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Dell - Environmental Anaylsis

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An organization's external environment has three components: the remote environment, the industry environment, and the operating environment. The Remote environment is made up of economic, political, social, technological, and ecological factors. The industry environment is made up of entry barriers, supplier power, buyer power, substitute availability, and competitive rivalry. The operating environment is made up of competitors, customers, labor, and suppliers.

Industry Environment

Entry Barriers

New entrants to a market can threaten the market share of competitors already in the market. New entrants are interested in entering the Chinese market to try to gain a large market share from existing competitors in the market. By using the direct model strategy, Dell is using a different approach to woo the Chinese consumers. Dell's Just-In-Time (J-I-T) inventory keeps inventory costs to a minimum. Companies like China's market leader Legend (local Chinese PC), Lenova , recently purchased IBM Hardware Business outside China , they are beginning to move to Dell's J-I-T model, selling direct to their corporate customers.

A barrier to entry in China is dealing with the government, political forces and legal issues. Many foreign firms have to depend on Chinese resellers to make their products available to the public. Foreign companies may need to form joint venture agreements with established Chinese companies. China's regulations state that if goods were not manufactured in China, they could not be sold directly to the mainland. Despite protectionist tariffs on foreign firms, Dell can still undermine Legend's prices.

Buyer Power

The bargaining power of buyers is an important aspect in the computer industry. Buyers want to buy products at the lowest possible price. The buyer segment is especially powerful in China because computers are so expensive that consumers do everything they can to get the best deal - for the cheapest price. Because of the cost savings derived from cutting out the middleman, Dell believes it can sell computers at lower prices that its competitors can.

Supplier Power

The bargaining power of suppliers is moderate in the computer industry. Dell Computers is a vertically integrated company.


The computer industry has a low to medium threat of substitute products. Alternatives to the PC include written communication, telephones, faxes, and the typewriter. Calculators can compute numbers. Books are an alternate source of knowledge, but do not have the vast amount of information that is available at the touch of a button like the Internet. The computer is also a form of entertainment. Substitutes for its entertainment value include the radio, television, video games, and movies. All of these substitutes are available, but the PC has the technology that combines each of these into one medium.


Competition is intense in the Chinese PC market. Legend, a government backed PC company is the market leader in China. Legend has a domineering presence in Mainland China. Dell is also competing with Hewitt-Packard for market share.

Remote Environment

Economic Factors

The economic environment refers to the nature and direction of the economy in which a firm competes or may compete. The primary threat that computer companies encounter in China is the threat of software piracy. China has a shortage of skilled labor, even though the country has many economic opportunities. Computer companies need to acknowledge that "the average consumer could not afford investing in a computer, and very few have a bank account, let alone a credit card. Dell is aware that Chinese customers go for the cheapest System.

Political Factors

China has very nationalistic political environment, which make US companies vulnerable. The Chinese government prefers to promote national PC vendors to foreign companies. There is a lot of "red tape" involved in securing government contracts.

Social Factors

The socio-cultural segment is related to the society's attitudes and cultural values. The potential for Internet growth is huge in China, giving foreign computer companies, such as Dell the opportunities to expand into a new market. Computer companies need to acknowledge that in the Chinese culture, people are still unsure about credit card sales because of the huge expense of computers. Companies, such as Dell, then have to invest in door-to-door or face-to-face operations, initially, to gain consumers' faith and consumer's trust in the company.

Technological Factors

In the computer industry, technology continues to be smaller and faster than ever. Providing access to technologies developed by state R&D institutions has proven a key government resource. China The internet is a great opportunity for companies to get their names into the public domain as well as a fast way to tailor services to their customer segments. A threat in the technological segment to Dell's business in China is that access to the Internet is expensive, although it is gradually becoming cheaper.

Ecological Factors

The demographics of mainland China include a population of 1.2 billion people. China represents one of the planet's last great IT sales opportunities. This has sparked interest in China by a number of American companies. However, just because a nation has 1.2 billion people, does not mean it has 1.2 billion paying customers. Primarily, the middle class in China lives in one of four heavily populated areas. The lower classes, "peasants",



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