dell’S Problems in china

Presented by:
Gaurav Sinha
MBA (MARKETING)
ICFAI BUSINESS SCHOOL(HYDERABAD)
 ININTRODUCTION
T R O D U C T IO N
• October 25, 2005- retirement of President of Dell
China, Foo Piau Phang

• Chief of Dell Asia Pacific Bill Amelio’s statement

• Dell’s market share in China slipped from 8.2% to

7.5% in 2nd quarter

• Reasons cited: Weak sales power and fierce

competition from Lenovo and HP

•
•
 B ABackground
C K G R O U N D Note
N O TE
• 1983 Michael Dell upgraded IBM PC’s
• Dell computer corporations incorporated on May
3, 1984
• Revenues grew
• Introduced support services
• 1987 global
• 1988 went public
• Entered the retail channel
• 1993 cash crunch in the company
•
• Mort Topfer joined dell
• Indirect distribution channels not successful
• Exit from retail market
• Direct sales model , customization
• Selling through internet, july 1996
• Company branched into new markets
• Started selling Printers
• Collaborations with companies like Lexmark,
• Fuji, Xerox, Samsung and Kodak
•
DELL’S DIRECT MODEL
 PUSH - PULL
BOUNDARY

PULL STRATEGY -
GY - Component inventory basedFinal
on forecast
assembly in response to specific cu

RAW MATERIALS
END CUSTOMERS

SUPPLY CHAIN TIME LINE

CONVENTIONAL MODEL DELL’S DIRECT MODEL
Manufacturer Reseller Manufacturer Customer
Customer (Bypassing reseller)
Used lesser developed Requires superior manufacturing
manufacturing capabilities, capabilities ,logistics capabilities &
Logistics capabilities & information system
information system
No such model was used Uses Value Web Model- Focused
on strategic activities &
outsourced non-strategic activities
Competitors kept 45 days of Factories stacked inventory for 5
inventory days
Relative higher inventory costs & Reduced inventory costs &
overheads overheads
Warehouses are usually distant Dell’s supplier set up warehouses
from the factory near Dell’s factory
 DELL IN CHINA
v

vChinese PC market
v
vDELL’s strategy in Chinese market
vChinese PC market

vDELL’s strategy in Chinese market

 THE CHINESE
The CHINESE MARKETMARKET
PC sales less than one million in 1995.
Sales crossed 12 million by 2003 & China
overtook Japan as the 2nd largest PC market
in the world
Market leaders in 1995 were Compaq, AST, IBM
& Legend.
Grey market was very popular.
Dell’s problem in China
üTariffs on imported components were very
high.
üForeign firms in China depended on
resellers .
üObtaining license was very difficult.

 DELL’S STRATEGY IN CHINA
DELL’S STRATEGY IN CHINA
 The Direct model approach.
 Targeted Xiamen initially and further went on to
penetrate other areas with its mission
objective.
 Focused on corporate market. Established a
website www.dell.com.cn that provided a
Chinese/English interface.
 Established Cash-on-delivery system and entered
into agreements with several banks to
facilitate payments.
 Hiring local talent.
 Emphasized on “Gunaxi”.
•


 CONTINUED…..
CONTINUED……
 Passed on the low cost benefits to the customers.
 Direct model helped reduce channel costs,
obtained real time market information.
 Focus on individual customers. Launched smart PCs
at lower prices.
 Opened an Enterprise command Center in Xiamen to
provide high level round-the-clock support for
server and storage customers.


DELL ININ
DELL CHINA BYBY
CHINA 2004
2004
 7.2 % share in Chinese PC market.

 4th position in the PC market in China.

 Despite increase in overall PC shipments market

share dropped.
•



 PROBLEMS
PROBLEMS FACED BYFACED
DELL INBY
CHINA
DELL IN CHINA
• SATURATED URBAN MARKET:
Ø Dell mainly concentrated on urban cities like
Shanghai and Guangzhou.
•

Ø Neglected semi- urban and rural areas( projected

PC penetration rate at 40 % per annum).
•

Ø Lack of infrastructure and distribution channels to

capture rural market .
•

•
E XEXCESSIVE
C E S S IV E D DEPENDENCE
E P E N D E N C E OON
N DDIRECT
IR E C T MMODEL
O D EL :

Ø Model dependent on pre-orders from consumers.

•

Ø Use of credit card and internet was not wide

spread.
•

Ø Customer did not preferred e- commerce

transactions.
•

Ø Customization of products did not hold good in

rural markets.
 C U LT U R A L A N D E C O N O M IC FA C T O R S
C U LT U R A L A N D E C O N O M IC FA C T O R S

Ø Buying computer was a family decision in china.

•

Ø An average Chinese buyer had to spend an

equivalent of two months salary to buy a
computer.
•

• LACK OF INNOVATIVE PRODUCTS IN CHINA.

•

• MAJOR FOCUS ON OFFERING HIGH PRICED

PRODUCTS TO UPPER SEGMENT.
STEPS PROBABLE
TO OVERCOME PROBLEMS
STEPS TO OVERCOME PROBLEMS.

• More focus on growing PC market in semi-urban

and rural areas.
• Developing logistics and distribution channels to
serve rural customers.
• Alternate payment system for rural customers as
e- commerce is not prevalent.
• Offering standardized and innovative low priced
products to capture rural market.
• Extending customers financing facilities to buy PC
on easy installments.
•
•
•
 THE FUTURE….
T H E FU T U R E
Ø Saturation in the urban PC market and
slowdown in sales.
Ø
Ø Dell’s move to re-enter the budget PC market
in smaller towns and cities.
Ø
Ø Success in China has been majorly on the
commercial side.
Ø
Ø Revamping of the Chinese website of Dell to
cater to the local needs.
 FUTURE(CONTD.)
FU T U R E ( C O N T IN U E D …)

Ø Foray into the laptop market in China.

Ø
Ø Rapid price erosion in the category of desktop
and notebook computers.
Ø
Ø Re-defining Dell’s Direct model in China.
Ø
Ø
 T HTHE
E M OMOVE….
V E ….
Ø Introduction of new server and storage products
aimed at cost-conscious companies.
Ø
Ø Reshaping of culture,product design and
innovation.
Ø
Ø Moving beyond direct sales to a strong retail
presence.
Ø
Ø Introducing a cost-competitive structure to
attract a large pool of customers.
 Factors
FACTORS influencing
INFLUENCING growth
GROWTH OF COMPUTER
INDUSTRY IN CHINA
of computer industry in
china
Ø In 1990 there were only 500,000 PCs in
China, however in 2003 it surpassed Japan
to become second largest PC market in the
world.

Ø This growth can be attributed to rapid

economic growth & increased foreign
investment flows in China.
The main factors that influenced the development
of China’s Computer industry are:

vChina’s domestic market with a population of over

1.3 billion & unlimited supply of low cost labor
coupled with economic growth.

vChina’s computer industry developed in a

transitional economy with ownership structures
including both capital & state ownership.

vChina has built its computer industry on the

base of huge science & technology capabilities
which are not found in most of the developing
countries.
v
IN A ’ S CChina’s
O M PComputer
U T E R Trade
T R ABalance
D E B A LA N C
1992
19921993
19931994
1994 1995
1995 1996
1996 1997
1997 1998
1998 1999
1999 2000
2000
Exports
Exports820
820 1258
12582006
2006 3750
3750 5315
5315 7543
7543 10169
1016911698
1169816577
16577
Imports
Imports1344
13441244
12441763
1763 2403
2403 2876
2876 3868
3868 5300
5300 6969
6969 9883
9883
Trade
Trade -524
-524 -86
-86 233
233 1347
1347 2439
2439 3675
3675 4869
4869 4729
4729 6694
6694
Balance
Balance
Q3 2004 Q2 2005 Q3 2005
Shipment(Mill 3.124 3.428 3.561
ion sets)
Market 1.895 1.966 2.026
Size(RMB 10
Billion)
 Dell-Major Competitors In
D E LL ’ S M A JChina
O R C O M P E T IT O R S
Ø LENOVO GROUP LTD
• It is the 4th largest Pc manufacturer in the world
the largest in China as of 2004. Its products
include desktops, laptops, servers, handheld
computers & imaging equipment.
Ø FOUNDER HOLDINGS LTD
• It is an Asia-Pacific based multinational
company, whose subsidiaries are located across
Asia. The company’s activities cover both
hardware & software.
•
ØTC L C O R P O R A T IO N
Fo u n d e d in 1 9 8 1 it is th e le a d in g m a n u fa ctu re r
o f e le ctro n ics in C h in a . It is o n e o f th e fa ste st
g ro w in g co m p a n ie s in C h in a

ØT S IN G H U A T O N G FA N G ( T H T F )
It is a su p p lie r o f It p ro d u cts & so lu tio n p la n s,
its p ro d u cts in clu d e d e skto p P C ’ s, N o te b o o k
P c ’ s, D ig ita l & co m p u te rize d p e rip h e ra l
p ro d u cts.
GA
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