Porters 5 Forces Model on PC industry

According to Porter there are five forces which determine the attractiveness of the market, which is;

• The bargaining power of customers
• The bargaining power of suppliers
• The threat of new entrants
• The threat of substitute products
• The intensity of competitive rivalry
  

The threat of new entrants

Virtually every components parts of a PC – motherboard, hard disk, DVD drive, monitor, battery (for notebook) etc – can be sourced from outside. Operating system can be licensed from Microsoft or Linux vendors. Even Linux had its own free operating system such as Ubuntu.  This means new competitors can enter the market fairly easily.

In fact, even desktop casing can be bought off-the-shelf.You can find desktop casing in almost every computer shop here in Kuala Lumpur, price ranging from RM50 to Rm500. All a PC maker needs to do is to stick its own logo.

Threat of substitute products
A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products.

Similarly to the threat of new entrants, the treat of substitutes is determined by factors like

•  Brand loyalty of customers,
  
• Close customer relationships,
  
• Switching costs for customers,
  
• The relative price for performance of substitutes,
  
•  Current trends.
  

Still, I dont see any substitute for PC's coming to the market anytime soon, instead for gaming, users may prefer gaming consoles such as the Playstation or the XBox

Intensity of industry rivalry
Dell, HP, Lenova, Acer, Toshiba, NEC, Fujitsu, Gateway, Asus... you name it. These are the better known players in the PC industry. And then there are plenty of lesser. The rivalry is intense.

The competition among the firms fighting for market shares has been intense Just as growth was slowing in the computer industry, Dell launched an all out price war in the fourth quarter of 2000 to gain market share. Hewlett Packard and IBM responded to this by saying the price war was “irrational”, (fortune.com). This helped Dell leap to number one in the worldwide market share and has left its competition scrambling to catch up. The only player to follow Dells lead has been Gateway and they lost 523 million in the first half of this year, laid off 3000 workers and closed 37 stores (Business week online). 

The implications of this intense competition are that companies have no room for error or inefficiency’s. International Data Corp said that the price war has driven down prices on average 25% this year. This means shrinking profit margins and layoffs at all major companies, (Dell 5700, HP 6500, Compaq8500.) Even though consumers are benefiting from lower prices now, in the long run they may see less technological advancements in their computers and peripherals as companies cut cost to try to earn a profit. 

The bargaining power of customers.
With so many brands available in the industry, it is clear that consumers have a wide range of options. Therefore to attract new customers, every computer firm must offer something of value which is hard to ignore. This is why consumers have a good bargaining power in this industry, choices are wide and manufacturers are only to keen to attract as many customers as possible. 

The current slow-down in the industry has given consumers even more power than they had before. They are now in demand, more than ever before and they can certainly cash in on this. 

Since the PC has become a commodity. There is no brand loyalty among PC users. The use of industry standard hardware and software means a user can easily switch from one brand to another.

The bargaining power of suppliers
Suppliers are not necessarily as powerful in this industry as in some other. This is due to the fact that the interest of new people in this industry is ever-increasing which leads to creation of new firms and availability of wider range of products. This leads to a reduced bargaining power of the suppliers and gives consumers leverage. 

Though certain companies with their strong position may dictate terms in the industry, setting down trends, which are followed by others in the industry, still they can not exercise this power beyond a certain limit. 

A clear example if that of Microsoft in the software industry. When this firm went a little too far with their powers, other in the industry jumped in to safeguard their rights and thus cutting down Microsoft’s powers to half. Same applies to hardware industry, even if one firm is setting all the trends, it is unwise to drag other firms along without proper consultation and not all consumers are impressed with a company’s big name unless its offering quality products.