Dell Corporation in a Challenging Environment - Essay Example

 It is in an advantageous position to formulate effective strategies because of its robust resource base. However, the company needs to take action fast.

The main business is generated from PC sales. Most of Dell’s revenue stream is generated from sales of personal computers. The global economic downturn is having the greatest effect on PC sales as companies are reducing their spending on personal computers. Their spending may be going up in other product categories, but investments in PC are being reduced industry-wide. Because Dell’s main business is in PC sales, it is a strategic imperative for the company to craft a new strategic direction. The company does have diverse product offerings but the most important part of its resource base is dedicated to manufacturing personal computers such as desktops and laptops.

Dell’s main competitors are HP, Acer, and Apple. Dell faces a rising competitive threat from these companies because they have invested in a wide variety of products and services. For example, Apple is generating profitability at the same level despite the economic downturn. This is because Apple maintains diverse product offerings based on continuous innovation. HP is diversifying into the service business. Because the Western market is saturated, Dell has to focus on the fast-growing markets of China and India. However, in China, Dell faces a major competitive threat from Lenovo. Therefore Dell Inc. faces a considerable level of competitive rivalry in the industry.

Dell’s core competencies are in the product categories of desktops and laptops which remain the standard equipment in the North American and European markets. Compared to its competitors, Dell has nearly doubled its computer purchases. These purchases are mostly made by large commercial and institutional customers. Therefore the company has a skill in retaining large corporate accounts which will enable the company to face the competitive rivalry from HP. Dell also has core competencies in transferring knowledge across divisions to facilitate the highest level of quality in all product categories. The company has shown great success in product diversification. These capabilities and resources form the core competencies of Dell Inc.

The company’s strength is in the market leadership position that it holds in the industry with a loyal customer base of large commercial and institutional investors. The company has also been successful in diversifying into additional product categories. The company’s weakness may be its over-reliance upon PC sales which are being affected by the economic downturn. The opportunity is provided by the large corporate accounts which will enable the company to invest in additional product and service categories to strengthen the revenue base. The threat is the rising level of competitive rivalry in the industry. Although Dell might reduce the competitive threat to some extent by expanding to growing markets these markets also have their share of competitors, two examples being Acer and Lenovo.

Dell is customizing its products by providing value-added services in the enterprise market. This market has been growing steadily because corporate customers are looking for ways to cut IT costs. Therefore, by customizing its products for the enterprise market, Dell will be able to make up for the loss of revenue from decreasing PC sales. However, the disadvantage is the possibility of over-diversification. In that case, the company might lose money in areas that are not its core competencies. The long-term effect is the lowering of the company’s brand awareness.

Intense competition is forcing Dell to implement the strategy of product diversification. The intensity of the competitive rivalry is being further increased by the economic downturn. Therefore the critical success factor for Dell is to reduce the reliance on PC sales which are being affected in a major way by the economic plight as large corporations are cutting their IT spending. At the same time, they are seeking value-added services to streamline costs. Therefore Dell’s strategy of diversifying into the enterprise market is the right one. Competitive pressures have forced Dell to pursue new growth segments. Without diversifying into additional growth segments, the company cannot maintain its leadership position.

To address the strategic issues of competition, the company is implementing a business-level strategy of integrating cost efficiency with differentiation. The company is also implementing total quality management defined as total commitment to the customers and a continuous improvement process. However, these issues can be quickly copied by competitors and therefore the competitive advantage is not sustainable. Dell’s corporate-level strategy has been to facilitate information sharing across the divisions so that operational synergies may be realized. These synergies are intangible resources that cannot be imitated by competitors and therefore the competitive advantage that results from this corporate-level strategy is sustainable.

Given that the Western markets have reached maturity, the strategic imperative for Dell is to enter the fast-growing markets in China and India. These markets are still regulated by the government and therefore the company should form joint ventures with local distributors to maximize market penetration. Consumers in China and India are still not comfortable with online purchasing. Therefore Dell has to build a physical distribution structure that will facilitate reach to those regions which have not developed as fast. In this manner, Dell can maximize its market share in the fast-growing markets.