dell problem in china_gaurav sinha_mba_icfai business hyderabad
TRANSCRIPT
dell’S Problems in china
Presented by:Gaurav SinhaMBA (MARKETING)ICFAI BUSINESS SCHOOL(HYDERABAD)
INTRODUCTION• 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
INTRODUCTION
Background Note
• 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
BACKGROUND NOTE
• 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
RAW MATERIALS END CUSTOMERS
SUPPLY CHAIN TIME LINE
PUSH STRATEGY-Component inventory
based on forecast
PULL STRATEGY-Final assembly in response to specific customer order
PUSH-PULL BOUNDARY
CONVENTIONAL MODEL DELL’S DIRECT MODELManufacturer Reseller Customer
Manufacturer Customer (Bypassing reseller)
Used lesser developed manufacturing capabilities,Logistics capabilities & information system
Requires superior manufacturingcapabilities ,logistics capabilities & information system
No such model was used Uses Value Web Model- Focused on strategic activities & outsourced non-strategic activities
Competitors kept 45 days of inventory
Factories stacked inventory for 5 days
Relative higher inventory costs & overheads
Reduced inventory costs & overheads
Warehouses are usually distant from the factory
Dell’s supplier set up warehouses near Dell’s factory
STRENGTHS Act as most efficient path to
customers: No resellers to add cost & confusion
Single point of accountability
Customized products
Low cost leadership-Efficient supply chain
Standard based technology-customer flexibility and choice
THREATS
Increasing demand for Innovation: If Dell only focuses
on performance, this trend might be a threat in the future
Intensity of Rivalry: Dell’s rivals are finding ways to increase
their market share by replicating some of Dell’s
advantages
Chinese PC market
DELL’s strategy in Chinese market
DELL IN CHINA
Chinese PC market
DELL’s strategy in Chinese market
The CHINESE MARKETPC sales less than one million in 1995.Sales crossed 12 million by 2003 & China overtook
Japan as the 2nd largest PC market in the worldMarket leaders in 1995 were Compaq, AST, IBM &
Legend.Grey market was very popular.Dell’s problem in China
Tariffs on imported components were very high.Foreign firms in China depended on resellers .Obtaining license was very difficult.
THE CHINESE MARKET
DELL’S STRATEGY IN CHINAThe 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”.
DELL’S STRATEGY IN CHINA
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.
CONTINUED…..
DELL IN CHINA BY 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.
DELL IN CHINA BY 2004
PROBLEMS FACED BY DELL IN CHINA
SATURATED URBAN MARKET: Dell mainly concentrated on urban cities like Shanghai and
Guangzhou.
Neglected semi- urban and rural areas( projected PC penetration rate at 40 % per annum).
Lack of infrastructure and distribution channels to capture rural market .
PROBLEMS FACED BY DELL IN CHINA
EXCESSIVE DEPENDENCE ON DIRECT MODEL
Model dependent on pre-orders from consumers.
Use of credit card and internet was not wide spread.
Customer did not preferred e- commerce transactions.
Customization of products did not hold good in rural markets.
EXCESSIVE DEPENDENCE ON DIRECT MODEL :
CULTURAL AND ECONOMIC FACTORS
Buying computer was a family decision in china.
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.
CULTURAL AND ECONOMIC FACTORS
PROBABLE 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.
STEPS TO OVERCOME PROBLEMS
THE FUTURE….
Saturation in the urban PC market and slowdown in sales.
Dell’s move to re-enter the budget PC market in smaller towns and cities.
Success in China has been majorly on the commercial side.
Revamping of the Chinese website of Dell to cater to the local needs.
THE FUTURE
FUTURE(CONTD.)
Foray into the laptop market in China.
Rapid price erosion in the category of desktop and notebook computers.
Re-defining Dell’s Direct model in China.
FUTURE(CONTINUED…)
THE MOVE….Introduction of new server and storage products aimed at cost-conscious companies.
Reshaping of culture,product design and innovation.
Moving beyond direct sales to a strong retail presence.
Introducing a cost-competitive structure to attract a large pool of customers.
THE MOVE….
Factors influencing growth of computer industry in china
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.
This growth can be attributed to rapid economic growth & increased foreign investment flows in China.
FACTORS INFLUENCING GROWTH OF COMPUTER INDUSTRY IN CHINA
The main factors that influenced the development of China’s Computer industry are:
China’s domestic market with a population of over 1.3 billion & unlimited supply of low cost labor coupled with economic growth.
China’s computer industry developed in a transitional economy with ownership structures including both capital & state ownership.
China has built its computer industry on the base of huge science & technology capabilities which are not found in most of the developing countries.
China’s Computer Trade Balance
1992 1993 1994 1995 1996 1997 1998 1999 2000
Exports 820 1258 2006 3750 5315 7543 10169 11698 16577
Imports 1344 1244 1763 2403 2876 3868 5300 6969 9883
Trade Balance
-524 -86 233 1347 2439 3675 4869 4729 6694
Q3 2004 Q2 2005 Q3 2005Shipment(Million sets)
3.124 3.428 3.561
Market Size(RMB 10 Billion)
1.895 1.966 2.026
1992 1993 1994 1995 1996 1997 1998 1999 2000
Exports 820 1258 2006 3750 5315 7543 10169 11698 16577
Imports 1344 1244 1763 2403 2876 3868 5300 6969 9883
Trade Balance
-524 -86 233 1347 2439 3675 4869 4729 6694
CHINA’S COMPUTER TRADE BALANCE
Dell-Major Competitors In China
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.
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.
DELL’S MAJOR COMPETITORS
TCL CORPORATIONFounded in 1981 it is the leading manufacturer of electronics in China. It is one of the fastest growing companies in China
TSINGHUA TONGFANG (THTF)It is a supplier of It products & solution plans, its products include desktop PC’s,Notebook Pc’s, Digital & computerized peripheral products.
GAURAV SINHA