1. What are Dell’s FSAs? What are the macro-level requirements for the direct sales model to be successful? What are the major advantages of the direct model, compared with the traditional channel strategy in the computer business? Dell’s most important FSA is its direct sales model. The traditional model startsed with manufacturers building computers, they distributed them to dealers who sellold them. Dell started with selling PCs directly to end users. In China they also used the ‘dual system’ model (using both direct sales and distributors). An important feature necessary for the direct sales model to be successful is an efficient supply chain. Dell had this efficient supply chain, you can call this another FSA was its efficient supply-chain.as well.

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The macro-level requirements for the direct sales model to be successful are a large market size, sophisticated potential customers that are willing to buy via telephone, a potential skilled sales force and capable suppliers and carriers to meet just-in-time management.

The major advantages of the direct model are several. ‘First, the closeness to end users helped Dell better understand users’ needs, forecast demand more accurately and build long-term relationships with end users’1, second, ‘the elimination of distributors helped Dell reduce not only its selling cost, but also its inventory through both accurate forecasting and integration with components suppliers’2. The traditional model has to cope with lower revenues because there is an extra step in the chain; the dealers. If they would sell the computers to the dealers for the same price as they sell it now directly to the customer, the end price for the customers would be too high. Furthermore, when using the traditional model, it is hard to find out what customers exactly want, because all the contact goes via the dealers. The integration with component suppliers is an advantage of the direct model compared with the traditional channel strategy as well, because every step less in the chain reduces costs.

2. How did Dell treat its distributors in China during the re-entry into China in 1995? Was there a vicious cycle of bounded reliability

Page 2 Dell case Essay

involved? Who should be blamed for Dell’s initial failure? During the re-entry into China in 1995, Dell did not treated its distributors not very well. There was a lack of effort from both Dell and its distributors. This was because it was just a matter of time that Dell would imply its direct sales model, so Dell had no intention of keeping a long-term relationship with the distributors.

There was a vicious cycle of bounded reliability involved. Dell needed its distributors to sell the PCs to the consumers, because Dell did not had a reputation as a brand yet. Dell was very unknown for the Chinese consumers. Therefore, and because buying a computer was a big issue for the Chinese consumers, they did not want to sell computers by the telephone. So Dell needed its distributors to meet its consumers in China.

Furthermore, it was important for Dell to rely on the distributors for not increasing the selling costs too much. Dell and the distributors both, should be blamed for Dell’s initial failure. This is because there was a lack of effort from both Dell and its distributors. Dell did not want to invest in keeping a long-term relationship. The distributors did not want to invest much in developing the market because they both knew that Dell would soon switch to its famous direct model.

3. According to Arnold’s seven guidelines, discussed in Chapter 11, what mistakes did Dell make?
Guideline number two is ‘Focus on distributors’ market development capabilities’. Number three is ‘Manage distributors as long-term partners’3. In China, Dell first failed doing this. It was waiting for the right moment to implement the direct sales model and did not want to keep a long-term relationship with their distributors.

At their turn, the distributors did not want to invest in developing the market because they expected Dell to switch to their direct sales model soon. Later on Dell used the dual system model. They sold PCs and provided technical support through a network of authorized distributors. Those distributors ‘helped Dell to maintain and expand its market’4. So when implementing the dual system, Dell did conform to guideline two and three.

The sixth guideline is ‘Secure shared access to the distributors’ critical market and financial intelligence’5. There were some problems with distributors. They ‘placed large orders with Dell and then sold the PCs to resellers/agents rather than end users’. This was not what Dell wanted and eventually they succeeded in stopping these ‘unofficial agents’. To conclude, there was shared access to the critical market, but the distributors not always did exactly wat Dell wanted with that market.

So they partly fulfilled this guideline. (Heeft dat wel met die guideline te maken?? Ik denk dat dit meer te maken heft met de 3e guideline, want doordat Dell geen intentie had om long-term partners to worden, waren de distributors niet toegewijd aan Dell > maar met deze wilde dell juist wel long term partners worden omdat ze de markt kenden..)

The seventh en last guideline is ‘Link national distributors with each other, especially at the regional level’6. When Dell first went to China, they used a distribution system including four primary distributors in main areas and second- and third-tier resellers. ‘Dell’s representative office in China decided on the sales plan, designed promotion strategies such as sales rebated and coordinated the relationships among the distributors’7. So first they did coordinate and thus link national distributors with each other. Later, when using the dual system it turned out that it was sometimes hard to maintain control over distributors and thus establish appropriate links between distributors.

4. Given Dell’s FSAs and China’s location advantages in the late 1990s, why was the direct model successful? The direct model was successful in China. This was because there was a tremendous growth of the Chinese PC market. ‘The Chinese market was distinctive in two important ways. First, retail buyers accounted for only about 10 per cent of total sales and buying a pc was something very big for the average Chinese family.’ So Dell contacted corporate consumers in China and relied more on door-to-door sales and telephone sales rather than Internet sales.

‘Second, most Chinese people were not used to credit card sales.’ So Dell signed agreements with several banks to facilitate payments and used wireless debit card machines which delivery men could carry with them. Dell tried to improve efficiency across the whole value chain and tried to draw on local talent for most positions. Implementing these direct sales efforts, resulted in an improved market penetration for Dell.

5. With the changing market situations after 2004, what new locationbound FSAs should Dell develop to cater to retail buyers in China? Or, alternatively, what complementary capabilities should Dell expect from its distributors? After 2004, the growth rate of demand for PCs in the Chinese PC market fell to 2 to 3 per cent in urban centers each year and grew in mid- and small-sized cities to more or less 40 per cent. The end-users in rural areas have less money and less technical knowledge and thus, preferred to receive advice from retailers before they made the important decision to buy a computer. It turned out that businesses also wanted these services.

As an answer to this could bewas that Dell could establishes shops itself. This would help relatively poor customers and businesses with their decision of purchasing a computer. It would also answer the need for technical knowledge, because employees of the shops could help with technical problems. Dell could also offer to send someone to install the computer and help with technical problems.

Instead of improving their own system, the distributors could also develop complementary capabilities. Dell could choose to sell to businesses via distributors as well, because they possess the technical knowledge that not only rural customers, but also businesses seem to wish.WIL JE HIER NOG EVEN NAAR KIJKEN? ZIJN DAT WEL LOCATION BOUND FSAs? En complementary capabilities??

8. Can you provide an update on Dell’s distribution strategy in China, using materials available on the web? On September 2007, according to Peter Cohan, the Wall Street journal reported that Dell intended to sell desktops and notebook in China through Chinese retailer, Gome Group, whose, 1,000 stores in 168 Chinese cities will help Dell expand its presence in the world’s second-largest PC market by shipments. Dell’s deal with Gome Group will give it a chance to sell to individual Chinese buyers, who like to trying out a PC in a store before buying it.8 So according to this article, in September 2007 Dell was still using retailers to sell its computers.

We also found an article from April 2010 by Joe Panettieri. According to this article, Dell will extend the Ubuntu Linux strategy to China.9 And Ubuntu Linux is a computer operating system.10 Furthermore, Aan article on the Dell website, tells that Dell is planning to open a second major China operations center next year in Chengdu with manufacturing, sales and services to support rapid growth in business occurring in western China Dell’s expansion to Chengdu supports the Western-China Development Strategy (Go-West policy) aimed at developing the country’s inner-western trade and commerce. In addition, the company also plans to open an additional office at its long-standing flagship center in Xiamen and hire up to 500 team members later this year to support its projected growth needs in North Asia and globally.

The announcements are indicative of Dell’s success in China, which is second only to the U.S. in Dell revenue. The company saw revenues increase 11X from fiscal years 2000 to 2010 and reported last fiscal quarter that sales in China grew 52 percent year-over-year. Dell is the No. 2 supplier of computer systems in China with 9 percent share, according to industry analyst firm IDC, which estimates demand for computer systems in western China will grow at a 21 percent annual rate through 2014.11

From this article we can say that Dell is successful in China and therefore, applying a Western China Development Strategy to become successful in the western part of China as well.

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