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External Analysis of Computer Industry Essay

* Threat of new entrants:

The threats from new entrants to the personal computer industry is weak to moderate due to the presence of dominant players reduces the entry of new players to immediately enter the market and establish their own brand. In such a competitive market, these companies have invested heavily on their research and development, customer service, and marketing departments which increased the competition between companies who are competing to build superior products. Due to increased standardization in operating system and microprocessors, it is easy for any new entrants to manufacture white-box personal computers. However, this would be low since the companies have created strong branding awareness. Some more reasons of why threats of new entrants are less are:-

* Access to distribution channels: Being distribution channel most important in the PC industry, it is prerequisite to have a strong distribution network which is difficult to built for the new entrants specially in initial stages of competitive market. Weak distribution networks mean goods are more expensive to move around and difficult to reach end customers. The expense of building a strong distribution network positively affects Computer Industry. * Capital requirement: There is a high capital requirement in computer industry which means a company must spend a lot of money in order to compete in the market which is a big issue for new entrants to enter in this industry.

* Product differentiation: It is difficult to make your product different from existing products offer in the market as it needs huge investments and R&D to get core competency in your product in the well settled industry with n number of large players with maximum market shares. * Switching cost: New entrants have to face high switching costs in this industry .High switching costs make it difficult for customers to switch from products they normally purchase, due to high costs.

* Customers are loyal to existing brands: It takes time and money to build a brand. Existing brands have their brand image in the market and are able to make their loyal customers which makes difficult for new entrants to shift those customers towards them. * Patents limit new competition: Patents that cover vital technologies make it difficult for new competitors, because the best methods are already patented and that is why they have spend a lot of time and money in inventing new technology to compete with existing technologies.

* Bargaining power of Buyers

* Dependency on distributors: Buyers in this industry has low dependency on distributors which makes them at powerful position and distributors have less bargaining power. * Limited buyer choice: In computer industry, customers have limited choices hence they end up paying more for the choices that are available which positively effects this industry. Limited Buyer Choice has a significant impact, so they shpuld put more weight to this for increasing their profits.

* Product is important to customer: In this era, customers are tech savvy and ready to pay for best technologies. So, computer industry has an edge to charge more from customers by providing best products. * Large number of customers exists in this industry which makes it difficult for them to bargain more as no single customer have the bargaining leverage. * Bargaining power of suppliers

* Competition from suppliers: High levels of competition among suppliers acts to reduce prices by producers which effects positively in the computer industry. * Concentration from suppliers: low concentration of suppliers means there are many suppliers with limited bargaining power and computer industry with high bargaining power.

* Production inputs: In this industry, when critical production inputs are similar, it is easier to mix and match inputs which reduces supplier bargaining power and positively affects this industry to gain profits. * Inputs have less impact on costs: when inputs have less impact on costs, suppliers of the inputs have less bargaining power. * Volumes are critical to suppliers: In cases when volumes are critical to supplier, producer can threaten to cut the volumes to cut their profits which give producers more bargaining power. * Threat of substitutes:

* Limited number of substitutes: A limited number of substitutes mean that customers cannot easily find other products or services that fulfill their needs which is a good sign for Computer Industry. * Inferior substitute products: Inferior products means customers are less likely to switch from computer industry which helps in retaining their existing customers by providing best products. * Substitutes :PDA(Personal Digital assistant)

Palmtops, handheld PC which is smaller than standard laptops. Smart phones, It is a phone that runs complete operating system software providing standardized interface and platform for application developers. So above substitutes can prove to be a threat to computer industry.

* Rivalry from existing firms:

The competition in personal computer industry is very intense and fierce. The five main manufacturers namely IBM, Dell, Apple, HP and Compaq are in competition to produce the least expensive and most efficient machine. Apple focuses more on innovation while Dell focuses on distribution channel and services, which create differentiation to some extent. Price competition has become severe in the industry as PC has become a more commodity-like product which drives the industry to embrace any cost-cutting measures in an effort to increase their decreasing profit margin. Quality of a personal computer is largely determined by the microprocessor and application system installed, the profitability and prosperity of the industry is dependent of the profitability and prosperity of these suppliers.

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