Dell was the first mover with its business-to-customer model and internet sales and services since Dell reinvented the value chain for PC industry. Although China would become the second largest PC market after US, Dell’s decision of positioning in this market was very crucial. Direct selling of business-to-customer model through the Internet! Does this create competitive advantage in China like it did in USA and Europe? If not what should Dell do to expand Chinese operations? If so what should Dell do to remain this strategy? The key for success in direct selling model is able to establish strong and consistent relationships with suppliers and customers. At this point, Dell would need information and knowledge about the suppliers and customers at China. There are two ways to create this information and knowledge: one is by joint ventures or alliances, the other is to employ knowledgeable Chinese management team to provide this. Also customer trust is very important. This could be achieved by creating brand awareness.
While computers and the Internet became commodity in developed countries such as USA, and UK, there were countries that were lacking of state-of-art information technology structures which enabled the wider usage of computers and the Internet. But globalization of business forces increased usage of computers and the Internet even in these countries which enabled them to develop their information technology structures. Since Dell was planning to enter developing countries with the same direct strategy via internet, they need to be careful about this totally new concept for China. Because Chinese people are not familiar with computers and the internet very much, the only mistake or unsatisfied sale to a customer would create a bad reputation among Chinese people. Dell should try to postpone its internet sales for a while for China until they start to widely use computers. Therefore, Dell should need to redefine its customer base for China from Home and small businesses to large corporate accounts.
Case Notes: 1. Exhibit 1: Dell is not doing well at worldwide PC sales. Because while Dell’s market share is very close to Compaq’s market share in the US, it is 5% below of Compaq’s market share worldwide. This could be because of Dell’s fears when exploiting its direct sales strategy to global markets. Also since customer and supplier relations are very crucial for being successful in direct selling, Dell should have used joint ventures and alliances to sell transnational borders. Because local knowledge is very important.
2. According to cross-border scalability of a business model, Dell is at the right top of the figure. This means there is high need for local infrastructure and local adaptation. Since Dell needs to have strong relations with suppliers and customers, it is essential to locally adapt to the potential markets.
3. Since Dell is a Netcentric firm, acquisitive globalization seems best strategy for global expansion. Dell had a strong establishment in the domestic market and when time to go global, it was a better idea to acquire local startups or imitators.
4. Exhibit 11: The other companies had small increase of their market shares however Dell’s market share was increased 3 times. This is a obvious evidence of Dell’s fast recognition among Chinese PD industry within 1 year.
Case Questions: 1. How aggressive should Dell be in entering the China market? Dell should wait for its direct selling strategy through internet. Legend already has a reputation on the Chinese market and this means a lot for potential Chinese computer buyers. Since Dell need local infrastructure and local adaptation for its selling strategy, it would take time for Chinese to get used to it. It should acquire local knowledge to leverage its expansion. It is very risky to be very aggressive in Chinese market because customers are the key factor for success. Getting their heart share means getting their mind shares which direct the sales. Because of these reasons, Dell should make acquisitions slowly. It is very important to get customer trust. Therefore, brand awareness could be created. Because Compaq and HP began to copy their direct selling. They should be in a hurry and aggressive. How much can you afford to spend? They have 1. 4 billion net income, and Chinese market is expected to grow 25 billion in three years. There is a big potential.
2. To what extent should Dell clone vs. alter its U. S. strategy as it develops an entry strategy for China? US strategy is direct selling via internet. The direct selling method worked very well for US and also for Europe. But For China it is hard to manage because it is also hard to recruit successful sales force in China because direct selling is a new concept for China. Although this would be a barrier for entry, Dell could clone its knowledge about direct selling in the US to China. The only problem would be about the internet sales. Since China’s information technology structure is not ready for wide usage of computers and the Internet, Dell should alter this a little bit using internet very few at the beginning. Instead of it should make real relations and real sales by connecting with people