Dell

1. How and why did the personal computer industry come to have such low average profitability?

The profitability of the personal computer (PC) market despite of the high arise of activity volume in the last decade is low. The main factors that reduce this profitability are

o The fierce competition

The personal computer industry has been one of the most competitive industries in the world which led to competitive pricing among producers.The industry is typically characteristiced by rapid innovations products, low initial investment to set up an assembly line to produce PC which means that virtually any firm can enter the market easily, and the demand for better performance systems has kept the market very attractive resulting on invited new vast competitors to joined in this market in order to gain more and more of the market share priced the computers at a very competitive price (operating at very low profit margins).

o Lack of product differentiation

The existence of many large manufacturers in addition to the continuous entry by smaller manufacturers results in limited differentiation and decreased competitive advantage among PC manufacturers since everyone can access the new technology at the same time. All manufacturers also have access to similar suppliers and therefore have the same buying power especially for processors which are sold at the same price to all manufacturers. It is clear that the competitive advantage in the PC industry is not sustainable as easy replication by competitors promotes price wars which lower profit margins for the industry as a whole.

o High monopoles on the suppliers side and the buying power of the customers

The supplier power was very high because of the big monopolies (Intel & Microsoft) and the high importance of purchasing components and operating system which is constituting up to 67-75% of the PC cost), therefore the PC manufacturers could not control the prices and caused decreases...