Dell’s external environment identifies all the current conditions and forces that affect its strategic options and define its competitive situation. It consists of three main sectors: the Remote Environment, the Industry Environment, and the Operating Environment. All of these environmental sectors affect the firm’s operations both on an international and domestic level.
In recent years the computer hardware industry has experienced a slight decrease in profits. Most of this is due to the recent downturn in the economy and a decrease in consumer confidence and spending because of inflation. Many consumers hesitate to upgrade their computers. As a result, Dell must explore new markets and introduce attractive products at a lower-cost to attract its customers. The use of personal computers in international markets is growing rapidly. Dell Computer can take this opportunity as an advantage to provide lower cost computer for consumers.
Since Dell has the equipment and capital they can produce higher quantities of workstations or servers at a low operating cost and then sell it a little above cost of goods to China, India, Vietnam and third world countries to increase their global market share. The internet market has been expanding and exploding across the globe. It has varied by market segment and already has been a big hit in the U.S. Dell knows that the way to globalize the company successfully is through e-business.
Dell is gearing up in China. The key to its strategy is a locally designed PC called Su Ma (Speedy Horse) which it hopes will draw sales away from the homegrown powerhouse, Legend. Dell has already built a factory in Xiamen, which is on the southeastern coast of China in order to promote its next day delivery to 400 cities which is one of the company trade marks. As a result, Dells China market share has grown from near zero in 1998, to 4.4%. This runs counter to the general wisdom that Chinese consumers must feel and touch a product before they buy. More business and more production facilities will be opened world wide to adopt the globalization system and the global demand in the next decade.
Rivalry is high in the computer industry because there is a lot of competition among a number of market leaders, while there is lack of differentiation and low switching costs for customers. Barriers to entry are also high due to a large part of the market is controlled by the market leaders of the industry, in addition to high start up costs. The bargaining power of suppliers is also high because suppliers are few and there is a heavy reliance on them. The bargaining power of customers is also high because of the availability of many high quality computer companies, all products are perceived as similar and well as the ease of switching. The threat of substitutes is low because they are virtually non-existent. Furthermore, there is a high availability of supplementary products available.
Dell Computer Corporation is more successful than its competitors because they have been able to cut out the middleman with its “Direct Marketing” strategy. Dell entered the computer industry at an opportune time with competitive prices and a production strategy which does not build units until units are ordered, which minimizes inventory and allows customers to customize their units. The direct sales model has helped in cutting down inventory costs and also reduces the lead time in serving customer order. The biggest entry barrier that Dell has to face when expanding into other areas of the technology industry is having customers gain the trust of company over the more popular veteran computer companies.
Consumers view Dell as a quality brand at a good price. Some consumers find that Dell’s competitors may be a little more expensive but still offer a quality brand. Dell’s main competitors are IBM, Compaq, Hewlett-Packard and Gateway. Dell’s competitors have all tried to replicate Dell’s direct marketing strategy. However Dell’s competitors were and still are unable to replicate Dell’s direct marketing success. Historically Compaq and IBM sold through resellers and distributors. When IBM and Compaq announced their new initiative to sell directly to their customers, they angered the resellers, who in turn promoted HP products. HP is able to fulfill the needs of customers who want to see and touch the computer before purchasing it, which is not possible in the direct marketing strategy. But HP’s growth is declining with this strategy and they have been unable to lure major accounts. Gateway has been somewhat successful in implementing the direct marketing strategy, but Gateway does not have a strong hold in the lucrative large customer accounts.
Dell ranks high with customers because the company offers free technical support if needed. The purchasing process has changed for the consumers with Dell because all the ordering is done online which offers convenience to its customers and minimize inventory. The flow of materials from suppliers into Dell starts by the company putting in orders to factories that are based on two categories; product type and geography. When putting in orders for product type Dell wants to select the right factory that specializes or deals with a certain product. Geographic orders mainly focus on the where the order is coming from to minimize the transportation expense. Dell has superb relationships with their suppliers; they maintain those superb relationships, by ensuring that the suppliers win every time Dell wins.
Dell will need to implement several changes in the next couple years to develop its system, improve customer service, reduce cost, and improve supplier control. Dell will lead the technology industry and be a good example to the competitors. More technology of software and hardware will be available in the futurw with less cost.
Long Term Objectives
Dell’s objective should be continue providing customers the most recent technologies at competitively lower prices, at lower costs and faster than their competitors. This could be established in the long run as they:
1. Increase global market share by focusing on Asian markets.
2. Increased revenues by penetrating the Chinese market benefiting from low costs.
3. Continue expansion of server and storage products.
4. Continue to maintain the lowest costs in the industry
5. Establish global brand recognition.
6. Increase diversity in portfolio by expanding product offering and investing in a new industry within the technological sector.
7. Manufacture some of its supplies, decreasing reliance on suppliers.
8. Use the Internet to improve the efficiency of Dell’s procurement, manufacturing and distribution process and further expanding an already broad range of value-added services.
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