Three years after it entered the Indian market, hardware giant Dell made its most significant statement in India yet. In mid-August 2008, amidst a laser show, thumping music and rolling strobe lights, the Round Rock, Texas-based hardware giant announced the global launch of its new range of Latitude and Precision laptops from Bangalore.
From being a company that catered almost exclusively to the Indian operations of multinationals until 18 months ago, Dell has re-invented itself in this country, becoming the largest player in the corporate market, targeting small and medium enterprises and going after the lucrative government market. “The local operations have grown 12-fold over the last seven years; so we are very happy with this growth,” says Dell.
Along the way, Dell India has crossed revenues of $1 billion (Rs 4,300 crore), in only 30 months since the launch of full-fledged operations in this country—the fastest by any tech MNC—and is now setting the bar even higher. It plans to take its local operations past the $3-billion (Rs 13,200 crore at the current exchange rate) revenue mark over the next four-to-five years.
The Indian market is red hot. According to data from computer hardware industry body MAIT, it has grown over 16 per cent from 6,431,640 units (including desktops, notebooks and servers) in 2006-07 to 7,466,484 units in 2007-08. While desktop sales have actually declined by 2 per cent, that loss has been more than offset by a 114 per cent jump in laptop sales. “It has been a phenomenal story until now and we’re poised to grow even further,” boasts Sameer Garde, the recently appointed Country GM for Dell India.
Dell’s second wind
Here’s how hardware giant Dell wants to make a big splash in the Indian market.
- Leverage local manufacturing to deliver products to consumers in as little as 24 hours
- Target large enterprises that are the biggest spenders on IT
- Focus on emerging opportunities in government and education
- Expand Dell’s retail and channel presence
- Sustain growth in the X86 server space, where it has just outgunned IBM in Q1, 2008-09
- Introduce its entire product range to give consumers alternatives to choose from
- Act as a CIO for small businesses, which most vendors see as the next big target market
Garde has the numbers to back his boast. According to data from market researcher IDC (see Gaining Speed), Dell is now the third-largest computer hardware vendor in India (it shares this position with Lenovo) with a 7.6 per cent market share. More importantly, Dell has made rapid gains in some key markets. In the mass-market X86 servers, Dell has, for the first time, nosed ahead of IBM, with a 23.7 per cent share of the market, compared to 21.9 per cent for Big Blue and is the largest player in the large business segment.
Three years ago, Dell was seen as a specialist hardware vendor to large multinationals setting up operations in India and for the IT and ITES industry, which aped the set-ups of their mainly US-based customers. Since then, Dell has worked on expanding its revenue base, first targeting large Indian companies and then expanding into the booming consumer, government and education segments.
“Dell launched its consumer business only 18 months ago and it is already a Rs 800-crore unit,” says Rajan Anandan, former Dell India head who moved to Microsoft India recently. Then, Dell India’s government business has grown six-fold over the last six quarters, adds his successor Garde.Target: #1
Dell has set its sights high—on the numero uno position in the Indian computer hardware market. And it is getting there; it is already the #1 player in the corporate market. Now, it plans to broaden its footprint. In the government market, Dell has a share of over 9 per cent compared to just over 2 per cent a year ago.
Similarly, it sees a massive opportunity in the education sector. “There are over 1.4 million schools in the country and, maybe, only 20,000-30,000 are IT-enabled,” says Garde. Then, in e-governance, only four states have taken the lead while the remaining 25 still have a long way to go.
Laptop sales zoom: Dell’s plant at Sriperumbudur near Chennai that started operations in July last year
Dell has also slowly learnt the ropes in the consumer market, long dominated by global arch rival Hewlett Packard. “The biggest trend in the consumer market is mobility. Dell’s customers are often buying a notebook as their first computer. They want personalisation for their machines and cool features like wireless on the go, integrated cameras and enhanced sound and graphics,” says Mahesh Bhalla, Director, Consumer Sales, Dell India. Then, to make its computers more exciting, it offers them in 11 colours and has also broken the direct selling model, since many buyers demand a touch-and-feel environment.
So, Dell has tied up with the Tata Group’s Chroma electronic retail chain to sell its machines and also plans to foray into the hinterland with its expanding channel network. “Our sales affiliate programme works on a zero-inventory model that allows people to try products and order them from any of our 1,000-odd partners,” Bhalla says. Dell India also offers onsite services to its customers and a complete cover service, which lets people exchange damaged computers, no questions asked. “We are the only company to offer this service,” says Bhalla.Desktop decline
Despite its galloping growth in the market, Dell has had to be sensitive to key changes in the market. One such change is the sharp decline in sales of desktop computers and the massive growth of the laptop market. “Multinational vendors now control 80 per cent of the laptop market because they offer a broader range of products,” says Diptarup Chakroborti, Principal Research Analyst at Gartner, a technology consultancy. Most of the action in notebooks is focussed on the consumer market, especially in urban India, where people are transitioning from owning just one computer to owning two or more notebooks, and Dell is riding this boom.
However, it won’t all be oneway traffic in Dell’s favour. It can expect to face the full force of HP and a renewed Acer in the market. “HP has more brands (HP, Compaq and, possibly, Voodoo, its luxury PC unit) in India and offers the widest choice. Dell has plenty of work to do before it can catch up with HP,” says Chakraborti. That’s because success in the large enterprise market doesn’t guarantee success in the booming consumer market. “The markets are completely different and require distinct strategies,” he adds.
However, having trebled its percentage share in the consumer market (from 3 per cent to 9 per cent) over the last 12 months, Garde and his team now want more. “India is expected to be among our four largest IT markets in the world and the consumer market will be a key driver of our growth here,” he says.Core values
Pallab Talukdar, Director, Enterprise Business, Dell India
At the same time, Dell’s other big growth market is also seeing some changes, as companies, strapped for real estate and power to run their servers, are opting for new blade servers, which are modular servers with more processing power. They also allow for the removal or repair of defective components without any down time. “Dell’s servers are 30 per cent more power efficient than those of IBM and HP,” says Pallab Talukdar, Director, Enterprise Business, Dell India. According to industry estimates, Dell has a 60 per cent share of the mass market X86 server segment, and Talukdar says it is gaining on its biggest rivals, IBM and HP.
“We have the broadest range of servers in the market,” he says. Part of the challenge for all hardware vendors, according to industry analysts, is to manage the exponential growth of data (estimated say to be growing at 50-60 per cent per annum), and the rising costs of real estate and power. “The cost of storage is falling but is not yet zero. To manage the sharp increase in data, companies will need to increase their IT spending by 20-30 per cent, which they can’t manage today,” he adds.
So, Dell will step up its use of technology, and hawk emerging concepts such as “Cloud Computing” (providing IT as a service rather than as a product) and data virtualisation (providing easy access to information notwithstanding its actual physical location) to help its customers make better use of their IT investments.
“We see ourselves as a one-stop shop for all our customers’ requirements. Our aim is to ‘Simplify IT’ for our customers. We want to be able to reduce cycle times for our customers and reduce the time spent on installation,” says Talukdar. A key part of this plan revolves around its year-old factory near Chennai, that has helped reduce delivery time from nearly a month to as little as one day,” says Garde.
Recently, Dell doubled its 400,000-unit production capacity and started a laptop line at the site. Then, Dell is also future-proofing its products, by adding features such as 10 GB Ethernet and Quad Datarate InfiniBand, a method for high-speed transmission of data between computers and networks.
Small is big
Some weeks ago, P. Krishnakumar, Director, Marketing, Dell India, found himself face-to-face with Dell’s next big opportunity in Ahmedabad. Speaking to a few small drug discovery companies in the city, he stumbled on a massive opportunity—not just to sell them Dell products, but also to act as de facto Chief Information Officer to many of these companies. There are seven-and-a-half million SMEs in the country today, but only one million of them actually use any form of IT. Dell sees a third of the SME universe as an addressable market.
| BPO roots|
Dell’s India foray began in 2001 with a call centre.
Dell entered the Indian hardware market in 2005. But its India connection dates back to 2001, when it set up a BPO unit in Bangalore, where a small team focussed on servicing US home customers. Since then, Dell has expanded to four locations—Bangalore, Hyderabad, Mohali and Gurgaon—and ramped up its headcount to over 10,000.
Along the way, the company has expanded its portfolio to cover voicebased activities such as technical support and also expanded into non-voice areas such as order processing, collections and accounts receivables and payables.
Recently, it also moved into the KPO niche, focussing on data analytics. “The work we do in India comprises our front office,” says Ganesh Lakshminarayanan, MD, Dell International Services (DIS). This unit competes with three or four third-party BPO operators for orders from Dell and wins them on merit. To tackle attrition, the BPO industry’s biggest concern, DIS has created the Platinum Club for select employees, who get higher pay and additional privileges. “We have about 1,000 members in this club; to enter, employees must have worked with us for at least 18 months and been among the top 15 per cent of performers; they also have to take an interview to enter this club,” says Lakshminarayan.
To sharpen its edge in the market, DIS has cut its costs per employee by 15 per cent year-on-year and is also focussed on cutting other costs. Now, Dell wants to ramp up its headcount and expand the geographical spread of this unit and its knowledgebased services.
Rather than provide them with stripped-down solutions to keep their costs low, Dell is trying to put together its own secret sauce to increase its presence in the market. “We have provided full versions of our software to all our SME customers (except for anti-virus solutions) and we’ve tied up with Ubuntu Linux and Open Office, both free softwares, to provide customised solutions to this market,” says Krishnakumar.
Dell is also altering its business model to improve its presence in India. “Direct selling is not a religion anymore,” says Garde. Rather than try and manage all its customers in-house, Dell has begun to roll out its channel programme (which accounts for over $12 billion of its $61.1-billion revenues globally) in India. “The channel is our next frontier. We will work directly with our enterprise customers, but we need a robust channel to enter new markets,” says Garde.
| What lies beneath|
Dell’s R&D centre in India is focussed mainly on software..
There’s probably an India connection in the Dell product you’re using. Away From the arc lights, Dell India’s R&D centre in Bangalore has become a “global center of excellence” in software for the hardware giant.
So, the 1,200 engineers at the unit work on critical areas such as systems management, Cloud Computing (Internet-based use of computing resources on a services model), remote management and Internet small computer systems interface (iSCSI) storage.
“There is a lot of attention on ‘green’ IT. Companies are concerned about curbing soaring power use and want software tools that optimise power use for cutting-edge products such as blade servers, which are both more energy efficient and occupy less space,” says Vivek Mansingh, Country Manager of Dell’s R&D centre in India. The country is playing an increasingly critical role in Dell’s scheme of things—over 400 information disclosures (the first step to a patent) have been filed from this centre.
“Dell’s mission is called Simplify IT; 70 per cent of the spend on IT is on maintenance of IT purchases; but we want to use our solutions to let companies spend more on new IT requirements, instead,” says Mansingh, who is also trying to move away from the linear growth model favoured by the rest of the industry.
Despite these moves, industry observers say Dell has a long way to go both in the overall market and in specific emerging segments. According to a senior HP executive, Dell has only a fraction of HP’s vast retail presence and has only one brand. Then, Dell continues to be seen more as an industrial and enterprise-driven vendor, compared to HP and even Acer, which have spanned the price and feature range with their machines. “We have laptops starting at Rs 20,000 and going all the way to Rs 2 lakh,” says the HP executive.
This means that HP continues to hold 40 per cent of the overall laptop market, compared to a little over 10 per cent for Dell, according to IDC estimates. Garde also needs to keep a wary eye out on arch rivals HP and HCL, who have matched, and even exceeded, Dell’s gains in these markets.
From a market that distrusted branded players till as recently as five years ago, the Indian market is now in a full-blown affair with big brands. Riding on this boom, large MNCs such as Dell and HP today account for over 60 per cent of the Indian hardware market. Now, Dell has thrown down the gauntlet to its competition by holding its first global launch from India. With the market expected to grow at 20 per cent annually, there is plenty of room for Dell, and, indeed, all the other players to grow exponentially in future.
| ‘You are seeing the new Dell take form’|
When Michael Dell stepped down as CEO of the hardware company that bears his name in March 2004 and appointed Kevin Rollins as his successor, it was expected to be a smooth succession and business as usual for the Round Rock, Texas-based company. However, Dell soon went into a steep decline in the US, its biggest market and continued to struggle for a foothold in emerging markets such as India. On January 31, 2007, Dell, 43, decided to fire Rollins and take back the reins himself. A yearand-a-half later, he has steered Dell back on the growth path. In India recently for a short holiday and for meetings with his India team, Dell met BT’s R. Sridharan and Rahul Sachitanand to discuss his plans, both for this country and for the global market. Excerpts:
Michael, thank you for spending time with Business Today. You’ve been back as the Chief Executive of Dell for a little more than 18 months; what major changes have you been able to affect in this time?
I am probably better at looking forward than back (laughs)… However, let me say that the first thing I noticed was that the company didn’t have a clear strategy. We do now—we have decided that we must grow faster than the industry. We weren’t doing that and that was totally unacceptable. Over the last nine months, we have grown at 50 per cent, which is much faster than the industry. In India, we grew 99 per cent, which is well ahead of the industry. Now that we’ve nailed this down, we can move on to financial performance and also focus on improving the customer experience. We have increased our earnings per share by 15 per cent, despite significant restructuring charges and a tumultuous period last year. Cash flows, too, are holding up and we’re going to grow that also.
You have $10 billion (Rs 43,000 crore) in the bank…
Yeah! Going back to the strategy piece, we came up with five initiatives— focussed on consumers, emerging countries, notebooks, enterprises and small & medium enterprises—and have driven our growth around these. We have also made nine acquisitions that will accelerate our growth.
Have you been forced to change Dell’s direct sales model as part of this transition? You tied up with Wal-Mart in the US and Chroma in India. Is the direct sales model in need of a tweak and is this (new) hybrid model working?
I think you are seeing the multichannel approach at Dell beginning to come into its own. Our Programme Direct business has a $12-billion (Rs 51,600 crore) run rate. We have signed up tens of thousands of partners. The real emphasis is on finding and nurturing partners who can apply our advanced solutions (to manage a company’s IT requirements). In the commercial segment (which accounts for 82 per cent of revenues), partners generate $12 billion of revenues (about 20 per cent) and the rest is through our direct channel. The latter can continue to grow. Giving customers choices makes sense. In a rapidly growing market like India, we have a lot of ground to cover and to do it by ourselves doesn’t make sense. In the consumer market, we were in zero stores a year ago and today, we are in 13,000 stores. We are seeing 50 per cent growth in our consumer business.
Are there specific markets that you are looking at in India?
We frankly like them all... if you look at segments like the government, education, small businesses or consumer, there are huge opportunities in all of them. We don’t have a preferred segment here; we like them all. When we first came to India, we focussed on large multinationals and the corporate sector. If you are a large MNC with, say, 5,000 or 10,000 employees, Dell is the #1 player in your market. We have also realised that there are opportunities in the consumer and SME markets.
What kind of R&D work will you be doing from India?
Software has been a great success here and we will focus on that. We’re also happy with our back office work. We have 13,000 people here and this is our secondmost populous site after the US; we will continue to invest in new projects here. The local operations have grown 12-fold over the last seven years; so we are very happy with this growth.
There have been reports that you’re trying to trademark the term “Cloud Computing” and that you are considering a foray into high-value consulting. Are these areas you are interested in or will you remain focussed on hardware?
In our most mature market, the US, our business is about servers, software and services. The services business generates $7 billion (Rs 30,100 crore) and it runs from extended services to (technology) infrastructure consulting. Our customers are giving us newer and more complicated challenges. A large retailer wanted us to create virtual desktops for vendors to log into. We bagged this contract ahead of another rival with fewer letters in its name. (As part of this deal) we undertake remote infrastructure management. In Cloud Computing, we are the leading provider to the top 25 server customers in the world, including Google, Microsoft and Baidu.
Is Dell going the IBM way?
Services is a big market. We are focussed on infrastructure services. We are not doing applications development and maintenance or business process outsourcing. We are doing IT infrastructure services, which is the first and most logical piece of the business to go after. We have a lot of new (and fast growing) software businesses within Dell and lots of our products are software products around hardware cores. For example, Dell’s Equal Logic virtualisation product has all the hardware boxes, combined with technology that allows you to manage your virtualised software. The virtualisation business within Dell is growing at 150 per cent per year.
Next year, notebooks are expected to outsell desktops, but at the same time, smart phones are also becoming more popular. How will the convergence of these markets play out and will Dell launch a phone soon?
You will see smaller screen devices from us. The PC is echoing the phone’s S-curve, both in the US and across the world. Experiencing the Internet on a two- or three-inch screen is an interesting and novel experience, but it is not satisfying for everyone. Soon, we may have roll-able (like a scroll) screens and holographs, where the screen size is much bigger, since people want to see more data. There is a reason for this—if you look at the Internet, a very high percentage is formatted for large screens. I don’t think it is an either-or question. You have four billion phones and 1.4 billion PCs and in the middle, you have all these other devices. There will be all sorts of innovations in this market and Dell expects to be at the forefront of these innovations.
What is your vision for Dell five years from now?
You will see more servers and software. A company of Dell’s size and scale won’t change dramatically. We’re planting seeds now that should become big businesses over the next five-10 years. The Cloud Computing programme we started two-three years ago is already the world’s fourth-largest server vendor. I think you are starting to see the new Dell take form.