Why Dell Is Beating Everyone, Especially Apple, in China
Oct 27, 2008 4:00 AM PT
I can remember the day, way back, when the U.S. was the most important market in the world and companies from all over fought to build a presence and establish themselves here. Our politicians have creatively fixed that advantage, and now China is the place to be. According to projections, the Chinese market will eclipse the U.S. and the European markets combined by 2015 -- and that has a lot of folks fighting to become the major technology player in that future China.
Lenovo, which originated in China, has the inside lane, HP is No. 2 and accelerating, and Dell has turned on the equivalent of afterburners in a credible attempt to pass both by 2015. However, while Apple is scaring everyone half to death in the U.S. with its impressive growth here, it isn't even considered interesting in China. Let's talk about how Dell is outgrowing its peers in China and why Apple isn't even a real player there.
We'll close with my product of the week, Rapid Repair, which for a fraction of the cost of a new iPod player, will overcome the planned obsolescence in the one you have.
China: The New Market Superpower
I spent several days last week in Shanghai as Dell's guest listening with a bunch of peers to the massive bet-the-company effort to become the technology leader in China. No one else in the technology segment, to my knowledge, is investing as much of itself in this market.
The reason for this investment is that China is growing at a pace that is currently unmatched in the world. This is partially because it has a political structure that is very favorable to business and -- unlike India, the other rapidly growing economy -- it can actually make decisions.
The problem with China is that it is growing far faster than its ecosystems can reasonably handle. In cities like Beijing and Shanghai, traffic is so bad it turns the freeways -- which are constantly under construction -- into big parking lots, making it nearly impossible to get around. The smog reminds me of some of the worst days I experienced in Los Angeles while growing up. However, unlike LA, where we only had a few of these days a year, China appears to have massive smog problems every day. So much so that here in California they are saying about 25 percent of our own smog is from China now, which seems a little unfair, actually.
On the other hand, many of the new buildings are amazing, and China has the only production Maglev train system, which it is expanding nationwide. The speed at which the country is advancing is simply unprecedented in any decade. It makes the rate of change we experience here in the U.S. look like a snail's pace. The middle class in China is growing like a rocket, and that is what backs the estimate that this market will exceed most of the rest of the world, assuming ecological problems don't take it out, by 2015.
This rapidly growing middle class has needs that are unique to the region. One of them is that they like a lot of variety, and there are more than 100 new cars launched into China every year to meet part of this demand. If you go into a supermarket, you will see wave after wave of products from each major vendor representing lines that are deeper and broader than anything you are likely to see in the Western world.
This is one of the reasons Apple hasn't done well here. This market is simply not interested in one-size-fits-all products. It wants things that are unique and different, that specifically addresses the unique individual buyer's needs and differentiates the buyer. I have a feeling that is because, in such a large population, appearing different and unique is especially difficult and thus the need for lots of variety.
This market doesn't buy a lot of luxury goods either. Based on a barter culture people appear strongly focused on bargains and high value for the money spent while also wanting a lot of personal care and a relationship with the vendors they frequent. This is the second reason why Apple doesn't do particularly well in China; it offers premium products which to most Chinese buyers equate to a bad bargain.
Then again, the reason Apple doesn't do well could simply be because the Chinese buyer is simply too smart to buy products that are designed to fail prematurely.
In short, this market likes a lot of variety, a vendor they can touch and trust, and a lot of value. This is the anti-Apple market. With the historical exception of the variety part, this is Dell's kind of market, and Dell is aggressively addressing the variety problem while working to become more China-centric.
Dell is ramping to put 50 percent of its total economic power into China. Already US$23 billion of its revenue is tied to China, and this represents $50 billion in China's gross national product, according to Dell. Dell has its worldwide design center in Shanghai, and the result is that new products designed for both China and the rest of the world will first meet the Chinese market requirements.
This has resulted in one of the few bet-the-company moves I've ever seen and one of the few tied to capturing a new market. The level of investment, as a percentage of the company's resources, is unprecedented. In effect, when this effort concludes, Dell will largely be split between China and the rest of the world.
The changes in Dell's products are already becoming evident. The new "E" series corporate product line comes in colors. No other vendor has given a color choice to a corporate buyer, yet one of the big lessons this year is that IT doesn't make desktop decisions anymore. These decisions are made by the organizations who get the desktop hardware, and that means, unlike previous decades, the user gets a big portion of the vote. And people, whether they are in China or anyplace else, do like a little choice. It just happens that China buyers require it.
On the consumer side, Dell's new Studio Hybrid desktop is the first to try to blend the need for a low-cost, energy-efficient retail offering with customization. It can be skinned with a variety of things, including bamboo skins, addressing the stocking problem associated with choice (you always end up with the color people don't like, and no two areas like the same colors). Running things in China is Dell's resident superstar and possible heir apparent Steve Felice, backed by Timothy Mattox, Dell's strategy wunderkind, which also emphasizes the massive commitment Dell is making to this geography.
Dell's direct model has been modified with heavy regional presence and some rather interesting creativity (to get around Dell policy) to address the unique needs of this market. This is truly a company rebirth, and the end result could actually benefit Dell in all regions, but initially, reflecting back on its 30 percent market-leading China growth rate, in China.
Product of the Week: Rapid Repair
We all know that some vendors design their products to wear out because they want to you buy new ones. Apple is the leading technology vendor doing this, and it specifically builds in batteries that it knows will wear out long before the devices would otherwise need to be replaced.
Rapid Repair specializes in replacing the batteries of iPods (they do Zunes as well) for under $50 (sometimes much less, depending on the product) so you don't have to replace what is otherwise a perfectly good player. They can also replace broken displays and do other repairs at a nominal rate.
Because we are all counting our pennies this year and Rapid Repair allows us to keep a perfectly good iPod or iPhone in service for a fraction of the replacement cost, Rapid Repair is my product of the week.
Rob Enderle is a TechNewsWorld columnist and the principal analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.