How did Dell treat its distributors in China during its re-entry into China in 1995? Was there a vicious cycle of bounded reliability involved? Who should be blamed for Dell’s initial failure? 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?