China’s PC Market to Surpass Japan

China is well on its way to becoming the world’s second-largest PC market
after a leading Japanese trade association slashed its forecast for domestic
PC sales this year. And companies from Dell Computer to IBM stand to make considerable
inroads in the Chinese market.

But despite the potential gains of foreign competitors, there is no immediate threat to dominant market positions shared by local companies like Legend Group and Founder, analysts said. In fact, the strength of that market is helping Chinese companies establish a higher global profile.

“Legend is starting to show up in the worldwide standings because of their strength in China,” said Roger Kay, who heads up the Client Computing practice at IDC.

At its current pace, Legend is set to finish the third quarter of 2002 in 7th place ahead of Acer, Gateway and Apple Computer, according to IDC’s figures to date.

The top American companies “are totally out classed by the local rivals,” Kay explained.

China is estimated to consume 13 million units in 2002, compared with slightly more than 10 million units in Japan, according to the latest figures released by the Japan Electronics and Information Technology Industries Association (JEITA).

“China’s PC market is certain to top that of Japan this year,” JEITA
spokesman Masatsugu Shinozaki was quoted as saying in several news reports.

The news comes as major PC vendors around the world increasingly build
their presence in China in hopes to offset the economic weakness elsewhere,
particularly in the U.S. and Europe. In fact, Dell Computer now has a factory online in Xiamen which the Austin,
Texas-based company considers its Chinese headquarters. In the most recent
fiscal second quarter, Dell said China unit volume grew 35 percent compared
with only 10 percent growth in Japan. And China now accounts for 45 percent
of all of Dell’s sales in the Asia-Pacific region. Overall, Asia Pacific
(including Japan) is 9 percent of total $8.5 billion in sales.

However, while Dell is making inroads into China, it still does not pose
a serious threat to market-leader Legend, according to
a new report from Deutsche Bank analyst Victor Wong. Dell has a much
stronger global brand than Legend; however, the direct-sales business model
used by Dell and Gateway faces difficulties in a country
where people still mostly pay by checks instead of credit cards, Wong wrote.

“It should take a long time before Dell’s direct selling model can work
well in China,” he wrote.

And while the American multinational corporations are working hard to cultivate the Chinese market, Kay still agreed with that assessment.

“I wouldn’t say it isn’t working. It doesn’t work as well in other places [outside the U.S.] But even in other markets like Europe, the direct approach doesn’t work that well,” Kay said.

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