Since customer needs and the market itself constantly changes, the model is not static. When entering a foreign market, for example, it always faces a big challenge. In some of the new fields, Dell's PC success has opened doors, while in others not really. Every step the company made, meant a new challenge for the model. Dell’s survival and success has depended every time on its ability to adapt, integrate, and understand. In Dell's case, adapting means customization (customization is Dell’s special concept: customizing the products to suit each customer).
Right because of the 1st golden rule (focusing on consumer’s needs and staying steadily in touch with customers), if the market is mature enough to enter it, the entire system might be flexible enough to be able to adapt to local conditions. However, Dell’s customers communicate and buy directly from the firm (www, voice-to-voice or face-to-face) there could be still some country-specific problems with the “Build-to-customer order” model. – In case of China, for example, the following factors hindered the proper running of the model: Chinese were uncomfortable with credit card sales, access to the Internet was expensive as well, software piracy, national PC vendors were promoted by the government etc. Reducing the number of these hindering circumstances, a company should always carry out a deep market research (PEST-analysis could be as well) before going international.
(b) “Global”- and “multinational companies” (MNCs)
Is Dell a MNC or a global company? Explain it!
According to the definition a global corporation[1] “is a company, operating with such consistency across its markets or areas of operation that it appears to treat the world, or major region within the world, as a single market.”
A multinational company (MNC)[2] whereas is “a company that operates in a number of countries and adjusts its products and practices to each country or group of country.”
Dell’s Direct Business-to-Consumer model is not an American model. It is neither a German, nor a Japanese one. It is a global model. When Dell expands globally the model is tailored to match the unique customs inherent in each country and region to ensure success. This is Dell’s global model tailored to each market. This is the strategy also applied in Dell’s global e-market operations as well. For example, the enterprise has almost 80 country-specific sub-websites (opening from the main one) tailored for local business: in local languages and in local currency. In some cases prices, product offerings, distribution system, or even marketing promotion are also tailored to the different national markets.
Part of adapting to customer needs is providing a high standard of global quality and operating procedures for global customers. By making consumers satisfied, more than 26.000 employees around the globe work on the good reputation of the firm.
The headquarter helps control costs globally by strategically locating their manufacturing facilities. Dell serves Europe, the Middle East and Africa through its manufacturing facilities in Limerick, Ireland. The plant in Xiamen, China serves that enormous market. The plant in Malaysia serves the rest of our Asian markets. Another plant in Brazil serves the markets throughout Latin America.
2. WHY SHOULD A COMPANY INTERNATIONALIZE & WHICH FACTORS LEAD TO THIS DECISION?
No matter where you are – either in your home country or in a foreign one - setting up a business is always risky. Going abroad, of course, is always more risky, than staying at home. In such case, you have to be aware not only of their own country’s regulations, but also those of the other countries involved in the business transaction. To go or not to go? – it might be the question, but the goal is always the same: make as much profit, as possible.
Before deciding to go international, it is essential to have a clear picture on your would-be market. With the help of the so-called PEST-analysis you can get information on the Political, Economic, Social- and Technical background of a country or a region. After analyzing the macro-environment, the much closer microenvironment should be also explored (SWOT-analysis). If everything is all right with these two multiplied with four factors, only in that case is it advisable to take into consideration going abroad.
Generally speaking, a company or a business venture may decide to internationalize for several reasons:
♦ to pierce a market-hole
♦ seeking for new markets (stagnant or declining home market)
♦ to reduce or eliminate additional costs (transportation, duties etc.)
♦ to reduce production costs by standardization and economies of scale
♦ excess capacity of resources (cheaper labor force, row materials)
♦ setting up “offshore plants” (to provide a source of supply for the home market)
♦ risk diversification (countries don’t face the same type and timing of business cycles)
♦ getting the “first mover advantage” in a new market (global markets → global competition) – ex. TAX liberalization
(a) Why does Dell think it should expand globally?
Do you think Dell should expand internationally and why?
In 1987, as just a three-year-old company, Dell opened its first overseas operation in the United Kingdom. The race was on to obtain a "first mover advantage" in the European online world. Considering Dell’s story, it was a breakthrough decision to "leave home" and to step on an international field. It happened by expanding operations outside the US’s borders. From that moment on it is not questioned anymore that future success is also dependent upon Dell’s performance in its new “homes”, all around the world.
Why Michael Dell decided to internationalize his only three-years-old company and set up a global firm? Well, he knows the exact answer to this question. Beside the above-mentioned reasons for internationalizing a business venture, I have some more ideas and assumptions in connection with Dell.
In the first step Dell simply became an international company. However, entering more and more countries’ market soon it globalised.
♦ After becoming successful with targeting SMEs in the USA because of the extremely keen competition in the PC industry a rapid growth and expansion were necessary if the company was to survive.
♦ PC market is one of the most rapidly globalizing markets. On the demand side preferences and price-mindedness become universal, while on the supply side products and services tend to become more standardized. The competition is globalizing as well both at a regional and at a worldwide level. To remain winners or at least actors on the global field, Dell had nothing to do but expand globally.
♦ The Internet is still in its infancy, but it's growing dynamically. The increasing use of computers will drive commerce on the Internet. As more people and companies come online, there is greater demand for cost-effective, powerful servers and storage that can scale to meet ever-increasing traffic.
♦ In the USA successfully working “niche marketing strategy” (bringing new technology at affordable price to the widest possible group of customers) could have proved to be successful in international environment as well.
♦ Since the USA is both an economic and a military world power and Dell is an American company, it was wise to go international. Considering risk diversification Dell’s business model seems to be potent in all economic cycle. In the growth phase, it can bring relevant technology to customers faster due to very small and short inventory cycles. In a downturn phase of the economy, the same dynamic model adjusts rapidly to business conditions, both in terms of capacity and in terms of inventory (at Dell there is no finished inventory and no product is ever made until a customer orders it).
Although it is not too presumable that Mr. Dell would also have had non-profit intentions with his internationalizing process, it is a fact that such global firms (and MNCs as well), like Dell, are also adding value to economies and communities in their “host-countries”. Usually they also bring new technology at affordable prices to corporate, institutional and individual customers of those countries.
The computer industry is an industry where standardization has been becoming more common. Customers demand technologies at lower prices, however, make choices not only based on price, but also based on quality, on services and their overall experience. Going international Dell has responded to these demands better than its competitors and has subsequently seen share gains throughout the world. The company therefore has huge challenges, but also great opportunities to attract customers on the worldwide stage, which is very important for such a global company.
Despite its remarkable growth and global expansion, at the beginning of the 21st century there were still some regions Dell needed to break into to ensure its future position in the ranks. The management of the company decided to expand to China. The Asian country could soon be the second largest PC market after the USA that is why it is essential for Dell to get a foothold there as soon as possible. However, it is not so easy as for the first sight it seemed to be. Some problem occurred during the internationalizing process of Dell into China: Internet usage is proliferating; the credit payment system is not a traditional one in the country etc. There is a really keen competition for the Chinese PC market between Legend – the Chinese PC giant -, and between Dell and the others. The one, who will get the Chinese market, will be able to stabilize its leading position for a while.
(b) Why do Small- and Medium-sized Enterprises (SMEs) go international?
What is the basis of their decision?
There is only one common thing in the numerous definitions of SMEs: all of them distinguish “business imps” from their “Big Brother’s” by their size, actually by their number of employees. “The small is beautiful’” – (flexibility, innovation) sounds the citation from the well –known businessman, Lee Iacocca. Sometimes it can be true, but being small and act always in the shadow of the business giants has disadvantages (liabilities of smallness and of newness) as well. Anyway, it can be declared that small and large firms play a complementary role. Some times ago, the today’s MNCs had to start somewhere…
Going international for the first time, in case of small- and medium sized enterprises, means simply exporting. - The reasons for going abroad might be the same ones, I have already mentioned on Page 6. - Nowadays almost in each and every industry or sector we can speak about global markets that apply to all sizes of business. Therefore SMEs may, and after a while have to think global (on the worst if the situation requires, they will act local).
Of course, at the beginning most of them could very often face the problem that they have not got enough information about the targeted markets, languages, legal system or how to minimize credit and financial risk. In some cases, the government in the home country provides help for SMEs in the very first steps of internationalization. In other cases a MNC could mean the pulling power: small firms could be considered to be operating either in a dependent (complementing and serving the interests of larger firms) or in an isolated (operating on niche markets) relationship.
Companies competing each other constantly keep an eye on each other’s activity. An internationalization decision by one firm is thus followed by similar moves by other firms in that industry. That is all because nobody wants to lose its overall competitive position. (The bandwagon effect) However, companies often go abroad following not only their competitors but also their customers and alliance partners. As a result, a number of markets all over the world have become central for a certain industry or product.
If a SME company manage to make a successfully expansion to a foreign country and this first step is followed by some other successful ones, the once small enterprise can grow even in a few years period to a MNC or a global company. The Dell Case is the best example on it…
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