RealTime IT News

Dell Finds A Gome In China

Dell, the Godfather of the direct-sales model, on Monday announced things will be done a bit more indirectly in China after inking a partnership agreement with Gome, China's largest retail electronics chain.

Company officials said about 50 of Gome's 500-plus retail stores will begin stocking its notebook and desktop PCs by October, a key cog in the Round Rock, Texas-based company's new strategy to expand its brand—and its sales—into emerging international markets.

According to industry figures gathered by Gartner, more than 34.4 million PCs will be sold in China this year, up from 28.5 million units in 2006. But that's just the tip of the iceberg. Gartner predicts more than 64.3 million units will be sold to Chinese consumers in 2011, an 87 percent improvement from this year and well ahead of the estimated 50 percent increase predicted for the entire PC industry over this same four-year period.

"Dell said it was looking to expand into China and this is certainly one part of achieving that goal," Gartner analyst Charles Smulders said in an interview with InternetNews.com. "It's a market they can't afford to ignore if they want to be a worldwide player."

With a population of more than 1.3 billion people, China represents perhaps the most attractive emerging market for Dell and other PC makers looking to grow sales and extend their brand to markets that haven't reached the level of saturation found in the U.S., Japan and Europe.

"It's true that a lot of people in China live in very large cities," said Gartner analyst George Shiffler. "But most of the people there live on farms and most of them are pretty poor."

Shiffler said right now there are about 92 PCs for every 1,000 people in China compared to 800 PCs for every 1,000 U.S. citizens.

"In major Chinese cities, there's a market about the size of the total U.S. market," he said. "That's nothing to sneeze at."

China is just the latest stop on Dell's international tour. Last week, it announced it would open its first retail store in Moscow. Dell has also forged similar retail partnerships with Bic Camera in Japan, Carphone Warehouse in the U.K. and, closer to home, retail giant Wal-Mart.

"Chinese consumers are increasingly sophisticated in how they buy and use technology," Michael Tatelman, vice president of marketing and sale for Dell's global consumer business, said in a release announcing the pact. "For Dell, this is a great opportunity to extend connections with Chinese customers we may not have reached in the past."

Gome, founded in 1987, operates more than 587 retail outlets—including 13 digital stores—in 160 cities throughout China. According to the company's official Web site, it was selected in 2004 as one of the "Key and Strategically Important Enterprises" in China by its Ministry of Commerce.

Embracing this retail model—and its lower profit margins—rather than selling directly from its Web site was the only way Dell was going to tap into the booming Chinese market, Smulders said.

"It's a cultural thing," he said. "In China and other countries like those in mainland Europe, people like to meet the person they buy from. There are also simple infrastructure issues. A lot of people don't have credit cards and physically getting the PC from the manufacturing plant to these consumers' homes can be very challenging."

On Thursday, Gartner predicted worldwide PC shipments would grown 12.3 percent this year and 11 percent in 2008 to roughly 290 million units. Gartner expects sales into mature markets, which include U.S., Canada, Europe and Japan, will only increase about seven percent a year through 2008 while sales into emerging markets will surge more than 18 percent a year through 2008.

Dell shares closed up 11 cents to $27.87 following the announcement.