Dell Selling Directly, Globally
History • Founded in 1983 by Michael Dell at age 18 • Began selling upgraded PCs and add-on components from a dorm room at the University of Texas • In its 15th year of operation • Ranked 2nd in the US and worldwide PC market in 1999
History (continued) • In 1985, Dell was a $6.2 million business • In 1996, Dell began its Internet approach • Dell expanded to $21.7 billion in 1999
Dell Profile • Dell Computer Corporation became official in May 1984. • It was founded on the Direct Business-to-Consumer Model. • It is the fastest growing among all major computer systems companies worldwide. • Michael Dell is the youngest CEO of a Fortune 500 company • In July 1999, Dell became the #1 PC Vendor to businesses in the US
General Environment • Demographic • Target Consumers: small to medium sized businesses in the US market • Location: In the US, UK and 14 international subsidiaries by 1999
General Environment • Global • Operated sales offices in 33 countries • Served customers in more than 170 countries and territories around the world • Technological • Internet presented a medium which Dell used to enhance its direct sales approach • 24 hour on-line technical support, order status information, and downloading of software
Industry Analysis • Intensity of rivalry • Legend remains #1 in China • Product Substitutes • Legend is adopting the just-in-time delivery mode • Power of Suppliers • IBM, HP, and Compaq establish plants in China • Power of Buyers • Chinese were uncomfortable using credit cards online thus hurting online sales
Competitive Environment • Shipping in US and worldwide: Compaq, IBM, HP, and NEC • Competition in China’s PC industry in 1999: • Legend • IBM • HP • Founder • Great Wall • … • Dell
SWOT Analysis Strengths • Great Customer Service • Customers can call or access Dell’s website and order a customized computer in less than 10 minutes. • A customer then has a number of methods to contact Dell’s technical support such as the phone, online and on-site repairs should a problem arise.
SWOT Analysis Weaknesses • Unfamiliarity with the Chinese socioeconomic situation • The price of a PC was the equivalent of two years of a person’s savings. • Retail buyers only accounted for 10% of sales.
SWOT Analysis Opportunities • To increase market presence in China, the second largest PC market in the world • China’s PC Industry had seen extraordinary growth between 1990 and 1996. • Dell had a good chance of increasing its presence in the Chinese market by introducing the Direct Model.
SWOT Analysis Threats • Red Tape with the Chinese Government • China’s nationalistic policies made US companies operating in China vulnerable to the ups and downs of Sino-American relations. • The Chinese government made no secret than national PC vendors would be promoted.
Capabilities • Direct sales operations • Customer service • Just-In-Time inventory usage
Core Competencies • Tangible Resources • Intangible Resources
Strategic Analysis • Current Strategies • Business-level strategy • Differentiation from competitors. • Corporate-level strategy • Financial position
Performance Appraisal • Success in niche market • Fast service • Current value • Consistent sales growth
Strategic Alternatives Channels • Direct • Direct business-to-customer model • Cutting out the cost of distribution • Indirect • Selling through distributors and adding value resellers
Strategic Alternatives Products and Service • Build-to-Order direct sales approach • Knowing exactly what customer wants • Free installation of applications software • Timely delivery of orders • Comprehensive on-line purchasing tool • On-line technical support • Order status information • On-line downloading of software
Strategic Alternatives Building a business solely on pricing • Pricing advantage
Epilogue • Does Dell succeed? • Partially yes, and partially no. • Dell could not succeed its business compared to the other markets • The factors affecting Dell’s direct-business model in China • Uncomfortable with credit card sales • Costs of enforcing the direct model took a sizable chunk away from Dell’s earnings • Future potential for Internet growth was huge • Uncertain