Global project


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case study of DELL IN CHINA

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Global project

  1. 1. Group Members• Usman Zakir• M. Qammar-uz-zaman COMSATS SAHIWAL
  2. 2. Dell (Introduction)Dell was founded in 1983 by Michael Dell, an 18 year old college freshman from TexasMission Statement:“Dell’s Mission is to be the most successful computer company in the world atdelivering the best customer experience in the markets we serve.”Vision Statement:“It’s the way we do business. Its the way we interact with the community. Itsthe way we interpret the world around us-- our customers’ needs, the future oftechnology, and the global business climate.”
  3. 3. Dell In China Dell competes in the PC industry, selling enterprise systems, desktop computers and notebook computers.• Founded in 1984• 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 – In 1998 established a local manufacturing and distribution operation• In 2004, Dell PCs captured 7% share in China
  4. 4. Dell strategies in China• Dell advertisement have appeared in several types of media including TV, the internet, magazine, 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.
  5. 5. Key Strategic Issues• Taking advantage of an international opportunity in a high growth market• Adjusting business-level strategy in light of a rivalry• Leveraging core competencies in a foreign market
  6. 6. External Analysis: Key Environmental Factors• Demographic factors: – Chinese population is 23% of world total – Main opportunities will be in the larger cities where incomes are higher
  7. 7. External Analysis: Key Environmental Factors• Sociocultural: – Purchasing expectations (try before they buy) – Chinese attitudes and culture becoming more similar in purchasing patterns and work ethic to U.S.• Economic: – Chinese economy grew 9.8% in 2005 – Total retail sales increased 13% – China’s PC market estimated to grow 19% in 2004-2005 – Low per capita incomes and unevenly distributed • Average US $1,583 • Urban US $5,000 • Middle class (200 million people) US $8,000
  8. 8. External Analysis: Key Environmental Factors• Political/Legal – China’s political system controls unions and financial institutions – Legal and regulatory systems can be inconsistent – Business based on relationships (guanxi) – Intellectual property at risk• Technology – Just 2.5% of urban Chinese own a computer – Access and use of the internet is increasing• Global – Sales opportunity (Asia/Pacific just 10% of Dell) – China’s attractive low-cost manufacturing capabilities
  9. 9. External Analysis: Porter’s Five Forces• 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 Dell’s sales revenue • 50% from government, education, telecoms, power and finance. – Brand reputation and product differentiation effecting• Substitutes – None• 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 – Aggressive competitive response • Lenovo adopting Dell’s direct sales model in China • Lenovo’s joint venture with IBM to increase it’s share • Lenovo’s brand campaign to improve recognition
  10. 10. Competitors• Future objectives: – Build market share rapidly• Current strategy: – Cost leadership (Lenovo, Founder, Tongfang) – Differentiation (HP, IBM & Compaq) – Focused on consumer market – Lenovo positioning itself to challenge in high-end
  11. 11. Competitors• 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
  12. 12. Customer• 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
  13. 13. Internal Analysis
  14. 14. Key Resources• Key tangible resources: – WW(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
  15. 15. 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
  16. 16. Value Chain Analysis• Primary activities of value: – Operations: Manufacturing processes contain costs well – Outbound logistics: Direct sales model – Service: High responsiveness to customer needs• Support activities of value: – Technological development: Innovative web site and IT infrastructure – Firm infrastructure: Visionary founder and management team
  17. 17. Summary SWOT
  18. 18. Strengths & Weaknesses• Strengths: – Reputation – Manufacturing plant (build-to-order capability, JIT) – Direct sales model (on line and phone order capability) – Strong sales revenue in 2003 ($8 Billion) – Strategic alliance with Oracle – Product performance (Best Overseas PC Corporation Award)• Weaknesses – No low cost advantage that will allow them to compete in the consumer segment – Possible cost advantages not realized from their China plant
  19. 19. Opportunities• Large population in China and economic growth potential (Dell’s fourth largest market) – PC market expected to grow by 19% – Only 2.5% of urban Chinese own PCs• Sales potential in larger cities• Reduction in tariffs on IT products makes it less costly to export to China• Expansion into Japan, Korea and Taiwan
  20. 20. Risks/ Threats• Low GDP per capita in China• Weak government protection of IP• Moderately high threat of entry of new competitors• Intense rivalry among competitors• Lenovo-IBM joint venture• Lenovo’s copying of Dell’s direct sales model• Lenovo’s attempts to boost brand recognition
  21. 21. Financial Ratios of Dell In China (Stock Exchange database verified ) FY 2005 FY 2004 FY 2003 FY 2002 FY 2001Profitability RatiosGross Profit Margin 18.32% 18.22% 17.93% 17.67% 20.21%Net Profit Margin 6.75% 6.38% 5.99% 5.71% 7.06%Return on Equity 51.24% 42.12% 43.55% 37.92% 40.02%Liquidity RatiosCurrent Ratio 1.20 0.98 1.00 1.05 1.43Quick Ratio 1.16 0.95 0.96 1.01 1.38Leverage RatiosDebt to Total Assets 0.72 0.67 0.69 0.65 0.59Debt to Equity 2.58 2.08 2.17 1.88 1.43Long-term Debt to Equity 0.40 0.34 0.34 0.28 0.23Activity (Efficiency) RatiosInventory Turnover 107.20 126.74 115.70 112.12 79.72Accounts Receivable Turnover 11.15 11.40 13.69 13.74 13.16Average Collection Period 32.29 31.58 26.30 26.21 27.37Key Growth RatesSales 18.73% 17.06% 13.59% -2.26%Net Income 25.63% 24.65% 19.21% -20.89%Current Assets 58.91% 19.15% 13.29% -19.01%Current Liabilities 29.74% 21.97% 18.81% 10.93%
  22. 22. RecommendationsContinue Dell’s business level strategy of differentiationContinue to innovate and outpace the Lenovo-IBMpartnershipBuild brand recognition in China as Lenovo’s doingworldwideGrow direct ordering via the internet (increasing Chineseweb usage)Challenge Lenovo in other important Asian marketswhile increasing product quality and services in China
  23. 23. Cont… (recommendations) Prepare for wireless/mobility trend and strengthen notebook offering Eventually broaden reach to penetrate low-end and rural areas o Develop the infrastructure to service, support and sell (different than urban areas) o Requires a low-cost, differentiated product line o Learn the Chinese market to overcome local rivals o Explore alternative sales channels (besides direct) to reach small cities
  24. 24. Thank You