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Dell launches innovation fund in China to support national strategy

Dell signage is displayed outside of the company's headquarters in Austin, Texas. Photo: Bloomberg/Getty Images 

Computer maker Dell has in a sense evolved into the largest startup in the world since it went private in 2013. And now, the technology company is going out of its way to help Chinese startups succeed with its Strategic Innovation Venture Fund which it says can promote corporate innovation and entrepreneurship.

Opening the Strategic Innovation Venture Fund to Chinese startups is a part of Dell's new "In China, For China" strategy, under which the American company plans to invest $125 billion in the next five years in the world's second-largest economy where it has operated for about two decades.

Dell is currently undergoing a crucial transformation from a personal computer manufacturer to an information technology solutions provider, as it fell behind industry leaders Lenovo and Hewlett-Packard in global personal computer shipments in the second quarter of this year.

In a recent interview in Beijing, Jim Lussier, managing director and head of Dell Ventures, Dell's strategic investment arm established in 2011, charted the blueprint of how the corporate venture capital fund will be used to bolster innovation of China's early-to-growth-stage firms, especially those operating in emerging technology fields including storage, mobility, security, cloud computing, big data and next-generation data center.

Lussier said that the Strategic Innovation Venture Fund is seeking more opportunities to make direct investment in innovative Chinese startups and is trying to co-invest with other top venture capital companies and strategic investors in China as well.

The average investment size is approximately $3-5 million, but it will reach up to $15 million if the investment project is economically and strategically vital to Dell, said Lussier, emphasizing that the choosing of investment objects follows a set of strict criteria in market access, project feasibility, product uniqueness and team building in a bid to avoid investment risks.

The Strategic Innovation Venture Fund is more than a financial support channel for Chinese startups. In fact, it is a comprehensive assistance package, which includes technical expertise, market know-how, brand-building knowledge and consultation services, noted Lussier.

Supporting national strategy

Huang Chenhong, president of Dell Greater China, said in an interview that bringing the Strategic Innovation Venture Fund to China is a positive response to the call to promote mass entrepreneurship and innovation and the "Internet Plus" action plan, which were officially mentioned in Chinese Premier Li Keqiang's government work report delivered to the annual session of the National People's Congress, the country's top legislature, on March 5, 2015.

The new national strategy came as China entered a "new normal" phase of slower economic growth. China's economic growth slowed to a six-year low of 6.9 percent in the third quarter of 2015, according to the National Bureau of Statistics of China.

The goal of the "Internet Plus" action plan is to promote further economic growth by combining mobile Internet, cloud computing, big data and the Internet of Things with modern manufacturing, promoting the healthy development of e-commerce, industrial networking and Internet finance, as well as helping Internet companies explore global market.

The premier has said that China's prosperity and economic vitality should emanate from public creativity and entrepreneurship, which can "adjust the structure of people's income distribution and facilitate more channels of upward mobility for children from poor families," according to the official website of the State Council of China.

Dell said that its China strategy is in line with the country's new growth strategy, as the Strategic Innovation Venture Fund targets to support early-stage innovation of Chinese enterprises.

"The launch of the corporate venture capital fund in China shows our support to the Chinese government's development policy, which in turn will bring more opportunities for Dell to enhance presence in China," said Huang.

Lussier specifically expressed strong interest in investing in China's promising big data and storage companies covered by the "Internet Plus" action plan, saying that Dell is considering to establish deep contact with such companies.

In response to China's booming mobile app market, Lussier said that Dell focuses on investment in Chinese companies specializing in developing architectures that can support mobile terminals and devices, despite the fact that the American company's investment in mobility accounts for a tiny proportion of its global investment.

In terms of the Internet of Things, Huang said that Dell has recently offered a series of Internet of Things solutions. Dell has seven research and development centers for the Internet of Things in the globe, with one based in Greater China.

In November, Dell teamed up with the Chinese Academy of Sciences, a state-owned institution, to create the Artificial Intelligence and Advanced Computing Joint Lab in Beijing, which is responsible for establishing high-performance computing and storage platforms, developing high technology about cognitive function simulation, brain computer simulation and deep learning, and creating state-of-the-art information analyzing solutions.

Dell CEO Michael Dell Photo: Oracle PR

In September, Dell Chief Executive Officer Michael Dell visited China and inked a strategic partnership agreement with Lei Jun, chairman of China's Kingsoft, to jointly develop complete cloud computing and big data ecosystems. The partnership was hailed by the Texas-based company as an example of full support for China's "Internet Plus" action plan.

It was during the September visit that Michael Dell announced the $125 billion investment plan. In a statement, he described the Internet as a "new engine" for China's future economic growth and made a commitment to closely integrate Dell's China strategy with China's national policy to support the country's technological innovation, economic development and industrial transformation.

Too big to be ignored

Although the Chinese economy has been facing downward pressure in recent two years, Dell still achieved remarkable double-digit growth in business expansion in the Chinese market over these years, higher than its global average, said Huang.

Specific statistics about Dell's revenues from the Chinese market cannot be found on its official website, partly because of its privatization in 2013 which exempts its duty to report all periodical fiscal numbers.

China is Dell's second-largest market after the United States. In China, Dell currently employs 2,000 engineers in its research and development facilities and has three factories, two service centers as well as more than 11,000 retail stores.

65 percent of Dell's products sold worldwide are produced in China, said Sam Burd, Dell's global vice president and general manager of Dell Personal Computing Product Group, pointing out that China's complete supply chain, quality labor force and well-equipped infrastructure bring Dell's advantage in global supply chain into full play.

As the global demand for traditional personal computers is withering, China is increasingly becoming a good destination for Dell to convert its innovative ideas into products due to the country's big population and huge appetite for high technology.

The Chinese market is too big to be ignored by other foreign technology giants, such as Hewlett-Packard which announced in May its plan to sell a majority stake in its server, technology service and storage business in China to a Tsinghua Holdings subsidiary, and IBM which in March agreed to share its chip technology with Chinese information technology companies. Such big foreign technology companies have scrapped the entrenched view of seeing China just as a manufacturing base and a market for selling products. Instead, they have begun to recognize China's ambition of being one of the world's innovation centers.

At the same time, the Chinese government has toughened its stance on foreign technology companies by using the anti-trust law and regulatory rules which have punished some foreign technology giants for abusing market dominance and other wrongdoings. In February, China fined American chip giant Qualcomm a record $975 million for monopolistic behavior.

China's era of exchanging market for technology is over. And Dell is well aware of the norm to do business in the Chinese market: if you want to get something, you have to share something.

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