Targeting the Chinese consumer and China market : Dell vs. Lenovo

Dell, one of the world’s leading PC companies, has been struggling with the China market and figuring out how to appeal to the Chinese consumers. Being a late entrant to an already competitive market filled with dominant local companies, such as Lenovo, has led to a very poor bottom line performance in China suggesting a needed change.

This quick analysis of Dell and Lenovo in the China market is based on a case-study I read for the "Doing Business in China" course at Hong Kong University of Science and Technology’s Management of Organizations titled "Dell vs Lenovo: The Competitive Strategies in China".

China’s computer industry – critical success factors

The growth for the computer industry in China has been tremendous in recent years, showing fast changes in Chinese consumer preferences. Before a more in-depth analysis is suggested, it seems apparent that a company that wishes to take part in the Chinese market, especially the computer industry, should be ready to adapt fast and keep up to speed with the tremendous changes that are taking place as they happen. This includes the ability to sustain the risks involved with such potential changes.

The general characteristics of the Chinese computer industry consumer include – young audience, generally price sensitive – expectations for a good price-functionality factor, somewhat brand conscious within the preferred price range, suggesting that brand sensitivity should be surveyed and adjusted accordingly. The Chinese consumer is still at the beginning stages of technology adoption with a very big potential for growth, but as saturation will reach the big Chinese cities the potential will move to the highly scattered tier C-D cities and the country-side (China Hand).

The main activities for computer usage mostly revolve around Internet usage, usually including online gaming, forums and chatting. Market size is expected to reach 500 million netizens by 2015. E-commerce is now a growing trend, but is highly dependent on the growth and creditability of the credit-card market.

McKinsey points out to the average Chinese consumer as generally not being very loyal and one that follows sharply changing fashion trends that fit the pocket. Over 65% of the consumers are said to possibly change their mind in the last minute (65%), usually according to on-site promotions and sales pitch.

China Hand mentions the credit issue as a strong barrier that is slowly being removed, perhaps allowing for more future opportunities for those to target credit card holders. The typical Chinese consumer, they argue, currently prefers cash. China Hand further suggests that companies initially focus on "A cities” as distribution channels to B and C cities becomes expensive.

 

 

Competitive advantage

Local brands

Local brands, unsurprisingly, enjoy the advantages of being local. The leading local brands are usually very well-known, are a national symbol and a source of national pride that’s feeding into the growing sense of Chinese patriotism. This is often demonstrated in major national and international events . Local brands, especially those partly owned by the government, enjoy extensive governmental support.

The local brands have usually been there first, making a mark on Chinese consciousness when foreign brands were not allowed or were limited access to the Chinese market. This has also helped established a more efficient supply chain distribution channel.

 

Foreign brands

Foreign global brands are usually perceived as being of higher quality than the local brands, although that might also change as quality of local brands goes up. Global brands usually have far more financial resources at their disposal and can sustain losses longer than most local brands when targeting future income.

 

 

Business models

 

It seems that the two companies went in two very different directions.

 

Lenovo

Lenovo has been focusing on selling pre-configured computers that include specifications which target the widest audience possible. Lenovo relies on its fast and wide-spread distribution system to reach even the remote cities of China. Lenovo has a chain of stores to promote and sale Lenovo computer and is using retailers to increase their presence and reach their customers. Lenovo targets both organizations and individuals.

 

Dell

Dell has been trying to implement their successful strategy from other countries by focusing on “built to order” customer designed machines. Dell is known for cutting costs and beating market prices by implementing direct sales that reduce expenses. Dell has been the first company to make extensive use of the net and ecommerce. Dell has been mainly focusing on organizations, but have been trying unsuccessfully to reach end-users.

 

 

Recommendations for Dell

 

Analysis

Dell has been losing the end-user competition to the other computer brands competing in China, mostly local brands. During 2005 Dell decided to pull out of the end-user market entirely and focus on businesses. The failure to penetrate the end-user market seems to revolve around a few core issues:

• The Chinese consumer doesn’t seem to play along with the Dell way. The stereotype claims that the average Chinese consumer is not used to buying something he can’t see or feel, still hasn’t adjusted to buying on the net and is generally unaware of Dell or not impressed with Dell’s world reputation to justify changing his purchasing habits.
• As technology acceptance in China grows, the average Chinese is still not a very technical user, perhaps feeling more comfortable with pre-configured machines rather than custom made.
• The credit system in China is still in its first stages, which proves as a real barrier to Dell’s sales method.
• Dell currently doesn’t have access to the required distribution channel in order for it to reach the Chinese consumer.

 

Recommendations

Dell does has a few strong points that would make for a stronger appeal to the average Chinese consumer

• Price – Dell has usually been able to offer cheaper prices.
• Foreign brand – Dell has the reputation, and as it’s a foreign brand – many Chinese consumers might perceive it as being of higher quality.

Also, as the Chinese market grows and middle class rises the infrastructure to support Dell’s method becomes more stable. Credit usage is rising, the people spend more on quality, they become more brand conscious and ecommerce is more wide-spread.

I’d suggest that Dell doesn’t give up on the end-user as it would most likely pay off in the long run. For the short-term Dell should perhaps consider teaming up with a company that would be able to help with the distribution channels and promotion. This could be done by signing a deal with one of the big retailers in China, perhaps a foreign-based company like Carrefour or Wal-mart which targets the same strategy of very low-prices and already has the sales people in place (McKinsey). Promotion wise, as Dell has the price advantage, I would suggest appealing to the Chinese consumer’s heart by emphasizing a global brand yet showing deep appreciation and respect for China, perhaps by developing a brand name that incorporates both Dell as an pre-fix and a local name that follows, building the brand as supporting national pride by sponsoring national events and working together with the local government.

Comments welcome.