As the nation’s personal computer market shrinks, competition is intensifying, and the Japanese unit of U.S.-based Dell Computer Corp. is becoming a rising force with its low-cost business model.
The world’s largest computer maker, Dell entered Japan in 1993. Last year, it increased domestic PC shipments by 39.5 percent from the previous year and is trying to wrest an even bigger market share.
However, industrial experts say it is getting difficult for Dell to keep growing at such a dramatic rate because domestic demand by corporations — its prime target — is still weak despite early signs of economic recovery in Japan.
“(Dell’s) growth rate remained at a one-digit level in the January-March quarter,” said Kumi Shingyouchi, a senior market analyst at IDC Japan, an information technology research and consulting services firm. “Dell is standing at a crucial point this year.”
The computer maker has an aggressive plan for the Japanese market. With a 6.1 percent share of the roughly 13 million-unit market, it is ranked in sixth place among PC makers in Japan, up from eighth in 2000, according to IDC Japan.
This year, when the domestic PC market is anticipated to dwindle by 5 percent to 6 percent from its size in 2001, Dell seeks to climb to fourth place by leaving Toshiba Corp. and IBM Japan Ltd. behind.
What’s more, Dell Computer K.K. President Hiroshi Hamada has said the firm aims to become the No. 3 maker in three years, catching up with current No. 3, Sony Corp. Dell would then trail only distant top runners NEC Corp. and Fujitsu Ltd., each of which has a more than 20 percent market share.
Industrial analysts say the bold goal might be achieved if Dell successfully overcomes its current hurdles, including a low penetration rate in the home PC market and the weakening of its pricing edge.
Dell, which was founded in Texas in 1984 by Michael Dell, the current chairman and chief executive officer, became the leader in the global computer business last year not by innovating technologies and products but by building efficient production and distribution systems.
Under its direct-sales system, customers select configurations, including device drivers and the amount of memory, and order products through the Internet or telephone. The company deploys most of its salespeople for corporate customers.
With its built-to-order business model, Dell procures parts and assembles computers after receiving orders from customers and delivers products directly to them. Unlike most computer manufacturers, Dell’s sales processes do not involve wholesalers and retailers.
Such nontraditional methods let Dell reduce inventories of parts and products and consequently keep its prices low.
When it started full-fledged business in Japan in 1993, a favorable wind began blowing for Dell to utilize its price edge and penetrate the corporate computer market, industrial experts said.
Although many Japanese companies used to purchase computers from “keiretsu” firms with which they have long-term business relations and cross-shareholding ties, regardless of prices, that attitude began to change amid the nation’s protracted economic slump, said Yoshihide Ohtake, a senior analyst at Shinko Securities Corp.
“Dell established a business model that brings profits but can offer low prices for value, rather than spending a lot of money on research and development,” he said. “Japanese high-tech makers did little to streamline their operations as their sales were rising in the (1990s) PC boom.”
Dell’s share of the business PC market reached 10.1 percent in 2001, up from 7.9 percent in 2000 and 2.3 percent in 1996, closing in on IBM, which is running in third place after Fujitsu and NEC, according to IDC Japan. About 80 percent to 90 percent of Dell’s sales in Japan come from corporate customers.
With demand for PCs by both consumer and corporate customers weakening since the global IT slump last year, the cutthroat competition has grown even more severe. Computer makers are changing their strategies to cope.
For instance, IBM withdrew its Aptiva desktop models for home use last year and started putting more focus on corporate customers. The Japanese unit of U.S.-based computer maker Gateway Inc., which sold PCs mainly to consumers here through a direct sales system, withdrew from Japan last year, due to the streamlining of the Asia-Pacific business.
Japanese rivals are also grappling with the severe business environment by streamlining operations, transferring production bases to China and taking other measures.
For instance, NEC plans to reduce its number of PC models worldwide as part of efforts to cut R&D costs. It will also introduce in August a more effective computer system to develop, manufacture and market products, a company spokesman said.
The Japanese high-tech giant, which had a roughly 40 percent market share in the mid-1990s, logged losses in its PC business in fiscal 2001.
In addition, NEC is reinforcing high-margin computer services that help corporations build effective computer systems and networks with its most advanced technologies.
“We don’t see Dell as a threat,” the NEC official said, referring to its relatively small market share. “But we have much to learn from Dell, such as (business systems that secure) high profitability and competitiveness in costs.”
As rivals become more efficient, Dell is expected to see its price advantage weaken and thus face difficulties sustaining high growth, industry observers said.
Katsuyuki Okawara, a freelance journalist specializing in the IT sector, pointed out that Dell is behind in the server computer business and computer services, although it started reinforcing such areas last year.
It should strengthen its home PC lineup and establish product brands to match such power brands as Sony’s Vaio and IBM’s ThinkPad, Okawara said. Industry estimates show that Dell’s share of the consumer PC market was less than 2 percent last year.
But now it is trying to capture more individual customers, said Yoji Harada, a strategic planning group manager at the Japanese unit’s home systems division.
Dell is increasing its lineup of products developed for Japanese consumers by marketing two more models this year. It has been displaying its products at about 25 retail store chains in major cities since 2000 to increase public recognition.
“To continue to grow further and maintain profitability, we must increase consumer sales,” Harada said. “We’ve got to become one of the top five home PC makers to achieve our goal of becoming Japan’s No. 3 computer maker.”
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