Dell is enhancing and broadening the fundamental competitive advantages of the direct model by applying the efficiencies of the Internet to its entire business. Dell led commercial migration to the Internet, launching www.dell.com in 1994 and adding e-commerce capability in 1996. The following year, Dell became the first company to record $1 million in online sales.
MISSION STATEMENT, GOALS AND OBJECTIVES
Dell’s mission is “To be the most successful computer company in the world at delivering the best customer experience in markets we serve”. In doing so Dell will meet
customer expectations of: highest quality, leading technology, competitive pricing, individual and company accountability, best-in-class service and support, flexible customization capability, superior corporate citizenship, financial stability.
Drukers questions:
What is our business:
- Computers
- Laptops
- Printers
- Servers, etc.
Who are our customers :
- Enterprise customers
- Organization customers
- End users
- Education customers
What is our value to the customer :
- Best customer experience and providing the best service and equipments
What will our business be:
- Innovation and development on new technologies to produce the best equipments
What should our business be:
- To be the seller of best computers in the world with good customer service and continued Market leadership
Dell’s global sales objective is to penetrate the lucrative Chinese market. Specifically, Dell desires to achieve approximately 10 percent of its global sales through the China market by 2002, which would secure Dell as the second largest computer manufacturer in the country. Dell secondly wanted to expand the importance of its online direct selling model so that 50% of sales were from the Internet.
Dell’s corporate-level strategy is one of growth. Dell’s own corporate website defines its global strategy, as “Our global strategy is to be the premier provider of products and services, including those that customers require to build their information-technology and Internet infrastructures.” (Dell) With a documented record of outstanding success, customer support, and quality, Dell has identified new markets to serve and products and services to provide, leading them to a moderate level of diversification. Most of Dell’s revenue comes from its dominant business, that is all businesses share many product technologies, knowledge bases, and distribution linkages. Dell has remained focused on its core competencies and builds upon those to offer related services.
EXTERNAL ENVIRONMENT
PORTER’S FIVE FORCES
The external environment of a company consists of outside conditions that affect a firm’s performance. An analysis of this external environment allows a firm to identify key conditions that are beyond its direct control and those elements on which it can have an affect. There are 5 areas that make up the general environment: technological factors, economic factors, social factors, political factors and ecological factors. Analyzing these 5 areas of the external environment help Dell identify the opportunities and threats in the computer industry in China.
TECHNOLOGICAL FACTORS:
The first element in general environment is technology. The technological segment includes the institutions and activities involved with creating new knowledge into new outputs, products, processes, and materials. In the computer industry, technology continues to be smaller and faster than ever. Providing access to technologies developed by state R&D institutions has proven a key government resource. It was observed that by the year 2000, mainland China’s annual PC production would reach 7.6 million making it the third largest in the world, after the U.S. and Japan” The internet is a great opportunity for companies to get their name into the public domain as well as a fast way to tailor services to its customer segments. A threat in the technological segment to Dell’s business in China is that access to the Internet is expensive.
ECONOMIC FACTORS:
The economic environment refers to the nature and direction of the economy in which a firm competes or may compete. A primary threat that computer companies encounter in China is the problem of software piracy. China has a shortage of skilled labor, even though the country has many economic opportunities. Computer companies have to acknowledge that “the average consumer could not afford the [computer] investment, and very few had a bank account, let alone a credit card. Dell is aware that Chinese customers go for the cheapest System.
SOCIAL FACTORS:
The socio-cultural segment is concerned with a society’s attitudes and cultural values. The potential for Internet growth is huge in China, giving foreign computer companies, such as Dell the opportunities to expand into a new market. Computer companies have to acknowledge that in the Chinese culture, people are still unsure about credit card sales because of the huge expense of computers in China. Companies, such as Dell, then have to invest in door-to-door or face-to-face operations, initially, to gain consumers’ faith and consumer’s trust in the company and product.
POLITICAL FACTORS:
One of Dell’s biggest threats is involving the fourth element of the external environment, the political/legal environment. China has very nationalistic politics, which make US companies vulnerable. The Chinese government prefers to promote national PC vendors to foreign companies. There is a lot of “red tape” involved in securing government contracts. The Chinese government not only favors local firms, but also local companies. Government control of internet usage in China is another threat to the growth of the internet.
ECOLOGICAL FACTORS:
Ecological are the fifth area of the general environment. The demographics of mainland China include a population of 1.2 billion people. China represents one of the planet’s last great IT sales opportunities.. Because of this, American companies want to take advantage of China’s large population. However, just because a nation has 1.2 billion people, does not always mean they have 1.2 billion paying customers. Primarily, the middle class in China live in one of four heavily populated areas. The lower classes, “peasants”, live outside of these four cities and consist of about one billion people. China is the fifth largest personal computer market as of 1999, behind countries such as the United States, Japan, Germany, and Britain. Not only does China have a prosperous economy, but also it is a quickly growing city with a modern infrastructure.
INDUSTRY ENVIRONMENT – INTERNAL
THE FIVE FORCES MODEL
The five forces model of competition expands the arena for competitive analysis. The five forces include the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and the intensity of rivalry among competitors.
ENTRY BARRIERS:
New entrants to a market can threaten the market share of competitors already in the market .New entrants, such as IBM, are interested in entering the Chinese market to try to gain a large market share from existing competitors in the market. By using the direct model strategy, Dell is using a different approach to catch the eye of Chinese consumers. Dell’s Just-In-Time (J-I-T) inventory keeps inventory costs to a minimum. Companies like China’s market leader Legend (local Chinese PC), are beginning to move to Dell’s J-I-T model, selling directly to their corporate customers.
A barrier to entry in China is dealing with the governments political and legal issues. Many foreign firms have to depend on Chinese resellers to make their product available to the public. Foreign companies may need to form joint venture agreements with established Chinese companies. China’s regulations state that if goods were not manufactured in China, they could not be sold directly to the mainland. Despite protectionist tariffs on foreign firms, Dell can still undermine Legend’s prices.
BUYER POWER
The bargaining power of buyers is an important aspect in the computer industry. Buyers want to buy products at the lowest possible price. The buyer segment is especially powerful in China because computers are so expensive that consumers do everything they can to get the best deal – for the cheapest price. Because of the cost savings derived from cutting out the middleman, Dell believes it can sell computers at lower prices that its competitors can.
SUPPLIER POWER
The bargaining power of suppliers is moderate in the computer industry. Dell Computers is a vertically integrated company. Substitute products are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces.
SUBSTITTUES
The computer industry has a low to medium threat of substitute products. Alternatives to the PC include written communication, and the typewriter. Calculators can compute numbers. Books are an alternate source of knowledge, but do not have the vast amount of information that is available at the touch of a button like the Internet. The computer is also a form of entertainment. Substitutes for its entertainment value include the radio, television, video games, and movies. All of these substitutes are available, but the PC has the technology to be able to provide all of these in one place.
RIVALRY
Competition is intense in the Chinese PC market. Legend, a government backed PC company is the market leader in China. Legend has a domineering presence in Mainland China. Other foreign firms competing in China include IBM Hewitt-Packard, and Compaq. Success requires foreign companies to partner with Chinese companies to gain distribution-channel and market access while they also operate their own independent subsidiaries. Dell is forging ahead without an in-country partner, and so far, Dell is doing well. Dell is reaping all of the profits from its sales, instead of having to share them with a Chinese company.
SWOT ANALYSIS
To be able to look analytically into the internal affairs of a firm, one must outline the strengths and weaknesses, and also opportunity and threats.
STRENGTHS
Strengths are internal resources and capabilities that have the potential to be core competencies. Dell’s core competencies are their cost/differentiation strategy. In consistent to being an integrated cost leader, Dell also produce high quality PCs by using their Direct Business Model approach and sells them directly to the customers. With this innovative process, Dell cuts out the intermediary, excluding the associated cost. By doing so the company can understand the customer’s needs better and can provide the most effective computing solutions to meet those needs.
WEAKNESSES
Their weaknesses are single sourcing; new product market has hurt entry, and reliance on corporate clients.
OPPORTUNITES
Dell has many opportunities, such as potential growth in overseas markets, the industry is still in a growth phase, and entering into new product markets (i.e. printers and PDAs).
THREATS
Meanwhile, the threats are technological changes that are expected since technology can only get better. Next, global economy and increased competition in which Dell’s financial ratios clearly identifies that they are no match for their competitors.
STRATEGIC APPROACHES
Dell understands that their growth relies on keeping their customers satisfied, by meeting all of their needs, when it comes to PCs. Because of this relationship with the customers, it allows the company to have an easier time to collect information. The results of this closeness allow for better market segmentation, for better forecasting, and for better value to the customers.
Thus Dell’s most competitive force is The Direct-Model concept, which has helped them to reach above-average returns and still in business today. Customers have developed a brand-name loyalty to Dell because of their low cost differentiation strategy.
The biggest threat faced by Dell is the fierce competition in the industry. Currently with their China market; their competitors such as IBM and Compaq have merged with other local businesses. The benefit from merging with the locals will have a business that has been in the country longer than they have. According to the Chinese culture, familiarity is an added incentive for trust and brand name loyalty.
If Dell enters into a merge it would not have to spend so much money and time trying to develop this face-to-face or voice-to-voice communications, if the local business is already well known. According to cost saving benefits--the company will not have to spend any extra money for R&D or product development if it is already developed. In addition, it will be easier for the merged company to cut down on the staffs and be able to keep the key players. Along with cutting back on the staff, the two companies can right size and develop a competitive advantage over their competitors. Furthermore, there will be plenty of joint financial support. If there is synergy between the two companies, their market penetration will be that much easier to achieve.
After comparing the pros and cons of our alternative, Dell current position will be sufficient to sustain a competitive advantage in China. Dell realizes that adjusting to the culture and values of China will benefit them in the end.
COMPETITIVE ADVANTAGES
Build-to-Order
Dell provides the customer with a desktop pc or server or anything with their choice of custom made through easy custom configuration and ordering. Build-to-order means that DELL does not have to maintain months of aging and expensive inventory. As a result, DELL typically provides its customers with the best pricing and latest technology for features they really want.
Low-Cost Leader
DELL focuses resources on what matters to their customers. With a highly efficient supply chain and manufacturing organization, a concentration on standards-based technology developed collaboratively with their industry partners, and a dedication to reducing costs through business process improvements, DELL consistently provide its customers with superior value.
SERVICES
Dell offers a variety of award-winning services, such as factory installation of proprietary hardware and software; leasing and system installation; warranty coverage; and user support. The company is further developing its service capabilities with online services to enhance the customer experience
CRITICAL SUCCESS FACTORS
Dell's direct-to-customer business model is the key to the company's dramatic growth and success. Unlike many other computer manufacturers who built multiple reseller channels, Dell has focused on selling directly to customers. This helps eliminate the middleman and offers customers more powerful, more richly configured systems than most competitors. The direct model enables Dell to develop a thorough understanding of customer expectations, which, in turn, strengthens customer relationships and increases customer satisfaction and loyalty.
One of the characteristics that distinguishes Dell from its other competitors is that DELL provides the mode to custom the computers of the customer’s choice and taste and deliver the system to the customer. This is the most crucial and critical success factor behind Dell Computers.
CONCLUSION
Therefore, Dell must be aware of the benefits they wish to realize, how they will be realized, and ensure they only invest appropriate amounts of resources to obtain those benefits. Dell relies heavily on reputation in the US market: a reputation of award-winning service and a high-quality product. Customer satisfaction and consumer awareness surveys should be conducted at least quarterly to ensure the image Dell creates for itself within a culture it has not existed in before is a positive one.
REFERENCES
-
Richard L Daft (1999), Management, 5th edition, The Dryden Press.
-
Herbert G Hicks, C Ray Gulliet (1998), Management , 4th edition, McGraw Hill
Book Company.
-
David Needle (1999), Business in Context, 2nd edition, Thompson Publishing.
[Chinese economy]
- http://www.crito.uci.edu/git/publications/pdf/EnterTheDragon.pdf
[Computer industry in China]
