*NEWS*DELL MAY HAVE TO REBOOT IN CHINA
*NEWS*DELL MAY HAVE TO REBOOT IN CHINA
2005-10-31 at 10:00:00 am #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
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.
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.”
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
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
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.
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.
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.
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.