Five Forces Analysis of the PC industry

PC industry Five Forces

After having seen a decline since the recession, the PC industry has shown signs of picking up again. While the US market is still to pick up, the number of shipments has increased in the first quarter of 2017.  The PC market has started stabilizing and it is a fantastic sign for the top five players. While HP is again at the top, Lenovo, Dell, Apple and Acer have also followed to fill the next four posts.  The situation is not as good as it once was but it is still better than the past years.  There are several reasons that the PC market weakened and the most important one among them is the growth in the sales of tablet and smart phones. Technological changes keep taking place and that can have a downward effect on the existing technologies.

PC industry had also felt the bite of technological innovation when smart phones and tablets pushed down the sales of PCs and laptops. However, 2017 has begun on a great note and it seems the PC market could again see the good old days. This is a five forces analysis evaluating the factors that affect the level of competition in and attractiveness of the PC industry.  While the level of competition in the industry is tough, it is still an attractive market but the entry of new brands is difficult because of the large investment required to raise and grow a PC brand

Bargaining power of suppliers:

The bargaining power of suppliers in the PC industry is low because of their smaller size and large numbers.  While the number of suppliers is high and every brand has several options in terms of raw material suppliers, none of them is large enough in size and therefore does not hold any significant clout.  Most of these suppliers are located in China. It is the PC brands controlling the game. They frame the rules that the suppliers have to comply with starting from labor related regulations to environmental compliance. The PC brands are all large in size and hold immense clout based on their financial strength. The result of all of this is the low bargaining power of the suppliers.

Bargaining power of buyers:

While the bargaining power of the individual buyers is insignificant, as a group they hold somewhat significant clout. The factors moderating the bargaining power of buyers include limited number of famous brands, quality of technology and service as well as a number of other factors including marketing and advertising. Still, as a group the bargaining power of the buyers increases which is because, the balance is tilted in the favor of the consumer in the 21st century.  The consumer in the 21st century is well informed and empowered. He searches for information and makes his shopping decisions after careful consideration based on feedback from several sources. Apart from it, the buyers also have several options before them when they want to make a purchase. All of this results in moderate bargaining power. Every brand is pushing very hard in terms of quality and prices to attract the customer.

Threat of substitutes:

The threat of substitute products for the PC industry has grown. The growth in mobile technology has led to decline in the demand for PCs as the consumers have great options before them in the form of portable devices like large screen smart phones and tablets that can provide same features but without the need to carry a large laptop. Users that were interested in gaming or internet surfing can avail of all these features without having to purchase a large screen laptop. There are several more features that are common about the smart phones, tablets and laptops. Apart from it, there are several brands that are fighting for market share and work as each other’s substitutes. So, overall while the number of substitutes of PC is high, the threat from them is also high.

Threat of new entrants:

The threat of new entrants in the PC industry is very low and it is for several reasons. Apart from the high level of investment required to build a PC brand there are other several requirements too that deter any new player from entering the PC market.  To build a brand and brand equity is not easy. You need to invest in production, supply chain as well as skilled human resources. Apart from these, there is a large investment required in marketing and advertising because which one cannot expect large sales. Moreover, the brands that are already in the market are able to exploit economies of scale which allows them to produce high volumes at lower costs. Any new brand would need a significantly large infrastructure to achieve this. So, unless a player has a very large sum to invest, it cannot enter the market. Moreover, to build brand image and equity as well as to achieve a large market share it would need both time and efforts apart from financial investment. To make all these things work, you need to build a trustful relationship with the customers. So, overall the game becomes absolutely difficult for the new players. PC business is a hard bargain and therefore new players fear to enter.

Rivalry among the existing players:

The level of rivalry among the existing players is high. The five main players are fighting for market share and currently HP has taken the lead. However, Apple, Dell, Lenovo and Acer are also tough combatants.  The size of these players and their financial strength gives rise to a tough marketing battle and results in intense rivalry.  The big players keep fighting for market share and most of them are close combatants very close in market share and financial strength. Moreover, with the market in the developed Western economies having grown saturated, the brands are fighting for market share in the Asian markets. India and China have become hot markets where most of the battle is taking place.  In this way, the level of competitive rivalry has grown in the PC industry and its intensity is very high.

Sources:

Strategic Management By Colin White – Google Books

https://www.cnbc.com/2017/04/11/pc-market-first-growth-since-2013-idc.html

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