Dell's Rebooted Asian Strategy

The computer maker can't expect instant results from its decision to sell its products in retail stores

by Eileen Yu

Earlier this month, the company broke a 23-year tradition when it unveiled plans to sell its products at retail outfits across the Asia-Pacific region.

The announcement is significant for a company that had long marketed itself as the golden child of a direct sales model.

According to analysts ZDNet Asia spoke to, it was a move that was inevitable particularly in the Asia-Pacific region, where consumers like to physically handle a product before they buy it.

Bryan Ma, IDC's Asia-Pacific director of personal systems research, described the move as "necessary" because Dell was often criticized for pushing its direct model in a region where consumers prefer to "feel and touch" their products and pay in cash.

"[The direct model] worked very well for them in the past because the bulk of their business has been in the enterprise and public sectors," Ma explained. However, Dell has had limited success in the Asia-Pacific consumer market, where its lack of physical retail presence was a disadvantage particularly against competitors such as Hewlett-Packard (HP) and Acer.

Diptarup Chakraborti, Gartner India's principal analyst of Asia-Pacific client computing markets, said Dell has been facing some resistance from users who do not buy or make advance payments for expensive products such as a notebook, without first seeing the product. Chakraborti noted that this has compelled Dell to change its strategy and enter the retail space.

In addition, Ma noted that a lot of growth in the last few years had centered on the consumer market, with Acer and HP gaining a fair bit of market from their notebook shipments. "That's where Dell has been left out of the game, so this decision is a good step forward," he said.

Chakraborti added that the PC maker has been "toying" with the possibility of going indirect for a long time, and the wakeup call came when it lost its leading position to HP.

In a phone interview with ZDNet Asia, Paul-Henri Ferrand, Dell's president of Asia Pacific South, acknowledged the company "may have overlooked" some areas in the past, including the consumer and SMB (small and midsize business) market segments, but it is now seeking to address these gaps.

He said the company is placed 34th on the Fortune 500 list and remains profitable today, amassing a fortune worth US$12.3 billion in cash and investments. The company is "number 1 where it matters", such as its leadership position in the global large-size business market with a 31 percent share, Ferrand said. He added that Dell has always been focused on growing its corporate business, where 85 percent of its revenues come from businesses.

While the PC manufacturer recognized it has had a challenging last few quarters, Ferrnad stressed that Dell is unconcerned about how its competition are doing in the market, and is instead focused on how it can improve its customer proposition.

"Consumers is a market by itself... We recognize that while we have been delivering products to consumers, we never had the strategy or organization to go after this market," he said.

Dell has since formed a global consumer business unit to ensure its resources are "aligned to serve consumers", he noted. "Right now, everything will revolve around consumer behavior and so on."

He added that Michael Dell's return to the helm helped spark the recognition that the company needed to have a bigger presence in this market segment.

Indirect inexperience will show

Chakraborti said: "This move [toward an indirect model] does not reflect negatively on Dell as it shows the organization has the gumption to recognize their weakness and take steps to correct the same.

"However, the fact that Dell has no experience in channels and with some really stiff competitors in Lenovo, HP and Acer in the market, Dell will have to be really innovative if they [want] to win back market share," he said.

IDC's Ma agreed, adding that the challenge the company faces lies in its lack of retail expertise compared to an old-hand such as HP.

"HP is so well-entrenched... It'll be a slow-going process for Dell, and they will have to learn from their mistakes," he said, noting that it will take at least another year or more for Dell to figure it out.