Dell's march across Europe
austin360.com
By John Pletz
American-Statesman Staff
Monday, April 24, 2000
If Dell wants to conquer the world -- or at least its personal-computer market -- the company will have to follow the same path as others who have tried over the years with a road that leads through Europe.
As other would-be conquerors can attest, it's a road fraught with peril.
During the fourth quarter, an already painful period in which Dell's earnings fell short of expectations, the company's European revenue growth slumped dramatically to 8 percent from 40 percent the year before.
For fiscal year 2000, which ended Jan. 28, Dell's European year-over-year revenue growth stumbled to 20 percent from 58 percent in fiscal year 1999.
To achieve Chairman Michael Dell's goal of unseating Houston-based Compaq Computer Corp. as the No. 1 PC seller worldwide, the company must get its sales in Western Europe back on track.
"Europe is about 25 percent of our business, but it should be larger," said Kevin Rollins, Dell's vice chairman who oversees Europe. "It's not there yet, but it will be."
Paul Bell, who in mid-February became the third person to head Dell's European division in eight months, said during a recent interview that Europe should be in line with the company's expected overall growth of about 30 percent by year's end.
"Thirty percent feels right," said Bell, a 39-year-old rising star at Dell who had headed its Home and Small Business unit, the company's fastest-growing division. He succeeded John Legere, who left unexpectedly to become chief executive of a fiber-optic venture in Asia. "By the end of the year and into next year, we should be there."
Howard Seabrook, an analyst in Europe for U.S. research firm Gartner Group, said Dell needs 25 percent growth this year to stay on track.
"That's a very achievable number based on Dell's history," he said.
Bell said European corporations and governments were slower to recover from a Y2K-related freeze on computer buying than the United States, which only recently underwent a post-Y2K thaw.
If Bell is right about the turnaround, it will be welcome news in Round Rock. Dell overtook Compaq as the top PC seller in the U.S. last year, and Michael Dell told analysts April 6 that the company should overtake Compaq in worldwide sales in about 18 months.
As the world's second-largest market for personal computers behind the United States, Europe is crucial to Dell.
Although Dell has moved up the list of the top five computer makers in Europe one notch per year in each of the past three years, Compaq still enjoys twice the market share there as Dell.
Compaq had 17 percent market share, based on units shipped, in Europe last year, according to Gartner. Fujitsu Siemens, a Japanese-German powerhouse formed in a 1999 joint venture, is No. 2 at 12.3 percent. At 9.2 percent, Dell edged IBM Corp. from the No. 3 spot last year.
Although Dell's growth in Europe didn't quite meet the company's expectations, its shipments for the year grew at 35.5 percent, compared with the industry average of 19.6 percent, according to Gartner. The company expanded production capacity in Ireland, which serves Europe, building a new plant and renovating another it purchased.
Dell's rivals likely would welcome such problems. Of the major players, only No. 6 Packard Bell-NEC was close, growing at 33.4 percent, according to Gartner. Acer, No. 8, grew more than 40 percent but has just 3.3 percent market share.
But that doesn't mean Bell's job will be easy. Although Europe is moving toward a common economy, it remains a very fractured market.
Dell has enjoyed considerable success in the United Kingdom, a market very similar to the United States'. It is No. 1 in England, according to International Data Corp., a Massachusetts-based research firm.
"In the U.K., the easy wins are all gone," Seabrook said. "(Dell's) corporate sales force found that out in Q4. The bigger challenge is looking around the rest of Europe, particularly the German market.
"The problem is, though they've had some success in one or two of the larger corporate accounts, Dell has always been up against the strength of Siemens."
The new Fujitsu Siemens venture holds 20 percent of the German market, although it is struggling with profitability and has undergone a management shakeup of its own.
"By the time you put them together, you've got a monster in that market," Seabrook said.
The German market, particularly among consumers, remains heavily dependent on the re-seller channel, said Boy Luthje, a research economist at the University of Frankfurt's Institute of Social Research.
"In Germany, Dell is mainly a provider for business customers," Luthje said via e-mail. "They advertise their consumer products, but the direct-sale organization is not very responsive to individual consumers.
"The big chain stores do most of the consumer and small-enterprise business. The greatest success story has been Aldi, a low-cost food retailer who sold 1 million or so PCs in its food stores."
Germany also has a different culture from the United Kingdom or United States. The business is more local than regional or global and is based on longstanding relationships, Seabrook said.
It's also conservative, which can work against Dell.
"I have my own suspicion that there's this view of Dell as these cowboys from Texas and the direct model is not paying Uncle Gerhardt his piece of the take," said Roger Kay, research manager for IDC. "They empathize with Uncle Gerhardt more than the cowboys. So they have a strong relationship with the (indirect) channel."
Seabrook also said that Dell can be perceived as "brash" in more conservative quarters.
Compaq, which is the leader in Germany, relies heavily on the reseller network and still benefits from naming German-born Eckhard Pfeiffer as chief executive in 1991, despite ousting him a year ago.
Rollins said Dell doesn't need to change strategy to succeed.
"Customers there are willing to move on the model and tell us they like it," he said. "The onus is on us to execute.
"The challenge is to get the right team in place, understanding the (direct) model. The model works well when we execute right. It doesn't when we do it wrong."
Bell added that he's betting that continued growth of the Internet will benefit Dell's direct approach and make the reseller channel less relevant as it has in the United States, where direct sales overtook indirect sales for the first time in 1999.
"The economics of (the direct model) are pretty over-riding, and over the long run it will be the right decision," Kay said. "That's where their salvation is in some sense."
In the meantime, Bell has shuffled management in Germany as part of a continuing restructuring there, promoting the former head of home and small-business sales to oversee large accounts.
"Our (home and small-business) division had a great year," said Bell, who oversaw the global HSB market from the United States before being assigned to take over European operations.
"In our large accounts, we really didn't get the execution we needed. As we've grown, we've needed to bring in some more senior management. We're a lot bigger now."
France, Europe's third-largest market just behind Germany, also presents a challenge.
"All of the American companies, IBM or H-P, have always found it difficult there," Seabrook said.
Bell, who spent part of his childhood in France, may have a better feel for the market than some U.S. executives.
"Paul's a pretty seasoned veteran at Dell," Rollins said of Bell. "He's fairly cosmopolitan and understands the various business models. He's doing very, very well."
France also is more dependent upon and receptive to the indirect sales channel of re-sellers.
"The re-sellers are not yet internationalized and are still very much French," Seabrook said. "They like to do business with the likes of Compaq."
But Compaq is struggling these days in France, too. Packard Bell-NEC lead France with 16 percent share, according to IDC's fourth-quarter data. Compaq was No. 2 at 13 percent, followed closely by IBM, Hewlett-Packard and Dell, which had 9 percent.
But the real story is in growth. Compaq's share fell by 10 percent in the fourth quarter in a market that grew by 15 percent, according to IDC. IBM, H-P and Dell all grew at more than 40 percent during the same period.
Compaq is trying to shore up its European business with a new business strategy that is more direct.
"The initiative (Compaq) announced is lacking in clarity and detail," Seabrook added. "If they get really aggressive, much more like they used to, Compaq would take on Dell head to head. If they don't perform, it opens up the possibility for Dell to grab some easy share points."
You may contact John Pletz at jpletz@statesman.com or 445-3601. |
