The Chinese Business Forum @ MIT Sloan

Source: Business Week Online
Time: 13 September 2006
Title: "Dell and Lenovo Rumble in Asia"
Author: Bruce Einhorn

"Lenovo is 'definitely more and more competing with Dell in the same segment for the same people,'"

"In the U.S. it is Dell that is on top and Lenovo that is the upstart. With 20% market share, Lenovo is No. 1 in the Asia-Pacific region."

"Lenovo's top position in Asia is due entirely to China. Take out China, and lenovo falls to No. 4, according to IDC, with just 6.2% of the market."

Original Text

HEADLINE: Dell and Lenovo Rumble in Asia;
Lenovo is weak outside China. Dell's making inroads there. Now the computer giants are locked in skirmishes over talent and market share

Ever since decamping from Round Rock, Tex., about a year ago to head up Dell's (DELL) Asia Pacific operations from Singapore, Steve Felice has had some major managerial headaches. Lenovo (LNVGF) has been poaching key executives from him left and right, most notably William Amelio, who co-managed Asia along with Felice until he defected to the Chinese rival last December to assume the chief executive's job.

Not surprisingly, Amelio then launched a full-blown talent raid of his own and managed to grab five more from Felice's team. The latest: Gerry Smith, a Dell vice-president in Singapore, who last month became Lenovo's vice-president of services for Asia. Others to defect include David Miller, who was president of Dell in China, and Sotaro Amano, a top Dell executive in Japan.

Lenovo is "definitely more and more competing with Dell in the same segment for the same people," says Joseph Ho, an analyst in Hong Kong with Daiwa Institute of Research.

NO. 3 IN ASIA.

The executive exodus has come as a surprise to Dell's Asia boss. "It's obviously something that we didn't expect," Felice says. But, he adds, "we are dealing with it. None of these people is irreplaceable." Felice says that he was able to promote replacements from within the company quickly thanks to what he calls "the depth and breadth of our bench." Taking a shot at his Chinese rival, he says that the raid on Dell shows that Lenovo didn't have the same sort of talent. "It's a little surprising that they would have to fill so many jobs," he says.

As Michael Dell's man in Lenovo's backyard, the 49-year-old Felice is in an unusual situation for a Dell exec []of being the underdog. In the U.S., it is Dell that is on top and Lenovo that is the upstart. Not so in Asia. With 20% market share, Lenovo is No. 1 in the Asia-Pacific region which excludes Japan but includes just about everything else from South Korea to New Zealand to India. []

That top-dog position is thanks to Lenovo's dominance of China, where the company has one-third of the market. Dell has 9.5% of the Asian market, behind Hewlett-Packard (HPQ) at 12%, according to statistics from International Data. A year ago, Lenovo was at 18.4%, HP was at 12%, and Dell was at 8.8%.

CLOSING THE GAP.

That's progress and some much-needed good news for Dell, which is feeling the heat from an embarrassing recall of its laptop batteries and a widening probe by the U.S. Securities and Exchange Commission into its finances and accounting practices see BusinessWeek.com, 9/12/06, "Dell Reports More Trouble".

Felice points out that the region now accounts for 14% of Dell's revenue, up from 12% a year ago, and that Dell's Asia revenues increased 17% in the second quarter of the year. For all of 2006, Dell is on track to book sales of $8 billion in Asia, up from less than $4 billion in 2003. And Dell is now No. 2 in the Japanese market, behind only local favorite Fujitsu.

"Whether it's Japan or China or ASEAN or India or Australia/New Zealand, we are closing the gap," says Felice. In yet another dig at his former colleagues who have left to join Amelio, Felice adds that Dell's success isn't tied to one country alone. "We are profitable in the region - unlike Lenovo, which is profitable only in China," he says.

"THE CHINA BASKET".

It's true that Lenovo's new hires from Dell have their work cut out for them. Lenovo's top position in Asia is due entirely to China. Take out China, and Lenovo falls to No. 4, according to IDC, with just 6.2% of the market. That's why Amelio and his team at Lenovo raided Dell for some of Felice's starting lineup of executives.

Lenovo has also opened a research center in Singapore and is moving more aggressively to expand in India. "They recognize that so many of their eggs are sitting in the China basket," says Bryan Ma, an analyst with IDC in Singapore. "A lot of these moves are part of a long-term investment to boost that position" in Asia outside of China, he adds.

Dell is counter-punching in China. Felice insists that Dell's direct-sales model works in China, although critics contend not enough Chinese shop over the Internet to make direct sales viable. Still, Dell has opened its second factory there, in the southeastern city of Xiamen, doubling its manufacturing capacity in the country, and Felice boasts that Dell has 5,000 workers in China.

OFF THE INDEX.

When Amelio was still at Dell, an e-mail from a Dell salesman in the U.S. that was critical of the Chinese government made its way onto the Internet. That caused a backlash against Dell there and the company's sales dove for a quarter. But they have since recovered and Felice argues that Dell is a good corporate citizen, sourcing over $16 billion worth of equipment with China-based suppliers. "We contribute more to the China economy than Lenovo does," he crows.

Lenovo may be feeling some pain. On Sept. 11, the company suffered a black eye when it got booted off the Hang Seng Index, the benchmark for blue chips in Hong Kong and China. Replacing Lenovo on the Hang Seng is a subsidiary of Taiwanese electronics giant Hon Hai Precision. The same day, Bloomberg, citing Lenovo Chairman Yang Yuanqing, reported that the company was prepared to lower prices in China in response to pressure from competitors such as Dell.

Beijing-based Lenovo spokeswoman Jean Cai, in an e-mail to BusinessWeek, would not confirm that the company will be lowering prices. However, she did say "pricing pressure is part of our daily life." She added, "There is industry talk of price wars and our competitors are tougher than ever." It looks like the Dell-Lenovo rumble in Asia is well underway.

URL: http://www.businessweek.com/globalbiz/content/sep2006/gb20060912_789732.htm

LOAD-DATE: September 13, 2006