Chinese love Apple (NASDAQ:AAPL) products and stores so much, they even set up fake Apple stores. But now this love affair is about to be challenged by Dell Computer (DELL) and Baidu (BIDU) planning to develop tablet computers and mobile phones for the Chinese market. Would it work?
We don’t think so, for four reasons:
1. Neither of the two companies has the core competences to challenge Apple. Baidu is just a search engine, something like the Google of China, without any manufacturing experience. Dell Computer is a made-to-order distributor, a model that had its place in history: Dell Computer was in the right business the right time, managing to turn a market niche into a mass market.
In its early days Dell had little direct or indirect competition, but eventually plenty of it, as Hewlett-Packard (HPQ) and Lenovo sought a piece of the pie. But what has hurt Dell the most is recent completion from Apple’s MacBook lines, as well as the shift away from PCs altogether to wireless devices.
2. Dell’s Inability to Keep Up With Innovations, as Apple does. By and large, Dell’s innovation strategy is based on the application of a just-in-time system that has been for years used in the automobile industry into the assembling of computers—a non-proprietary innovation that can easily be replicated by the competition with limited potential for follow-up innovations.
3. Dell’s model has certain unique features that cannot be replicated overseas. In fact, the company has already failed to expand successfully in other countries, and the Chinese market won’t be an exception to the rule.
4. Partnerships do not work that well in China, especially in high tech industries, where intellectual property rights aren’t well protected, and competition intense.
The bottom line: Dell and Baidu cannot compete against Apple in China. Investors wanting to place their bets on the Chinese mobile devices market are better off with Apple rather than with Dell and Baidu.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.