With Porter five forces framework, we identify the sources of competition facing IBM:-1.Threat of new entrantsHigh capital requirement needed to fund R&D and assets make the threat of new entrants relatively low. IBM spends large amount of funds annually for R&D, in order to constantly introduce new high-technology and innovative products and solutions to market to maintain its' competitiveness,Tougher for new entrants to achieve economies of scale due to experience curve effect. In addition, Consumers' preference over established brands, long-term relationship and broad product portfolio make IBM the preferred brand.
2.Threat of SubstitutesPropensity to substitute is low for buyers. Threat varies from low to medium with high switching cost and product differentiation such as technology, performance, functionality etc.
3. Bargaining power of buyersBargaining power is high during sourcing stage. However, buyers' bargaining power decrease after the purchase stage as switching cost is high with compatibility concerns, migration issues and cost of hardware/software.
4.Bargaining power of suppliersSuppliers' bargaining power is low for the industry, IBM maintains a diversity of suppliers.
5.Intensity of rivalry among established firmsAfter several years of contraction, the global IT industry returns to growth. The competition in the industry is intense with big boys like Microsoft, Dell, Hewlett-Packard and Sun Microsystems with diversified capabilities.
Gerry Johnson, Kevin Scholes and Richard Whittington (2005), Exploring Corporate Strategy - Text and Cases, 7th edition, Harlow : FT/Prentice Hall.
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