PORTER’S FIVE FORCES MODEL

This model shows pure competition in industry. However, economic studies have
affirmed that different industries can sustain different levels of profitability; part of this
difference is explained by industry structure. Michael Porter provided a framework that
models an industry as being influenced by five forces. Here five force model for PC
industry has been developed which helps in understanding the overall threat and
attractiveness of that industry.

THREAT OF NEW ENTRANTS

THREAT ATTRACTIVENESS

Low Moderate High

Economies Scale High

Product Differentiation Low

Channels of Distribution Moderate

Capital Requirement High

Access to Raw Material High

There are many players who produce computer in market having strong distributors and
retailer’s network. Here threat is high. Due to technological developments, it is very
attractive for new entrants. Most of companies provide more or less provides same
features & competitors can easily imitate that technology. So here threat is high but
attractiveness low. Companies have very strong distribution networks and retailers in
market for sell their product. Here threat for new entrants is also high and attractiveness
is moderate. In market we have competition with big names like apple, dell etc… for this
we require huge money for promotion, research and development, to adopt new
technology so here threat is high and attractiveness is high. Companies can easily find
its suppliers for raw material so here threat is low and attractiveness is high.

THREAT OF SUBSTITUTE
 THREAT ATTRACTIVENESS

Low Moderate High

Availability of Close High

Substitutes

Switching Cost High

Performance of Low
Substitution

Availability of substitutes is very less against desktop. However, there are many far
substitutes like netbook, I-pad, palmtop, music players etc… so here threat is low and
attractiveness is high. Switching cost is high because of close substitutes and low price
of desktop so here threat is high and attractiveness is also high. Now in business and
education sectors they are use laptops instead of desktop so performance of
substitution is not good. So threat is moderate and attractiveness is low.

SUPPLIER BARGAINING POWER

THREAT ATTRACTIVENESS

Low Moderate High

No. of Suppliers Low

Availability of Substitute Low

Switching Cost Low

Suppliers Threat of High

Forward Integration

Industry Threat of Low

Backward Integration

Industry’s importance to Low

suppliers
There are few suppliers for the industry. Most of the companies produce their own
hardware but for software they have to rely on the Intel and Microsoft. Here threat is
high and attractiveness is low. There is no substitute available in the market so that
Intel and Microsoft have high bargaining power. So here threat is high and
attractiveness is low. Due to less suppliers available in market threat from suppliers
are high and attractiveness is low. Due to few suppliers in market, they can do forward
integration in laptop not in desktop. So threat is low and attractiveness is high. If
suppliers do backward integration, threat from suppliers bargaining power will increase
and attractiveness would less. Almost 90% world uses the software which is use for
computer so that importance of supplier is very high and attractiveness is low.

BUYER BARGAINING POWER

THREAT ATTRACTIVENESS

Low Moderate High

No. of Buyers High

Quality to Buyers High

Availability of Substitute Low

Switching Cost of Buyers High

Buyer’s Threat of Low

Backward Integration

There are many buyers who purchase the PC but they are divided in laptop and
computer. Here threat is moderate and attractiveness is high. Thanks to technological
advancements and developments in the communication field, this has made it easy for
the customer to access the required information at anytime. This provides information to
customers about product so threat is high and attractiveness is also high. Buyers are
having good substitute against the desktops which are laptop, notebook etc are reduces
their bargaining power. So that threat is high and attractiveness is Low. There are so
many players are available against desktop so that threat is higher and attractiveness is
high.

Buyer’s can purchase material from suppliers directly and can make their own PC so
threat for backward integration is high and attractiveness is low.

RIVARLY AMONG COMPETITORS

THREAT ATTRACTIVENESS

Low Moderate High

No. of Competitors Low

Industry Growth Moderate

Fixed Cost Low

Differentiation Low

Industrial Profitability High

Buyer Demand Low

There are many players in desktop segments so treat from competitors is high and
attractiveness is low. The personal computer industry is one of the fastest growing
industries. The sale of desktop has declined show moderate growth in last few years.
In India, still there is a scope for development in this industry. So it may attract many
other competitors. The amount of fixed cost required in the computer industry is very
huge in terms of investment in the plant and machinery, in research and development
and also in distribution network. So threat is high and attractiveness is low. Most of the
companies in the industry provide more or less same kind of features in desktop. This
may increase the competition among the players as everyone tries to provide
something extra to the consumers. Threat is high and attractiveness is low. Threat
from rivalry is high still there are so many opportunity for profit so attractiveness is
high. Due the technological advancements and improvements in the standard of living
of the people, laptops are in great demand. Today, the desktop has not much
demanded. So this increasing demand for laptop provides a not good market to the
competitors so the attractiveness is very Low.

OVERALL ASSESSMENT

THREAT ATTRACTIVENESS

Low Moderate High

Barriers to Entry High

Threat of Substitute High

Bargaining of Suppliers Low

Bargaining of Buyers High

Rivalry among Low

Competitors

Overall Attractiveness High

From the above analysis it is clear that the in desktop industry, the threat of new entry,
the threat of substitute, the bargaining power of suppliers’ and the rivalry among the
competitors is very high still leads to high attractiveness.

PEST ANALYSIS

POLITICAL FACTORS:

• Future legislation: The PC manufacturing industry is expected to grow at a

faster rate in developing countries compared to the developed countries
 • Regulatory bodies and processes: The additional testing and certification
involved directly affect the supply chains for PC manufacturers, resulting in
increased costs.

• Government policies: changes in government policies in developing countries

like India and China can affect the potential growth rates in their markets. , the
removal of import duties on PC in India in 2005 was one of the factors that resulted
in a growth of 94% in PC sales in 2005.

• International pressure groups: For instance, in Canada, the enforcement of the

WEEE Directive will increase the cost of computers by $15. The increase either
affects the consumer or reduces profitability for manufacturers.

• Excise duty: Complete exemption for local manufacturers from excise duty.
Imported computers subject to additional customs duty (levied in lieu of excise duty)
equivalent to 7%.

• VAT: Computers have a confessionals rate of 4% (importance attached to the IT

sector in India).

• Tax changes: Goods and Services Tax (GST) regime to take place in 2010.
GST would ensure a simpler and more transparent tax regime and address issues
concerning cascading of taxes, multiple compliances, etc.

ECONOMIC FACTORS:

• Home economy trends: The global economy influences various different factors
that affect the growth of the PC industry. Since early 2008, the slowing global
economy is one of the reasons for the decrease in business capital spending for
small and large corporations, resulting in reduced demand for PCs.

• Interest and exchange rates: The strength (or weakness) of the US dollar versus
other currencies can directly affect a company’s bottom line. Most PC (and laptop)
 manufacturers such as Dell, HP, Acer, Lenovo, and Apple generate sales
throughout the world and therefore currency exchange rates are an important factor
as well as the interest rates of different countries.

• International trade/monetary issues: The economies in developing countries

such as China, India, Brazil, and Latin America are growing at a much faster rate
than developed countries and therefore provide better growth opportunities for
computer manufacturers, since developed countries like the US and Japan have
become saturated.
• This trend is reflected in the slower single digit growth in the last few years as
opposed to the consistent double digit growth in the developing markets.

SOCIAL FACTORS:

Social factors such as education, preferences, income levels, and other cultural factors
influence demand patterns in the different regions and therefore affect how a company
operates in each region.

• Lifestyle trends: The education spectrum, new devices such as the rugged and
ultra portable OLPC (One Laptop Per Child) have been developed for
underprivileged users in developing countries like Africa which is adversely affects
the desktop industry.

• Demographics: The education and income level of users affects the brand
perception of the computer manufacturers. Households with higher income have
higher percentages of Apple computers. Such households are also more likely able
to afford (and want) Apple computers. This has allowed Apple to continue its
strategy of premium pricing and performance compared to Windows PCs, while at
the same time increasing its market share of the total PC market.
 • Cultural aspects of different regions affect the occurrence of seasonal sales,
which significantly affect the performance of the computer industry as a whole. For
instance, in the U.S., the periods from November-December (Thanksgiving /
Christmas) and August (back-to-school) are significant earnings period.

TECHNOLOGICAL FACTORS:

• Competing technology development: Technological advances over the past

decade, such as increased processing power with reduced power consumption and
reduced cost, or the standardization of Windows and Intel in laptops, are one of the
main reasons for the increase in market share of the laptop segment compared and
decrease the market share of desktop in the overall PC industry.

• Associated/dependent technologies: New technologies, such as hosted virtual

desktops (HVD), threaten to completely change the industry dynamic, due to the
possibility of cheaper computers along with lower software costs.

• Technology legislation: HVDs involve centralized computing in which the

processing is done on servers instead of individual clients. Gartner, Inc. estimates
that the HVD market will grow in revenue from $1.3 billion in 2008 to $65.7 billion in
2013.

• Cost advantage: Due to technologies, desktop industry produce more cost

advantage PC than laptop industry and other substitutes. More demand in offices
and education sector will lead mass production so that cost can reduce.

• The netbook category’s average selling price (ASP) of $300 was made
possible by the low cost Intel Atom microprocessor, released in 2008.

LEGAL FACTORS:
The legal factors include Information and Technology Act, Discrimination law, law,
Antitrust, Employment law, and Health and safety law. These laws can affect how a
company operates, its costs, and the demand for its products.

• Minimum wage law: The Fair Labor Standards Act of 1938, as amended, is the
basic federal statute dealing with minimum wages, overtime pay, and related
standards. According to section 6 is the act’s basic minimum wage provision.
Section 7 requires that one and one half times one’s regular rate of pay be paid
to workers for hours worked in excess of 40% week. Section 13 is devoted to
exemptions.

• Consumer protection law: Legal framework promoting customer safety and

education and providing protection from hazardous or substandard products and
from fraud. Regulations address manufacture and design, advertising, labeling,
and sales methods. In 1985 the UN produced its Guidelines for Consumer
Protection (updated 1995); they cover consumer safety and product standards
and education, providing a framework and a benchmark for governments
(particularly of less developed countries) to establish a legal basis for consumer
protection

ENVIRONMENTAL FACTORS

Increasing focus on the environmental impact of high-tech trash has lead to more
stringent environmental regulations on the electronics industry such as the RoHS
(Restriction of Hazardous Substances) and WEEE (Waste Electrical and Electronic
Equipment) Directive. Furthermore, growing awareness to climate change is affecting
how companies operate and the products they offer--it is both creating new markets and
diminishing or destroying existing ones.