Intel and the Microprocessor Industry in 2014 - Essay Example

Review of ARM, Intel and the Microprocessor Industry in Executive Summary The aim of this paper has been focused on reviewing the current strategic positioning of Intel Corporation (a.k.a. Intel). Likewise, analytical frameworks have been used to examine the external business environment of the company along with its internal business environment. Additionally, VRIN analysis was conducted to assess its strategic fit in the current situation and draw recommendations accordingly. The findings obtained revealed that while Intel is still competent enough in aligning its governance policies, human resource system, supply chain strategies and sustainability operations with every influential factor of its external business environment, it lacks competitive advantage in attracting business customers from almost every dimension of the industry due to the exclusion of smaller corporate partners from the technology industry. Taking the advantage of this lacuna possessed by Intel, its rivals like AMD can be witnessed to grow powerful, obstructing the monopolistic power gained by Intel over the past decades. Table of Contents Executive Summary 2 Introduction 4 Intel’s Business Environment Examination 4 Porter’s Five Forces Analysis 4 PEST(LE) Analysis 6 Intel’s Current Strategy Analysis 7 Strategic Resources & Capabilities and Differentiation Strategies of Intel 7 Intel’s Value Chain Analysis 7 Strategic Appraisal of Intel 9 Conclusions and Recommendations 10 References 11 Introduction Intel (officially acknowledged as Intel Corporation), a globally renowned American semiconductor-chip manufacturing multinational, has witnessed significant rise in its demand around the various electronics companies, who are noted as its major strategic partners in the industry cluster (Haberberg & Rieple, 2008). However, with every opportunity, there come certain challenges, which are also apparent in the case of Intel, as on one hand, the company enjoys substantial lucrative growth opportunities and on the other, it is obstructed by rising competitive forces inhibiting its dominion on the industry cluster (Haberberg, 2014). It is in this context that scepticism develops surrounding the chances of an end to Intel’s long sustaining dominance on the market. Hence, examining Intel’s business environment and its current strategic positioning becomes crucial. Correspondingly, this report will aim at presenting a brief but insightful assessment of the business environment and strategies applied by Intel currently along with a critical strategic appraisal to conclude on the actual industry stance of the company and offer noteworthy strategic recommendations correspondingly. Intel’s Business Environment Examination Porter’s Five Forces Analysis Buyer Power: As orders are accepted only in bulks by the companies in this industry, the bargaining power of buyers increases, facilitated with the characteristics of business-to-business dealings (Klepper, 2010). Again, availability of heterogeneous products also tends to limit buyers’ power in this industry, offering strategic advantages to the manufacturers such as Intel. Nevertheless, expanding volume of large customer base in the industry has facilitated intensified buyers’ power making the growth prospects more challenging for Intel (KPMG, 2013; Martin & Sunley, 2001). Overall, the degree of buyers’ power in this industry ranges from low to moderate. Substitution Threats: Substitution effect in this industry has been low. Although there are various types of semiconductor-chips currently available in the market, their competencies differ substantially offering varying benefits to the client organisations as per their requirements. Nevertheless, with technology advancements, many smaller companies from around the world have been engaged in producing semiconductor-chips that might raise the threat of substitution in the industry in future (Advisen, 2011). Supplier Power: When it comes to supplier bargaining power, Intel has been able to gain a considerable degree of comparative advantages. As the manufacturing process uses raw materials, constituting of silicon as a major ingredient, which is available in abundance in the USA, the company has been able to gain cost effectiveness in its supply chain. However, as the producers of silicon wafers are quite less who operate in a collective manner, Intel also faces certain challenges in practicing greater bargaining power when negotiating with suppliers (Geng & Zhou, 2004). Threat of New Entry: Being in the business-to-business sector, Intel always faces risks of backward integration by its huge client organisations such as Microsoft. However, as the company has now secured its brand image amid its stakeholders and has gained expansion benefits in its organisational size, these factors have facilitated to reduce the threat of new entry for itself. In addition, as the industry tends to be a capital-intensive one with high barriers to entry and exit, new brands are quite unlikely to challenge Intel, minimising its threat from new entrants (KPMG, 2013). Competitive Rivalry: Competitive rivalry for Intel ranges from low to moderate. Being a pioneer and one of the leading suppliers of semiconductor-chips to the technology industry, Intel has been able to achieve a sustainable brand image in the industry. In addition, it has also been successful in creating strategic alliances with few major technology companies around the world, making it quite desirable among the client organisations. However, shifting demands among the client organisations impose considerable threat for the company (Furrer & Thomas, 2000). PEST(LE) Analysis Political: Considering the political environment of the semiconductor-chip manufacturing industry in the US, Dewey & LeBoeuf (2009) asserted that the most apparent and significant effects of the governmental policies can be witnessed in the Research & Development (R&D) and manufacturing functions of the companies. Loan and grant policies, tax policies and bars imposed on the maximum capacity of production in these companies are a few major illustrations of governmental interventions in this industry sector (Dewey & LeBoeuf, 2009). Economic: In the US, the semiconductor-chip manufacturing industry is gaining its increasing importance as an economic pillar. However, companies operating in this industry, including Intel have been facing problems related to rising costs of productions, imposition of limits on production capacity and fluctuating final product prices giving rise to economic challenges for Intel (Macher & et. al., 2002). Social: When addressing the social factors influencing the semiconductor-chip manufacturing industry, it can be observed that Intel was able to gain advantages in terms of skilled labour force availability along with rising demands for its products as a chain effect of rising demands for technology products using these chips (KPMG, 2013). Technology: As a semiconductor-chip manufacturing organisation, Intel had to face certain advantages and disadvantages as well in its business operations. For instance, technology innovations, essential in this industry are quite sophisticated, which offers a comparative advantage of rarity to the companies. However, it in turn increases production costs, costs of R&D and quality related risks in the entire manufacturing process (Macher & et. al., 2002). Legal & Environmental: The legal and environmental factors influencing the industry operations for semiconductor-chip manufacturing companies like Intel, can also be observed as adversely impactful. While the industry operations are directly linked with chemical use and hazardous working environment, immense significance is required towards maintaining a safe workplace culture and further ensuring minimum negative impact to the environment (Ballhaus & et. al., 2009). This in turn creates pressure for the organisational operations in Intel. Intel’s Current Strategy Analysis Strategic Resources & Capabilities and Differentiation Strategies of Intel A few major components determining Intel’s strategic capabilities include its vision of doubling the number of transistors in their manufactured chips in every 2 years (i.e. 24 months) that further determines the pace of technology development in the company. Its strategic resources are further identifiable as its capable software developers to help the company have a strong record of innovation. These facets, added with the aggressive competition strategies adopted by Intel to preserve its monopolistic positioning in the Personal Computer (PC) market have further helped in differentiating itself from its close rivals. Another differentiating facet for the company had been its unwavering focus on marketing to big corporates and multinationals, rather than approaching the end-customers, unlike the other organisations (Haberberg, 2014; IC Insights, 2013). Intel’s Value Chain Analysis Corporate governance and ethics policies, as applied in Intel, play a fundamental role in determining its infrastructure. The company has been much focused on developing its leadership practices with uniform vision and goals, avoiding any possible chances of conflicts (Intel Corporation, 2014). The company also nurtures a defined set of policies, which is followed by a capable corporate sustainability team entitled to ensure ethical soundness in the organisational practices, towards its internal as well as external stakeholders (Intel Corporation, 2014; Intel Corporation, 2012). Considering its human resource practices, Intel has been much concerned towards maintaining a degree of diversity within its workplace, based on the principles of equality, uniformity and transparency in its human resource policies. The company further emphasises developing transparent policies for performance-based appraisal to its employees apart from practicing uniform policies of training and development of staff at every level of its organisational hierarchy (Grant & Jordan, 2012; Intel Corporation, 2012). As a leader in the silicon process technology, the company has also gained consistency in practicing innovation and continuous technology development as witnessed on the basis of its recent developments for the Extreme Ultraviolet Lithography (EUV) and 450-millimeter (mm) wafer technology. In its technology development functions, the company also pays due attention towards its unique and user convenient architectural developments without making any compromise to its quality features and security requirements (Intel Corporation, 2013). Its inbound logistics, i.e. its procurement functions, are guided by the principles of diversity and transparent communication rules. While operating its supply chain functions, the company pays due attention towards the managerial approaches taken by its suppliers by following rigorous audit. The company also has taken initiatives to empower and credit suppliers who are environmentally responsible and nurture the same ethical vision as Intel (Intel Corporation, 2012). The operating system of Intel has been presented in the below diagram: Fig. 1: Operating System of Intel (Intel Corporation, 2013) Its outbound logistics operations are however more lenient wherein the company does not tend to have much control on the ethical and responsible operations of the client organisations operating in different fields of the technology industry. Nevertheless, to differentiate itself from its competitors, the company focuses on transparent and continuous communication with its business customers, majorly encompassing giants from the technology industry around the globe when conducting its marketing & sales services. However, in order to promote its products among the end customers and raise its brand awareness in the market, the company also performs aggressive advertising strategies through the various modern promotional channels (Intel Corporation, 2012). Strategic Appraisal of Intel Responding towards the external factors of governmental interventions, environmental barriers and legal obligations, Intel has paid due attention towards developing its human resources policies, governance system as well as its supply chain principles in accordance with the applicable legislative norms along with its ethical values. The company was also observed to emphasise its competitive positioning wherein it differentiates itself from other rivals focusing on dealing only with giant technology businesses, being strict in its transparency along with supply-chain sustainability rules. It maintains a direct communication with the end customers or the ultimate users of the product in order to understand market demand and respond to the fluctuations before other rivals. Irrespective of these strengths and competencies, the company can be observed as lagging behind in terms of its product rarity and substitution effects, which can be better assessed with the help of VRIN analysis. Valuable: As the company offers high quality assurance and continuous development in its product line, its targeted customer groups also prefer using Intel to other brands. However, as the price charged by the company is quite high, potential small business based customer groups in the industry at times become inclined to deal with its competitors like AMD with the aim of attaining cost savings (Haberberg, 2014). Rare: With a more transparent flow of information and rigorous R&D conducted by Intel’s competitors, the company can be observed to witness decline in its rarity irrespective of its maintaining a highly secured production environment. Inimitability: Conducting operations at such a magnitude like Intel, is not feasible for many of its rivals in the technology industry and thus, the company has its advantage of being inimitable. Non-substitutable: With its diminished rarity, a few substitutable varieties of Intel’s products have been launched in the market by its rivals, having positive responses from smaller customer groups, present in a large volume. This aspect certainly can be attributed as a major cause for the company to witness declining sales growth facing comparative disadvantages (Ballhaus & et. al., 2009). Conclusions and Recommendations An apparent reason behind Intel’s fall is its complete ignorance towards smaller technology companies around the world in its targeted customer segment, where its competitors gain an advantage over Intel. Hence, considering its current strategic situation, Intel should focus on capturing this customer group as well, as the market segment of large companies has become quite saturated fared with high possibilities of growth. In this regard, the company can design cheaper and less sophisticated products to suit the requirements of this group of customers. Additionally, to ensure that such diversification does not hamper its brand sophistication or image among the big corporates, the company can focus on building strategic alliances with other providers to this market segment that would further help it to preserve its monopolistic power. Nevertheless, it should be concluded that Intel still possesses a strong competitive position in the market with high potentials to sustain its monopolistic advantages subjected to certain changes in its brand positioning strategies. References Advisen, 2011. Semiconductors. Industry Analysis. 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