Dell: In China the agent enters the equation

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Qu Jianwei, a Beijing information technology manager, likes Dell computers but is no fan of its build-to-order business model.

“I pretty much never use Dell’s custom-build service,” says Mr Qu, who handles buying for an advertising company. “It feels safer to buy from an agent than online.”

That view, common in China, raises the question for Dell of how it should tackle a market very different from those where its approach has proved successful. China is perhaps the greatest untapped source of PC demand and has been described by Kevin Rollins, Dell chief executive, as his “strategic focus country”.

So far, Dell has focused on winning high-end corporate and institutional buyers, which account for 60 per cent of China sales. After seven years, Dell has more than 8 per cent of the market.

But the biggest growth in Chinese demand will come from what Dell calls “transactional” customers: small and medium-sized enterprises and consumers. Aiming too squarely at big buyers risks missing out on millions of Chinese who will buy PCs in coming years.

“Most of the growth in China will come from getting people to buy their first PCs. Dell might be whistling past the graveyard,” says Roger Kay, analyst at Endpoint Technologies Associates in the US.

Some say Dell is wise not to aim at such customers. Judy Chui of Daiwa Institute of Research in Hong Kong notes the costs and logistical difficulties of tapping less developed markets where margins are slim. She calls Dell’s approach sensible.

Dell says its method is working well and online sales, negligible two years ago, account for 30 per cent of transactional business.

But fierce competition means revenues are trailing far behind unit sales – and the local challenge is likely to get fiercer. The recent purchase by Lenovo, China’s leading computer manufacturer, of IBM’s PC business means it can court big corporate customers while reaching out to consumers in its heartland.

The strongest evidence that Dell’s model is not yet matched to the China market is the appearance of numerous unofficial “agents” who buy its computers and sell them on for a profit. Dell condemns the practice but still offers its after-sales service for resold PCs.

Mr Qu, who buys his Dells from an agent, suspects Dell is not unhappy to see its products end up in segments its business model does not reach. “I reckon they tolerate it as a sales method,” he says.

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