Express Channel Business - The DELL Challenge[1]

8/7/2019 Express Channel Business - The DELL Challenge[1]

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The DELL ChallengeWhile vendors deny it, channels admit a gr owing competition from Dell. Losing deals to the direct-seller is only par t of t he problem, the

bigger challenge in fact, is the increase in direct selling by their own PC vendors, under pressure from Dell

Dell India's operations seem to be gather ing momentum. Last month the company announced

an investment of US$30 million in setting up a manufacturing unit with an initial capacity of 4-

lakh systems expected to be operational by March 2007. Local manufacturing is expected to

provide a leg-up to Dell's direct model as it will improve logist ics and bring down prices.

Since the beginning of this year, Dell India has doubled its sales force and has c reated a field-

sales infrastructure in 10 c ities. By beginning of the next year, it plans to double its direct -

sales presence to 20 cities and also increase its sales resource.

Currently, the company boasts of service and technical support infrast ructure in 300 cities

with 'Next Business Day ' warranty promise.

The direct-seller has been running an aggressive media campaign proclaiming to have the highest share (45 percent) in large enterprises

with more than 1,000 employees. As per IDC India's AMJ figures, Dell grew by an astounding 80 percent in unit terms and 63 percent in

value in a market that only gr ew by 5 percent in units year on year. This has upped its market share from five to seven percent, making

it the fourth largest branded player.

Dell is increasing the focus on government, education and SMB segments, and also planning to look more seriously at servers, storage an

serv ices in the coming months.

Despite its limited focus on large enterprise customers, Dell India has shown impressive growth. Las t year it clocked Rs 1,800 crore in

annual revenues.

The Dell effec t

Channels are feeling the heat as Dell boosts its India presence. "We recently lost a 200-system deal to Dell and we later got to know that

the prices it offered were 6 percent lower than our best price," Says Mahesh Shah, CEO of Kolkata-based Rs 15 crore solution provider,

Pecon Infotech.

Shah admits that even with strong support from his vendor, he couldn't match Dell's pricing. "Our vendor can support us but only to anextent. Beyond a point they find it difficult to match Dell's aggressive dollar pricing," he says.

Another channel partner who recently lost a deal to Dell is Mumbai-based solution provider, Mascom Electronics. "We've lost a couple of

accounts to Dell in the recent past," says CEO HM Karwa.

"Dell has been increasing its market share throughout. The effect has not been noticed because even the market has expanded.

However, it will not be long before the impact would be visible," says D Chandra Sekar, Director of Delhi-based Rs 125-crore system

integrator, PC Solutions.

While such cases are still few and far between, channel partners agree there has been an increase in awareness about Dell.

"Till six months ago, customers compared HP prices with that of HCL and Acer, but nowadays nearly all customers want to know about

Dell," says Sujit Gugale, CEO of Ahmedabad-based solution provider, Sumisha Computers. While Gugale hasn't lost any deals yet, he feelscustomers are using Dell to negotiate better rates. "We've been lucky as we have a longstanding relationship with HP. They have given

us better pr icing on all such occasions so far, and hopefully will continue to do so. But the mindshare that Dell is winning is surely a cause

of grave concern," he says.

Agrees Suresh HR, CEO, Central Data Systems: "There's no doubt that Dell is making inroads." He expects the manufacturing facility will

help Dell improve their pricing and logistics, and could put more strain on partners. In fact, he expects Dell to become a big threat in the

Intel server space going forward. CEO of Delhi-based Microclinic, Tarun Seth points out, "Dell India promises and delivers its products in

72 hours, while HP takes about two weeks. Besides, Dell can go t o any crazy pricing to bag an account."

Chennai-based Rs 15-crore Mukesh Infoserve has had several encounters with Dell in the past six months. While it's won most deals, it

admits losing some. "Dell's direct model certainly has the advantage of lower pr icing. Dell is a threat and would continue to be so because

there are customers who do not value relationships and for whom prices matter the most," says Senthil Kumar, Director, Mukesh

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Infoserve.

Analysts at IDC India acknowledge that there has been a noticeable change in Dell's position. Piyush Pushkal, Senior Analyst, PC Research

at I DC I ndia, says, "There has been a change from a flat t rajectory for Dell; there has been growth for the vendor. Although corporates

don't look at only pricing, if they get the same technology as HP at a competitive pr ice they will shift t o Dell."

Pushkal says that Dell is also seeing substantial sequential growth in the notebooks segment and believes that the expansion in their sale

and support infrastructure could act as an enabler for more growth.

Indirect impact

While the direct impact is easy to gauge, the indirect impact of Dell's increase in mind and market share is also becoming a cause of

concern for channels. "There has been a significant increase in the direct business of HP. In my estimate the company routes nearly 55

percent of its commercial PC business direct ly to customers," believes Mascom's Karwa.

Agrees HR Suresh, "I t (HP bypassing partners to go direct) is increasingly happening. It may not compete in some accounts but there are

accounts where HP goes all by itself. This has had a negative impact on partners."

Gurpreet Singh, CEO of Delhi-based Rs 6 crore Arrow Technologies has witnessed even vendors like Zenith take the direct route. " It is

not only the large bids where PC vendors are going direct, but even in small deals of 75-150 machines that they are increasingly going

direct. Not just HP but Zenith is also bidding direct for small accounts, which earlier were serviced by channels," says Singh. He fears

that the direct component may increase in retail also, as Dell gains market share.

Dell, who?

But even as channels are feeling the pressure, the PC-vendors are surprisingly unperturbed. They don't consider Dell as an impending

threat and believe the direct-seller doesn't stand much chance in a market like India.

"We don't need to counter Dell. In fact, it has to be the other way round as we're the market leader. There are bound to be players in

the market with specific advantages. Being a leader, we wouldn't look over our shoulder, but at ways to increase our s trategic lead,"

says Ravi Swaminathan, President, Personal Systems Group, HP India.

Commenting on Dell's growing market share, Swaminathan adds: "Market shares need to be looked at in the right perspective. Dell's

market share has been consistent at 7-8 percent over the 12 months. The share may raise in a quarter if the vendor bags 3-4 large

deals. If you follow HP closely, you would see a secular growth. Our business has doubled over the last three years."

Vendors don't think Dell has any price advantage either. "The ads are basically meant to lure customers. Add all the hidden costs and itamounts to the same price. Our market is so competitive that there can't be a major difference in pricing among brands," says Rajendra

Kumar, Execut ive VP, and HCL Infosystems.

Adds Swaminathan, "If one considers aspects like absolute price points', financing options and TCO (Total Cost of Ownership), HP is

better priced than Dell".

HCL's Kumar also rubbishes the logic that Dell's BTO makes it more preferable among large enterprises. "In fact, we have a better BTO

and CTO model, with a turnaround time as low as 1-2 days," he claims.

But what about partners losing deals to Dell? "Losing an account and losing a transaction are two different things. Dell may throw a really

ugly pr ice and get a t ransaction but for us holding on to an account is much more important than gett ing a transact ion. Dell is successf

in very large enterprises, which is not even 10 percent of the total enterprise market," says Nitin Chaudhary, Country Manager,

Commercial Desktops, HP India.

Chaudhary also refutes the claim that his company has been increasingly selling direct. "To sell either direct or indirect is left to our

customers. But I don't agree with the figure of 55 percent. There are just 5 percent deals where HP goes 100 percent direct . In other

deals, we have a partner either during sales or services," he says.

SMB and Consumers

Dell's new focus is the high-growth SMB, and notebooks in the consumer space. The company recently claimed that 15 percent of its

revenues comes from these segments, and growing at 40 percent. However, channels believe that Dell will have a tough climb here, as

this market is more demanding than the large enterprise segment. They believe that personalised service will enable them to counter an

challenge that the direct-seller poses.




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Nikesh Sakaria, CEO, CDP I ndia says Dell has always been a threat, but one doesn't need to worry much. "We're not getting unduly

hassled by Dell because we have our own advantages. We offer personalised service. Dell too offers onsite service, but there's a

difference. For instance, in case of hard drives, they come and replace it without bothering about data loss. We factor in all these

things too," he explains.

On the consumer front, Hitesh Patni from Yug Nirman Services admits that the number of enquiries for Dell notebooks have gone up a

bit. "Some people are using Dell laptops and the enquiries come mostly through word-of-mouth. However, Dell cannot get into the home

segment in India by riding on its direct model," he says.

Says HCL's Rajendra Kumar, "We have HCL stores where customers can send their enquiries through our web site. But due to the

complex tax structure in the country, it is difficult to implement a direct model."

Vendors also believe that the Indian consumer is not yet ready for online buying. "Our research has found that an average Indian

customer wants to see the product before buying it. A channel partner is able to demo the product and make the customer understand

what a PC can do for him," say s Krishna Kumar, Country Manager, Consumer Desktops, HP India.

In the home and SMB segments, it's still early days for Dell. It would take a couple of years before a sizeable number of customers start

ordering direct.

Future direc tion

Dell has certainly come a long way, and given its ambitious plans it would continue to be a major threat for vendors and partners, alike.

It s certain that channels can no longer remain complacent.

S Rajendran, GM, Sales and Marketing, Consumer Product Group, Acer, says Dell's ambitious plans can only bode well for the entire

ecosystem. "It would lead to more efficient logistics and increase of skill-sets among channel players as they turn towards adding more

value. This would lead to better engagement with the customer, and increased profitability for partners," he says.

Channels are also growing wiser. "The fall-out of Dell success would be very hard on the partners who are only focused on selling boxes.

We have already shifted our focus from box selling to become solution. Maybe 20 percent of our business would be affected because of

Dell's aggressive pr icing and vendors going direct but for those who are concentrating solely on systems would be impacted heavily,"

believes D Chandra Sekar from P C Solutions.

Adds HR Suresh from Central Data Services: "With the PC becoming commoditised, we would see it selling like TV, sans any value-add. Thi

is bound to happen in the next two years, and it would then become more difficult to compete with Dell. We've already star ted planning

for such a future. Central Data System is veering away from PCs to serv ices."

Know Your Competition

To counter competition, it's important to first know what the opponent is

doing right and then figure out the gaps in its s trategy. Here are certain less

known facts about Dell, which could enable channels to evolve a strategy to

counteract its increasing presence

Dell's indirect secret

There is a common misconception that Dell sells only

direct. Recent reports suggest that nearly 20 percent

of the company's business comes from VARs. Dell ofcourse does not admit it. VARs polled in a recent

eweek.com artic le said that t hey were selling Dell

because their customers seek savings on hardware.

They admitted receiving back-end rebates from the company.

In India too, Dell has partnered with Wipro, PCS and Allied Digital to target

several large PSU contr acts . "Many public sector companies demand a 5-year

track record of serv icing PSU accounts. In such deals, the company works

through its system integrat ion partners. Dell plays the role of an enabler,

while the entire deal from bidding to installation to support is provided by

partners ," says a Dell partner seeking anonymity.




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Post-sales support

Another wrong perception is t hat Dell lacks in support and service. The

company claims to have Next Business Day replacement warranty in 300

cities. This it provides through its serv ice partners Wipro and Unisys (also a

global service partner). Additionally, the company has a strong remote

support mechanism under its DellConnect programme. Engineers r emotely

access customer PCs (with their permission) and direct ly t roubleshoot and

resolve problems. Other remote services include DellChat, a tool where

customers get real time advice via online chat; and PC Check-Up, a clientagent that automatically runs diagnostic check on the PC and can be

programmed to report faults to Dell Service automatically.

On-ground presence

Another perception prevalent among channels is that Dell only sales through

website and tele-marketing. This is again a myth. Dell has direct sales

presence in 10 cities, which it plans to take to 20 c ities soon. They plan to

double their on-ground sales force. Leads generated through the toll-free

numbers are followed up by emails and per sonal contacts.

Tax advantage

Most vendors interviewed believe that it's difficult for a direct-selling

company to cope with fragmented tax system in our country. Our team

called up Dell's t oll-free number on three occas ions posing as a buyer,

inquiring about price and delivery of the Inspirion 6400 model. The tele-sales

representat ive assured us a waiver on CST and VAT, and Octroi as well if the

delivery was made in Navi Mumbai. The only markup on the advertised price

was of Rs 1,550 for installation.

Related Articles

The Dell Challenge (Main Story)

Our market is so c ompetitive that there can't be a

major differenc e in prices

Only in 5 percent of the deals does HP go 100

percent direc t

Close W indow



Express Channel Business - The DELL Challenge[1]

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