case study of DELL IN CHINA

2. Group Members
• Usman Zakir
• M. Qammar-uz-zaman
COMSATS SAHIWAL

3. Dell (Introduction)
Dell was founded in 1983 by Michael Dell, an 18 year old college freshman from Texas
Mission 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:
“It’s 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.”

5. 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

6. Dell strategies in China
• Dell advertisement have appeared in several types of media
including TV, the internet, magazine, 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.

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. Internal Analysis

16. 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
http://www.dell.com/content/topics/global.aspx/corp/en/home?c=us&l=en&s=corp

17. 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

18. 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

19. Summary SWOT

20. 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

21. 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

22. 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

23. Financial Ratios of Dell In China
(Stock Exchange database verified )
FY 2005 FY 2004 FY 2003 FY 2002 FY 2001
Profitability Ratios
Gross 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 Ratios
Current Ratio 1.20 0.98 1.00 1.05 1.43
Quick Ratio 1.16 0.95 0.96 1.01 1.38
Leverage Ratios
Debt to Total Assets 0.72 0.67 0.69 0.65 0.59
Debt to Equity 2.58 2.08 2.17 1.88 1.43
Long-term Debt to Equity 0.40 0.34 0.34 0.28 0.23
Activity (Efficiency) Ratios
Inventory Turnover 107.20 126.74 115.70 112.12 79.72
Accounts Receivable Turnover 11.15 11.40 13.69 13.74 13.16
Average Collection Period 32.29 31.58 26.30 26.21 27.37
Key Growth Rates
Sales 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%

24. Recommendations
Continue Dell’s business level strategy of differentiation
Continue to innovate and outpace the Lenovo-IBM
partnership
Build brand recognition in China as Lenovo’s 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

25. 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

26. Thank You