Emerging markets to seal fate of Dell’s fall from grace

By the mid-90s, Dell’s business model was unstoppable, having turned the high-tech industry and distribution on its ear with its direct-marketing model. But that model is in doubt with today’s memo, which speaks of new directions for the company.

In its heyday, those who tried to ignore it, and those who tried to emulate, either fell by the wayside (Compaq) or became second-tier manufacturers (Toshiba, Hewlett-Packard) as Dell gobbled up every enterprise sale in sight.

To give credit where credit is due, it wasn’t just the direct sales model, it was how they went about it that really made the difference.

Dell pioneered a new way to deal with suppliers, a model that has since been followed by the best retailers like Wal-Mart, in which the responsibility for holding inventory and restocking warehouse shelves was transferred from the manufacturer to the supplier.

In addition, its just-in-time manufacturing model for the assembly line, and the personalized service and management tools it offered to its enterprise customers, was nonpareil.

But that was then. The entire desktop PC and server market has changed since. Suddenly, the market is being reshaped by Asia, China and India in particular.

Direct marketing just can’t cut it in these markets.

Can Dell change? According to the leaked memo from Michael Dell, a push into emerging markets is required but direct sales model won’t work in China or India.

There’s a great lesson that companies seem to need to relearn about every 5 years or so. Watch the market, don’t get smug, and create a corporate sloop that can turn on a dime — instead of a giant battleship.

I don’t know if Dell will succeed. Hewlett-Packard, now the No.1 maker, and other older companies that have been long-time participants in these emerging markets may have the upper hand. But certainly there is a lesson here for companies be they SaaS providers like Salesforce, or Web 2.0 companies like Google, Yahoo, YouTube and MySpace.