It is a structural advantage that Dell’s main competitors, Hewlett-Packard and IBM, do not have.
1) Evaluate Dell’S Strategy Over The Period Of The Case, Paying Particular Attention To Sources Of Competitive Advantage, Strategic Development And Performance.
Dell Computer Corporation is a premier provider of computer products and services, founded in 1984 on a simple concept of selling computer systems directly to customers. This ‘direct business model’ is designed to eliminate retailers that add unnecessary time and cost, or can diminish Dell’s understanding of customer expectations and allows the company to build systems to order.
Dell’s CEO and Chairman Michael Dell who began training for a career in medicine but abandoned his studies in his first year when he first recognised the opportunity for the business. Company’s main objective is to remove the middle men from selling of computer and dell can sell their goods more cheaply than the rivals.
The company’s rise to market leadership is reputed to be as a the result of a persistent focus on delivering the best possible customer experience by directly selling computing products and services based on industry-standard technology.
Because Dell’s main competitor IBM and Hewlett-Packard are not based on the direct business model, this is the main competitive advantage for dell because dell can sell product cheaper than IBM and Hewlett-Packard.
According to dell case study in 2002 Guardian pointed that “a low-cost position in an increasingly commoditised market. The company follows a model of operational excellence. Their fortress is built from many little bricks instead of one big idea. There is a lot of fine tuning and attention to detail.”
As well as Dell is not making computer ready made for customer but they make as per the necessity of customers. Which also give benefits to Dell to become the choice of customer, because they get what they want.
As per the porters Generic competitive advantage A firm’s relative position within its industry determines whether a firm’s profitability is above or below the industry average. The elementary basis of above average profitability in the long run is sustainable competitive advantage. There are main two basic kinds of competitive advantage a firm can own: low cost or differentiation. The two basic types of reasonable advantage combined with the scope of activities for which a firm seeks to attain them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus. (Porter, 1985)
SOURCE: IFM.ENG.CAM.AC.UK
http://www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html
1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantage are varied and depend on the structure of the industry. They may comprise the pursuit of economies of scale, proprietary skill, special access to raw materials and other factors. A low cost manufacturer must find and make use of all sources of cost advantage. If a firm can accomplish and maintain overall cost leadership, then it will be an above average performer in its industry, provided it can order prices at or near the business average. (Porter, 1985)
Dell’s is following cost leadership because the price of the dell’s product is cheaper than other brands and over the few years till 2002 dell become the no one in the computer industry
2. Differentiation
In a differentiation strategy a firm seeks to be sole in its industry along some size that are extensively valued by buyers. It selects one or more attributes that many buyers in an manufacturing perceive as important, and uniquely positions it self to meet those needs. It is rewarded for its individuality with a best price. (Porter, 1985)
Dell’s had launch the www.dell.com in 1994 and e-commerce capability in 1996 and in the following year Dell became the first company to record $1 million in online sales.
3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a)In cost focus a firm seeks a cost advantage in its target segment, while in(b)differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser’s target segment and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behaviour in some segments, while differentiation focus exploits the special needs of buyers in certain segments.
Dell having a world wide operations and global market, company manufactures its computer in six locations in the world as well as Suppliers are also asked to locate With in a few miles so that parts can be delivered just hours ahead of being needed.
In the financial year 2002 Dell was on the top and its main competitor HP and IBM loosed their market and HP and IBM loose in order 4.9% and 2.2% where as dell increased by 23.3% in the year 2002 the demand of computer system and service decline and it also improve world wide market share 13.5% to 16 % in third quarter of 2002.
Sales of external storage systems increased 73 percent and continue on an annual run rate of more than $1 billion. In the first year of a partnership between the two companies, more than 1,500 customers purchased Dell | EMC storage systems.
As company is making their production in the six part of the world. And in the year 2002 when al companies are loosing their market dell had increase their market and sales. In the 2001 businesses made dell leading vendor in the US for Linux and Windows on Intel-based
Servers in the third quarter of 2002,and the strength of Dell’s relationship with EMC resulted in more than 1,500 Dell/EMC installations by the partnership’s first anniversary in October 2002.In the first year of the partnership of two companies Dell and EMC they sold storage systems to more than the1,500 customers. Volumes of Dell Precision workstations increased 27 percent worldwide, 37 percent in the United States.
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Shipments of Inspiron and Latitude notebook computers were up 26 percent in the quarter, more than twice the rate of the rest of the industry. Shipments in four strategically important national markets-China, France, Germany and Japan-rose a combined 30 percent in the quarter, as Dell significantly outpaced the rest of the industry in every region. Americas’ volumes were up 33 percent, higher still in Latin America, where shipments in Mexico more than doubled from one year ago. In the United States, shipments rose 33 percent; without Dell, volumes were up 2 percent. This indicates the far better growth in the sales of Dell in the year of 2002 when main competitor’s sales were decaling.
Dell’s 28-percent unit growth in Asia-Pacific and Japan was more than three times the rate of the rest of the industry. The competitive gap was similarly profound in servers. Dell volumes in the region rose 20 percent, versus an average 1 percent for others. Total company shipments were up 42 percent in China, and 35 percent in Japan.
Combined Dell shipments in Europe, the Middle East and Africa (EMEA) increased 13 percent; the industry without Dell was up 5 percent. The company’s regional server growth was three times that of the rest of the industry, led by a 60-percent surge in Germany. Computer systems sold to consumers and small businesses in EMEA were 28 percent higher.
According to Bradley(2005) International companies may regulate and centralize their activity by their business occupation ; marketing usually the last to be centralized. on the other hand company may be centralize selecting marketing mix.
Dell had increase their volume of selling on international level it got growth in Asia-Pacific and Japan, Middle East. During the year 2002 top companies for computers were losing their market share but in issue of Dell it was totally contradictory because its price of share and Net income almost doubled as well as Net revenue increase by 11% which indicate the progress of the dell.
2) What Strategic Alliances Has Dell Formed And In What Way Do These Assist And Complement Dell’S Growth And Development?
Since the early 1980s, there has been a dramatic increase in the number of international strategic alliances. For example, between 1980 and 1990 Japanese firms signed over five hundred alliances with American Firms (oster 1994,229)
According to oster (1994), strategic alliance can be defined to include any arrangement in which two or more firms combine resources outside of the market in order to accomplish a particular task or set of tasks. Generally speaking, strategic alliance can be classified into two categories: those that involve sharing of equity sharing, such as licensing, distribution supply, and marketing agreements between two firms.
As an alternative to direct exporting , a firm can enter a foreign market by forming a strategic alliance with its foreign counterpart. That is instead of producing the units at home and shipping them to the foreign market, it can sign supply and distribution agreement that licenses the production and distribution of its product in the foreign market to its foreign counterpart. But strategic alliance is not a merger, it does not involve the sharing of equity. As a result , after the alliance the firms remain separate identities.
Interfirm relation ship are as noted earlier , niether new nor novel. Main four type of allinces pre comititve allinces , compititve allinces ,precompititve allinces and Noncompititive allinces.
The intencity of potential between partner firm constitute what we term “conflict potencial”. In any firm are likely tobe concern with sharing pie, but another more serious aspect to conflict is that firms may be , or antidipating being , rivals in the market place . our analysis consider both tactical and staretigic conflict potential inhernt in collobrotion.
Pre compititive alliances are generally interindustry , vertical value-chain relationships as between manufactures abd their suppliers or distributors, once managed at arm’s-length , they are now accorded much more attention as the strategic nature of these links is widely recognized. .(Rangan and Yoshino ,1995)
http://books.google.co.uk/books?id=QPm5OnFvrE4C&printsec=frontcover&dq=strategic+alliances+theory&cd=4#v=onepage&q=strategic%20alliances%20theory&f=false
Non-competitive alliances: Tend to be intraindustry links among non-competing firms, for example General motors and Isuzu, which are jointly developing a small car that both will sell. The level of interaction in this cooperative effort is high. .(Rangan and Yoshino ,1995)
Competitive alliances: similar to non-competitive alliances in terms of the joint activity but differ in that the partners are apt to be direct competitors in the final product market.
Precompitiive alliances: typically bring together firms from different often unrelated industries to work on well-defined activities such as new technology development. Dupont and sony’s cooperative development of optical memory-storage product is an example. Working together, the two firms, neither of which possesses the technological or market know-how to succeed alone. .(Rangan and Yoshino ,1995)
Pre competitive alliances: typically bring together firms from different, often unrelated industries to work on well defined activities such as new technology development. Dupont and sony cooperative development of optical memory storage product is an example .(Rangan and Yoshino ,1995)
http://books.google.co.uk/books?id=QPm5OnFvrE4C&printsec=frontcover&dq=strategic+alliances+theory&cd=4#v=onepage&q=strategic%20alliances%20theory&f=false
Dell’s relationship with EMC resulted in more than 1,500 Dell/EMC installations by the partnership’s first anniversary in October 2002. Demand for related enterprise product and service raised strongly. Engagements by Dell Professional Services more than doubled year-over -year, as the company continued to expand its service capabilities.
Dell 19% Profit is coming from the Non-PC business, In September 2002 dell sign contract with Lexmark. Primary market was judged to be maturing and these new product areas appears to enhance dells future prospects. Lexmark to produce Dell branded printers and ink cartridges. To enter in the Market and providing low cost computers they bought components in high volume at lower price. And supplier asked to locate close to Dell so they can provide components quickly which also save on transportation cost.
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In October 2002 EDS announce dell as its global provider of intel based server, note book and computers for its employee over 60 countries. Which help him to enter in Business firms, in the same period dell expand its relation ship with Dell by installing Dell/EMC storage area networks, Cox communication is serving around 6.3 million customer across the country which help Dell to gain market as well.
Dell systems also moved into global law firms such as Paul, Hastings, Janofsky & Walker LLP
and Dorsey & Whitney LLP, as well as retail chains including Sears, Roebuck and Co.
Q3. Comment On The Rationale Behind The Hp/Compaq Merger And Consider The Likely Impact On Dell’s Position In The Future
The motives for opting for strategic alliance are various. Alliances can be formed to obtain new and better technology. Not all companies are able to provide the technology that they need to effectively compete in their markets on their own. They often choose to team up with other companies who do have the resources to provide the technology.
Another reason for forming strategic alliances is to outsource business functions. Outsourced functions can range from sales, marketing, production, accounting or any other function which can be done more efficiently at a cheaper cost. Quinn (1995) supports this statement by stating that “many companies are forming alliances looking for the best quality or the cheapest labour or production costs”.
Many organizations readily embrace the concept of strategic alliances. However, few succeed (Soursac, 1996; Malott, 1992; Michelet and Remacle, 1992). According to Kalmbach and Roussel (1999 cited by Zineldin and Bredenlöw 2003) failure rate of strategic alliances is as high as 70 percent.
Michelet, R, Remacle, R (1992), “Forming successful strategic marketing alliance in Europe”, Journal of European Business, pp.11-15.
Zineldin, M and Bredenlöw, T (2003), A case of strategic outsourcing relationship “SOUR”. Available at: http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Articles/0050330504.html
When Hewlett-Packard and Compaq Computer Corporation – both agreed for merger in May 2002, ranking the combined company number one in sales of PCs and servers and rivalling leader IBM in the services sector.
The main reason behind the Merger should be to gain market because in 2002 dell was only doing progress other companies were loosing their market position. To gain the control over the Market both company decided to do Merger.
After the merger of the two company HP and Compaq computer their 95% of their joint product strategy in mid of December. After that merger HP saw that their revenue fall9% in the most recent quater and Sales
from its enterprise systems group fell 22 percent from the year earlier, while its personal systems group reported a decline of 19 percent. Only its printing and imaging business saw growth, growing revenue 10 percent. It indicate that the merger will not affect more to the dell but though printing and imagine business grow in the year and in the same year Dell had merge with the Lexmark to Dell branded printers and cartige.
The three key hurdles for HP were considered to be making bottom-line numbers, maintaining a customer base and improving employee morale. In the year 2002 net income and net revenue decrease .
Dell had a big threat from HP And Compaq because after the merger they ranking first in the market for pc and server business so it create big impact on the sales of the dell but during the year decline in the sales of HP but they have increase in the sales in printers it impact on the dell market position.
But Dell is providing the direct relationship with the customer and no intermediate because of this other company cannot provide as cheap as dell provide, they give priority to customer so they make computer as per the requirement of each customer. So it helps to compete dell to the hp -Compaq.
During the year 2002 Dell was on the Top and dell have threat from the Hp-Compaq Merger Because both are well Known company and they may be cover market for computer and printer.
Quinn, J.B (1995), “On the edge of outing”, The Alliance Analyst, http://www.alliance. analyst.com, pp.3.
References:
Oster, S.M (1994) Modern Competitive Analysis, 2nd ed., New York: Oxford University Press.
Chen Zhiqi Carlteon University , A theory of International Strategic Alliance, Carleton University Bradley F,(2005) International marketing strategy ,5th ed.,Person education limited ,Harlow England.
porter, Michael E., “Competitive Advantage”. 1985, Ch. 1, pp 11-15. The Free Press. New York
http://www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html
Quinn, J.B (1995), “On the edge of outing”, The Alliance Analyst, http://www.alliance. analyst.com, pp.3.
Zineldin, M and Bredenlöw, T (2003), A case of strategic outsourcing relationship “SOUR”. Available at: http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Articles/0050330504.html
Michelet, R, Remacle, R (1992), “Forming successful strategic marketing alliance in Europe”, Journal of European Business, pp.11-15.
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