Dell's Problems in China

Dell received only 10% of its total orders through the Internet in China, because of low Internet usage. The number of e-commerce transactions was also low owing to low credit card and Internet usage. Dell had mainly concentrated on urban cities like Shanghai and Guangzhou. In these markets, PC penetration was higher and growth was around 2-3% a year as of 2004. In smaller cities and townships, growth was projected at 40% per annum. Lenovo's line of desktops had fared particularly well in these cities, helping the company capture a major chunk of market. In contrast, Dell's direct model had not done well in these regions...

With the price of PCs going down, Chinese consumers had begun showing a preference for branded products and so small vendors were struggling to survive. With several foreign players entering the arena, the focus had shifted to 4th and 5th tier cities. According to Wang Tow from Analysys International, "The concentration degree in China's PC market is increasing and channel sales become the breaking point for vendors. Some local vendors in certain areas still has some market potential to explore due to the regional protectionism, but vendors who haven't enough strength while spread their sales channels aimlessly will face severe crisis for survival..."