and IBM, will remain stable due to the limited boundaries that the group share. In other words, each strategic group has certain limitations known as mobility barriers which represent the total costs of movement from one group to another by taking into account the operations of financial resources that a firm must overcome when changing their market position and environment (Budayan, 2008). For example, if Hewlett-Packard wants to change their strategic group and move to the Apple and Sony Vaio group, it has to increase their advertising budget, product portfolio, change their strategies and focus on a niche market, create products for that specific market and manage to induce to its consumers the same quality level and performance as Apple and Sony Vaio do (See Appendix 3). The expected costs of changing group membership increases with the height of mobility barriers which represents the mixture of firms’ brand identification, product quality, performance, service offerings (Budayan, 2008). The height of the mobility barriers of Apple and Sony Vaio group is characterised by premium laptops, strong brand image, robust financial performance and significant Research & Development capabilities and it determines the competitive advantage of this particular strategic group (Datamonitor, 2010).
Hence, Apple maintains its competitive advantage through its Mac series by providing laptops that have professional software applications, premium quality materials, Apple Retina screens, innovative design, longer life battery and also, brand identification. Sony Vaio’s competitive advantage is caused by its aforementioned umbrella strategy which enables the transfer of its identity and brand to new products. Sony, as well as Apple, covers wide geographical areas by distributing laptops around the world. Sony’s largest geographical market is Japan accounted for 42.4% of the total revenues, followed by United States with 17.9% of the revenues, Europe with 13.9% and other geographical regions with 25.8% (Datamonitor, 2010). In comparison with Hewlett-Packard laptops, Sony Vaio series provides a better battery life, higher resolution screens (full HD compared with HD Ready screens provided on most of Hewlett-Packard laptops), backlit keyboards, premium quality speakers (Dolby Surround Sound, including subwoofer), better laptop cooling systems. Therefore, the strategic group graphic is an approach towards identifying competitive advantage of certain groups (Budayan, 2008).
Furthermore, the competitive advantage of a firm can be identified through the interaction of SWOT analysis with the product portfolio of that specific company (See Appendix 4). Hence, through strengths that include strong brand image, robust financial performance and focused R&D capabilities, Apple offers its MacBook and MacBook Pro series to high end users interested in outstanding multimedia capabilities, stylish design, premium materials and professional business functions, everything without sacrificing mobility (Datamonitor, 2010). Through similar strengths e.g. strong brand value and robust market position, Hewlett-Packard offers a product portfolio that aims either at business customers, multimedia users or mainly Internet users (i.e. netbook buyers). In comparison with Apple and Hewlett-Packard, IBM strengths are mainly associated with its business product portfolio. In other words, IBM targets the business market which demands high autonomy i.e. a long battery life, professional office applications e.g. word processor, spreadsheet, calculation, and presentation software. Moreover, business laptops need to be more robust than mainstream laptops. Hence, Apple, Hewlett-Packard and IBM gain their competitive advantage through the relationship between their product portfolio and their strengths (Datamonitor, 2010).
Porter’s five forces analysis suggests that the laptop sector of personal computer industry is an attractive market with an intense competition and future innovative developments. The key success factors enable companies to compete in a dynamic and unpredictable environment and ensure the success of the firms operating in this sector. Moreover, the strategic group analysis offers the set of similar strategies or business models of different groups of companies within the laptop sector. Due to the competitiveness of the environment, businesses have different competitive advantage strategies which are strongly connected with the companies’ strengths and their target market. Each company has a different product portfolio and, therefore, it enables them to develop a certain combination of attributes that allows them to compete within this sector.
If you need assistance with writing your essay, our professional essay writing service is here to help!Find out more
Cite This Work
To export a reference to this article please select a referencing style below:
Related ServicesView all
DMCA / Removal Request
If you are the original writer of this essay and no longer wish to have the essay published on the UK Essays website then please: