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Dell in China: A Strategic Rethinking

Strategic Implementation
Rivu Mukherjee (F11048)

INTRODUCTION
Dell was founded in 1983 by Michael Dell, an 18 year old college freshman from Texas who started out upgrading hard drives for IBM compatibles on nights and weekends. Within a year, his service business had grown to an incredible $6 million from performing computer upgrades for local area businesses and he dropped out of school to concentrate on the business. When Dell changed its strategy and started offering custom built-to-order machines, the business exploded, with $70 million in sales by the end of 1985. Evolving into an assembler company, Dell was able to exploit certain events occurring in the industry and swiftly adapted to meet market conditions. Five years later, total sales had grown to an unbelievable $500 million and Dell became nationally known as a supplier of state-of-the art desktop and portable computers. Dell continually achieved phenomenal records in sales and profit growth, eventually making it the most successful company ever in the PC industry, surpassing $25 billion in 2000. As one of the world's premier providers of computer products and services, Dell was the US market leader in its core products, the desktop and laptop markets by 2001. In 2001, Dell Computer became the worlds largest personal computer vendor, continuing to gain market share and post profits in an industry struggling with slumping sales and billions of dollars in losses. Dell sells 90% of its PCs directly to the final customer, largely bypassing there seller channel that accounts for most of the worlds PC sales. This direct customer relationship is the key to Dells business model, and provides distinct advantages over the indirect sales model. Dells direct relationship with the customer allows it to tailor its offerings to customer needs, offer add-on products and services, and use the Internet to offer a variety of customer services. In addition, Dells PCs are built to customers specifications upon receipt of an order, giving Dell additional advantages over indirect PC vendors who must try to forecast demand and ship products based on those forecasts. Dells direct sales and build-to-order model has achieved superior performance in the PC industry in terms of inventory turnover, reduced overhead, cash conversion, and return on investment. Dells business model is simple in concept, but very complex in execution. Building PCs to order means that Dell must have parts and components on hand to build a wide array of possible configurations with little advance notice. In order to fill orders quickly, Dell must have excellent manufacturing and logistics capabilities supported by information systems that enable it to substitute information for inventory.

The demands of Dells model have led it to adopt a new organizational structure.It is marked by a focus on a few key strategic activities, and extensive outsourcing of non-strategic activities. Dell works closely with external partners to produce its PC products and to offer its customers an

array of additional products and services that add value and allow Dell to capture a larger share of the customers IT spending. To manufacture its products, Dell coordinates a global production network that spans the Americas, Europe and Asia, combining in-house final assembly with heavy reliance on outside suppliers and contract manufacturers. Manufacturing of printed circuit board assemblies (PCBAs), subassemblies (box builds), and some final products (mainly notebook PCs) is handled by contract manufacturers or original design manufacturers such as SCI, Solectron, Celestica, Hon Hai, Quanta and Arima. Like other PC makers, Dell relies on outside suppliers for components and peripherals such as disk drives, CD-ROM drives, semiconductors, add-on cards, monitors, keyboards, mice and speakers. Its PCs can be bundled with standard software such as Microsoft Office or with specialized software requested by corporate customers. Dell relies on outside partners for services such as system integration, installation, on-site repairs and consulting. Partners include Wang, Unisys, IBM and BancTec. It also works with resellers who support Dell hardware and receive referral fees for recommending Dell to customers. History Dell competes in the PC industry, selling enterprise systems, desktop computers and notebook computers. Founded in 1983 Worlds largest computer vendor Revenues of $41 billion in 2004 Operates in 13 Asia Pacific markets with sales of $4.3B in 2004 Entered China in 1995 via export Started focusing on China in 1998 Operates in in 1998 established a local manufacturing and distribution operation In 2004, Dell PCs captured 7% share in China.

D e l l s M is s ion and Vis io n Mission Statement: Dells Mission is to be the most successful computer company in the world at delivering the best customer experience in the markets we serve.

Vision Statement: Its the way we do business. It's the way we interact with the community. It's the way we interpret the world around us-- our customers needs, the future of technology, and the global business climate.

Products and Services

Products Following is the product range of Dell International;

OptiPlex (office desktop computer systems) Vostro (office/small business desktop and notebook systems) n Series (desktop and notebook computers shipped with Linux or FreeDOS installed) Latitude (business-focused notebooks) Precision (workstation systems and high-performance notebooks),[34] PowerEdge (business servers) PowerVault (direct-attach and network-attached storage) PowerConnect (network switches) Dell/EMC (storage area networks) EqualLogic (enterprise class iSCSI SANs)

Dell's Home Office/Consumer class emphasizes value, performance, and expandability. These brands include:

Inspiron (budget desktop and notebook computers) Studio (mainstream desktop and laptop computers) XPS (high-end desktop and notebook computers) Studio XPS (high-end design-focus of XPS systems and extreme multimedia capability) Alienware (high-performance gaming systems) Adamo (high-end luxury laptop)

Dell's Peripherals class includes USB key drives, LCD televisions, and printers; Dell monitors includes LCD TVs, plasma TVs and projectors for HDTV and monitors; Dell Ultra Sharp is further a high-end brand of monitors.

Dell also helps you harness the transformative power of todays latest technologies, simplifying the entire life cycle of every initiative, from assessment and planning to implementation and support. Systems Management Data Storage & Management Servers Virtualization

Services Dell service and support brands include; Dell On Call (extended domestic support services), Dell Support Center (extended support services abroad), Dell Business Support (a commercial service-contract that provides an industry-certified technician with a lower call-volume than in normal queues), Dell Ever dream Desktop Management ("Software as a Service" remote-desktop management), and Your Tech Team (a support-queue available to home users who purchased their systems either through Dell's website or through Dell phone-centers).

Dells Service Partners Rather than do everything itself, Dell has made extensive use of business partners to help serve its customers, especially as it has moved into producing servers and targeting the small and medium business market. Three functions - systems integration, service and repair, and consulting - all have to be located very close to the customer, as they involve direct contact with the customer. Dell partners with companies that can deliver these services globally - or at least regionally. System integration: Dell partners for procurements with integrators like Electronic Data Systems (EDS) who will install Dell servers and link them up with end user devices. Service and repair: Dell also partners with firms like IBM, Unisys, Wang for field service and repair. While 90% of service incidents are handled by telephone in Dells call centers, about 10% involve field calls, which Dell has outsourced to these partners. Their

field service units are tied to Dell electronically, and get the orders for field service within an hour or two of a call coming in to Dell. Consulting: Dell partners with Arthur Andersen and Gen 3 in the U.S. to provide consulting services to companies that seek to emulate Dells success with the direct model and Internet-based IT.

Marketing Strategies
When Dell was first launched in India, Dells advertising campaign was titled Take Your Own Path. The campaign targeted Indian SMBs (Small Medium Businesss) with a new range of laptops.

DELL KIOSKS Starting in 2002, Dell opened kiosk locations in shopping malls across United States, Australia, Canada, Singapore and Hong Kong in order to give personal service to customers who preferred this method of shopping to using the Internet or the telephone-system despite the added expense

GREEN INITIATIVE Dell became the first company in the information technology industry to establish a productrecycling goal (in 2004) and completed the implementation of its global consumer recycling-program in 2006.

INTELLIGENT CLASSROOM Dell has been a leader for years and has had several different versions of the Intelligent Classroom. Typical technology used in an Intelligent Classroom would include a projector, computer, sound, student response systems, video distribution, and IP TV. All of these products would have one goal, and that is to improve the learning experience for the students.

PRACTICE FUSION Dell might not be the first firm that leaps to mind when you think "high-tech medical practices" but maybe it should be: the company has introduced an all-in-one system for making digital medical records cheap and easy for doctors, called Practice Fusion.

GREENEST BRAND Samsung and Toshiba may be the most sustainable brands for consumer laptop and PC buyers, but Dell wins out with the IT crowd according to a new study from Green Factor. Marketing intelligence firm Strategic Oxygen surveyed over 3,500 CIOs, IT managers, and CXOs in 11 countries. OTHER MARKETING STRATEGIES Dell advertisements have appeared in several types of media including television, the Internet, magazines, catalogs and newspapers. Some of Dell Inc's marketing strategies include lowering prices at all times of the year, offering free bonus products (such as Dell printers), and offering free shipping in order to encourage more sales and to stave off. To maintain its low prices, Dell continues to accept most purchases of its products via the Internet and through the telephone network. Dell has been focusing on m-commerce and social media strategies to reach customers and potential customers with marketing offers. Dell reportedly earned $1 million in revenue from transmitting messages about sales and discounts to its Twitter followers.

TWITTER REALLY WORKS Dell started tweeting about two years ago, when the system was pretty new. So given what they say are $6.5 million in Twitterdriven sales, the company's yearly return from Tweets is around $3.25 million. Dell also notes that its follower list has risen 23% in three months alone.

DELL MINI 5 ANDROID SLATES It's very light and comfortable to use, the screen is responsive, and Dell's icon interface makes for intuitive presentation of Android.

Dell In China
Dell is one of the worlds most successful company. After entering in huge number of global markets, Dell decided to enter Indians market in 1993 and after the struggle of two years analysis of China, Dell entered into china in 1995 via export. In 1998 , Dell established its local manufacturing and distributional operations in China and up to year 2004, Dell was able to capture 7% to 9% market shares in China. To discuss the Dell in China and its marketing strategy in china, lets start our discussion from different sorts of SWOT and PEST analysis;

S W O T A N A LY S I S
Strengths Dell's Direct Model approach of enables the company to offer direct relationships with customers such as corporate and institutional customers. Their strategic method also provides other forms of products and services such as internet and telephone purchasing, customized computer systems; phone and online technical support and next-day, on-site product service. This extensive range of products and services is definitely one of Dells strengths. Dell Computer's award-winning customer service, industry-leading growth and consistently strong financial performance differentiate the company from competitors for the following reasons: Price for Performance Dell boasts a very efficient procurement, manufacturing and distribution process allowing it to offer customers powerful systems at competitive prices. Customization - Each Dell system is built to order to meet each customers specifications. Reliability, Service and Support Dells direct customer allows it to provide top-notch customer service before and after the sale. Latest Technology Dell is able to introduce the latest relevant technology compared to companies using the indirect distribution channels. Dell turns over inventory for an average of every six days, keeping inventory costs low. The company's application of the Internet to other parts of the business --including procurement, customer support and relationship management -- is growing at a rate of 30 percent. The company's Web site received at least 25 million visits at more than 50 country-specific sites.

Weaknesses Dells biggest weakness is attracting the college student segment of the market. Dells sales revenue from educational institutions such as colleges only accounts for a measly 5% of the total. Dells focus on the corporate and government institutional customers somehow affected its ability to form relationships with educational institutions. Since many students purchase their PCs through their schools, Dell is obviously not popular among the college market yet.

For home users, Dells direct method and customization approach posed problems. For one, customers cannot go to retailers because Dell does not use distribution channels. Customers just cant buy Dell as simply as other brands because each product is custom-built according to their specifications and this might take days to finish. Significant Issues and Problems Dells most significant issue is the continuation and expansion of its direct model selling method and the application of this particular method, in which it excels, in foreign markets. The opportunities and threats portion of this case analysis discusses these factors in detail. Dell faces a number of problems as it seeks entrance into the Chinese market, most notably government regulations on manufacturing, consumer access to its online selling system upon which Dell relies, and nationalized competitors. To successfully enter and compete in this market, Dell must make concessions to the Chinese government, most notably in location of production facilities, and tailor the indirect selling method for a culturally different consumer audience. Domestically, Dell also seeks growth in its online direct selling method, but faces increased competition from copy-cats, IBM and Compaq. Both retailers are learning from Dell and are implementing Dells direct model in their own venues. If Dell wishes to see 50% of revenues come from online sales, it must realize it is losing this competitive advantage because now competitors can duplicate portions of it. Dell must find ways to significantly improve or differentiate its direct model further if it wishes to maintain a competitive advantage in direct online sales domestically.

Opportunities Personal computers are becoming a necessity now more than ever. Customers are getting more and more educated about computers. Second-time buyers would most likely avail of Dells custom-built computers because as their knowledge grows, so do their need to experiment or use some additional computer features. Demand for laptops is also growing. As a matter of fact, demand for laptop has overtaken the demand for desktops. This is another opportunity for Dell to grow in other segments. The internet also provides Dell with greater opportunities since all they have to do now is to visit Dells website to place their order or to get information. Since Dell does not have retail stores, the online stores would surely make up for its absence. It is also more convenient for customers to shop online than to actually drive and do purchase at a physical store.

Threats In a volatile market such as personal computers, threats abound. Computers change in a constant sometime daily basis. New software, new hardware and computer accessories are introduced at a lightning speed. It is essential for Dell therefore to be always on the lookout for new things or introduce new computer systems. The threat to become outmoded is a pulsating reality in a computer business. Not only that, companies must produce products that are high in quality but low in price. This is one challenge that Dell contends with. One of the biggest external threats to Dell is that price difference among brands is getting smaller. Dells Direct Model attracts customers because it saves cost. Since other companies are able to offer computers at low costs, this could threaten Dells price-conscious growing customer base. With almost identical prices, price difference is no longer an issue for a customer. They might choose other brands instead of waiting for Dells customized computers. The growth rate of the computer industry is also slowing down. Today, Dell has the biggest share of the market. If the demand slows down, the competition will become stiffer in the process. Dell has to work doubly hard to differentiate itself from its substitutes to be able to continue holding a significant market share. Technological advancement is a double-edge sword. It is an opportunity but at the same time a threat. Low-cost leadership strategy is no longer an issue to computer companies therefore it is important for computer companies to stand out from the rest. Technology dictates that the most up-to-date and fastest products are always the most popular. Dell has to always keep up with technological advancements to be able to compete.

Current Status of Dell organization

Dell has performed extremely well since its inception in 1984. At the time of this case, in 2000, Dell realized $25 billion in gross revenue and $1.86 billion in net income. One can appreciate the magnitude of its continual growth through the fact Dell had a four-year average (1997-2000) growth rate of 63.76%. With a current ratio of 1.48, Dell maintains enough liquidity to repay its current liabilities. Dells equities are growth stocks; Dell has never paid a dividend to shareholders. Its strong returns have prompted investors to trust and invest in the company regularly over the years, and therefore Dell has not had to utilize long-term debt as a primary capital- financing tool. Dell has rewarded its investors with a stable stock, with a split history of 3-to-2 in April 1992, 2- to-1 in October 1995, 2-to-1 in December 1996, 2-to-1 in July 1997, 2to-1 in March 1998, 2-to-1 in September 1998, and most recently 2-to-1 in March 1999. Dells

return on equity, a measure of shareholders return on investment, was 0.52 in 2000. Dells ample cash supply prevents the company from having to incur any short term debt, of which it had none in 2000. Dells debt ratio, an indication of Dells ability to sell assets if necessary to cover its creditors risk, was only 0.04 in 2000, as it had only $508 million in long-term debt compared to over $11 billion in total assets. Dells debt -to- equity ratio, an indication as to the extent the firm has financially leveraged itself, was 0.14 in 2000.

Current Status of Dell in Chinas Market

Here we will discuss five important forces of competitors to discuss current actual status of Dell in Chinas market;

Threat of new entrants in Market of China is High Bargaining power of suppliers in Chinas market is Low The value of threat of substitution products for customers is Moderate Rivalry among competiting Firms is Intense

Now lets evaluate the Dell in china by using Portals model of different forces which effects the operations and functions of any organization.

Porters Five Forces

Threat of New Entrants ( High): Foreign and local competitors IBM, Compaq and HP also entered into market. Less government policy barriers (China joined WTO in 2002) Potential barriers include: Access to distribution channels Scale economies (Local production plants)

Bargaining Power of Suppliers (Low): Most competitors are vertically integrated thats why the there is low bargaining power opportunities for Dell with suppliers.

External Analysis: Bargaining Power of Customers (Moderate):

Few buyers purchase a large portion of industry output State-owned companies, MNCs and educational institutions Sales account for a large portion of Dells sales revenues 50% from government, education, telecoms, power and finance. Brand reputation and product differentiation can mitigate Substitutes (Low) Competitive Rivalry (Intense) High profit potential due to industry growth Main buyers are institutions with more resources than individuals Price pressure from local competitors High fixed costs of production capacity High strategic stakes (focus on market share)

Aggressive competitive response Lenovo adopting Dells direct sales model in China Lenovos joint venture with IBM to increase its share Lenovos brand campaign to improve recognition

Competitors Analysis Future objectives: Build market share rapidly over its competitors. Current strategy: Cost leadership (Lenovo, Founder, Tongfang) Differentiation (HP, IBM & Compaq) Focused on consumer market Lenovo positioning itself to challenge in high-end Competitors

Critical investigation and analysis of Dell in Chinas market

Key Strengths Chinese competitors: market knowledge and low cost advantage. American competitors: technology and brand recognition. Key Weaknesses Chinese competitors: brand recognition American competitors: higher costs High-end Customers State-owned companies MNCs Government Educational institutions Large Corporate Accounts (1,500+ employees in Telecoms, Power and Finance)

Individual Consumers Behavior: Consumer market is price sensitive Prefer a trial use of PCs before purchase Internet purchases were uncommon but internet users increasing Best way to reach is through retailing (Kiosks) Value product quality, especially high-end customers Brand loyal

Key Resources Key tangible resources: World Wide market leadership & financial resources ($8B in China) Direct sales system and customer service Local production plant in China Alliance with Oracle Manufacturing (Build-to-order) and low inventory strategy Just-in-time model (6 days vs. 40 days of supply) Portfolio of award-winning products Key intangible resources:

Strong brand Reputation (Dell experience of high-quality products, support and service) Innovative in its technology, business practices and customer service Core Competencies Ability to simplify PCs and the supply chain since their beginning Ability to understand customer needs and deliver innovative technology and services Ability to use technology to simultaneously improve customer experience and contain costs Ability to operate a direct business model Value Chain Analysis

Primary activities of value Operations: Manufacturing processes contain costs well Outbound logistics: Direct sales model Service: High responsiveness to customer needs Technological development: Innovative web site and IT infrastructure Firm infrastructure: Visionary founder and management team

Recommendation
After the analysis of Dell organization, its current status and present running business strategies in China and all over the globe, we suggest following strategic recommendations to Dell in order to boost up its market position in order to rise up its market shares, productivity and profitability; Dell should have to continue business level strategy of differentiation which was on the basis of product quality, build-to-own capability and direct sales method Continue to innovate and outpace the Lenovo-IBM partnership is one of the most important recommendation. Build brand recognition in China as Lenovos doing worldwide Grow direct ordering via the internet (increasing Chinese web usage)

 Challenge Lenovo in other important Asian markets while increasing product quality and services in China Prepare for wireless/mobility trend and strengthen notebook offering Eventually broaden reach to penetrate low-end and rural areas

Develop the infrastructure to service, support and sell (different than urban areas) Requires a low-cost, differentiated product line (e.g. AMD, no Windows OS) Learn the Chinese market to overcome foreignness and local rivals Explore alternative sales channels (besides direct) to reach small cities