Dell's Problems in China

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Case Details:

Case Code : BSTR193
Case Length : 18 Pages
Pages Period : 1995-2005
Organization : Dell Computers
Pub Date : 2006
Teaching Note : Available
Countries : China
Industry : IT Hardware

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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DELL's Direct Model

Dell adopted a unique model of selling PCs bypassing the conventional model of selling through the reseller channel. In the conventional model, resellers purchased PCs from the manufacturers and distributed them to the customers.

Sometimes, resellers customized the PCs by installing certain components and sometimes, the required software. Using the direct model, Dell provided consumers with tailor-made products and offered add-on products and services like PC upgradation, PC replacement, maintenance and technical support. Through the direct model, Dell was able to reduce inventory costs and overheads. Under Dell's direct model, PCs were built according to customer specifications after receiving the order. In contrast, other vendors needed to forecast the demand for PCs and ship the products accordingly. Dell's model called for highly complex execution, where the company needed to stack products and components to assemble the PCs at very short notice. This also called for superior manufacturing and logistics capabilities, along with information systems...

Business Strategy | Case Study in Management, Operations, Strategies, Business Strategy, Case Studies

DELL in China

PC sales in China were less than one million units in 1995. By 2003, the figure had increased to over 12 million units, and in the same year, China surpassed Japan to become the second largest PC market in the world. In 1995, the market leaders in China were Compaq, AST, IBM and Legend. Locally assembled PCs or grey market imports were very popular.

By 2000, the government established standards for locally sold PCs. One of the major domestic players in the market, Legend (later Lenovo), started expanding by building a national distribution network. Several factors influenced the growth of the computer industry in China.

With the Chinese market experiencing significant growth in the mid-1990s, Dell had to enter China in order to remain competitive in Asia and gain market share. In the initial years, Dell faced many problems as tariffs on imported components were high and the government was supporting companies which set up manufacturing bases in China...

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