Intel Corporation PEST and Value Chain Analysis - Essay Example

?Intel Corporation PEST & Value Chain Analysis Introduction Intel Corporation is a multinational semiconductor chips manufacturer based in California, United States. Its main activity is to manufacture semiconductor chips and hardware for PC and mobile microprocessor-chips industry. Originally it started as a semiconductor manufacturer only. However, with increasing demand for microprocessors and high competition posed by Japanese firms; Intel restructured its business model to focus on the hardware manufacturing for all PC manufacturers. Due to global recession and the rise in the demand for general purpose PC microprocessors and mobile PC microprocessors market. The x64 and x84 microprocessors are well in demand in the first quarter of 2011 however, with Intel having the largest market share of 82.6 percent market share leaving the rest to AMD (Morgan 2011). It captured 79.3 percent market share of the general purpose PC microprocessors and 84.4 percent of mobile PC microprocessors (McGarth 2011). However, in the second quarter it observed a loss in market share by 1.5 and 1.9 percent respectively (McGarth 2011). Intel’s key stakeholder groups are its owners, employees, public, consumers, venture capitalists, government and all other groups having direct interest in the working of the corporation. PEST Analysis 1) Political Factors: The political factors aims to study the scope and the role of government intervention in the working of a particular industry. The PC microprocessor industry has expanded over the decades. According to the United States International Trade Commission Report, Japan, Canada and the United Kingdom has been the top three export markets for US general purpose PC microprocessors in the period of 1990-2000 (Canavan, Carr & Johnson 2009). However, these markets reduced their share of US exports of microprocessors Canada by 3 percent, Japan by 4 percent and United Kingdom by 2 percent in the period 1998-2000. Conversely, in the same period, China, Korea and Mexico increased their market share (See Appendix: Table 1). The US shipments of computer equipments rose in this period to reach to $135 million dollars from $55 million dollars. The US has maintained its top manufacturer of telecommunication position in the world. In the year 2001, the IT industry faced global decrease in demand for IT products which adversely affected the balance of trade of US and other countries (Buffet 2011). In this regard, the US government improved its tax laws, labor policy, tariffs and trade liberalization policies to attract the global consumption for IT products from US manufacturers. Robert (1990) undertook a study to examine the impact of Japanese trade liberalization policy and tariffs in semiconductor market on the US manufacturers. This positive political environment acts as an opportunity for Intel Corporation to capitalize upon its products and expand globally. 2) Economic Factors: The US mixed economy has a GDP growth rate of 2.5 percent in the third quarter of 2011 which is a decrease by 0.4 percent from previous year (Bureau of Economic Analysis). The International Monetary Fund reported that the Gross World Product of the US GDP is $15 trillion dollars that is 23 percent at the market exchange rates (Greyhill Advisors). Furthermore, it observed that this amount is equivalent to 20 percent of Purchasing Power Parity or PPP (DeNavas-halt, Proctor & Smith 2011). US ranks third largest exporter. Its public debt amounts to $15.03 trillion dollars and poverty is 15.1 percent according to 2010 estimates (Treasury). The CPI Inflation has been estimated as 3.5 percent between October 2010-2011 period (United States Bureau of Labor Statistics). According to 2009 estimates of World Bank, the US economy is largely based on its private sector enterprises accounting for 86.4 percent of its economy. The large contribution of private sector in US economy means an opportunity for Intel to expand and benefit from the overall affirmative macro-environment factors. However, PricewaterhouseCoopers conducted a study that highlighted that though businesses in US have registered substantial revenue. Still, they are uncertain about the economy in the future (US Economy 2011). 3) Social Factors: DeNavas-halt, Proctor and Smith 2011 reported that the US citizens are health conscious. However, the population is facing a road block where the gap between the age distribution is consistently increasing. The health is improving and as a result the average death age is increasing to 80 years (DeNavas-halt, Proctor & Smith 2011). This has created problems for the new graduates who are unable to find jobs. As a result, the unemployment rate is increasing on an yearly basis (Berry & Pakes 2005). The demand in the previous years depleted for products due to global recession however, it is regaining momentum in the 3Q of 2011. There has been a sharp increase in the demand for latest smart mobiles, mini-laptops, Apple’s iPad and android tablets in the global market (McGarth 2011). Thus, semiconductors are still dominate the larger part of the global market. In this wake, Intel can take benefit from this increase in the demand for new technology that requires more licensing contracts with laptops and mobile manufacturers requiring installment of ready-made PC and mobile microprocessor chips (Canavan, Carr & Johnson 2009). 4) Technological Factors: Malerba, Nelson, Orsenigo and Winter (2008) undertook a study of “the history-friendly model of the changing vertical scope of computer firms during the evolution of the computer and semiconductor industries” (p.197). The study highlighted that the factors like technological discontinuities, the external market size and magnitude and demand’s lock-in effects determines the firm’s vertical scope and market structure in a particular time frame. AMD and other Japanese competitors in the global semiconductor industry poses competition challenges for Intel. Thus, it provides healthy competition that encourages quality technological innovation in the industry (Intel Press Room 2011). The global recession is leaving in the shape of recovery. The global demand for newer and updated technological products is picking strength which the US government welcomes with open arms (Buffet 2011). This positive political environment acts as an opportunity for Intel Corporation to capitalize upon its products and expand globally. Value Chain Analysis Intel Inc. was founded in 1968 by Gordon E. Moore, Robert Noyace and Arthur Rock. Moore and Noyace were both physicists and Moore was the founder of ‘Moore’s Law’ and Noyace co-invented the technology of integrated circuits. Intel is listed as a Fortune 500 company due to its revenue of US$ 43.623 billion in 2010 (Intel Portal). The value chain analysis was proposed by Michael E. Porter in his 1985 book titled Competitive Advantage: Creating and Sustaining Superior Performance. Porter (1996) argued that the various processes and techniques applied to increase the overall value of the product and the business acts as the stepping stone to creating and sustaining competitive advantage. The value chain of a firm has extended from the limited scope of the firm to include all the supply chain and distribution networks a firm has developed to decrease its delivery time and increase its product quality (Martin 1995). Figure 1 provides the layout of the elements that form the value chain of a firm. The figure illustrate that the firm’s primary activities cannot be executed alone to achieve the competitive advantage. In the global world, the competition is thriving and requires the firms to meet the unprecedented demand for a particular product or shortage of supply for a major component forming the raw material of the core product. These aspects have to be covered through supported activities that regulate the challenges, undertake forecasting tasks to prepare for any unforeseen change in the economy and provide instant solutions if any condition arises (Satyanarayanan 1996). These support activities include firm infrastructure, human resource management, technology and procurement strategies of a firm. Figure 1: Value Chain Analysis Intel Corporation Primary Activities: 1) Inbound Logistics: The inbound logistics of Intel Corporation relate to the internal procurements of raw materials and related communication methods. The costs associated with the inbound logistics are low as the factories where the microprocessor chips are manufactured are near the silicon providers. This way the travelling costs are minimized to a great level thus creating value for the firm. 2) Operations: Intel Corporation handles its entire operations of manufacturing the microprocessors through its head quarters and factories in California. These operations require a substantial amount of costs. Nevertheless, they provide considerable value to the corporation through quality focused operations rather quantity. In 2008, US Today reported that the laptops that cost less than $500 are globally in demand and their sales will increase from 430,000 in 2007 to 9.3 million dollars in 2012 (Shah & Dalal 2009). 3) Outbound Logistics: These relate to the export of finished goods to the manufacturers of laptops, PCs and mobiles located in other parts of the world. These costs are minimized through shipments as a mode of transporting goods from one place to another. The shipments are fully insured to ensure that they are safely delivered to the customers. 4) Marketing and Sales: Intel Corporation spends a small calculated amount of its revenues on the marketing and sales. The reason for this strategy is the high demand and established goodwill of the corporation worldwide. The marketing efforts are focused on creating a goodwill image in the foreign countries end users to purchase laptops, mobiles and PCs with Intel InsideTM . Intel Corporation Support Activities 1) Firm’s Infrastructure: The infrastructure of Intel Corporation includes high-tech and modern equipment, machinery and a fully automated factory for manufacturing microprocessor chips. Each chip is intricately designed and carefully monitored before sending into final batch of shipments to the customers. The infrastructure requires constant maintenance, security and privacy issues that are costly. However, this cost is substantially paid off through the consistent value that is created through excellent quality of product (Greenstein 1996). 2) Human Resource Management: The Intel Corporation has 96,500 employees as of 2011 estimates. This large number of workforce requires a human resource management system that hires the most suitable candidate for instance, hardware developer, electronics engineer, legal adviser, etc. for an emerging vacancy. This system also resolves all disputes that arise among the human resources related to lack of motivation, environment issues, cultural problems, leadership and teamwork conflicts, etc. In order to make it cost effective, the human resource management system has been completely automated to ensure that less number of workforce is required to manage human resources. 3) Technology: The Intel Corporation uses standardized technology to ensure that it provides high quality product. The term standardized technology refers to technological product that has been designed and manufactured through a standard procedure that is monitored, measured and evaluated at every level. Thus, the final product ready for sale is a standard product having zero defect. 4) Procurement: Intel Corporation procures silicon and diodes from other manufacturers. This procurement is cost effective and creates high value for the corporation. Conclusion Intel Corporation is the US leading semiconductor manufacturer that maintains a significant global market share of semiconductor industry. In the recent global recession has adversely affected the US economy. However, the recovery has created a tremendous increase in the exports for semiconductor based microprocessor chips throughout the world. The US economy’s growth is largely due to the major contributions of this sector. As a result, the US economy is growing and encouraging the future revolution in the semiconductor technology. The global trade liberalization movement in response to the global demand for newer and updated technological products has reduced trade tariffs that US government welcomes with open arms. As a result, the growth of microprocessors and other PC components picked tremendous volume to become the largest contributor of revenue for the US economy. Intel Corporation has a favorable macro-environmental analysis which only has one issue and that is the unprecedented recession of the US economy. In terms of value chain analysis, Intel Corporation has a sound value chain that is helping it to maintain its competitive edge over other competitors like AMD. References Berry, S & Pakes, A 2005, "The pure characteristics demand model". Accessed 24 November 2011. Available at: http://www.economics.harvard.edu/files/faculty/48_IERpure-char.pdf Buffet, W, 2011. "Industry Analysis: The Fundamentals", Berkshire Hathaway. Accessed 24 November 2011. Available at: http://www.blackwellpublishing.com/grant/pdfs/CSA5eC03.pdf Bureau of Economic Analysis, "National Income and Product Accounts Gross Domestic Product 3rd quarter 2011 (second estimate) & Corporate Profits, 3rd quarter 2011 (preliminary estimate)”. Accessed 24 November 2011. 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Available at: http://www.industryweek.com/section.aspx?sectionid=20&pid=googleaw Appendix Table 1 : Computer equipment: U.S. domestic exports, by principal market, 1991 and 2000 (in thousand dollars) Country 1991 Country 2000 Canada 3,231,333 Canada 5,878,620 Japan 3,091,344 Japan 4,447,042 Germany 2,433,510 United Kingdom 4,145,946 United Kingdom 2,420,641 Netherlands 4,031,645 Netherlands 1,264,632 Mexico 3,229,616 France 1,115,804 Germany 2,811,886 Mexico 781,829 Korea 1,936,885 Australia 748,111 Singapore 1,850,823 Singapore 689,049 Hong Kong 1,608,366 Korea 527,246 Ireland 1,554,990 Italy 489,071 Brazil 1,465,756 Ireland 487,331 France 1,234,028 Taiwan 393,787 China 1,137,75 Belgium 366,873 Australia 1,019,930 Hong Kong 336,837 Taiwan 935,045 All Other 3,814,480 All Other 7,861,223 Total 22,191,480 Total 45,149,559 EU15 9,462,973 EU15 15,415,538 Source: Compiled from official statistics of the U.S. Department of Commerce. Read More