Dell China Ltd. releases its 14.1-inch widescreen notebook computers on the global market.	Lenovo chooses the innovation weapon for its duel with Dell.

Competition in the Chinese mainland between the world’s number one PC maker, Dell, and China’s leading computer manufacturer Lenovo has never been fiercer. Aggressive advertising campaigns are intensified by bouts of verbal jousting, and some top-level employees have even jumped ship. Dell entered the Chinese market in 1998, and in eight years, it has managed to grab a 10 percent share of the local market. Competition between the two heavyweights in the Chinese arena is best summed up as a wrestling match involving their operational modes and commercial cultures. What are the effects on the ground?

Operational Modes

Lenovo was founded in 1984 with start-up capital of a mere RMB 200,000. Since then, it has become a large company employing more than 10,000 people. Lenovo’s PC sales have ranked first in the domestic market for nine successive years since 1996, and today it enjoys a 37 percent share of the Chinese market.

More than 70 percent of recent market growth has come from Chinese governmental departments, including finance, education and communications, and they prefer to choose domestic brands like Lenovo when procuring their hardware. If Lenovo outdoes Dell in terms of product quality, service and price, it will easily win orders from governmental departments, schools and universities, while if the PC maker plays its “home-grown card” among the masses, it will win popularity with Chinese consumers. Dell enjoys little or no advantages from this aspect.

In February 1988, Dell built its factory and consumer center in Xiamen, Fujian Province. Customers can purchase products directly from this center, and thus avoid the additional costs imposed by agents. They usually receive their products within two to four days after placing the order, in parts that they must assemble themselves.

But market surveys indicate that Dell’s direct sales method does not do as well in China as it does elsewhere, as most Chinese consumers do not accept the DIY mode. Furthermore, most don’t agree with the company’s phone consultation and self-repair policies – they think it’s unfair that they have to fork out for the service Dell provides, even before they know what is wrong with the computer.

Compared with Lenovo, Dell’s greatest advantage is its low inventory level, but China’s as yet incomplete logistics industry hinders direct selling. Lenovo meanwhile has opened 3,000 sales outlets in the Chinese mainland. It has established an efficient and reliable logistics system, and boasts of its ability to offer nationwide after-sales services.

Dell needs to improve its after-sales service if its direct selling strategy is to succeed. This is by no means an easy task: Dell normally contracts off-line repair service to other professional companies, but there are very few such companies in the Chinese mainland. Meanwhile, the high costs of after-sales service discourage Dell from making concerted efforts to offer the service themselves.

Dell’s online direct sales might suit individual customers, who benefit from lower cost hardware, but it’s another story altogether for departmental clients that buy in bulk. Dell only provides services in China’s provincial capitals and municipalities, which, from the point of view of potential clients in smaller cities, not to mention far-flung areas of the country, is far from adequate.

Lenovo CEO William Amelio, himself a former employee of Dell, says Lenovo’s business mode is superior to that of Dell, and is better suited to local market conditions. But he doesn’t rule out direct selling at some point in the future. Says Amelio, “Our utmost aim is to satisfy the needs of our customers. If they need direct selling, we will provide it accordingly.”

One way that Dell hopes to catch up with Lenovo is by looking towards China’s vast rural market. It currently provides educational aid to migrant workers’ children, as well as computer training courses.

Commercial Cultures

The two companies compete in the Chinese mainland not only for customers, but also for the country’s top technological talents. As a foreign company, Dell holds a certain advantage here among many young Chinese job seekers, but once they start work, they discover that the company is not so rosy. Its employees, who have to submit a task report every four hours, often dub it “The Furnace.”

P.P. Fu was president of Dell (China) Co., Ltd from 2001 to 2005. In the four years that Fu presided over the company, its sales volume tripled and its market share surged in China, making the country Dell’s most important market outside the United States. But according to a high-ranking Dell official, the company was not satisfied with Fu’s achievements. Dell’s head office began to put pressure on Fu to achieve even more, which might be the main cause of his resignation.

In December 2005, Lenovo unveiled former vice-president of Dell and president of its Asia-Pacific/Japan business William Amelio as the Chinese computer giant’s new CEO. Though during his tenure the sales volume in this region more than doubled, Amelio began to experience the same pressures from Dell’s head office. Thus, he watched Lenovo’s improving situation with great interest, and decided to join that company in December last year.

For years, Lenovo’s corporate culture has been regarded as a “family culture.” Wang Yukun, a former researcher with the State Council Development Research Center, an advisor for the World Bank and a professional manager, said of Lenovo’s young chairman Yang Yuanqing, “Yang never proved his capabilities through achievements, rather it was failures that defined him as a born businessman. It was his deep sense of loyalty to Lenovo that ensured he was promoted to the company’s top post. In most Chinese companies, achievements have never been regarded as the most important factor to maintain one’s power and position.”

In recruiting new talents, Lenovo differs from foreign-funded enterprises in that it stresses the employees’ sense of belonging and responsibility. Most foreign-funded enterprises emphasize the importance of business competence alone, but Lenovo requires more than that. It hopes its staff, through hard work and a positive attitude, feel that they have become their own masters. As a high-ranking official with Lenovo’s human resources department says, “If an employee feels he or she is a screw in a foreign-funded enterprise, then Lenovo wants its employees to feel like its engine.”

The PC Market in the Chinese Mainland

Almost 20 million personal computers, including desktops, laptops and PC servers, were sold on the Chinese market in 2005, up 18.8 percent over the previous year. In all, sales were worth some RMB 121.09 billion, a year-on-year increase of 8.7 percent.

Growth in sales of desktops was larger than expected, while the laptop market maintained its blistering growth and the PC servers market was stable.

Small to medium-sized enterprises were the driving force behind the growth in desktop sales, while the educational sector propped up sales to departmental clients. Meanwhile, following the maturity of informatization in the government and large enterprises, growth in these fields slowed slightly.

Businesses remain the biggest buyers of laptops, but individual consumers purchased record numbers of laptops in the Chinese market last year. Statistics show that the regional market structure remains concentrated in the country’s eastern, northern and southern areas, and markets in the northeastern and western regions are quickly catching up.