*NEWS*DELL MAY HAVE TO REBOOT IN CHINA

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*NEWS*DELL MAY HAVE TO REBOOT IN CHINA

 user 2005-10-31 at 10:00:00 am Views: 90
  • #14440

    Dell May Have to Reboot in China
    (TO:RECHARGEASIA/HENRY SUN,REMEMBER THE LAWSUIT)
    The computer maker’s direct-sales tactics aren’t a hit in the hinterlands, where folks want to see before they buy
     You
    couldn’t blame Michael S. Dell for sounding a little bit smug about his
    company’s prospects in China during a cocktail party for analysts in
    Austin, Tex., last April. Dell’s market share in Asia was growing fast,
    and it looked as if its formula of selling PCs directly to customers
    over the Internet and phone was catching on just as it had in the U.S.
    “Demand
    for our products and services in China is tremendous,” he said, adding
    that “99% of the economic value in China is in the large metro areas”
    where Dell (DELL) was concentrating its efforts.
    All of a sudden,
    Dell’s strategy in Asia is looking a little shaky. Third-quarter
    numbers released by tech market researcher IDC show Dell’s market share
    for Asia, excluding mature Japan, dropped by a full point, to 7.8%.
    Then, on Oct. 25, the company announced that the co-president of its
    Chinese operations, Foo Piau Phang, had “chosen to retire.”
    RURAL
    FREEZE.  What’s happening to Dell’s march on Asia? The company won’t
    talk — it’s in the quiet period before its Nov. 10 third-quarter
    earnings announcement. But there’s plenty of evidence suggesting it’s
    out of sync with shifting market conditions in fast-growing China.
    While Dell has focused on large business and government customers in
    the country’s major cities, demand is emerging elsewhere — in hundreds
    of smaller cities, where Dell doesn’t sell as effectively as its rivals
    and where even some business customers want to see products before they
    buy.
    That’s where competitors Lenovo, Hewlett-Packard (HPQ), and
    Founder have been selling briskly through retail shops. Says HP
    Executive Vice-President Ann Livermore: “You have to wonder, how well
    does the direct model work in the hinterland?” HP has invested heavily
    in hiring staffers and recruiting retailers in secondary Chinese and
    Indian cities.
    The China setback is just the latest in a string of
    recent disappointments for Dell. Since the Round Rock (Tex.) company
    missed its second-quarter revenue target, its stock price, which peaked
    at $42 a share in July, has sunk to less than $32. A survey by the
    University of Michigan recently showed a decline in Dell’s
    customer-satisfaction rating. Also, the company was embarrassed in
    China in May after the publication of an e-mail from a Dell salesman
    criticizing the Chinese government — a key Dell customer.
    FEW
    CREDIT CARDS.  A share decline for one quarter doesn’t make a trend, of
    course. Dell sees China in particular as a key growth market where it
    already has 5,000 employees. It’s even in the process of building a
    second factory in the southeastern coastal city of Xiamen. Over the
    long haul, Dell may have the most successful model for Asia, just as it
    does in the U.S., since today’s first-time PC buyers could well evolve
    into tomorrow’s online shoppers.
    Yet at least in the near term, the
    company may have to tack. Dell isn’t pursuing consumers, an area that’s
    growing far faster than the business sector. If it does start chasing
    consumers, Dell’s direct-sales strategy might falter because relatively
    few Chinese customers use credit cards,and those who do aren’t
    accustomed to buying over the phone or the Internet.
    “The reality
    is, Dell needs to establish more of a presence on the street,” either
    through sales kiosks or retailers, says Roger L. Kay, president of
    consulting firm Endpoint Technologies Associates Inc. in Wayland, Mass.
    LOCAL
    HERO.  While Dell dominates in the U.S. and other developed markets,
    it’s outgunned at the moment in Asia. Lenovo, the leader with a 20.4%
    market share, has more than 4,800 retail outlets in China alone.
    Innovations such as its Jiayue consumer desktop, designed specifically
    for families, featuring pre-installed education software, have helped
    it gain share in smaller cities. This local champion isn’t likely to
    crumble under Dell’s onslaught.
    Even so, Dell is loath to break with
    its direct-sales strategy. Previous forays into retail distribution,
    both in the U.S. and in China, ended quickly. Yet if the company hopes
    to dominate in Asia, it may be forced to play outside of its comfort
    zone — at least for a while.