Arnold recommends simultaneously internalizing some distribution activities and outsourcing other activities to external distributors. This is the ‘dual system’ model already followed by Dell in China. Please use Figure 11.2 to analyse possible channel strategies Dell could use in the future. Case 11.1 The direct sales model or a

‘dual system’ model: Dell’s distribution strategy in China Many people have been very sceptical about Dell’s ability to replicate its famous direct sales model abroad. According to CEO Michael Dell, when the US-based computer hardware company first expanded internationally (into the UK in 1987), ‘of the twenty-two journalists who came to our press announcement, about twenty-one predicted that we would fail. The direct model is an American concept, they claimed; nobody will buy computers direct from the manufacturer . . . It’s a bad idea, they said. Go home.’17 Similar doubts were expressed when Dell entered China. In China, Dell gradually evolved from an indirect sales model to a ‘dual system’ model (i.e., a system that uses both direct sales and distributors). At first, in the early 1990s, Dell exported PCs to China using only distributors. Then, in 1998, Dell set up a manufacturing base in Xiamen, China, and applied a dual system model. In August 2004, Dell pulled out of the low-end PC market in China, thereby reducing the weight of distributors in its dual system model.

In the US, Dell has evolved in the opposite direction, from a direct sales model to a dual system model: Dell USA started to sell PCs at Wal-Mart in 2007.

What future changes should we expect for Dell China?