Dell in china


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Dell in china

  1. 1. Executive SummaryDell is one of the most popular organization who is specialized in making desktops, laptops and widerange of other computer hardware’s all over the globe to satisfy growing demands of people in field ofIT. Dell entered into Indian market in mid of 1993 by via export and after two years successful operationsin India, Dell entered into Chinas market in beginning of 1995 through exports and in 1998 Dell installedits manufacturing plants too in China due to favorable production environment in China at lower cost. Wewill discuss this in details below. Dell continually achieved phenomenal records in sales and profitgrowth, eventually making it the most successful company ever in the PC industry, surpassing$25 billion in 2000.Dell captured customer market and compete other competitors in same field over the China mythe mode of production of products at lowest cost and offering customized options to itscustomers. All the strategies which dell focused and we will discuss in this project are allshowing that how Dell was giving its maximum focus on customers’ needs according to theneed of time and technology at lowest cost and optional customization options. Dell’s directrelationship with the customer allows it to tailor its offerings to customer needs, offer add-onproducts and services, and use the Internet to offer a variety of customer services. In addition,Dell’s PCs are built to customers’ specifications upon receipt of an order, giving Dell additionaladvantages over indirect PC vendors who must try to forecast demand and ship products basedon those forecasts. Dell relies on outside partners for services such as system integration,installation, on-site repairs and consulting. Partners include Wang, Unisys, IBM and BancTec. Onother hand Dell’s focus on the corporate and government institutional customers somehowaffected its ability to form relationships with educational institutions which was the negativepoint in the favor of Dell in China because students are there top list customers.Dell Computers award-winning customer service, industry-leading growth and consistentlystrong financial performance differentiate the company from competitors. Customers aregetting more and more educated about computers. Second-time buyers would most likely availof Dell’s custom-built computers because as their knowledge grows, so do their need toexperiment or use some additional computer features. . Low-cost leadership strategy is nolonger an issue to Dell therefore it is important for Dell to stand out from the rest and have toalways keep up with technological advancements to be able to compete. INTRODUCTION
  2. 2. Dell was founded in 1983 by Michael Dell, an 18 year old college freshman from Texas whostarted 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 performingcomputer upgrades for local area businesses and he dropped out of school to concentrate onthe business. When Dell changed its strategy and started offering custom built-to-ordermachines, the business exploded, with $70 million in sales by the end of 1985. Evolving into anassembler company, Dell was able to exploit certain events occurring in the industry and swiftlyadapted to meet market conditions.Five years later, total sales had grown to an unbelievable $500 million and Dell becamenationally known as a supplier of state-of-the art desktop and portable computers. Dellcontinually achieved phenomenal records in sales and profit growth, eventually making it themost successful company ever in the PC industry, surpassing $25 billion in 2000. As one of theworlds premier providers of computer products and services, Dell was the US market leader inits core products, the desktop and laptop markets by 2001.In 2001, Dell Computer became the world’s largest personal computer vendor, continuing togain market share and post profits in an industry struggling with slumping sales and billions ofdollars in losses. Dell sells 90% of its PCs directly to the final customer, largely bypassing thereseller channel that accounts for most of the world’s PC sales. This direct customer relationshipis the key to Dell’s business model, and provides distinct advantages over the indirect salesmodel. Dell’s direct relationship with the customer allows it to tailor its offerings to customerneeds, offer add-on products and services, and use the Internet to offer a variety of customerservices. In addition, Dell’s PCs are built to customers’ specifications upon receipt of an order,giving Dell additional advantages over indirect PC vendors who must try to forecast demandand ship products based on those forecasts. Dell’s direct sales and build-to-order model hasachieved superior performance in the PC industry in terms of inventory turnover, reducedoverhead, cash conversion, and return on investment.Dell’s business model is simple in concept, but very complex in execution. Building PCs to ordermeans that Dell must have parts and components on hand to build a wide array of possibleconfigurations with little advance notice. In order to fill orders quickly, Dell must have excellentmanufacturing and logistics capabilities supported by information systems that enable it tosubstitute information for inventory.The demands of Dell’s model have led it to adopt a new organizational structure.It is marked bya 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
  3. 3. an array of additional products and services that add value and allow Dell to capture a largershare of the customer’s IT spending. To manufacture its products, Dell coordinates a global production network that spans theAmericas, Europe and Asia, combining in-house final assembly with heavy reliance on outsidesuppliers and contract manufacturers. Manufacturing of printed circuit board assemblies(PCBAs), subassemblies (box builds), and some final products (mainly notebook PCs) is handledby 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 forcomponents 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 asMicrosoft Office or with specialized software requested by corporate customers. Dell relies on outside partners for services such as system integration, installation, on-siterepairs and consulting. Partners include Wang, Unisys, IBM and BancTec. It also works withresellers who support Dell hardware and receive referral fees for recommending Dell tocustomers.History Dell competes in the PC industry, selling enterprise systems, desktop computers and notebook computers. Founded in 1983 World’s 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. Dell’s Mission and VisionMission Statement: “Dell’s 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:
  4. 4. “It’s the way we do business. Its the way we interact with the community. Its the way we interpret the world around us-- our customers’ needs, the future of technology, and the global business climate.”Products and ServicesProductsFollowing 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) Dells 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) Dells 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 today’s latest technologies, simplifying the entire life cycle of every initiative, from assessment and planning to implementation and support. Systems Management Data Storage & Management Servers
  5. 5. VirtualizationSERVICESDell 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 Dells website or through Dell phone-centers).Dell’s Service PartnersRather than do everything itself, Dell has made extensive use of business partners to help serveits customers, especially as it has moved into producing servers and targeting the small andmedium business market. Three functions - systems integration, service and repair, andconsulting - all have to be located very close to the customer, as they involve direct contactwith the customer. Dell partners with companies that can deliver these services globally - or atleast 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 Dell’s 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 Dell’s success with the direct model and Internet-based IT.MARKETING STRATEGIES When Dell was first launched in India, Dell’s advertising campaign was titled – “Take Your Own Path”.
  6. 6. The campaign targeted Indian SMBs (Small Medium Business’s) 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 expenseGREEN INITIATIVE Dell became the first company in the information technology industry to establish a product-recycling 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 FUSIONDell might not be the first firm that leaps to mind when youthink "high-tech medical practices" but maybe it shouldbe: the company has introduced an all-in-one system formaking digital medical records cheap and easy fordoctors, 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.
  7. 7. OTHER MARKETING STRATEGIES Dell advertisements have appeared in several types of media including television, the Internet, magazines, catalogs and newspapers. Some of Dell Incs 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 Twitter- driven sales, the companys 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 Its very light and comfortable to use, the screen is responsive, and Dells icon interface makes for intuitive presentation of Android. Dell In China
  8. 8. Dell is one of the world’s most successful company. After entering in huge number ofglobal markets, Dell decided to enter Indians market in 1993 and after the struggle oftwo years analysis of China, Dell entered into china in 1995 via export. In 1998 , Dellestablished its local manufacturing and distributional operations in China and up to year2004, Dell was able to capture 7% to 9% market shares in China.To discuss the Dell in China and its marketing strategy in china, let’s start ourdiscussion from different sorts of SWOT and PEST analysis;SWOT ANALYSISStrengthsDells Direct Model approach of enables the company to offer direct relationships withcustomers such as corporate and institutional customers. Their strategic method also providesother forms of products and services such as internet and telephone purchasing, customizedcomputer systems; phone and online technical support and next-day, on-site product service.This extensive range of products and services is definitely one of Dell’s strengths.Dell Computers award-winning customer service, industry-leading growth and consistentlystrong financial performance differentiate the company from competitors for the followingreasons:Price for Performance – Dell boasts a very efficient procurement, manufacturing anddistribution process allowing it to offer customers powerful systems at competitive prices.Customization - Each Dell system is built to order to meet each customer’s specifications.Reliability, Service and Support – Dell’s direct customer allows it to provide top-notchcustomer service before and after the sale.Latest Technology – Dell is able to introduce the latest relevant technology compared tocompanies using the indirect distribution channels. Dell turns over inventory for an average ofevery six days, keeping inventory costs low.The companys application of the Internet to other parts of the business --includingprocurement, customer support and relationship management -- is growing at a rate of 30percent. The companys Web site received at least 25 million visits at more than 50 country-specific sites.Weaknesses
  9. 9. Dell’s biggest weakness is attracting the college student segment of the market. Dell’s salesrevenue from educational institutions such as colleges only accounts for a measly 5% of thetotal. Dell’s focus on the corporate and government institutional customers somehow affectedits ability to form relationships with educational institutions. Since many students purchasetheir PCs through their schools, Dell is obviously not popular among the college market yet.For home users, Dell’s direct method and customization approach posed problems. For one,customers cannot go to retailers because Dell does not use distribution channels. Customersjust can’t buy Dell as simply as other brands because each product is custom-built according totheir specifications and this might take days to finish.Significant Issues and ProblemsDell’s most significant issue is the continuation and expansion of its direct modelselling method and the application of this particular method, in which it excels, in foreignmarkets. The opportunities and threats portion of this case analysis discusses thesefactors in detail. Dell faces a number of problems as it seeks entrance into the Chinesemarket, most notably government regulations on manufacturing, consumer access to itsonline selling system upon which Dell relies, and nationalized competitors. Tosuccessfully enter and compete in this market, Dell must make concessions to theChinese government, most notably in location of production facilities, and tailor theirdirect selling method for a culturally different consumer audience.Domestically, Dell also seeks growth in its online direct selling method, but facesincreased competition from “copy-cats”, IBM and Compaq. Both retailers are learningfrom Dell and are implementing Dell’s direct model in their own venues. If Dell wishesto see 50% of revenues come from online sales, it must realize it is losing thiscompetitive advantage because now competitors can duplicate portions of it. Dell mustfind ways to significantly improve or differentiate its direct model further if it wishes tomaintain a competitive advantage in direct online sales domestically.OpportunitiesPersonal computers are becoming a necessity now more than ever. Customers are getting moreand more educated about computers. Second-time buyers would most likely avail of Dell’scustom-built computers because as their knowledge grows, so do their need to experiment oruse some additional computer features.Demand for laptops is also growing. As a matter of fact, demand for laptop has overtaken thedemand 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 tovisit Dell’s website to place their order or to get information. Since Dell does not have retailstores, the online stores would surely make up for its absence. It is also more convenient forcustomers to shop online than to actually drive and do purchase at a physical store.Threats
  10. 10. In a volatile market such as personal computers, threats abound. Computers change in aconstant sometime daily basis. New software, new hardware and computer accessories areintroduced at a lightning speed. It is essential for Dell therefore to be always on the lookout fornew 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 challengethat Dell contends with.One of the biggest external threats to Dell is that price difference among brands is gettingsmaller. Dell’s Direct Model attracts customers because it saves cost. Since other companies areable to offer computers at low costs, this could threaten Dell’s price-conscious growingcustomer base. With almost identical prices, price difference is no longer an issue for acustomer. They might choose other brands instead of waiting for Dell’s customized computers.The growth rate of the computer industry is also slowing down. Today, Dell has the biggestshare of the market. If the demand slows down, the competition will become stiffer in theprocess. Dell has to work doubly hard to differentiate itself from its substitutes to be able tocontinue holding a significant market share.Technological advancement is a double-edge sword. It is an opportunity but at the same time athreat. Low-cost leadership strategy is no longer an issue to computer companies therefore it isimportant for computer companies to stand out from the rest.Technology dictates that the most up-to-date and fastest products are always the mostpopular. 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 thiscase, 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 afour-year average (1997-2000) growth rate of 63.76%. With a current ratio of 1.48, Dellmaintains enough liquidity to repay its current liabilities. Dell’s equities are growthstocks; Dell has never paid a dividend to shareholders. Its strong returns have promptedinvestors to trust and invest in the company regularly over the years, and therefore Dellhas not had to utilize long-term debt as a primary capital- financing tool. Dell hasrewarded its investors with a stable stock, with a split history of 3-to-2 in April 1992, 2-
  11. 11. to-1 in October 1995, 2-to-1 in December 1996, 2-to-1 in July 1997, 2-to-1 in March1998, 2-to-1 in September 1998, and most recently 2-to-1 in March 1999. Dell’s returnon equity, a measure of shareholder’s return on investment, was 0.52 in 2000.Dell’s ample cash supply prevents the company from having to incur any shorttermdebt, of which it had none in 2000. Dell’s debt ratio, an indication of Dell’s ability to sell assets ifnecessary to cover its creditor’s 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. Dell’s debtto-equity ratio, an indication as to the extent the firm has financially leveraged itself, was0.14 in 2000.Current Status of Dell in Chinas Market:Here we will discuss five important forces of competitors to discuss current actual status of Dellin 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.Porter’s Five Forces
  12. 12. Threat of New Entrants ( High):Foreign and local competitorsIBM, Compaq and HP also entered into market.Less government policy barriers (China joined WTO in 2002)Potential barriers include:Access to distribution channelsScale economies (Local production plants)Bargaining Power of Suppliers (Low):Most competitors are vertically integrated that’s why the there is low bargaining poweropportunities for Dell with suppliers.External Analysis:Bargaining Power of Customers (MODERATE):Few buyers purchase a large portion of industry outputState-owned companies, MNCs and educational institutionsSales account for a large portion of Dell’s sales revenues 50% from government, education,telecoms, power and finance.Brand reputation and product differentiation can mitigateSubstitutes (Low):Competitive Rivalry (Intense):High profit potential due to industry growthMain buyers are institutions with more resources than individualsPrice pressure from local competitorsHigh fixed costs of production capacityHigh strategic stakes (focus on market share)Aggressive competitive responseLenovo adopting Dell’s direct sales model in ChinaLenovo’s joint venture with IBM to increase its shareLenovo’s brand campaign to improve recognitionCompetitors Analysis:Future objectives:Build market share rapidly over its competitors.Current strategy:Cost leadership (Lenovo, Founder, Tongfang)Differentiation (HP, IBM & Compaq)Focused on consumer marketLenovo positioning itself to challenge in high-endCompetitors
  13. 13. Critical investigation and analysis of Dell in Chinas marketKey Strengths:Chinese competitors: market knowledge and low cost advantage.American competitors: technology and brand recognition.Key Weaknesses:Chinese competitors: brand recognitionAmerican competitors: higher costsHigh-end Customers – State-owned companies – MNCs – Government – Educational institutions – Large Corporate Accounts (1,500+ employees in Telecoms, Power and Finance)Individual ConsumersBehavior: – 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 loyalKey ResourcesKey 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 productsKey intangible resources: – Strong brand – Reputation (“Dell experience” of high-quality products, support and service) – Innovative in its technology, business practices and customer service
  14. 14. – 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 AnalysisPrimary activities of value:Operations:Manufacturing processes contain costs wellOutbound logistics:Direct sales modelService:High responsiveness to customer needsTechnological development: Innovative web site and IT infrastructureFirm infrastructure:Visionary founder and management teamRecommendation 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 Lenovo’s doing worldwide  Grow direct ordering via the internet (increasing Chinese web usage)
  15. 15.  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