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BIZCHINA / Weekly Roundup

Dell might have to log into a new sales model

By Wang Xing (China Daily)
Updated: 2007-05-23 10:16

Dell was born in direct sales, a business model that once helped the
company vault to the No 1 position in the world's PC market. But experts
now say that as Dell's growth in its traditional market slows and its
growth engine moves to emerging markets like China, the 23-year-old
company may have to reinvent itself to win the new battle.

"It's the demand in China's third- and fourth-tier cities that sustains
the rapid growth of PCs and laptops in the country," said Simon Ye, an
analyst with Gartner, a research house. "I think Dell's problem lies in
its inability to fit the direct sales business model into this market,
where consumers are highly scattered and Internet and telecom access are
not always available."

In China, about 90 percent of the population does not have PCs.

Dell saw robust growth in the country from 2000 to the first half of 2005
because of its growth in enterprises market and its penetration in the
first- and second-tier cities such as Beijing, Shanghai and Guangzhou,
where Dell's direct sales model has given the company unique advantages
over its competitors.

But as growth in China's big cities nears the saturation point and the
demand in the third- and fourth-tier cities surge, Dell's direct sales
model begins to look somewhat inadequate.

Alex Yung, general manager of Home and Small Business at Dell
Asia-Pacific, told China Daily that about 80 percent of Dell's revenue
comes from orders over phone and more than 10 percent from online orders.

But the penetration of fixed-line phones reached only 28.1 percent and
mobile phones just 35.3 percent by the end of March, according to
government figures. Internet penetration, despite years of rapid growth,
reached a paltry 10 percent by January.

Retail gap

"The absence of retail channel increases Dell's difficulty in delivering
its products to end-users in third- and fourth-tier cities and slows it
down," said Ye.

In the fourth quarter of last year, Dell saw its China revenue increase
by 26 percent. This, according to Ye, was below Dell's expectations.

According to Gartner figures, Dell's market share in China in the fourth
quarter of last year was 6.8 percent, ranking fourth after Lenovo's 30.2
percent, Founder's 9.6 percent and Hewlett-Packard's 7.2 percent. These
numbers include both desktop and mobile PCs.

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