Dell Goes All In on China

Posted on March 26, 2008
Filed Under China Business, China Distribution |

DELL Inc’s company founder Michael Dell says the booming Asian market is maintaining his company’s confidence in the growth of its business despite the recent American subprime mortgage crisis.

Dell needs China. The US market is slowing to a crawl and China is the best bet for increasing sales. China Tech News reports:

Dell’s fourth quarter financial report of 2007 shows that the company saw a dramatic decline of profit in the quarter and its advantage in the U.S. is also being challenged because of the sub-prime mortgage crisis, which means that the company has to rely more on the overseas market. Zhang Shaying, spokesperson at Dell Beijing, says that Dell has been emphasizing development in the overseas markets, particularly China, and it aims to achieve a two-digit growth in the region for the long term.

Direct-selling has been a feature of Dell, but in the past six months, the company has begun to make changes on the business pattern and bring its products to retail venues like Wal-Mart, Carrefour, Best Buy and Staples. In China, it has reached cooperation with the country’s top electronics retailer Gome and set up about 50 Experience Centers where consumers can interact with the computers before they buy.

People’s Daily notes that Dell had a strong 2007 finish in China:

Dell saw its PC shipments in China up 54 percent year-on-year in 2007.

The company plans to expand its retail outlets from 45 cities in 2007 to 1,200 by the end of the year.

China, where Dell ranks third in terms of market share, is one of the company’s fastest growing markets, said Michael Dell.

Dell has two factories in Xiamen, a coastal city in southeastern Fujian Province, a design center in Shanghai and a customer contact center in Dalian, a northeast coastal city, with more than 6,000 employees in China.

China is not only a critical market for Dell to succeed in, Dell wants to lower its component procurement costs to better compete on price. South China Morning Post:

Computer maker Dell yesterday unveiled a plan to buy US$23 billion worth of technology components and related products from the mainland this year, topping its purchasing commitment to mark 10 years of doing business in the country.

The world’s second-largest computer supplier’s latest sourcing programme represented a 28 per cent increase from US$18 billion last year, reflecting a growth trend that would continue, chief executive Michael Dell said in Beijing.

“Including last year, this year and expected purchases next year, Dell will purchase US$70 billion worth of computer-related supplies and equipment from China,” Mr Dell said. “We’ve become the third-largest computer-systems company in China, and are growing rapidly.”

Reports quote the market research firm IDC as having Dell in fourth place in China PC sales, behind Lenovo, HP, and Founder. All are jockeying to either cement (Lenovo) or increase (everyone else) their share of the Chinese market. With so many companies looking to China to offset flagging sales elsewhere, a price war is looming. One way to get an edge is fanatical management of the supply chain. Many components (such as hard drives and memory) are made elsewhere in Asia. But China hosts a lot of Taiwanese EMS (electronic manufacturing services) companies that manufacture and/or assemble components such as boards and larger subassemblies. Effective orchestration of all the suppliers in and around China should help Dell squeeze costs and lower prices.

Of course, that’s what everyone else is doing now. Dell’s once widely admired supply chain management is now widely imitated. It’s Dell’s retail strategy that will push results. It’s not clear if Dell’s great Q4 performance in China can be put down to expanding retail sales outlets or just better marketing and pricing. Whatever it was, they’ll need plenty more of it.