In Japan, Dell Discovers Too Much Of A Good Thing

Hiroshige Ozawa is the kind of Japanese consumer most American PC makers would die for. The retired Nissan Motor Co. research manager wants to replace his aging NEC computer and has decided on an IBM-compatible machine. He has read all the trade magazines and spent an afternoon logging on to IBM, Compaq, and Dell PCs at a shop in Akihabara. "For this kind of machine," says Ozawa, tearing himself away from a top-of-the-line Dell 466/ME, "Dell's got the best cost-performance."

Testimony like that money can't buy. But Michael S. Dell's problem isn't attracting more Japanese PC buffs, it's keeping them at bay. Just two months after setting up shop in Tokyo, Dell's phones are ringing off the hook, and distributors are fretting over a capacity crunch. An uncontrolled surge in demand could swamp Dell's bare-bones Tokyo staff. For a company whose market strategy depends on word of mouth, delays in filling orders could be lethal. "I'm worried about deliveries," confesses a harried salesman at a Tokyo PC shop. "If they're late, the grapevine could turn sour."

This is not how things were supposed to happen. Michael Dell's plan was to let the news about his unbeatable prices and high level of customer service percolate slowly. He planned to start out targeting multinationals in Tokyo, then gradually turn to local businesses. Once the operation was up and running smoothly, he would take on the hordes of private users.

CALLS WAITING. But by the time Dell announced his big move, the Japanese PC market was embroiled in a full-fledged price war, started when Compaq Computer Corp. slashed prices last October. Scores of other foreign companies joined the fray, threatening NEC Corp.'s 50% grip on the local market. So when Michael Dell undercut even Compaq's lowest prices at the January rollout, he got a hero's welcome. "The problem we have now is not making the phones ring," says Dell, "it's answering all the telephones."

It's no joke. Dell has just 40 of its own people in Japan. In three days of dialing, BUSINESS WEEK only once connected with a human operator at Dell's Tokyo office. And no one returned a string of telephone messages left on the answering machine.

Chaos reigns even though, by U.S. standards, the whole Japan operation is still embryonic. Even when direct sales are added in, total shipments for the year probably won't exceed 20,000, says market researcher International Data Corp. For all the fuss, Dell will likely close out 1993 with less than 1% of the market.

With such minuscule volume in Tokyo, it is tough to fund a hasty expansion without hurting margins. "Lots of companies come to Japan prepared to fail," says Thomas Ainlay Jr., direct marketing manager with ad agency McCann-Erickson Hakuhodo Inc. in Tokyo. "What they're least prepared for is instant success."

    Before it's here, it's on the Bloomberg Terminal.