3
Dell Personal Computers
Dell accounts for 18 % of the global market in personal computers (PCs) with a 34 % market share in America. It assembles its computers from parts sourced around the world. Dell uses a direct-selling business model. Orders are placed direct over the phone and the Internet, bypassing retailers and therefore cutting costs. This allows Dell to undercut competitors on price, provide better service and still have higher profit margins.
In 2005, Michael Dell targeted sales growth of $80 billion over four years, mostly in Asia and Europe. However, despite the best market in PCs for five years, Dell's revenue growth was less than expected. The arrival of low cost Asian competition, such as China's Lenovo and Acer of Taiwan, threatens Dell's market dominance. Dell is a victim of its own success, becoming increasingly hard to manage because of its size, broadening product line and its international expansion.
Online sales of all products are growing rapidly worldwide with e-commerce sales in the American market growing by 56 % during 2005. The growth of faster broadband networks means "on-line window shopping" is quicker and easier. Dell is forecasting 400 million broadband subscribers worldwide by 2009.
[Source: adapted from: The Sunday Times, 24 April 2005 and 11 September 2005]
1. Explain what is meant by the term "profit margin".
[2 marks]
2. This is profit expressed as a percentage of sales revenue. It can be calculated as a total sum or per unit. Profit margin may be identified as gross profit or net profit margin.
[2]
3. Examine two reasons why increasing size makes Dell harder to manage.
[4 marks]
4. As an organization grows some of the following problems may occur:
⢠the resources increases as does the administration required to record...