Why Did Dell Decide To Invest 125 Billion USD In China Amid Widespread Lay-Offs?

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(Chinese Version)

Quite a few IT giants cutting their staff recently, including Microsoft, Sony, H&P and Lenovo, in hope of surviving the recent economic downturn.

For sure, the golden days of PCs have already passed and IT companies all over the world are cutting their budget. However, Dell is the exception. Dell announced recently that it would instead increase its investment in China. In 2013, Dell was privatized. At that time, the global financial crisis was still deepening, but Michael Dell, the founder, president and CEO of Dell, teamed up with Silver Lake and acquired Dell.

After its privatization, Dell was left with two choices: whether to follow Apple or IBM.

On September 10th, while Apple unveiled a series of upgraded products, Dell also released the new XPS13, a cutting-edge ultrabook with a near-bezel-less display with QHD resolution. The new model boasts an incredible 5.7 million pixels, even higher than Apple’s Macbook. In the coming month, more XPS models are expected to be available in the Chinese market. One can easily tell that Dell is targeting Apple.

Just recently, Dell also announced that it would cooperate with Kingsoft and co-develop “Dell & Kingsoft Cloud” service to meet the increasing need of Chinese customers over cloud computing, big data. Dell isn’t satisfied with being a mere PC manufacturer. It aims to also become a service provider. However, Dell is not the first one to dream such way. Previously, IBM, Oracle, HP have all attempted to expand their businesses, yet it seemed this is never an easy choice.

“Traditional Internet companies tend to sell a single product. However, with the rapid development of data storage cloud computing technologies, they are forced to expand their businesses and sell not merely personal computers, servers, but also data storage devices, network switches, software, etc.,” Michael spoke frankly.

Optimistic about the potential of the Chinese market, Michael Dell announced in a recent statement that Dell will be investing $125 billion in China over the next five years, as part of a new strategy to expand in the world's second-largest economy.

The four stages of Dell’s entry in China

Dell currently has over 100,000 employees around the world. Dell’s customers include over 95% of Fortune 500 companies and over 10 million enterprises. Two decades have already passed since Dell entered China back in 1995. When we look back, the entry of Dell can be summarized into four stages:

Stage One (from 1995 to 2000): In this period, Dell sold PCs directly to consumers. At that time, Dell was the number one PC manufacturer for business owners, government agencies, educational institutions and ordinary consumers. Dell achieved so by manufacturing PCs based on consumers’ specific needs and selling PCs directly to consumers. No distributors were involved in the process.

Stage Two (from 2000 to 2007): Stage Two (from 2000 to 2007): Dell established the Xiamen Factory so that it could purchase parts, manufacture products and supply new products to world markets in China. Xiamen Factory can produce one computer a second and 80,000 computers a day, accounting for 65% of Dell’s total productivity around the world. Up till now, Dell has already established three factories in China.

Stage Three (from 2007 to 2014): During these seven years, Dell focused mainly on the following two goals:

  • Expanding market share. Dell gave up merely selling PCs directly to consumers, and opened two official stores, teamed up with several distributors in China. Up till now, there are already 11,700 Dell’s retail outlets in 2,200 cities across China.
  • Diversifying its businesses. Dell has already become the number one server provider in China, and is looking for business opportunities in data storage and network switching sector.

Stage Four (from 2014 to present): Since 2014, Dell has been steadily increasing its investment in China. Michael Dell summarized his three goals as follows: providing more job opportunities, promoting mass innovation, and keeping up with the Internet+ trend in China. Michael Dell is quite insightful by listing “promoting mass innovation” as one of its goals. Dell caters to the policies of the Chinese government and introduced “Dell Venture Capital” to China. Michael added in the statement that the investment would contribute $175 billion to imports and exports and help sustain one million jobs in China. As part of the investment, Dell announced that it would create an artificial intelligence lab, in partnership with the Chinese Academy of Sciences, and work with several institutes to develop advanced technology relating to cognitive systems and deep learning.

What will $125 billion be used for?

If Dell were to invest $125 billion in the next five years, Dell would break its record in the history of its investment in China. So why did Dell put so much money in China? Michael Dell explained that:

“China is one of the few countries where Internet is playing an increasingly important role. Chinese Internet industry is making steady progress in such sectors as IoT, cloud computing, energy, health, education, etc. The Internet is the new engine for China's future economic growth and has unlimited potential. Chinese Internet industry will not only contribute to the sustainable development of Chinese economy, but also help upgrade the traditional economic structure, on which point Dell can play a key role.”

According to the statement, Dell’s investment will mainly be used to improve its supply chain, expand marketing channels and boost innovation.

To improve the supply chain, Dell will set up relevant facilities in places such as Shanghai Lingang industry area so as to deliver designated products to consumers more quickly.

To expand the marketing channel, Dell will not only open more retail outlets in China but also make full use of online channels. Dell open 2,100 new retail outlets in mainland China last year, and 1,400 new retail outlets during the first half of 2015. Up till now, there are already over 11,700 Dell’s retail outlets in total, among which 86% are located in fourth, fifth and sixth-tier cities. The online sales volume of Dell registered $15 billion last year, which signified the importance of online channels. Statistics suggest that China is the fastest-growing market of mobile shopping. So we can say for sure that more and more consumers will buy products via smart phones and pads in China.

To boost innovation, Dell will it be expanding its research and development team in the country, with a view to producing products tailored to the Chinese market. Dell will release these products first in China and then to other markets around the world. XPS13 is a typical example.

Moreover, Dell echoed Chinese premier Li Keqiang’s call for mass innovation and Internet+ and introduced Dell Venture Capital to China, in the hope of encouraging innovation and supporting startups in sectors such as cloud storage, cloud computing, big data, next-generation data storage, Internet security and mobile Internet, etc.

[The article is published and edited with authorization from the author @Sun Pin, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.