External Environmental Analysis

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External Environmental Analysis

Introduction
Dell Inc. was founded by Michael Dell in Austin Texas in 1984. While he was a
student at the University of Texas in Austin, he started by selling Personal IBM
computers under the brand name PC's limited that were assembled by him
personally. In 1985 he incorporated his business as Dell Computer Corporation
and rolled out the first computer called the Turbo. Today it is one of the leading
manufacturer of personal computers in the world. As per Fortune magazine 2010,
Dell is listed as the 38th largest among the Fortune 500 companies of the world.

Dell started selling computers directly to the end users by avoiding retailers and
channel partners to cut down distributing costs. By using the direct model of
selling, it was able to provide personal computers at a competitive price that its
competitors. Another reason why people bought Dell computers is that they were
custom made to meet their requirement. So the Direct selling model and
customized built were Dell's competitive advantage over its competitors.

In 1991 Dell made its first laptop and by 1993 it was one of the top five computer
manufacturers of the world. From then Dell, has increased its product list by
adding printers, serves, data storage devices, PDAs (personal Digital Assistants),
high definition televisions and computer accessories. Dell faced various
challenges on the road map to its success. We shall now discuss the external
factors that influenced the growth of Dell in the United Kingdom.

PESTLE analysis is used to analyse the influence of macro environmental


factors on an industry. The factors include Political, economical, social and
technological. We shall the factors in detail.
Political Factors include government regulations and legal issues and define both
formal and informal rules under which the firm must operate. Some examples
include:

Tax policy
Employment laws
Environment regulations
Trade restrictions and tariffs
Political stability

In 1980, Ronald William Regan was elected as president of the United States. He
implemented several political and economic initiated. The political environment
was favourable to start up industries.
Economical factors: All businesses are affected by national and global economic
factors. They affect the purchasing power of potential customers and the firm's
operating costs. These factors include:

Economic growth
Interest rates
Exchange rates
Inflation rate

America was called the land of opportunity. This tells that the economical factors
were aiding Dell to grow successfully. Dell as company was found with an idea to
reach the customers directly. This helped Dell to provide quality products at a
much lesser price than its competitors.
Social factors include the demographic and cultural aspects of the society. These
factors affect the mind sets and needs of customers.

Health consciousness
Population growth rate
Age distribution
Career attitudes
Emphasis on safety

Due to Dell's direct model of selling, it was able to focus on the designing the
computers to cater the needs of specific targeted customers. Dell gave
importance to customer feedback to improve its business processes. It gained
huge appreciation from customers as the computers were built by order. This
became a challenge to its competetiors as they were relying on channel partners
and distributors.

Technological factors help the industry to perform more efficiently. The efficiency
of the companies increases when they start competing with each other on the
factors like:

R&D activity
Automation
Technology incentives
Rate of technological change

Dell being the leaders in the computer manufacturing industry, it has to adapt
itself to the new evolving technologies like usage of Information technology, E-
Commerce. It was very good at implementing and using the technologies
effectively.

Analysis of Macro environmental factors


In 1979, Michael Porter developed the five forces model. This helps to analyse
the competition and attractiveness of the industry.
Rivalry among competitive firms
Competition in the market is good, as it increases the efficiency of the industry
and the firms and organisations in it. However some argue that it cannibalises
the industry itself.
As the market is huge and growing everyday. Competitors are only few in the
market. The competition to gain more market share is increasing day by day.
Desll's direct model is their completive advantage over its competitors.

Potential entry of new competitors


"A debate over how to define the term 'barriers to entry' began decades ago,
however, and it has yet to be won. Conditions that constitute entry barriers may
be structural or strategic."
The barriers to enter the computer market are high, as it needs huge investment
in infrastructure, technology, operational costs and man power. Other factors like
domination of large players who have already established their brands reduce
the possibility of new entrants.

Potential development of substitute products


Availability of substitute products will saturate the industry. As the computer
industry is growing more and more, we can say the potential development of
substitute product is negligible. We can even conclude that there are no
substitute products for computers.

Bargaining power of suppliers


Suppliers of computer manufacturing components have moderate bargaining
power only when they can implement and create new components by
implementing new evolving technologies. However their market is limited as
their customers are the computer manufacturing companies, which are few in
the market.

Bargaining power of consumers


Bargaining power of consumers plays a major role in the computer industry.
Consumers have a great bargaining power due to the high competition in the
market. Technology remains the same, but its price keeps decreasing day by day.
Companies have to reduce the prices accordingly, to capture or retain their
market share.

Key Success Factors


Key success factors are the advantages of a company in the market. Identifying
them is a challenge; however it pays the companies when they focus on
improving them.
Key success factors of Dell are as below:

Direct selling model


Built to order
Lean inventory
Implementing technology change effectively.
Getting constant feedback from customers.
Analyse customer feedback and improve quality of products and business
processes.

Conclusion
After the analysis of the macro and micro environmental factors, we have listed
the key success factors. By focusing on them Dell can definitely capture large
market share in the computer industry hence making huge profits.

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