China Poised to be World's Second Largest PC Market

NEW YORK – China will be the world’s second largest PC market within five years, Marcello Assandri, IBM Greater China Sales Manager, told a session of last month’s DM Days in New York here.

“IBM sees China’s computer market growing by 20 percent a year and believes that market will be 67 percent PC-centric,” he said, explaining that the company was firmly committed to staying for the long haul.

It is engaged in five joint ventures including a software production center in Beijing which employs many local students. The company has also built two factories in China.

“Our presence in China is massive. We have a thousand employed in manufacturing and two thousand in sales. We expect to start selling PCs directly on the phone before this year is out,” he said.

IBM opened “the most advanced call center in the Asia-Pacific region” a year ago in Beijing, a $17-million facility with room for 350 agents to handle orders, fulfillment and other support tasks. Employment rose from 70 at the start to 250 today.

Between September of 1998 and last April the call center handled an average monthly volume of 86,500 calls with 51,000 of them outbound. “We are very much in an outbound mode,” Assandri said.

He added that 89 percent of customers were satisfied with call center services, according to a survey of incoming callers and 99 percent of callers would call again.

Shipment is done by rail and with customers receiving PCs in an average of eight days, which he said was good considering China’s size.

He expects to hire another 100 agents when direct sales begin and foresees no problem finding technically trained people to handle sales and follow-up phone support.

One reason he is so optimistic is “IBM’s tremendous brand recognition” in the country.

Other forms of direct marketing have found slow going, although those under 35 tend to respond more to buying by mail than older people, who prefer going to stores.

Paul Condrell, who has built a small mail-order business out of Guangzhou for the last 10 years, noted that “DM remains a ground floor opportunity in China” for those willing to tackle still formidable obstacles.

He told the DMDNY China panel that the only reasons for going into that market are its size – 1.2 billion people – and the fact that it was there.

Some needed infrastructure is in place, notably a reliable postal system and burgeoning telecom network in the coastal cities on which China is spending billions.

China has had a stable, though unconvertible, currency for the last six years. The savings rate is high. The retail sector is growing and with it the percentage of DM, though it is still small.

Some companies have had a run of bad luck. Direct sellers Tupperware and Amway lost $10 million and $50 million respectively. Sara Lee dropped $10 million and McCall Patterns $1.5 million.

Why the loss? “This is China,” Condrell said. “Everything is different. They don’t speak English. The population is insulated and homogenous. The economy is based on low wages. Life styles are simple.”

He started out selling McCall’s patterns but realized they wouldn’t take off because China has no home sewing tradition. Lee jeans struggled because they were not perceived as a premium brand.

Western companies also overcharged the market. “We sold patterns at 35 percent below the US price. Big Macs go for $1.05, the cheapest in the world, and they started at 95 cents. You have to price to the market.”

Payment modalities are difficult with some growth in debit card sales but still no C.O.D., which Condrell believes, would make a big difference. Outsourcing is a problem because “nobody trusts anyone.”

China lacks an effective legal system, a network of laws that would make direct marketing more feasible. Politics are not free in the one-party state.

China has no mail-order culture. Lists are overpriced or don’t perform so companies have to build their own. IBM has done better than most, building a 200,000 name database. In contrast, Assandri said that Dun & Bradstreet only has 16,000 names.

So why go when other places offer a better venue for a first try? “People with a risk profile and future orientation come here. You want to make history or start on a clean slate,” Condrell said.

“You won’t get rich quick doing DM in China, that’s for sure.”

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