Porter’s Five Forces analysis of Hewlett Packard (HP)

Porter’s Five Forces analysis of Hewlett Packard (HP)

Market dynamics have changed fast in the PC world during the last few years. The PC brands have responded to the fresh changes with product innovation and competitive pricing. However, the future of PC seems uncertain.  The rise of mobile technology and growing demand of smartphones with larger screens and tablets has affected the demand of laptops and computers. HP recently divided itself into two separate divisions; HP and HPE. It was one of the major restructurings in the business world during the past few years. HP expects it will be able to better respond to the changing market dynamics and shifting customer demand by focusing separately on the separate areas.

HP is the division that will take care of the laptop, PC and printer business. However, apart from the changing demand equation, other forces too impact HP’s business in several ways. A Porter’s five forces analysis can help us better analyse how various factors impact the competitive position of HP in the market. Porter’s model has five important forces at its core that decide the status of competition in an industry and its attractiveness. It is an important strategic tool that can help formulate better strategies plus reduce competitive pressure and generate sources of competitive advantage. This is a five forces analysis of HP:

HP Five forces analysis
HP Five Forces Analysis

Threat of new entrants: Low

The threat of new entrants is low for HP which is because of the significant investment and other factors involved. A new and strong brand cannot be erected overnight in the PC industry. Simply put, there is a large first hand capital investment in technological resources and infrastructure. Apart from that skilled workers and marketing also require a huge investment. This is just a small part of the entire game because having a distribution network and creating a reliable brand image requires time, investment and efforts. So, for any new brand trying to make its foray into the PC industry, it will be highly difficult because of the above outlined factors. Competition in this industry is already very intense.  Apart from a large distribution network, excellent supply chain management and great customer relationships are also essential to excel in the PC industry in today’s environment. So, these are the factors that discourage any new comers from entering the market. Overall, the barriers to entry are quite high and therefore the threat from new entrants is low.

Bargaining power of buyers: Low to moderate

While competition in the PC industry may be intense, the number of real players with established brand image and consumer loyalty is low. These factors limit the bargaining power of the buyers. Moreover, HP has an excellent brand image and its products are considered reliable plus technologically excellent. Its high performance PCs are backed with superb technology and excellent customer service. These things help build brand loyalty. If the customer service and after sales support from a brand are good, customer loyalty for the brand remains strong. HP is a master in all these areas. However, the only factor that has increased the bargaining power of the buyers is the rising use of mobile gadgets and smartphones. PC market has weakened and so the focus is again on the consumers. Overall, their bargaining power can be considered low to moderate. HP has responded by making products that are great in terms of performance, quality and design.

Bargaining power of suppliers: Low

In the PC industry the balance is always tilted in the favour of the brands and not their suppliers. Brands set the rules by which their suppliers have to play. It is because the major players in the PC industry are all big brands. These brands decide the fate of their suppliers. While a brand can switch to a new supplier easily, a supplier cannot find as profitable buyers so easily. So, none of the suppliers would like to lose business from these brands. Only the suppliers that abide to the rules and follow the quality guidelines are able to remain in the game. HP has also set strict guidelines related to quality and sustainability for its suppliers. Regular audits are conducted to ensure adherence.

HP notes, “We set SER requirements for suppliers, and measure performance through our SER supplier scorecard, key performance indicators, and audits that monitor on-site compliance with our expectations”.  Compliance and transparency down the supply chain has become important and therefore the pressure is on suppliers that they continue to adhere to the standards the buyer brands have set. HP has a large supply chain spanning six continents. A large number of its suppliers are based in China. In this way, HP holds immense clout based on its size and potential over its suppliers. Overall, the suppliers’ bargaining power is low or rather very low. However, finding new and reliable suppliers may be a slightly cumbersome task and that lets the best suppliers be in somewhat better position.

Threat of substitute products: (moderate)

The threat of substitute products for HP is moderate. The PC industry has been on a downward spiral for past few years. Rise of mobile technology and changing consumer preferences both have affected demand. Now, there are different products devoted to different purposes. You do not always need a laptop or PC to play games. Even a smartphone or tablet can be sufficient. To use the internet based services, you do not always need to carry a laptop even a tablet can let you access most of the services online. This has somewhere reduced the demand for laptops which used to be the most favorite machine for gaming and work. Now, the smartphones come equipped with work related features. HP has innovated its laptops for making them more suitable to consumers’ choice. Detachables are now more in demand. The pressure is going to remain on laptop makers like HP. Apart from product innovation, marketing also requires higher focus and investment.  To some extent this force gets moderated by HP’s technology, brand image and excellent service but still, it is a moderate force affecting HP’s sales and revenue. Customers have more choices than ever and innovation by competing brands could push the line higher.

Level of industry rivalry: High/Strong

The level of competitive rivalry between the existing brands in the PC industry is very high. The top players compete in the global market. The situation has become more complex due to Lenovo’s excellent performance. In the Asian markets especially, Lenovo’s rise has proved a threat for brands like HP, Dell and even Apple. The competitive pressure becomes evident in the form of price competition between the top brands. It is because of its premium pricing strategy that Apple lost a large market share in the Asian markets. The PC market is undergoing interesting changes where competition will influence several things. The focus is not just on better technology and design, but product prices also influence the customers’ choice. Computer is not yet obsolete and professionals and businesses will still need them for performance. This is why the battle in the PC industry is never going to be over. Product innovation, marketing, and pricing strategies will decide the fate of individual brands in the global PC market.

Sources:

http://www8.hp.com/us/en/hp-information/global-citizenship/society/supplychain.html

Abhijeet Pratap

I am Abhijeet Pratap, editor of notesmatic. I am an MBA with marketing (major). Apart from writing on various topics in business management, marketing and English literature, I like to read and write about technology.