Did China spell doom for Dell?

Michael Dell returns to run the company he founded, but the battle he's fighting may have been lost years ago.

Topics: China, Globalization, How the World Works, Computers,

The business press is making much of the resignation of Dell CEO, Kevin Rollins, who will be replaced by company founder, and former wunderkind, Michael Dell. The Wall Street Journal’s analysis is typically full of inside baseball:

Mr. Rollins was also known as a stern and aloof manager. Early on, he was the executive who strictly enforced the Dell model of using cost cutting to gain market share and lift profits. Executives who disagreed with the approach were forced out or left. When the PC market slowed down earlier this decade, Mr. Rollins drove Dell into printers and consumer electronics, hoping to show its low-cost, high-velocity model could work in other markets. Neither move helped reignite Dell’s once-rapid growth.

Et cetera. But Silicon Hutong’s always perspicacious David Wolf says nonsense: The trouble at Dell has little to do with Rollins’ mistakes, and everything to do with China. Wolf notes that what made Dell special was its ability to cut costs and make its supply chain more “efficient” than that of any of its competitors. But there’s nothing proprietary about increased efficiency. Dell’s supposedly “unique business model,” writes Wolf, was eminently copyable.

Nowhere is that lesson being learned better than in China. The key date for Dell, writes Wolf, was Aug. 16, 2004.

On that day, Dell announced that it was retreating from the consumer PC space in China.

As Simon Ye and Annie Chung at Gartner Research called it four days later, Dell — the low cost leader in most of the world — was run out of the market by companies willing and able to produce computers at a much lower price. Although Dell was manufacturing in China alongside its competitors, it had lost the race. Even with its network of retail stores around China, Lenovo was able to sell an entry level computer for 25 percent less than Dell.

Observers wrote off Dell’s failure to market conditions that were specific to China. That was the easy answer, and it was short-sighted. The point was that it was cheaper for Dell’s competitors to get product to customers than it was for Dell. The competition had managed to work more inefficiencies out of their system. The Dell model was not invincible, it had been replicated (or bettered) and it had failed in the second-largest and fastest-growing computer market in the world.

A change in CEO isn’t going to change that.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 11
  • Close
  • Fullscreen
  • Thumbnails
    Burger King Japan

    2014's fast food atrocities

    Burger King's black cheeseburger: Made with squid ink and bamboo charcoal, arguably a symbol of meat's destructive effect on the planet. Only available in Japan.

    Elite Daily/Twitter

    2014's fast food atrocities

    McDonald's Black Burger: Because the laws of competition say that once Burger King introduces a black cheeseburger, it's only a matter of time before McDonald's follows suit. You still don't have to eat it.


    2014's fast food atrocities

    Domino's Specialty Chicken: It's like regular pizza, except instead of a crust, there's fried chicken. The company's marketing officer calls it "one of the most creative, innovative menu items we have ever had” -- brain power put to good use.


    2014's fast food atrocities

    Arby's Meat Mountain: The viral off-menu product containing eight different types of meat that, on second read, was probably engineered by Arby's all along. Horrific, regardless.


    2014's fast food atrocities

    KFC'S ZINGER DOUBLE DOWN KING: A sandwich made by adding a burger patty to the infamous chicken-instead-of-buns creation can only be described using all caps. NO BUN ALL MEAT. Only available in South Korea.

    Taco Bell

    2014's fast food atrocities

    Taco Bell's Waffle Taco: It took two years for Taco Bell to develop this waffle folded in the shape of a taco, the stand-out star of its new breakfast menu.

    Michele Parente/Twitter

    2014's fast food atrocities

    Krispy Kreme Triple Cheeseburger: Only attendees at the San Diego County Fair were given the opportunity to taste the official version of this donut-hamburger-heart attack combo. The rest of America has reasonable odds of not dropping dead tomorrow.

    Taco Bell

    2014's fast food atrocities

    Taco Bell's Quesarito: A burrito wrapped in a quesadilla inside an enigma. Quarantined to one store in Oklahoma City.


    2014's fast food atrocities

    Boston Pizza's Pizza Cake: The people's choice winner of a Canadian pizza chain's contest whose real aim, we'd imagine, is to prove that there's no such thing as "too far." Currently in development.


    2014's fast food atrocities

    7-Eleven's Doritos Loaded: "For something decadent and artificial by design," wrote one impassioned reviewer, "it only tasted of the latter."

  • Recent Slide Shows



Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>