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Dell in China

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Case study

Introduction
On October 25, 2005, the US-based Dell Computers (Dell), a leading PC manufacturer in the world, announced that Foo Piau Phang (Phang) would retire as the President of Dell China. According to analysts, Phang retired due to less than forecasted sales in China and the lower than projected results from Dell's direct sales model in that country.
Bill Amelio (Amelio), the Chief of Dell Asia Pacific, underplayed the nature of Dell's problems in China, saying, "I simply think (the talk of problems in China) is because we had two quarters in a row, as a company, where we didn't quite meet the expectations of analysts."4 By the third quarter of 2005-06, Dell's market share in China had slipped to 7.5% from 8.2% in the second quarter. However, the unit sales of Dell China grew by 46% and revenue by 29% during the third quarter as compared to the third quarter of 2004-05. According to Analysys International, "The market share of international giant Dell dropped due to the weak sales power in small cities, the SME market and fierce competition

The other factor that led to the erosion of Dell's market share was fierce competition from Lenovo and HP in the middle and lower end of the market. Dell entered China in 1995, and was successful in capturing the urban markets and corporate customers.

The company was able to use its direct sales model successfully in these markets. By 2004, the urban markets had reached saturation and Dell failed to gauge the increasing demand for computers from smaller towns and rural areas. Chinese companies like Lenovo, Founder and THTF reached those markets at the right time by launching low priced products and sprucing up their distribution networks, which Dell failed to do. Dell was not performing well globally. In the third quarter ending October 28, 2005, Dell reported a drop of 28% in profits. The company's net

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