Dell in China: Strategic Rethinking
I. Problems/Recommendations
In 1995 Dell entered the Chinese computer vendor market. It initially focused at the low-priced end of the PC Market with direct sales. As competition grew and price wars at the low end consumer market began, Dell was unable to compete as their low end consumer model cost consumers twice as much as one of its competitors. Dell was also having trouble with their direct sales model, which led to complaints about slow delivery, service and support. Overall the industry began so see dramatic decreases in profit margins in the low-priced consumer sector.
In order for Dell to profit in the Chinese computer vendor market it must be competitive in the low-priced consumer market, high-end consumer market, and corporate market. Dell would not be able to compete in all markets with its current resources and capabilities. So it must joint venture with Compaq to utilize one another’s resources and competencies. Compaq is the world leader in PC sales and is currently fifth in the Chinese market. Since, IBM and Legend plan to joint venture, Dell must also joint venture if it plans to compete in the Chinese market.
II. Critical facts/Issues
1) Research by ChinaInfo, in 2002 stated only 2.5% of urban Chinese households owned a computer.
2) Chinese market expected to grow 19% in 2004-2005
3) Dell only made 5 percent of its direct sales in China via the internet.
4) China withdrew tariffs on information technology products by 2005.
5) Chinese customers preferred to have a trail use before buying.
6) Dell operates under the Just In Time inventory system.
7) Five main industries accounted for 50 percent of dells business: Government, education, telecoms, power, and finance.
8) State owned companies, MNC’s, and government and educational institutes accounted for most of the PC sales in China.
9) In 2003 PC sales in China reached 22 million; second most after the United States.
10) According to Gartner research
In 1995 Dell entered the Chinese computer vendor market. It initially focused at the low-priced end of the PC Market with direct sales. As competition grew and price wars at the low end consumer market began, Dell was unable to compete as their low end consumer model cost consumers twice as much as one of its competitors. Dell was also having trouble with their direct sales model, which led to complaints about slow delivery, service and support. Overall the industry began so see dramatic decreases in profit margins in the low-priced consumer sector.
In order for Dell to profit in the Chinese computer vendor market it must be competitive in the low-priced consumer market, high-end consumer market, and corporate market. Dell would not be able to compete in all markets with its current resources and capabilities. So it must joint venture with Compaq to utilize one another’s resources and competencies. Compaq is the world leader in PC sales and is currently fifth in the Chinese market. Since, IBM and Legend plan to joint venture, Dell must also joint venture if it plans to compete in the Chinese market.
II. Critical facts/Issues
1) Research by ChinaInfo, in 2002 stated only 2.5% of urban Chinese households owned a computer.
2) Chinese market expected to grow 19% in 2004-2005
3) Dell only made 5 percent of its direct sales in China via the internet.
4) China withdrew tariffs on information technology products by 2005.
5) Chinese customers preferred to have a trail use before buying.
6) Dell operates under the Just In Time inventory system.
7) Five main industries accounted for 50 percent of dells business: Government, education, telecoms, power, and finance.
8) State owned companies, MNC’s, and government and educational institutes accounted for most of the PC sales in China.
9) In 2003 PC sales in China reached 22 million; second most after the United States.
10) According to Gartner research