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“Consequently we can leave the management of inventory to Ireland. The stock arrives in SA within ten working days, having been built in an ISO 9002 environment, and the next person who opens it will be the customer.”

Dell has turned this business model into a marketing campaign – contrary to the more common pricing lag of 30 to 90 days, customers benefit from the latest pricing, and the latest technology.

However, the volatility of the rand last year meant that much of this business advantage was lost in the local market.

“We thrive on a stable rand,” says Hamilton. “If it can hold onto these gains for a period of time – for a month and a half, two months – it will help us. It was a very tough the last year-and-a-half, and it was a very difficult time to manage our business. The volatility had an impact on all the players. We just want a stable rand/dollar exchange rate. The exact rate doesn`t matter, but if it`s stable at nine, all the better.”

Although the subsidiary grew revenue in terms of rands year-on-year, it did not manage to grow in dollars, resulting in a flat period for the company.

“Dell`s core has been to grow as a multiple of the market,” says Hamilton. “You can`t have multiples of a shrinking market, so we would like to grow at a premium to the market. In the third quarter we did not meet that goal, primarily because of external factors.”

Keeping rolling

Despite the woes of the industry, Dell`s international market share grew to overtake the combined HP/Compaq powerhouse, with (IDC) figures for branded PCs showing Dell with a staggering 52 percent of the worldwide market share [November 2002]. Despite this, Dell globally had a tough 2002, with net income dropping from $2.3 billion in 2001 to less than $1.8 billion last year.

“The key to this industry is momentum. We are continuing to grow at the cost of our competition.” Hamilton says the company is currently sitting at second spot in local server market share, and number three in desktops, with Mecer and HP taking the top spots – as per BMI-Techknowledge`s third quarter figures.

Using its direct model as its differentiator, Dell has managed to land some impressive accounts, which include the likes of government, Telkom, FirstRand, First National Bank and Old Mutual.

“You must always respect your competitors,” advises Hamilton. “Our business has been direct since it was formed, but it`s still hard to orientate your business so that it talks to the customer directly from top to bottom. That`s a very difficult prospect for any vendor that in the past has used resellers or VARs to start dealing with the customer. The recoil from what were once partners can be quite a force to be reckoned with.

“Your sales force needs to be orientated around dealing directly with the customers every day. That`s how Dell is organised. We will continue to keep trying to improve dealing direct with customers. It`s a tough job but at least it keeps us very busy. That`s how we`ll keep ahead of the competition.”

Getting horizontal

The company takes an alternative view of its market. Rather than vertical segments, the company splits its clients horizontally.

“Dell does not work the same as other organisations,” explains Hamilton. “We split the segments by business size, not business sector.” Currently Dell divides its customers into large, SME, home and transactional categories.

“We are active in all those areas. The large corporations have very specific requirements and needs, which are very different from a small company. We have found that segmentation to be more successful. In the PC world, what is effectively becoming a commoditised product needs to be segmented by the size of the account.”

The product set is broken down into two primary families: those for large companies that want stable life cycles, and those designed for the small company that wants the latest technology, even if it doesn`t conform to the other machines in the office.

Dell SA has been open for seven years, after buying African Information Technologies, which at the time had six staff members. Today, the subsidiary has about 100 employees, with 45 percent being sales oriented, and the remaining 55 percent on support, back office and finance.

Despite its direct model, the company does partner with the local channel, primarily to add services and support to its offering. “Just because we deal direct, it doesn`t mean that we don`t still deal with partners.” Internationally, its partners include Unisys, Getronics [originally Wang Global and now a part of CS Holdings], and, ironically, IBM.

“Wherever the partner is stronger we use them more. In the US, Unisys is strong, while in Europe Getronics is strongest. South Africa is a much smaller market, so currently our primary local vendors are CS Holdings and Unisys. There`s only so much business to split between them.”

Local Dell business accounts for about R1 billion a year, according to BMI-T. “Less than one percent of global revenue – way less,” adds Hamilton. And local conditions also see more white-box competitors [they used to be called clones] that are aided by the weaker economy.

“In South Africa, the exchange rate has made it difficult for the brand. Customers are very price-conscious at the moment.”

Another common speed bump to business in South Africa is black empowerment and, as a direct-model company, Dell has fever options than most in its black economic empowerment initiatives. It has limited partners to transfer skills to or invest in. Despite this, the company has taken an aggressive stance on the matter, doing what it can within the company to meet requirements, as well as using black partners when it has the chance.

Beating the plan

“We submitted our employment equity plan – which is effectively a five-year plan – to government. So far we`re ahead of it by two years. Government accepted it as aggressive but reasonable, and we`re beating it. We will continue to beat it,” boasts Hamilton.

Currently Dell Computer SA`s staff complement claims an impressive 45 percent female contingent, and over 40 percent previously disadvantaged individuals.

“The key thing is transformation. It was in single digits two-and-a-half years ago. Now 25 percent of the management team are women or black. But it is still a work in progress.”

A fast-track course for previously disadvantaged employees has seen two local Dell employees heading for the US to get up to managerial speed.

Putting it back

“A lot of our equipment is imported from Ireland – and we have to import from there. Everyone does that. If you look at the value of components to value of sales, it`s about 90 percent. But whenever we have discretionary spending, we go through previously disadvantaged companies.”

Dell`s local freight partner, Katlego, was formed through a joint venture between Dell and Expediters. “Wherever physically possible, we have driven revenue to support the South African economy.”

The company has also made a fair amount of social investment through a programme called the Dell South Africa Foundation.

“For every dollar we generate, Dell gives a certain fixed percentage to the foundation. We have external trustees on the board who decide where to allocate the funds. We`re focusing on education and grassroots development.”

So far, three schools have benefited from the project through the Nelson Mandela" rel=tag>Nelson Mandela Foundation. In 2001 the company managed to donate a significant R17 million to social investment.

It is very difficult to be a wholly owned subsidiary of a direct-dealing US principal in a country that is in many ways substantially different from the global norm. Dell SA, despite falling far short of the usual revenue contribution, at least tries to do its bit for national objectives.