"Dell is facing hiccups in China due to the inadequate localization of its direct-business model."

Dell has been successful in implementing its customer-focused direct model in many countries, but such a practice has not been well received in China, Li said.

Unlike US consumers, Chinese are usually reluctant to open their wallets if they cannot experience the consumer products they wish to buy.

Dell China executives have been trying to diversify the model by bringing in distributors and resellers.

This may have caused disagreement between Dell China and its US headquarters, which could partly explain the exodus of its top executives in China, Li said.

Lenovo has taken on Dell since it acquired IBM's PC-making business, learning from the US firm's direct model to cut costs.

"Lenovo is now taking a diverse approach to China's PC market, which is geographically complicated. But Dell is still insisting on the purity of its direct model," Li said.

Dell's woes are in stark contrast to rival Hewlett-Packard, which has successfully introduced both a distribution system and a direct selling model to its China operation.

HP China has managed to grow both its notebook and desktop shipment in the second quarter.

But Steve Felice, president of Dell Asia-Pacific and Japan, defended Dell's direct model.

"We are growing strongly and profitably, because more and more customers in China are recognizing the superior value of direct relationships with Dell," he said.

(China Daily 08/17/2006 page10)

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