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Porters Five Forces, Computer Industry
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The five forces involved with competition in the computer industry. I discuss the threat of new entrants, bargaining power of buyers, bargaining power of suppliers, the threat of substitute products, and rivalry.A) Threat of new Entrants: The threats of new entrants in the computer hardware industry, which is dominated by PC's, are currently low. The Industry is controlled by 5 key manufacturers that construct a barrier to entry for smaller computer manufacturers. Each firm has strong brand names and has the right mixes of resources and capabilities. Small firms lack the resources and capability of acquiring enough capital to compete with the larger firms.
B) Substitutes: The threat of substitute products is low. There is a strong presence of computers throughout society. There is one computer for every three people. There are variations of computers inside the industry, but there aren't any products outside the industry that can take the place of computers.
C) Bargaining Power of Customers: The bargaining power of buyers is high. Customers are readily able to switch to another product at little cost. Customers have a range of computers to choose from when making their purchasing decision. A high degree of rivalry between competing firms force sellers to lower their prices, increase their quality, and improve customer service. Armed with greater amounts of information about the manufacturer's costs and the power of the Internet as a shopping and distribution alternative have increased consumers bargaining power in the computer industry.
D) Bargaining Power of Suppliers: There are two types of suppliers in the PC industry. Those supplying products that have many sources, such as memory chips, disk drives, and keyboards. Since these components are widely available at highly competitive prices the suppliers have low bargaining power. Then there are suppliers selling inputs including microprocessors and operating systems. These components are dominated by Intel and Microsoft. Since there are a very limited amount of suppliers and the switching costs are high between suppliers they have high bargaining power.
E) Rivalry: The rivalry among the computer industry is high. This industry is extremely price sensitive, which create price wars between competing firms. With a constant stream of innovation and technology the product cycles for computers are short.