Dell Raises Its Stake in India

A new plant in Chennai could help the PC maker catch up with rivals in a market that's the computer world's Next Big Thing

by Bruce Einhorn

Next month, Dell (DELL) will open a factory in the southern Indian city of Chennai, the U.S. company's first foray into manufacturing in India. Compared to giant tech complexes in China operated by electronics manufacturers such as Hon Hai Precision Industry or Flextronics International (FLEX), companies that employ tens of thousands of employees at factories producing all sorts of machines, this Dell plant will be modest in scope. The company has invested just $30 million in the Chennai plant and only has plans to employ about 400 workers to make desktop computers.

Still, this latest addition to Dell's manufacturing team has significance far greater than its small size. According to Stephen J. Felice, Dell senior vice-president and Singapore-based head of Asia-Pacific for the company, India is emerging as one of the most important markets for Dell. "India is Dell's largest-growing country in the world," he says. Sales amount to $500 million now, Felice says, adding that the company predicts "…50% to 70% year-on-year growth in the foreseeable future."

The Chennai factory is the clearest sign yet that India is emerging as the Next Big Thing in the global PC world. In 2006, there were over 22 million computers in use in India, compared with just 9.5 million in 2003. That's only one for every 50 Indians. Still, with the number of machines more than doubling in three years, this is a "a watershed era in the history of the Indian PC market," says Kapil Dev Singh, country manager of market research firm IDC (IDC), in a recent press statement.

China Slowing, India Gaining

It wasn't too long ago that India was an afterthought for many people in the computer industry. For years, the country took a back seat to China. For good reason: China has quickly grown to become the world's second-largest PC market, after only the U.S., and it's likely to become No. 1 in the next few years. This year, Chinese are likely to buy 33.6 million desktops, notebooks, servers, and other computers, according to projections from market research group Gartner (IT). For Indian computer buyers, the number is just 8.8 million.

But the market in China is slowing down just as India is accelerating. Both countries will enjoy growth between 16% and 18% this year, says Martin Gilliland, Asia-Pacific research director for Gartner. But next year India will move ahead, he says. While China's PC market will still enjoy respectable growth of 14%, India's computer sales will grow at a rate higher than 20%. And it won't be a one-year rise. Growth that fast will continue "to at least 2011," says Gilliland.

Until now, Dell hasn't been well positioned to take advantage. In market share, it's in a tie with Acer for fourth place, far behind the market leader Hewlett Packard (HPQ). Local champ HCL is No. 2, and Lenovo, thanks to the Indian operations it acquired in its 2005 takeover of IBM's (IBM) computer division, is No. 3.

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That's largely because India's tax structure makes it difficult for companies to import computers, with a price tag that has grown by some 10% thanks to import duties. Not surprisingly, HP, HCL, and Lenovo all put together PCs inside India, while Dell has been importing its machines from its manufacturing center in Malaysia.