XIAMEN, China — When Dell Inc. launched its second Chinese factory recently, it brought in confetti-spraying cannons to celebrate.

It may need all the firepower it can get in China. Asia's biggest market for personal computers represents Dell's biggest opportunity for growth and potentially its toughest challenge.

Strategically this region is extremely important to Dell's overall growth, mainly because of the sheer numbers and potential," said Stephen Felice, director of Dell's Asia Pacific and Japan region.

The company has given him "unlimited (scope) in my ability to add resources" to build the business in China. He's using it to step up hiring, add sales staff, boost advertising and even add kiosks, an idea Dell first tried in Japan six years ago.

Since 2000, two years after Dell began selling in China, the company has increased its payroll in the country from about 1,000 workers to 5,500, including a 21 percent increase last year, spokesman T.R. Reid said.

Dell is facing renewed competition from Chinese and U.S. rivals.

Dell is the world's No. 1 PC maker, but it's No. 3 in China.

Lenovo Group Ltd., China's top computer maker, is now headed by Bill Amelio, who ran Dell's Asia-Pacific business from 2001 to 2005. Lenovo's share of the Chinese market rose to 31 percent in the first quarter, up from 25 percent in the first quarter of 2005, according to research firm IDC.

Dell increased its market share to 9.3 percent from 8.4 percent a year ago, but finds itself squeezed between China-based Founder Technology Group, with a 12.7 percent share, and Hewlett-Packard Co., with 7.7 percent.

Massive market

Dell, which has always enjoyed the most success with government and corporate buyers, leads the Chinese market for servers with about 24 percent of the market.

Like global companies selling everything from soap to cars, Dell was drawn to China by its massive market and rapid economic growth. China surpassed Japan to become Asia's largest PC market and is growing at about 25 percent annually, said Simon Ye, a Shanghai-based analyst for technology research firm Gartner Inc.

By contrast, sales growth of PCs is slowing in the saturated U.S. market. According to IDC, PC sales in the United States grew about 5.3 percent last year, slowing from 6.5 percent in 2004.

Felice called China "essential to (Dell's) plans for global growth." Dell's first-quarter shipments in China rose 40 percent, and revenue grew 29 percent from the same time last year.

The new 594,000-square-foot factory in Xiamen is a key part of Dell's effort to increase market share. Inside the facility, assembly lines hummed efficiently as dozens of workers in short-sleeved shirts pieced together computers, loaded them with software and packaged them for shipping. Because the plant uses the newest technology, its efficiency "might even be a few steps ahead" of Dell's manufacturing hub in Austin, Reid said.

The factory makes PCs and servers for customers in South Korea, Japan and Hong Kong, and it might soon be pressed into producing for the broader Chinese market.

"I'm hoping in less than three years we will be talking about building another plant" in China, Felice said.

To attract new customers, Dell has expanded its sales team coverage from only the largest coastal cities in 2000 to more than 200 Chinese cities today.

"You look at cities that are called 'tier two' in China, and they have populations of several million people. So these are major markets," Felice explained.

Dell direct

But in some ways, Dell is facing the same challenges in China that it has struggled with at home. Consumer sales in China are growing more quickly than commercial sales. But less than 10 percent of Dell revenue in China comes from sales to individuals, compared with about 15 percent to 20 percent of revenue worldwide, Reid said.

Because Dell sells almost all of its computers through its Web site or over the phone, executives have had difficulty tapping into China's consumer market, Gartner's Ye said.

"My chief concern about Dell is that they are not doing very well in the consumer sector," while Lenovo, Hewlett-Packard and Founder are investing heavily to increase sales "even in small towns and rural areas," he said.

At the Da Zheng Computer City, a market in downtown Xiamen, Lenovo saleswoman Guo Guirong, 25, noted Dell's absence.

"This is the biggest computer market in Xiamen, but there's no place to buy or even try a Dell computer," she said, adding that there are "more than 10 Lenovo shops" in the mall.

The strategy of courting individual Chinese buyers and small businesses is working for Lenovo, which has established "vast (sales) channels" in China, said Bryan Ma, a Singapore-based analyst for IDC.

"Especially in a culture like China, which is so dependent on having a physical presence where people can touch and feel and get instant gratification of products," having a direct-sales model hampers growth, he said.

Dell executives dismiss the suggestion that their direct-sales model won't work well in the country.

"Everywhere we go, the direct-sales model works very, very well," Felice said.

There are some differences, however. Because few Chinese use credit cards, Dell's China operation relies primarily on checks and bank transfers.

Still, Dell plans to set up some small pavilions in China where customers can try products and order them online. If the kiosks result in "good profitable sales growth," they will be rolled out more widely, Felice said.

It's similar to Dell's strategy in the U.S., where the company is opening two mall-based storefronts to counter competitors, such as H-P, who have strong retail partnerships.

Dell also has stepped up consumer marketing in China, primarily through direct mail and with online and television advertising. Ad spending is "growing right in line with our overall growth rate" of about 50 percent annually, Felice said.

But the key part of the direct model is the same: Dell can charge lower prices than rivals because of manufacturing efficiency and because it doesn't have to pay retailers and dealers to sell its machines. Last year Dell dropped the price of its Inspiron 2200 notebook computer to 4,999 Chinese yuan, or $625, the cheapest of any notebook computer made by multinational firms, Ma said.

"We've made a strategic decision to stay in price position and then let our customer experience and our products speak for themselves," Felice said. "A lot of people can talk about pushing prices down, but you have to look at their profit margins. What we know is we can stay (price) competitive and still have healthy profitability."

Strategically this region is extremely important to Dell's overall growth, mainly because of the sheer numbers and potential," said Stephen Felice, director of Dell's Asia Pacific and Japan region.

The company has given him "unlimited (scope) in my ability to add resources" to build the business in China. He's using it to step up hiring, add sales staff, boost advertising and even add kiosks, an idea Dell first tried in Japan six years ago.

Since 2000, two years after Dell began selling in China, the company has increased its payroll in the country from about 1,000 workers to 5,500, including a 21 percent increase last year, spokesman T.R. Reid said.

Dell is facing renewed competition from Chinese and U.S. rivals.

Dell is the world's No. 1 PC maker, but it's No. 3 in China.

Lenovo Group Ltd., China's top computer maker, is now headed by Bill Amelio, who ran Dell's Asia-Pacific business from 2001 to 2005. Lenovo's share of the Chinese market rose to 31 percent in the first quarter, up from 25 percent in the first quarter of 2005, according to research firm IDC.

Dell increased its market share to 9.3 percent from 8.4 percent a year ago, but finds itself squeezed between China-based Founder Technology Group, with a 12.7 percent share, and Hewlett-Packard Co., with 7.7 percent.

Massive market

Dell, which has always enjoyed the most success with government and corporate buyers, leads the Chinese market for servers with about 24 percent of the market.

Like global companies selling everything from soap to cars, Dell was drawn to China by its massive market and rapid economic growth. China surpassed Japan to become Asia's largest PC market and is growing at about 25 percent annually, said Simon Ye, a Shanghai-based analyst for technology research firm Gartner Inc.

By contrast, sales growth of PCs is slowing in the saturated U.S. market. According to IDC, PC sales in the United States grew about 5.3 percent last year, slowing from 6.5 percent in 2004.

Felice called China "essential to (Dell's) plans for global growth." Dell's first-quarter shipments in China rose 40 percent, and revenue grew 29 percent from the same time last year.

The new 594,000-square-foot factory in Xiamen is a key part of Dell's effort to increase market share. Inside the facility, assembly lines hummed efficiently as dozens of workers in short-sleeved shirts pieced together computers, loaded them with software and packaged them for shipping. Because the plant uses the newest technology, its efficiency "might even be a few steps ahead" of Dell's manufacturing hub in Austin, Reid said.

The factory makes PCs and servers for customers in South Korea, Japan and Hong Kong, and it might soon be pressed into producing for the broader Chinese market.

"I'm hoping in less than three years we will be talking about building another plant" in China, Felice said.

To attract new customers, Dell has expanded its sales team coverage from only the largest coastal cities in 2000 to more than 200 Chinese cities today.

"You look at cities that are called 'tier two' in China, and they have populations of several million people. So these are major markets," Felice explained.

Dell direct

But in some ways, Dell is facing the same challenges in China that it has struggled with at home. Consumer sales in China are growing more quickly than commercial sales. But less than 10 percent of Dell revenue in China comes from sales to individuals, compared with about 15 percent to 20 percent of revenue worldwide, Reid said.

Because Dell sells almost all of its computers through its Web site or over the phone, executives have had difficulty tapping into China's consumer market, Gartner's Ye said.

"My chief concern about Dell is that they are not doing very well in the consumer sector," while Lenovo, Hewlett-Packard and Founder are investing heavily to increase sales "even in small towns and rural areas," he said.

At the Da Zheng Computer City, a market in downtown Xiamen, Lenovo saleswoman Guo Guirong, 25, noted Dell's absence.

"This is the biggest computer market in Xiamen, but there's no place to buy or even try a Dell computer," she said, adding that there are "more than 10 Lenovo shops" in the mall.

The strategy of courting individual Chinese buyers and small businesses is working for Lenovo, which has established "vast (sales) channels" in China, said Bryan Ma, a Singapore-based analyst for IDC.

"Especially in a culture like China, which is so dependent on having a physical presence where people can touch and feel and get instant gratification of products," having a direct-sales model hampers growth, he said.

Dell executives dismiss the suggestion that their direct-sales model won't work well in the country.

"Everywhere we go, the direct-sales model works very, very well," Felice said.

There are some differences, however. Because few Chinese use credit cards, Dell's China operation relies primarily on checks and bank transfers.

Still, Dell plans to set up some small pavilions in China where customers can try products and order them online. If the kiosks result in "good profitable sales growth," they will be rolled out more widely, Felice said.

It's similar to Dell's strategy in the U.S., where the company is opening two mall-based storefronts to counter competitors, such as H-P, who have strong retail partnerships.

Dell also has stepped up consumer marketing in China, primarily through direct mail and with online and television advertising. Ad spending is "growing right in line with our overall growth rate" of about 50 percent annually, Felice said.

But the key part of the direct model is the same: Dell can charge lower prices than rivals because of manufacturing efficiency and because it doesn't have to pay retailers and dealers to sell its machines. Last year Dell dropped the price of its Inspiron 2200 notebook computer to 4,999 Chinese yuan, or $625, the cheapest of any notebook computer made by multinational firms, Ma said.

"We've made a strategic decision to stay in price position and then let our customer experience and our products speak for themselves," Felice said. "A lot of people can talk about pushing prices down, but you have to look at their profit margins. What we know is we can stay (price) competitive and still have healthy profitability."