Dell in china
1 / 34

- PowerPoint PPT Presentation

  • Updated On :

Dell in China. Sample Case Analysis Presentation Professor Josh Philpot April 10, 2008. Agenda. Identification of Key Strategic Issues External Analysis Internal Analysis Summary SWOT Strategic Alternatives & Recommendations Questions & Answers. Key Strategic Issues.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about '' - ady

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Dell in china l.jpg

Dell in China

Sample Case Analysis Presentation

Professor Josh Philpot

April 10, 2008

Agenda l.jpg

  • Identification of Key Strategic Issues

  • External Analysis

  • Internal Analysis

  • Summary SWOT

  • Strategic Alternatives & Recommendations

  • Questions & Answers

Key strategic issues l.jpg
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

About dell l.jpg
About Dell

  • 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

Industry definition l.jpg
Industry Definition

  • Dell competes in the PC industry, selling enterprise systems, desktop computers and notebook computers.

External analysis key environmental factors l.jpg
External Analysis: Key Environmental Factors

  • Chinese population is 23% of world total

  • Main opportunities will be in the larger cities where incomes are higher

Source: China Country Commercial Guide (CCG)

External analysis key environmental factors10 l.jpg
External Analysis: Key Environmental Factors

  • Socio:

    • 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

Source: China Country Commercial Guide (CCG)

External analysis key environmental factors11 l.jpg
External Analysis: Key Environmental Factors

  • (new member of WTO but…)

    • 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

  • Tech

    • Just 2.5% of urban Chinese own a computer

    • Access and use of the internet is increasing

  • Global

    • Sales opportunity (Asia/Pacific currently just 10% of Dell)

    • China’s attractive low-cost manufacturing capabilities

Source: China Country Commercial Guide (CCG)

The five forces of competition model l.jpg
The Five Forces of Competition Model






External analysis porter s five forces l.jpg
External Analysis: Porter’s Five Forces

  • Threat of New Entrants – HIGH

    • Foreign and local competitors

    • IBM, Compaq and HP also entered in 1990s

    • Less government policy barriers (China joined WTO in 2002)

    • Potential barriers include:

      • Access to distribution channels

      • Scale economies (Local production plants)

  • Substitutes – NONE

  • Bargaining Power of Suppliers – LOW

    • Dell and most competitors are vertically integrated

External analysis porter s five forces14 l.jpg
External Analysis: Porter’s Five Forces

  • Bargaining Power of Buyers – 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 can mitigate

  • 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

    • High strategic stakes (focus on market share)

    • 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

Competitors l.jpg

  • 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

Competitors16 l.jpg

  • 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

Customer l.jpg

  • 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

Key resources l.jpg
Key Resources

  • Key tangible resources:

    • WW 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

Core competencies l.jpg
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

All are valuable, rare, costly to imitate and Nonsubstitutable.

Value chain analysis l.jpg
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

Swot analysis l.jpg







SWOT Analysis

Strengths weaknesses l.jpg
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

Opportunities l.jpg

  • 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

Risks l.jpg

  • 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

Slide28 l.jpg

Strategic Alternatives

and Recommendations

General problem statement l.jpg
General Problem Statement

  • Dell faces a rivalry from Chinese PC firms, in particular Lenovo’s (Legend) attempts to copy Dell’s direct sales approach and build brand recognition. (At risk is Dell’s dominance of the high end market)

  • Will require a cost advantage to re-enter the low-cost segment. (At risk is the Dell customer experience of product quality and service levels or accepting declining profits)

Strategic alternatives l.jpg
Strategic Alternatives

  • Lower costs to be viable and establish a presence in the low-end (consumer market) before competitors

  • Abandon the low-end and put all resources on defending the high-end (corporate market) where Dell currently has an advantage

  • Challenge Lenovo in other Asian markets that are important to it while increasing product quality and services in China

Strategic recommendation l.jpg
Strategic Recommendation:

Expand and defend the high-end of the market


  • Continue Dell’s business level strategy of differentiation

    • Based on product quality, build-to-own capability and direct sales method

  • 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)

  • Leverage penetration in LCAs (>1,500 emp.) for increased “share of wallet”

  • 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

Slide33 l.jpg

Dell to build second factory in China

New facility will double Dell's current production capacity in China

By Sumner Lemon, IDG News Service

March 25, 2005

Dell announced on Thursday plans to build a second manufacturing plant in southeastern China.

The new plant will be constructed in Xiamen, Fujian province, where Dell already has one factory, according to the company. The new manufacturing plant will produce PCs for Dell customers in northern Asia, including China and Japan, the company said, adding that the new facility will double the company's current production capacity in China. The company did not disclose what that capacity is.

China is the world's second-largest PC market, after the U.S., and continues to grow at a healthy clip. According to Gartner, 14.9 million PCs were sold in China last year and shipments grew by 14.9 percent. Dell has the largest market share of any foreign PC maker in China, but rivals IBM and Hewlett-Packard closed the gap last year by growing faster than their rival from Round Rock, Texas, according to market analysts Gartner and IDC.

Despite the best efforts of foreign PC makers, the Chinese PC market continues to be dominated by local players, with Lenovo Group holding the largest share of the market.

From april 3 08 analyst meeting l.jpg
From April 3 ’08 Analyst Meeting

2008 27% revenue groth in BRIC