Straight Shooting-All about Dell and Gateway in Asia
Courtesy:Far Eastern Economic Review.
WBC:
Found this article (Oct.15,98 Edition) in Far Eastern Economic Review thought it could be of some interest to you and the thread,I find it very encouraging and informative.
Ok that is it,I have done my part for today now it up to the 'Market gods',hope Providence is in a 'giving' mood next week rather than the opposite.<g>
Seeya
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U.S. computer giants use direct sales to tap into Asia
By Charles Bickers in Hong Kong
October 15, 1998
W ith competition already fierce and recent sales poor, beleaguered Asian computer manufacturers now have to deal with a new challenge: direct sales from American powerhouses.
Over the last two years, the leading direct sellers of computers in the United States, Dell and Gateway, have bulked up their operations in Asia. Both have maintained profits in the U.S. while other manufacturers have floundered--Dell, along with Digital/Compaq, leads the U.S. market, while Gateway is ranked fourth. Now, the two companies aim to duplicate that success in Asia.
Asia's economic slowdown appears to have favoured the direct-sales approach, which employs methods such as Internet or telephone sales. A lot of companies have restricted budgets for information-technology purchases right now, "so the lower prices of direct sales have been very attractive in Asia," says Kitty Fok, Hong Kong-based head analyst for computer market-research firm International Data Corp.
In Asia during the past 18 months, computer makers that use middleman retailers have suffered from slow sales, creating excess inventory. In the fast-paced PC market, computers quickly become outdated, and retailers have had difficulty unloading PCs that use technology that is no longer leading-edge.
Direct sellers like Dell and Gateway specialize in building computers to order; as such, they keep component-supply lead-times short to avoid inventory build-up. Robert Chu, Gateway's vice-president for South Asia, says this zero-inventory strategy is key. "If you have inventory sitting around while prices are falling around 1% per week--which is the computer-industry standard--then you're not going to see good returns," he explains.
Gaining market share in Asia now could be a timely move. IDC forecasts that PC sales will rebound in 1999, with a 13.9% rise in global sales compared to 11% in 1998. Asia will account for a large portion of that growth: A 16.9% year-on-year rise in the region, compared with a drop in sales of 1.6% in 1998, is predicted. China and India are expected to be the strongest growth markets.
Dell and Gateway proved naysayers wrong when they initially brought their business models to Asia. Gateway is a relative newcomer in Southeast Asia, though both companies began operations in Japan earlier. Gateway opened its regional headquarters in Kuala Lumpur last year; now, it employs 500 people at its assembly facility in Malacca. At first, Gateway sold only to Singapore and Malaysia; it expanded to Hong Kong in June 1998. About 7% of the company's $6.3 billion global revenues is generated from Asia.
Sceptics warned that traditional sales channels in countries like Japan and China simply couldn't be circumvented. "We hear the same thing every time we go into a new market," says Niall O'Reilly, Gateway's regional marketing director, "and yes, you have to go up against previous buying behaviour, but Asia is akin to the U.S.--people like direct channels."
And it shows: In Asia, Dell's sales have jumped 34% year-on-year in the second quarter of 1998; during the same period, overall PC sales in the region were down 9%. Now, the company has turned its sights to China. IDC estimates that sales of PCs in China will more than triple from 1999 to 2002, from 3 million to 10 million units.
Dell's China operations began in 1995, but it didn't launch direct sales until August. It takes telephone orders in nine cities, while sales and assembly facilities are located in the southeastern province of Fujian.
Will direct sales succeed in China? Order fulfilment and supply may prove sticky. "Transportation may be a challenge for Dell" since infrastructure in Fujian isn't very efficient, says IDC's Fok. "Also, component supply is critical." In Penang, Fok notes, Intel and Seagate, a leading supplier of hard-disk drives, are nearby. In China, the suppliers aren't close, which could stretch production times, she adds.
Fok believes that Dell's first goal will be to build a customer base through advertising and marketing. Compared to local manufacturers, the U.S. company won't have a price advantage. However, it will be able to offer the most up-to-date technology quickly.
The company's Internet sales site in China may take a while to develop. Internet sales usually require purchase with credit cards, which aren't common in China. Also, most cards have low credit limits, making it unlikely the holder could charge a computer anyway.
Gateway hasn't entered the China market yet, but believes direct sales will eventually become popular. At the moment, Chu says the company isn't able to replicate its national or international supply models in China and will wait. But they're keeping an eye on what happens, he says. "We're keen to learn from Dell's experience."
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