Dell Bullish on Asia but Cautions on Rising Costs in China

CEO and Chairman Michael Dell expressed confidence Asian countries will weather the current financial crisis, stating that past experience showed the region to be more resilient to economic ups and downs.

"The dominant economic growth in several Asian countries including Japan could mitigate this economic crisis in the region," Dell said, speaking at a Dell Asia-Pacific media and analyst day in Shanghai.

However, despite his positive outlook for Asia overall, he cautioned that China could lose business both from Dell and elsewhere if it does not remain competitive.

"I think you will see the manufacturing relationships that we rely on move inland and move to other countries," he said regarding rising manufacturing costs in China, particularly in coastal regions.

He said that China could retain its attractiveness by tapping more remote areas and by moving up the value chain.

"Some of it can occur by moving to the west [of China], and some of that can occur by moving to a higher value add. But some of that work will move to other countries, like Vietnam."

However, he reaffirmed the company's presence in China, where Dell is celebrating its 10th anniversary. "If you take India and China...we have 20,000 people who work for us there, it shows our commitment there." Dell added that last year the company sourced US$23 billion of products from China, for its manufacturing and other operations.

Dell has two manufacturing facilities in China in Xiamen, Fujian province, one for regional consumers and one for domestic shipments. It also operates the China Design Center in Shanghai which helps to manufacture new products based on designs from the industrial design team in Austin, Texas, and an international service center in Dalian, China, focusing on the Japanese and Korean markets.

The company's founder and top executive said that China's IT development is "still at the very early stage of its evolution. There are still a large number of people that are just getting online, still a lot who have not accessed technology tools. There are great opportunities to optimize efficiency and improve infrastructure."

Dell downplayed rumors that the company plans to reduce costs by cutting head count and closing some of its manufacturing facilities. He said the company is seeking a "balance of in-house and contract manufacturing." "We haven't announced or made any decisions to our manufacturing strategy," he added.

Although it made its name with a direct sales model, Dell has begun working with channel partners, which now account for about $12 billion per year in revenue worldwide, he said. That model has helped the company reach smaller cities and inland areas of China where it could not previously penetrate. "When we sit down with channel partners, they are opening their arms to Dell in a very big way, and they are very excited to have the Dell product," he said. Those partners include Gome and Suning, two of China's biggest electronics retailers.

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