Dell Traverses China Challenges to Expand Services Unit

Dell is expanding its China services business one step at a time as it tries to overcome quirks associated with running a business in that market, a company executive said on Friday.

There are some challenges to keep in mind and rules to obey when operating in the Chinese market, but the company's services unit is off to a good start, said Steve Schuckenbrock, president of Dell's services unit, at the Dell World show in Austin, Texas.

"You want to get the right partnership model. In China there are ownership rights about owning data centers as an example, how you participate and with who. There's some complexities related to making sure you have the right kind of partnership," Schuckenbrock said.

Dell's services offerings gained prominence after it bought Perot Systems for US$3.9 billion in late 2009. The hardware maker is emphasizing services as it tries to gain more business in the enterprise sector. At Dell World, the company projected itself as an end-to-end provider of enterprise hardware, software and services that is ready to compete with rivals IBM and Hewlett-Packard. In the second fiscal quarter of this year, Dell's services revenue was $1.9 billion, about 12.5 percent of the company's total revenue during the quarter.

Dell is building up its services portfolio, Schuckenbrock said, adding that advanced services offerings for now are shaped around applications and business strategy more than infrastructure deployments.

"We're doing a lot of applications work in China. When BearingPoint went bankrupt, we bought their Chinese business -- all of the front-end consulting side of that business. We got with that tremendous relationships with customers like China Petro and Bank of China."

China is a key market for Dell along with other emerging countries such as India and Brazil. Dell has been in China for more than a decade and now the company is preparing for expanded service offerings including infrastructure deployments. Over time, Dell will host cloud applications in data centers in China, but Schuckenbrock did not provide further details.

Dell earlier this year said it would invest $1 billion over the next three years to bolster its cloud, services and data storage offerings. In July, Dell opened a data center in Shanghai to host public and private clouds and to provide customers with off-premise application and storage services.

"We're off to a good start, it is a fantastic place to do business. Tons and tons of growth, but services is relatively small as a piece of that. But we're growing pretty fast, and we feel we're going about it in a good way," Schuckenbrock said.

Beyond the business partnerships, Dell has been tracking investment cycles and jumping on opportunities as they come up.

"China ... goes through five-year major investment cycles. We've spent the last year doing a lot of spadework for how we can participate in that next wave of investment in China," he said.

For example, the Chinese government last year invested $120 billion on the development of electronic medical records and imaging. Dell has been working with several province governments in China on health-care initiatives and grabbing related opportunities.

"It is a very smart, very engaged culture. It is a culture that does not see any legacy limitations because they have very little legacy infrastructure investment. So they are very innovative and pushing the envelope on future delivery models quite effectively," Schuckenbrock said.

Dell currently has offices and support centers in Chinese cities including Shanghai, Dalian and Xiamen.

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