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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Introduction Contd...

Total PC sales in China stood at 15.8 million units in 2004 and were expected to grow at 14.9% in 2005 and at 14.6% in 2006, according to forecasts made by International Data Corp (IDC).6 In spite of the poor results, Dell was confident of becoming a major player in the Chinese market. According to Amelio, "With only 10 percent of the market, we have plenty of room to grow. It's clear sometime, somehow, we'd like to be number one ... We're just aspiring to do what we've done everywhere else in the world - to be number one."7

Background Note

In 1983, Michael Dell was a freshman at the University of Texas, Austin. He upgraded IBM compatible PCs during his spare time. It was not long before he realized that by buying and assembling components he could make cost effective PCs. This led to the establishment of Dell Computer Corporation (Dell), and its incorporation on May 03, 1984. By the beginning of 1985, Dell was a US$ 6 million company. Its revenues grew to US$ 70 million by the end of fiscal 1986-87. Dell introduced support services which included 24-hour hotline, marketing and sales support teams for its growing business. International forays began in 1987, when Dell ventured into the UK market. In 1988, Dell went public and issued 3.5 million shares at US$ 8.5 each. By 1990-91, Dell's sales stood at US$ 500 million.

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In the same year, Dell opened a manufacturing plant in Ireland. In order to cater to small businesses and individual customers, Dell entered the retail channel through agreements with CompUSA, Staples, BestBuy, Costco, Sam's Club, Business Depot and PC World in the year 1991-92.

Its revenues in this year were US$ 890 million. By 1992-93, the revenues reached US$ 2 billion. In 1993-94, Dell reported revenues of US$ 2.8 billion placing it among the top five PC companies in the world. However, there was a cash crunch in the company, and Dell posted a loss of US$ 35.8 million in 1993-94, as against profit of US$ 50.9 million in 1991-92 and US$ 101.6 million in 1992-93. At this juncture, Mort Topfer who had earlier worked in Motorola8 as President Land Mobile Products, joined Dell. That was when Dell realized that the use of indirect distribution channels had not been very successful. Standard PCs sold through retail channels could not provide users the advantage of Dell's customization. Though sales through the retail channels were growing, Dell was not making any profit on these sales...

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6] IDC is a US-based global market intelligence and advisory firm in the telecommunications and the informational technology industries. In 2003, IDC covered over 50 countries.

7] Young Doug, "China Passes Japan as Dell's No.3 Market", www.yahoo.com, November 12, 2005.

8] Motorola is a Fortune 100 global communications leader that provides seamless mobility products and solutions across broadband, embedded systems and wireless networks. The sales during 2004 were at US$31.3 billion.

 

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