Project #43280 - Paper

Strategies for competing in international markets

Read the following articles, from 2008 and 2009, about Dell Inc.’s and Apple Inc.’s strategies for expansion into China. Then thoroughly answer these questions:

 

1) Explain, entirely in your own words, five (5) reasons that firms pursue international strategies.

2) Compare and contrast Dell’s entry into China with that of Apple.

3) Dell had the advantage of entering China several years before Apple, who delayed until 2008. In general, how important is first-mover advantage when considering entry into new international markets? Was it worthwhile for Dell to have first-mover advantage? Why or why not? What are the advantages and disadvantages associated with Dell’s entering the Chinese market before Apple? What is the current state of each company’s operations in China?

4) China and India seem to be at the forefront of many companies’ future global strategic plans. What other emerging international market do you think will prove quite important in the future? Justify your response with concrete details.

 

 

Dell Goes to China

            In 1989, Dell was the second-largest player in both the U.S. and worldwide PC markets. However, Dell had a negligible presence in many regions of the world, most notably China, where it ranked a distant seventh in PC sales. Dell executives considered this lagging position to be problematic, given that computer-industry analysts were predicting that, by 2002, China would become the second-largest PC market behind the United States. Consequently, Dell set ambitious China sales-growth targets in 1999, with a goal of achieving 10 percent of its global PC sales from China by 2002, which would amount to nearly 50 percent of PC sales for the entire Asian region.

            For many U.S. companies, China is attractive simply due to its size, but it is also a competitive environment fraught with many hazards – and it can turn potential profits into a cash-flow black hole. Although sourcing components and products from China has proven successful for many global firms, tapping the Chinese consumer market appears to be an entirely different matter. By 1999, for example, Motorola and Kodak had already sunk many millions of dollars into China, hoping for large domestic market share and commensurate profits; but, instead were reeling from enormous and continuing losses. Dell’s management was not ignorant of these warning signals but viewed the situation as “If we’re not in what will soon be the second-biggest PC market in the world, then how can Dell possibly be a global player?”

            The Dell-in-China situation showcases all five elements of strategy in action. It also shows how a firm must engage these elements flexibly and entrepreneurially to do business in markets different from their home markets. That is, internationalizing firms face challenges as to how to be global yet local at the same time and to what extent they should be global or local. China is a relatively new geographic arena for Dell. Within this country arena, Dell is targeting certain market segments, or subarenas; it is also using different channels as part of its market-segmentation strategy.

            In terms of vehicles, and regardless of global location, Dell typically goes it alone in terms of assembly and distribution, entering into alliances only for inputs and raw materials. A key facet of Dell’s competitive advantage is distribution via its Dell Direct model – an online PC assembly and sales-on-demand powerhouse. In China, however, Dell initially formed alliances with independent distributors for the consumer market, a channel it had learned to exploit in its earlier entry into India. This was a risky move for Dell but also one that showed that management recognized that it had to be flexible and act in a locally sensitive fashion in approaching new geographic markets. Dell initially planned to use Chinese distributors, as it had in India, and then migrate sales over a five-year period to the typical kiosk-sales model it employs in other parts of the world, further allowing it to leverage its Dell Direct model. Dell was able to draw immediately on the model for the large multinational-firm market, with which it already had established customer relationships. It could also use the Dell Direct model for the government-users market. As in all of its other markets, Dell continued to exploit a performance-for-value differentiation strategy and leverage its unique Dell Direct service model to maintain its solid relationship with its corporate and government clients.

            In terms of staging, Dell flipped its distribution model on its head. This is a third example of how the company flexibly adapted its historic strategic approach to enter into China. In the United States, Dell built up its Dell Direct model through the direct-to-consumer market; it entered the corporate-customer market only after it had established a strong, profitable foothold with consumers. In China, however, the Dell Direct market was more commercially viable with corporate customers, who have both the cash and access to infrastructure to make the Dell Direct model work effectively. Although Dell initially worked through distributors in China for the consumer market, its staging plan was to migrate these consumers eventually to its Dell Direct model over a period of five years, which it did successfully.

            Finally, Dell’s economic logic is one of both scale and scope economies. It can leverage its size to gain the best terms and prices, for the best technologies, for the products it sells. It can use this cost advantage to compete in China and, at the same time, further enhance the Dell Direct model’s footprint on the global computer market.

            By the end of 2004, Dell reported that in just five years, it had become China’s third-largest provider of computer systems and services. In 2004 alone, Dell’s shipment growth in China was nearly 60 percent, four times that of the rest of the industry, and its revenues grew nearly 40 percent. China had become Dell’s fourth-largest national market, and combined Asia Pacific-Japan operating income amounted to $313 million, 10 percent of its global income. Perhaps the icing on the cake came when IBM announced on December 9, 2004, the sale of its entire PC division to Lenovo, a Chinese multinational firm.

 

Supplementary Information

Dell’s International Strategy

·      Dell in the United States: Michael Dell founded Dell in 1985 in the United States, based on a strategy of selling PCs directly to individual U.S. consumers. By 2001, Dell ranks number one in global market share.

·      Dell in India: To sell computers to individual consumers in India, Dell changes its strategy and begins distributing its products through Indian distributors.

·      Dell in China: To make headway in China, Dell first tapped a network of Chinese distributors, then sales through Chinese retailers, to sell PCs to individual consumers. In five years’ time, Dell transforms itself from a market laggard to a market leader in China.

 

Dell-specific Breakthrough Innovations

* The company becomes the first in the industry to sell custom-built computers directly to end-users, bypassing the dominant system of using computer resellers to sell mass-produced computers.

* Dell unveils the industry's fastest-performing computer, pioneers the industry's first thirty-day money back guarantee, and offers the industry's first onsite service program.

* Dell introduces its first custom-made web links for customers. Called "Premier Pages," the links allow customers to tap directly into the company's own service and support databases.

* Dell establishes web-based connections with its suppliers to speed the flow of inventory and quality information.

 

How Apple miscalculated the iPhone’s debut in China

Edible Apple   Tue, Nov 10, 2009

Last week we reported that iPhone sales in China got off to a lukewarm start, with China Unicom reporting that they only sold about 5,000 devices in the first week since Apple’s iconic smartphone officially went on sale.

When the iPhone typically goes on sale in a country for the first time, scenes of crowded Apple Stores and mobs of eager customers can usually be expected – a fact which makes the slow start for the iPhone in China that much more conspicuous.

But China isn’t exactly like every other country out there, and there are a few reasons which might help explain why Apple’s success there hasn’t been overwhelming.  As we’ve noted before, the Chinese version of the iPhone comes without Wi-Fi, making the device crippled in comparison to the reported 2 million bootleg iPhones already in circulation in the country.  Also a factor is that the monthly iPhone plans in China are relatively expensive, and on that note, Shaun Rein of Seeking Alpha postulates as to how Apple miscalculated its long anticipated entry into China.

Rein first writes that Apple failed to take into account the culture of phone usage in China, where pay as you go phone cards are preferred over the monthly plans typically used.

The phone is being sold packaged with monthly subscription plans, just as in the U.S., but the vast majority of Chinese prefer to buy pay-as-you-go charge cards. Top-up cards can be bought and recharged cheaply at street vendors everywhere in less than 30 seconds, with no identification required. Subscribing by the month is a pain. You have to go through a mountain of paperwork. Often you need to get sponsored by your company or, if you’re from another area, by a friend officially born and registered in the city you’re in. This can take hours, if not days. It isn’t worth the hassle.

Rein goes on to write that while many Chinese are willing to pay top dollar for top of the line smartphones, “most are extremely price-sensitive when it comes to talk and data plans.”

Rein also brings up an interesting point – that many of the early adopters in China who would ordinarily be psyched about the iPhone may be apprehensive about signing up for multi-year phone contract.  On the contrary, these eager tech beavers want to remain unattached, and free to move onto a new smartphone every few months.

Next, and this isn’t really Apple’s fault, is the fact that Apple struck a deal with China Unicom, the second largest mobile carrier in the country.  China Mobile is the largest carrier in the country, and Apple was obviously unable to come to an agreeable contract with them.  Being the second fiddle in a country as populous as China is nothing to scoff at, as China Unicom still commands an impressive number of subscribers.   But Rein points out that China Unicom subscribers, on average, tend to be less wealthy than their China Mobile counterparts.  Moreover, China Mobile apparently has “better signal stability than China Unicom, especially in regional cities beyond Shanghai and Beijing, where more and more business trips and vacations are taking place.”  Hmm, now doesn’t that sound familiar?!

For the most part, Apple has been able to go into any market of its choosing, strike an iPhone deal with a large carrier, and sit back and watch the money roll in.  China obviously poses some different challenges and offers a set of unique roadblocks, and it could very well be that in their zeal to finally get the iPhone into China that Apple didn’t take the time to factor in local customs and practices.  It’s still early in the game, though, and the iPhone undoubtedly has a lot of potential to still be a game changing and financially lucrative device for Apple in that part of the world.  As Rein notes, the fact that there’s already over 2 million hacked iPhones circulating in China just goes to show how strong the demand is there for the device.  All Apple needs to do going forward, says Rein, is “do a better job of taking consumer preferences into account, and to work with its partner, China Unicom, to better deliver what Chinese want.”

Why Dell Is Beating Everyone, Especially Apple, in China

By Rob Enderle

TechNewsWorld

10/27/08 4:00 AM PT

 

China is the world's most desirable emerging market, and no other company is putting as much of itself into the effort to capture this market than Dell, writes columnist Rob Enderle. Even Apple, which is so successful in the U.S., isn't able to crack the Chinese market.

 

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.

 

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.

 

China Consumers

 

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.Your response should be, at minimum, 900 words (single-spaced, 12-point Times New Roman, 1-inch margins) in length. I will use University-provided software to determine the originality of your paper

 

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