PEST Analysis of DELL Computers

PEST Analysis of DELL Computers A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the political, Economic, Social, and technological factors of the external macro-environment. Such factors usually are beyond the firm’s control and sometimes presents themselves as threats. For this reason, some say that “PEST” is an appropriate term for these factors. However, changes in the external environment also create new opportunities and the letters sometimes are rearranged to construct the more optimistic term of STEP analysis. Many macro-environmental factors are country-specific and a PEST analysis will need to be performed for all countries of interest. In the following, the analysis of the political, economic, social and technological factors leads to a description of the macro environment of Dell computers. Political Environment The political environment of a country is influenced by the political organisations such as philosophy of political parties, ideology of government or party in power, nature and extent of bureaucracy influence of primary groups etc. Political factors include government regulations and legal issues determining the conditions under which companies have to operate. In this field, DELL computers has to face certain restraints.

Like in all markets, DELL computers is also subject to laws that regulate virtually all aspects of their business, including such areas as health safety, pollution, and advertising and labeling requirements. Problems can arise in countries where political stability is not guaranteed, no matter whether companies operate production facilities or if they do business with that country through exports. Many countries still have restrictive policies which are maintained to protect domestic manufacturers and production. Such policies often hinder foreign companies from entering into these markets. The only possibility to do business in those countries is to establish partnerships with local companies, where they are additionally forced to accept minority shares and to provide money and technological know-how. However, DELL computers sees great potential in those countries which loose their restrictions. Economic Environment Economic environment refers to the aggregate of the nature of the economic system of the country, the structural anatomy of the economy to economic policies of the government, the organization of the capital market, the nature of factor endowment, business cycles, the socioeconomic infrastructure etc. The economic environment includes factors and trends related to income levels and the production of goods and services. The economic environment consists

of the “factors that affects consumer buying power and spending patterns”. DELL computers expects a growth of approximately ten percent over the next five years. This growth is influenced by the economic situation in a specific country, having an impact on the purchasing power of potential customers. Additionally, changing inflation rates and currency fluctuation also determine the profitability of a company. Another economic factor that can adversely affect the computer industry is the exchange rate of the home currency, all branded products are imported, and their prices vary with changes in the relative exchange rates. Also with an increase in income, consumers are likely to purchase higher quality products rather than to simply purchase more. Thus there is a growing market for higher quality and priced computers. Social Environment The social dimension or environment of a nation determines the value system of the society which, in turn affects the functioning of the business. The social environment includes all factors and trends related to groups of people, including their number, characteristics, behavior, and growth projections. Because consumer markets have specific needs and problems, changes in the social environment can affect markets differently. Trends in the social environment might increase the size of some markets, decrease the size of others, or even help to create new markets. The potential for internet growth is huge in Asian countries like India and China, giving foreign computer companies, the opportunities to expand into a new market. DELL computers has to invest in door-to-door or face-to-face operations to gain consumers faith and consumer’s trust in the company and product. The national demand for DELL computers is dependent on the educational level prevailing in a specific country. The higher the educational standard, the higher is the demand. Furthermore, Dell computers get more and more involved in daily life. Today, children already get familiar with the use of computers at a very young age, representing a generation that will hardly live and work without a computer in the future. Additionally, the brand image of a computer and lifestyle trends get more and more decisive for the purchasing decision. DELL computers adapts to this trend, e. g. by offering a wider range of notebooks and by trying to create a strong brand name. Technological Environment The technological environment includes factors and trends related to innovations that affect the development of new products or the marketing process. These technological trends can provide opportunities for new product development; affect how marketing activities are performed, or both. For example, advances in information and communication technologies provide new products for firms to markets, and the buyers of these products often use them to change the way they market their own products. Using these technologies products can help marketers be more productive. In the Computer industry, technology continues to be smaller and faster than ever. Providing access to technologies developed by institutions has proven a key government resource. It was observed that by the year 2000, mainland China’s annual PC production would reach 7.6 million making it the third largest in the world. The internet is a great opportunity for companies to get their into the public domain as well as a fast way to tailor services to its customer segments. A threat in the technological segment to DELL’S business in China is that access to the internet is costly.

SWOT Analysis of DELL Computers As one of the largest computer manufacturers in the world, Dell Computer Company has grown tremendously since its incorporation in 1984 by Michael Dell. Dell’s Direct Model, which is largely responsible for the success of the company, provides a fast, cost-efficient, and customer friendly means of production and distribution. Now, in a market that is ever changing, competitors are challenging Dell with new and unique products in an effort to overcome the superiority of the Direct Model. The growth and development of laptop computers is a primary area in which Dell can work for continued success, despite the threats posed by its competitors.

SWOT (Strength, Weaknesses, opportunities and threats) analysis provides a basis for crafting a strategy that capitalizes on the company’s resources, while taking advantage of the best opportunities, and defending against the threats to its well being. In developing a new laptop computer, Dell would like to target three specific segments. The first, business executives generally receive their computers from their employer through a direct relationship with a manufacturer or a supplier. The second, college students, generally buy their computers through the school they attend. This is very much like the way in which business executives receive their computers, in that the individual is limited to the options chosen by the institution. Finally, Dell would like to explore the option of creating a laptop as a replacement for home desktop computers. Each of these market segments poses its own challenges and possibilities. In analyzing Dell’s strengths and weaknesses relative to these markets, as well as the opportunities and threats provided by the macro-environment, a clear picture can be drawn to aid in the development of the new product. Strengths 





Many of Dell’s strengths come as results of the Direct Model. The model itself could be considered as one of the company’s greatest assets. Dell has an advantage in their inventory turnaround time and in their well-controlled relationships with suppliers. One of Dell’s great strengths in targeting the business executive category is that roughly 75% of all sales revenue comes from large

Weaknesses 





Dell’s biggest weakness is attracting the college student segment of the market. Dell’s sales revenue from educational institutions such as colleges accounts for a measly 5% of the total. Dell’s greatest weakness is that buyers can’t physically touch or see the product they want to purchase.

businesses and government organizations.

Opportunities 





The markets for laptops, in particular, are growing much faster than that of desktop computers. This general trends itself is a great opportunity for Dell’s laptop business to grow in all segments. The Direct Model can provide the framework for consumers to make truly personalized computers in a relatively hassle-free environment. This trend toward more educated buyers provides a great opportunity in this respect. Increased communication and technological integration also create great opportunities for Dell.

Threats 





One of the biggest external threats to Dell is that price difference among brands is getting smaller. The growth rate of the computer industry is also slowing down. Dell has the biggest share of the market. The single biggest problem for Dell is the competitive rivalry that exits in the PC market globally. As with all profitable brands, retaliation from competitors and new entrants to the market poses potential threats.

Strengths Clearly, many of Dell’s strengths come as results of the Direct Model. The model itself could be considered one of the company’s greatest assets. However, a few specific advantages are gained through the Direct Model relative to the laptop market. First and foremost, the Direct Model allows consumers to fully customize their laptops. The market is becoming more educated, and now more than ever individuals want a product that can target their specific needs. In the case of laptops, this means that customers want more options in terms of both performance and portability. By cutting out the retail seller as a distributor, Dell has made it possible for each buyer to order directly from the factory, thus giving them the opportunity to fully customize their product. In addition to this customization, the Direct Model yields relatively fast delivery. This allows customers to place their order, and receive their customized computer often within days. Both of these Direct Model benefits are great assets in targeting the home-user market segment mentioned above. Dell has also an advantage in their inventory turnaround time, and in their well-controlled relationships with suppliers. These business features create large cost savings, which Dell can pass on to its customers. The final result is a customized, low-priced computer delivered to the customer’s doors within days. One of Dell’s great strengths in targeting the business executive category is that roughly 75% of all sales revenue comes from large businesses and government organizations. In other words, Dell has already created relationships with large companies, and this provides most of their

business. These companies, in turn, pass the relationship on through their employees, providing them with Dell products. Here again, Dell has the ability to customize their products to cater to whatever needs the business or individual may have. This, combined with their extensive business relationships, puts them in good position to target the business executive segment with new products. Weaknesses Dell’s biggest weakness is attracting the college student segment of the market. Dell’s sales revenue from educational institutions such as colleges only accounts for a measly 5% of the total. Dell’s focus on the corporate and government institutional customers somehow affected its ability to form relationships with educational institutions. Since many students purchase their PCs through their schools, Dell is obviously not popular among the college market yet. In terms of the home user, Dell’s greatest weakness is that buyers can’t physically touch or see the product they want to purchase. While the Dell Direct Model provides many great opportunities, its greatest disadvantage is that customers can’t go to retailer, try a few different products, and walk home with a computer all in a single trip. The very thing that differentiates Dell from its competitors, customization, also creates a problem in that consumers can’t go out to buy a Dell as simply as they could some other brands. Many computer buyers are wary of a product that they can’t personally examine before purchasing. Furthermore, an anxious buyer would have to wait a number of days before their computer was delivered. This is the price that must be paid for customization. Opportunities Personal computers are being purchased and used more ever than before. The markets for laptops, in particular, are growing much faster than that of desktop computers. This general trends lends itself is a great opportunity for Dell’s laptop business to grow in all segments. Another great opportunity for all of the targeted segments relates to the first trend that was mentioned. Customers are becoming more educated about personal computers, as an increasing number of them are second-time buyers. Consumers who have purchased computers in the past know what they want, and Dell can cater to them. The Direct Model can provide the framework for consumers to make truly personalized computers in a relatively hassle-free environment. This trend toward more educated buyers provides a great opportunity in this respect. Increased communication and technological integration also create great opportunities for Dell. Customers can now go onto the internet to personalize their computer, place an order, or even just to get information. This is more efficient for both Dell and the customer, and its benefits are many. For one, the ability of a customer to go to an “online store” can, in some respects, make up for Dell’s lack of physical retail stores. The continued advancement in these technologies will surely bring similar opportunities. The internet also provides Dell with greater opportunities since all they have to do now is to visit Dell’s website to place their order or to get information. Since Dell does not have retail stores,

the online stores would surely make up for its absence. It is also more convenient for customers to shop online than to actually drive and do purchase at a physical store. Threats One of the biggest external threats to Dell is that price difference among brands is getting smaller. Dell’s Direct Model attracts customers because it saves cost. Since other companies are able to offer computers at low costs, this could threaten Dell’s price-conscious growing customer base. With almost identical prices, price difference is no longer an issue for a customer. They might choose other brands instead of waiting for Dell’s customized computers. In a volatile market such as personal computers, threats abound. Computers change in a constant sometime daily basis. New software, new hardware and computer accessories are introduced at a lightning speed. It is essential for Dell therefore to be always on the lookout for new things or introduce new computer systems. The threat to become outmoded is a pulsating reality in a computer business. Not only that, companies must produce products that are high in quality but low in price. This is one challenge that Dell contends with. The growth rate of the computer industry is also slowing down. Today, Dell has the biggest share of the market. If the demand slows down, the competition will become stiffer in the process. Dell has to work doubly hard to differentiate itself from its substitutes to be able to continue holding a significant market share. Technological advancement is a double-edge sword. It is an opportunity but at the same time a threat. Low-cost leadership strategy is no longer an issue to computer companies therefore it is important for computer companies to stand out from the rest. Technology dictates that the most up-to-date and fastest products are always the most popular. Dell has to always keep up with technological advancements to be able to compete. Finally, the quick pace of technological advancement, while generally being a tremendous opportunity, is also great threat. Now that the low-cost leadership strategy is becoming less applicable to computer companies, brands names must differentiate themselves from their competitors. In the laptop market, this is largely based on technology and product design. The newest, fastest, most efficient technology, and the most durable, user-friendly product is going sell. If a company fails to keep up-to-date with innovations in technology, they will quickly see a decline in performance.

Case Study: McDonald’s Business Strategies in India McDonald’s The modest beginnings of McDonald’s at Illinois in USA, turned out to be among the main brand names in the international scene. It has been synonymous to what is widely-accepted the fast-food concept. The company operates over thirty one thousand stores all over the world to date. It was one of the first to perfect the concept of fast service in the food industry in its early days of operations in 1955. Given that the products of the company are mainly western in character; its operations have also expanded to the Asian region. The first Indian McDonald’s outlet opened in Mumbai in 1996. In the rest of the globe, it operates thousands of store franchises that functions autonomously.

McDonald’s in India Around the world, McDonald’s traditionally operates with local partners or local management. In India too, McDonald’s purchases from local suppliers. McDonald’s constructs its restaurants using local architects, contractors, labour and – where possible – local materials. McDonald’s hires local personnel for all positions within the restaurants and contributes a portion of its success to communities in the form of municipal taxes and reinvestment. Six years prior to the opening of the first McDonald’s restaurant in India, McDonald’s and its international supplier partners worked together with local Indian Companies to develop products that meet McDonald’s rigorous quality standards. Part of this development involves the transfer of state-of-the-art food processing technology, which has enabled Indian businesses to grow by improving their ability to compete in today’s international markets. McDonald’s worldwide is well known for the high degree of respect to the local culture. McDonald’s has developed a menu especially for India with vegetarian selections to suit Indian tasted and culture. Keeping in line with this McDonald’s does not offer any beef and pork items in India. McDonald’s has also re-engineered its operations to address the special requirements ofa vegetarian menu. The cheese and cold sauces used in India is 100% vegetarian. Vegetable

products are prepared separately, using dedicated equipment and utensils. Also in India, only vegetable oil is used as a cooking medium. This separation of vegetarian and non-vegetarian food products is maintained throughout the various stages of procurement, cooking and serving. The McDonald’s philosophy of Quality, Service, Cleanliness and Value (QSC&V) is the guiding force behind its service to the customers. McDonald’s India serves only the highest quality products. All McDonald’s suppliers adhere to Indian Government regulations on food, health and hygiene while continuously maintaining their own recognized standards. All McDonald’s products are prepared using the most current state-of-the-art cooking equipment to ensure quality and safety. At McDonald’s, the customer always comes first. McDonald’s India provides fast friendly service- the hallmark of McDonald’s that sets its restaurants apart from others. McDonald’s restaurants provide a clean, comfortable environment especially suited for families. This is achieved through McDonald’s stringent cleaning standards, carefully adhered to McDonald’s menu is priced at a value that the largest segment of the Indian consumers can afford. McDonald’s does not sacrifice quality for value – rather McDonald’s leverages economies to minimize costs while maximizing value to customers. The company has invested Rs 450 crore so far in its India operations out of its total planned investment of Rs 850 crore till 2007. McDonald’s India Pvt. Ltd. has moved an application to the government seeking permission for payment and remittance of the initial franchise fee and royalty to Mc Donald’s Corporation. The permission has been sought on two grounds: McDonald’s India would pay an initial franchise fee of $45,000 on each of the McDonald’s restaurants already franchised or to be franchised, in the future, in India; and a royalty equal to 5 per cent of the gross sales from the operations of all its Indian restaurants on a monthly basis to McDonald’s International. They currently serve around 5 million customers a day and hope to grow at the rate of 50% to 70% a year. Business Model 





Franchise Model – Only 15% of the total number of restaurants are owned by the Company. The remaining 85% is operated by franchisees. The company follows a comprehensive framework of training and monitoring of its franchises to ensure that they adhere to the Quality, Service, Cleanliness and Value propositions offered by the company to its customers. Product Consistency – By developing a sophisticated supplier networked operation and distribution system, the company has been able to achieve consistent product taste and quality across geographies. Act like a retailer and think like a brand – McDonald’s focuses not only on delivering sales for the immediate present, but also protecting its long term brand reputation.

Challenges in Entering Indian Markets 

Regiocentricism: Re-engineering the menu – McDonald’s has continually adapted to the customer’s tastes, value systems, lifestyle, language and perception. Globally McDonald’s was known for its hamburgers, beef and pork burgers. Most Indians are



barred by religion not to consume beef or pork. To survive, the company had to be responsive to the Indian sensitivities. So McDonald’s came up with chicken, lamb and fish burgers to suite the Indian palate. The vegetarian customer – India has a huge population of vegetarians. To cater to this customer segment, the company came up with a completely new line of vegetarian items like Mc Veggie burger and Mc Aloo Tikki. The separation of vegetarian and nonvegetarian sections is maintained throughout the various stages.

Product Positioning “Mc Donald’s mein hai kuch baat” projects McDonald’s as a place for the whole family to enjoy. When McDonald’s entered in India it was mainly perceived as targeting the urban upper class people. Today it positions itself as an affordable place to eat without compromising on the quality of food, service and hygiene. The outlet ambience and mild background music highlight the comfort that McDonald’s promises in slogans like “You deserve a Break Today” & “Feed your inner child”. This commitment of quality of food and service in a clean, hygienic and relaxing atmosphere has ensured that McDonald’s maintains a positive relationship with the customers.