Dell China Heads For Mid-Market
Dell China has announced plans to abandon the low-priced
entry level market for computers, and solidify its position
in the mid-market. The move suggests that the company
is confident about its market position in China, and does
not feel a need to compete with other Chinese companies
as they struggle to compete against Del in the entry-level
market.
Dell's management said that the move would mean that
growth would slow from the current 300% unit sales growth
to 200%. China is now the company's fourth largest market
worldwide. Dell's main customers in China are corporations.
In the Chinese domestic market, sellers have cut prices
to 3,000 yuan (US$362) per unit by offering models without
Microsoft's Windows operating system and with processors
from Advanced Micro Devices, the low-cost rival to industry
leader Intel.
In the US market, Intel has suffered badly from failed
launches of new chip architectures in 2004, and has lost
market share to computer makers such as HP which have
adopted the AMD chip architecture for their entry-level
computers. In China, the AMD architecture has been adopted
by Lenovo (formerly Legend) and Frontier in their entry-level
machines.
AMD has also attacked Intel on the high-end, with CPUs
for servers, which have been adopted by Sun and HP for
servers for their business customers. Dell has been one
of the holdouts which has refused to adopt the AMD chips
for integration into their systems.
Most Dell systems come pre-installed with Windows XP,
but lately Dell has also been bundling WordPerfect with
its computers if the cusotmers prefer.
In the past two years, Lenovo, Dell's main competitor
in China, has stumbled
badly. The main criticisms are that the group has
entered too many fields, and lost focus on its core business,
which are computers. The management is now pruning back
the groups, and streamline supply chain management, which
is where Dell has its main advantage.
Lenovo's mistakes have worked to Dell's benefit, and
the company has been able to make sales inroads to Chinese
government ministries and agencies which had formerly
been loyal Lenovo buyers.
Dell's rivals in the US have been largely unable to replicate
the company's streamlined supply chain management and
Internet-based salesmodel, with the exception of Apple.
Apple has a dedicated core of loyal customers for its
proprietary software and hardware, which are priced above
the average for Windows PCs.
Lately, it has been able to expand this base with the
iPod line for digital music players. The company is now
the leader in online music sales with iTunes, its Internet-based
online music store. Songs purchased from iTunes can only
be played back on Apple iPods because it uses a proprietary
music encoding system.
iPods have been introduced in China, and are beginning
to be taken up by China's well-to-do urban youth.
Dell China's move suggests that its management has sufficient
confidence in brand recognition among Chinese users, that
it no longer needs to compete for entry-level systems
among Chinese users. Other companies will fight it out
in the entry-level market, and there is the possibility
that Dell will re-enter the market as some are knocked
out of the market.
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