Personal Computer Industry - Essay Example

Foundations of Economics 05 December 2006 Foundations of Economic Theory work The US Personal Computer Industry: An Introduction The external environment of business organizations significantly affects their operations. In order for companies to efficiently utilize its various resources and craft an effective strategy, they need to conduct a thorough market environmental scanning which identifies the various market forces that affects their operations. Economic theories, together with different strategic management tools will be very essential in unveiling these market forces. In line with this, this report will look at the factors which drive the growth, demand, trends, and development in the market for personal computers in the United States. The rapid technological innovation within the last decade has brought about the creation of personal computers. These devices are now considered necessities which facilitate the processing of data, making documents, as well as playing movies and music. Personal computers have gained popularity not only in business and commercial organizations, governments, non-government institutions and even households. The rationale for choosing to examine this market is, thus, its wide acceptance in the market especially in the United States where PC is reported to be most widely used. During 2005, the US Census Bureau reports that 70 million American households or 62% of the whole population has one or more computers in 2003. This is a large leap from the 56% recorded in 2001. Thus, this paper will primarily concentrate on evaluating personal computer market in the United States. All the personal computers sold in the United States and in any part of the world generally perform the same functions such as "word processing, internet browsing, internet faxing, email and other digital messaging, multimedia playback, video game play, computer programming, etc" (Personal Computer 2). However, it is notable that personal computers are far from being homogenous goods. Different manufacturers of these products have strongly differentiated their product offerings according to the identified needs and preferences of computers. Personal computers are apparently differentiated products which vary with the manufacturer, style, design, and product features. For example, the personal computers offered by Apple Computers are considered to be trendy and innovative while those which are manufactured by the Japanese manufacturer such as Toshiba are identified to be more durable. Personal computers are also designed according to the lifestyle of the users. For example, desktop computers are targeted for households or individuals who does all their computing at home or at office. On the other hand, more portable ones such as laptops or notebooks are targeted for people on the go who needs computer or internet access wherever they go. Personal computers are also differentiated and designed according to the markets they are targeted. For example, companies offer different personal computers fro household, small to medium business organizations, large companies, government institutions, and other sectors. This report aims top look at the market drivers in the personal computer industry by utilizing publicly available data such as the major competitors, the market share of its competitor, the strategies and business model of each industry player, the opportunities and threats present in the industry, and the annual report of the major industry participants. The next section will look at the supply condition of the personal computer sector in the United States followed by the demand side analysis. Lastly, this paper will assess how this market will develop in the near future. Supply Side Analysis The structure of the personal computer industry in the United States can be characterized as monopolistic competition. It can be recalled that a monopolistic competitive market has four distinct characteristics which include many buyers and sellers, differentiated products, sufficient knowledge, and free entry. In order to fully understand how this can be applied to the sector under consideration, US personal computer industry will be examined based on the four factors such as number of competitors, level of differentiation, consumer information, and barriers to entry. The personal computer industry of the United States traditionally has become an abode for a large variety of manufacturers-small, mid-sized, and large. However, pressures in the external environment have pushed for the consolidation of these players leading to the domination of only six large participants. It should be noted that manufacturers including IBM, Acer, NEC, Packard Bell, and Zenith has all dropped out from the retail PC market due to their inability to generate substantial and profitable margins to cover their costs of operations (The Consumer PC Market in the United States 8). From the third quarter of 2005 to the third quarter of 2006, only five manufacturers are able to capture significant market shares in the market. Dell, Inc dominates the PC market with a market share of 32.1%. Hewlett-Packard follows with a far smaller share of 23%. The other three are Gateway Computers (6.4%), Apple Computers, (6.1%) and Toshiba (5.1%). Other players are able to capture more than a quarter of the market or 27.3% (Marsal and Jade 1). These large players in the industry are seen to offer products which are largely differentiated. It can be seen that competitors are employing differentiation strategies in order to create a unique image in the market. For example, the market leader Dell appeals to the "more knowledgeable segment" (The Consumer PC Market in the United States 8) which requires cutting edge technology gadgets while Hewlett-Packard has developed an appeal to the mass market. Gateway positions itself as a producer of gadget for the semi-professionals. Apple has always been recognized for its superior brand which it leverage in order to capture the high end of the market while on the far end is Emachines which targets price sensitive consumers by its low priced personal computers. Though products in the market are highly differentiated, it can be seen that players are competing more aggressively with each other by reinforcing their positions in the market. It can be seen that product obsolescence is very common in sector, necessitating manufacturers to invent personal computers which has more innovative and advanced product features. Personal computer manufacturers are focusing on building their competences in the industry through the use of differentiation. Competitors who are focused on cost leadership are offering less cost for their products while those serving the high end market focus on innovation and improving product quality. Technological advancements particularly the creation of the internet technology has significant implications on the knowledge of consumers on the products of the different suppliers in the industry. It should be noted that making internet easily accessible to all the potential buyers has given them enough buying leverage as the prices, specifications, quality, and review of different personal computers are now available online. Prospective entrants in the personal computer segment in the United States are barred not by government regulations but by economies of scale, brand, and high capital outlay. It should be noted that a potential entrant will need a strong financial muscle in order to battle head on with the established competitors in the market. Entrants are also required to invest for aggressive marketing strategies to attract potential customers. They will also be dealing with the economies of scale and strategic partnership with suppliers which are already being reaped by current players. Demand Side Analysis This section will look at the factors which influences the demand for personal computers in the United States. In economics, demand for a commodity is almost always related to the price of the commodity and the income of the customers. In order to accurately know how these variables affect the demand for personal computers, the first part of this section will discuss the classification of the commodity at hand. Traditionally, the high price of computers in the market discourages low income individuals from purchasing. However, the US market recognizes personal computers as necessities which are needed to enhance efficiency and productivity. The high patronage and usage arte of personal computers in this market is a strong proof of this. In the US, personal computers can be seen as normal goods. It can be recalled that normal goods are commodities which demand increases as consumer's income rises. This is especially true for personal computers. It can be seen that higher income households have a higher number of personal computers at home. Income elasticity describes the responsiveness of demand to changes in income. It is computed as ratio of the percentage change of demand to the percentage change in income. Personal computers, as stated above, have a positive income elasticity signifying its positive correlation with income-demand increases as income rises and demand decreases as income declines. The US Census Bureau's released statistics shows that households with higher income have a higher computer usage rate. Only 47.2% of families with annual income of less than $25,000 owns computer while families with income $50,000-$74,999 and above $100,000 has usage rate of 88.1% and 97.1%, respectively. It can also be seen that the personal computer industry in the United States has adversely suffered from the overall economic slowdown in the economy during 2001 (The Consumer PC Market in the United States 5) which has reduced the general level of income among households. Demand for personal computers is also positively influenced by the decrease in the prices of commodities. It should be noted that traditionally, ownership of computers are limited only to those households which has a high level of disposable income. Thus, the pressures from the environmental factors which lowered the market price of personal computers have become instrumental in boosting the demand for this commodity. Currently, computer manufacturers which target the price sensitive customers are emphasizing on offering products which are lower priced. This just signifies that the price elasticity of demand is elastic. Computer manufacturers can attract more customers in purchasing their products by being more sensitive and being more responsive on the needs and preferences of their buyers. It should be noted that in the personal computer industry, buying leverage is very much tilted on the side of the consumers due to the easier accessibility of information about competing brands' features and prices. Thus, PC manufacturers can take advantage of this by offering more value to customers in terms of new product features and lower prices. The US Personal Computer Industry: Outlook and Prospects With the current level of saturation in the US personal computer sector, it is apparent that manufacturers have a lot of opportunities to take advantage of. As customers are currently looking for products which have better features, there is a challenge for industry players to innovate. This is heightened by the fact that technological obsolescence is very much prevalent in the sector. Players in the personal computer sector can also enhance their efficiency and become more profitable by closely examining their respective value chains and identifying the processes which do not enhance customer value. Eliminating wastage in the production process can significantly lower the costs of operation while improving profitability. This efficiency can be passed to consumers in the form of lower prices which maximizes their purchasing power. Another way to improve market position is through the enhancement in the provision of technical and customer support. As consumers of personal computers are often not adept in solving technical problems, satisfaction can be boosted by extending excellent customer service. Currently, prospective entrants are strongly barred from entering and competing in the industry. As stated above, even some of the players in the personal computer industry have consolidated with other players due to intense competition and low profitability. Thus, this report supports that there are currently no room for entrants in the personal computer industry. Works Cited "Computer and Internet Use in the United States." US Census Bureau. October 2005. 05 December 2006 Marsal, Katie and Kasper Jade. "Apple's share of U.S. PC market jumps to 6.1 percent." AppleInsider. 18 October 2006. 05 December 2006 "Personal Computer." Wikipedia: The Free Encyclopedia. 30 November 2006. 05 December 2006 "The Consumer PC Market in the US." Office of Fair Trading. December 2002. 05 December 2006 Read More