of Legends and Dell- What is in store for Dell in China.
Good morning Laura,
Say it is good to see you back on the thread .I liked this one the best.
A Dell technician advised his customer to put his troubled floppy back in the drive and close the door. The customer asked the tech to hold on, and was heard putting the phone down, getting up and crossing the room to close the door to his room.
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[Please note the following excerpts are extracted from various archived articles on PC industry in China.Also note most of the information in the articles are from latter part of 1997 and things could have changed considerably since then. My intention is just to give you Dellheads an idea as to the nature of PC business in China and what we might expect in China with respect to DELL.- mohan]
Excerpts from research done by New Century Group China/PC World HK
& IDG.
China's PC market is experiencing explosive growth. Growth rates of more than 40 percent are expected through the year 2000. The New Century Group sees the share held by foreign vendors declining to only 30 percent by 2001. This profile looks at several of the local brand name PC manufacturers expected to play significant roles in China's PC market over the next three years, explaining the advantages they have over foreign counterparts. China has seen annual PC unit sales growth rates of over 50 percent since 1992. Opportunities in this rapidly expanding market have attracted most multinationals. It has also led to the creation of a domestic IT industry. Now these local payers have hit their stride, they are winning market share.
Home advantage
The market share for PCs produced domestically (excluding foreign-owned joint ventures) was 65.9 percent in 1996. In 1997, domestic PC market share will climb to 66 percent. The New Century Group conservatively forecasts that domestically-produced PCs will rise to at least a 70 percent market share by the year 2000. While this is only slight, when placed against the huge rate of unit sales growth forecast during the period, the overall growth in domestic made PC sales is set to sky rocket.
Domestic PC vendors examined in recently-released New Century Group reports on the subject are Tontru, Changjiang, Langchao, Sea-star and Taiji, Legend, Great Wall and Founder. All these vendors are set to see huge sales growth in the next few years.
While Legend, Great Wall and Founder are all well known, others are more obscure.
Legend the rising PC star in China.
Take note: The Legend Group aims to become China's answer to IBM or Hewlett-Packard, and it may well succeed. Beijing-based Legend took the top slot in China?s desktop PC market in 1996.
This article is extracted from a recently published report by the New Century Group, a Hong Kong based market research company, which probes Legend's prospects. It looks at the company's product and service offerings, distribution and sales.
There are four components contributing to the rise of Legend in China's domestic market: its status as the largest domestic PC vendor; its role as a major distribution channel; its systems integration arm; and the fact that it is the world's fifth largest motherboard manufacturer.
Under the protection of the Chinese government's policy of fostering the creation of a domestic IT industry, Legend is positioning itself to become the country's equivalent of IBM or HP.
Meet the competition for Dell in China
In late 1993, AST Research Inc. set up China's first major joint-venture PC assembly plant in Tianjin. Since then, Compaq Computer Corp., IBM, Hewlett-Packard Co., NEC Corp., Siemens-Nixdorf Informationssyteme AG and others have established PC factories in China. Others are likely to follow suit. This article provides a brief look at the issues faced by vendors that are currently manufacturing PCs and PC components in China. PC sales in China in 1996 were 1.8 million units. The New Century Group forecasts sales will grow to more than 7 million units by the year 2000. We believe that vendors manufacturing in China are better positioned to address this anticipated demand. Joint-venture or foreign PC manufacturers in China don't necessarily pay tax on imported components. Therein lies the advantage. But there are significant hurdles on the road to success.
Navigating the pitfalls.
Broadly speaking, foreign manufacturers bring capital, technology and managerial skills to the venture. The Chinese side contributes land, factory space and knowledge of (and around) government rules and local market conditions. While some local partners bring access to market in terms of established distribution, many don't. China's domestic market has taken off so fast that most local manufacturers haven't yet established worthwhile distribution channels. While this appears to limit their usefulness, a local partner can still help guide foreign manufacturers over the more obvious pitfalls. Vendors need to take a close look at what they want from a domestic partner and what can realistically be achieved. The report from which this information was extracted looks at these issues in more detail.
A further hindrance to relying on local manufacturing to meet the growth in domestic demand for PCs is that joint-venture factories should, by law, export the bulk of production. This is an official government policy designed to foster both the development of a domestic computer industry as well as an export-driven economy. In theory, vendors receive tax rebates of 20 percent on exported goods, however these promises have not been fulfilled by the government for the last two years due to budgetary shortfalls. Rebates are again not likely in 1997.
Chaos of component sourcing
PCs made in China are often sent to Hong Kong to meet government stipulated export requirements, but then brought back into China as an imported product (both legally and through gray channels). Navigating the logistical flow of components and finished goods to the advantage of the manufacturer is a complex task that requires a detailed and up-to-date understanding of the options currently available.
Joint-venture PC factories purchase components both locally and from abroad. In general, they acquire monitors, power supplies and casings from sources in China. Motherboards, CPUs, hard disk drives, floppy drives and CD-ROMs are purchased from overseas suppliers.
As is the case with PCs, joint-venture component factories export almost all (over 90 percent) of their output to overseas markets. The nearest overseas market is Hong Kong. Thus approximately 65 percent of PC component vendors have set up factories close to Hong Kong in Guangdong province. The coastal provinces of Jiangsu and Fujian account for about 30 percent of the remaining total. The report looks at this issue in more detail.
PC manufacturers surveyed by the New Century Group state the need to import components from foreign sources because it is hard to find a competent PC parts provider in China. In order to save on the cost of transportation, joint-venture PC vendors set up factories in Guangdong province.
Component makers prefer to export production to earn foreign exchange. Local PC vendors favor imported components and usually purchase them in Hong Kong.
This situation has led to extreme cases. In one actual case, there is a PC joint-venture factory and a PC component joint-venture factory that are located in the same city, 10 kilometers apart which sell and source each other's products in Hong Kong. The PC manufacturer is buying components from the component manufacturer but components go to Hong Kong and come back again, rather than travel across town.
The days when foreign imports dominated the China PC market ended in 1996 with Legend Group emerging as the No. 1 vendor in the desktop product segment. The New Century Group estimates joint-venture PC production output accounted for 19 percent of overall sales in China during 1996. Based upon current capacity and forecasted future demand, in the year 2000 joint-venture made PCs will represent an estimated 22 percent of all PCs sold in China.
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