Dell Putting Pricing Pressure On Legend In China
Domestic Market
Dell's direct-to-consumer business model has worked well
in China, and is putting pressure on Lenovo Computers,
China's leading domestic computer maker.
The pressure from Dell especially, along with HP and
IBM, has meant that Lenovo's domestic market share has
stayed flat over the year at 27 percent, even while regional
shipments have grown by 16.4 percent. This means that
Lenovo's growth is pacing market growth, and not growing
at a faster pace. Combined together, the three US brands
have about 15 percent market share in China, a figure
which is likely to grow.
Traditionally, Lenovo prices its computers at 10-15 percent
less than the competing US brands.
Lenovo originally started from a Chinese government technology
development project, then became a distributor for HP
computers in the late eighties. After mastering the sales,
distribution and support side of the business, it went
into manufacturing.
Because of its origins with the Chinese government, it
has traditionally enjoyed a close relationship with the
Chinese government, including participating in new government
supported technology standards such as IGRS.
Lately, the Chinese government has been driving its own
technology standards in communications and wireless technology
which are not compatible with international standards.
This has forced makers to develop new products for the
China market, which adds to their design and production
costs.
Several years ago, Michael Dell was quoted as saying
the greatest threat to the Dell direct-to-consumer model
came from Lenovo. In the past year, Lenovo's management
has been almost effusive in its praise of the Dell business
model.
Performance over the past year suggests that Dell has
successfully adapted its manufacturing and distribution
model to China, and Chinese consumers are comfortable
buying from Dell over the Internet. This runs counter
to the general wisdom that Chinese consumers must feel
and touch a product before they buy. It also suggests
that computers and software are, to a large extent, commoditized.
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