International Business of Dell

5. International competition. Pressure of international competition is a persuasive factor for Dell to engage in international business. (Bennett, 1999) On one hand, the invasion of foreign homogenous companies will hamper the growth of Dell and limit the profits, thus Dell has to protect their home market share in response to increased foreign competition; On the other hand, if the domestic competitors of Dell enter into the world market, it is indispensable that Dell use a “follow the competitor” strategy. (Rugman & Hodgetts, 2003)

3.2 Internal factors

1. Expand sales. Dell has strong marketing and financial strength which can ease entering into international market. Besides, it is well known for its lower price and high quality services, which will be easily accepted by new markets, especially those developing countries with high demand. (Chou, 2006) Larger sales in worldwide will diminish the fixed cost of each product, and Dell will obtain economic scale. For the differentiation in level of development of each country, different tech-level of products is needed: developed countries like Britain need high-tech products similar to those in American market; various products are needed in high developing countries; and lower developing countries need low-tech electronic products. (zhang, 2005) Furthermore, Dell’s “build-to-order” model, which could satisfy different needs, enables the take place of economic scope. (Xie, & Huang, 2004)

2. Acquire resources. Companies can take utility of the cheaper resource of foreign countries, which is the use of comparative advantage. (Chinese Economy Research Centre of Peking University, 2003) Dell’s Assembly process, which needs large number of labours, is an important competing power, however, labour cost outside of America is much lower, and taking use of these cheaper resources will cut cost. (Chi, 2005)

3. Minimize risk. In response to increased competition and uncertainty of domestic business condition, firms should take its business cycle advantages into play to protect their home market share. Recent years, American IT market become saturated, and the growth in other country is much higher than that of America, 6.8% growth rate in America PC market is much lower than the 20% in EMEA area (it include Europe, Middle East and Africa) (Anon, 2006) Dell should take the advantage of marketing and financing strength and the unique service process to create new growth in foreign countries. Besides, many competitors enter into international business, gaining larger market, more flexible resources and lower costs in other countries, which will eventually hurt the benefits of Dell. (Rugman & Hodgetts, 2003)

4. THE MODE OF DELL’S INTERNATIONAL BUSINESS

Modes of international business means a company’s systematic layout of a set of resource that are going to allocate into its target market, these resources include product, technology, skill and management principle. (Chinese management Online, 2006)

Now, companies have three approaches to pursue international business—(1) Produce at home and export abroad; or (2) Enter into a contractual agreement, such as licensing a technology or enter into a management contract, without actually owing significant amount of assets abroad; or (3) Own and control assets abroad, by having a joint venture, or through direct foreign investment. (Xie, P. L & Huang, L. P, 2004)

The choice of entry mode is such a crucial threshold that every multinational has to take an in-depth survey and make a cautious decision to serve their international objectives, so does Dell.

4.1 The motivation of Dell

Dell’s motivation is to realize internationalization of production and marketing depending on its powerful financial support, advanced technology and high-level management. (Fang, 2006)

4.2 Dell’s mode

Dell Company generally enters its target markets via foreign direct investment (FDI) mode. “A direct investment is one that gives the investor a controlling interest in a foreign company”, (Bennett, 1999) moreover, not only does company bring in capital, also its management, sale, finance and technology. (Zhang, 2006) Dell usually does a careful market research before going into a foreign market, when a target is identified, they will involve either building an asset or acquiring a foreign asset which is compatible for their development locally, accordingly Dell can get complete profit and authority of management, and it, of course, is bound to take all the operation risks. (Cao, 2001)

4.3 Why this mode

Every multinational company will choose an international business entry mode based on the compatibility between the situation of target market and its own resource, and the external environment of the company.

4.3.1 External factors

The external factors include the market situation of target country, the environment of target country, factors of production in target country and domestic external factors. Here, China, as Dell’ s fourth largest business worldwide and a typical developing country, will be taken as an example of target country. (Li, 2003)

 

1. The market situation of China. Firstly, China with a large population has become the largest electronic product consumption market and is growing at the quickest speed in the world; (Kang, 2004) Secondly, Dell’ s main competitors in China are IBM, Hewlett-Packard and Lenovo who has grabbed a great market share, so the competition structure of Information Technology industry is intermediate between perfect competition and monopolistic competition, and Dell has to use FDI to enable itself to compete with those aggressive companies. (Li, 2003) Thirdly, the marketing infrastructure of China is not so perfect, there are few suitable franchisers and agents, consequently setting up subsidiary companies is indispensable. (Cao, 2001)

2. The environment of China. It includes political, economic, cultural and geographical environments.

• A steady political situation and a loose investment policy of China after accession into WTO facilitate FDI for Dell. (Huang, 2005)
• A booming China’s economy led to a high gross national product in recent years, and from 1995 to 2001, the exchange rate of Renminbi against U.S dollar was kept on a stable level for long. (Liu, 2005)  
• Learning English is a required course in Chinese education system, more and more Chinese could speak English fluently, therefore culture difference should not be a problem. (Zhou, 2006)
• There is a long distance between United States and China, in order to save long-distance transportation cost, Dell is supposed to choose FDI.  

3. Factors of production in China. Factors of production refer to resources required to produce goods and services, such as labour, row material and capital. China has abundant factors of production which are much cheaper than that in USA, so investing directly in China market is more effective than exporting. (Brazil Glossary, 2004)

4. Domestic external factors. The competition structure of Information Technology industry in United States is also intermediate between perfect competition and monopolistic competition; furthermore, American government has taken a package of measures prompting overseas investment. (Anon. 2004)

4.3.2 Internal factors

Here, the internal factors will be explored from Dell Company’s product factor and enterprise resources.  

1. Product factor. Dell manufactures technique-intensive product with high marginal profit, such as notebooks, servers, storage, desktops and printer, and offering after-sale services which can not be isolated from its product is of importance, (Dell, 2006) thus it is better to invest directly and establish subsidiaries.
2. Enterprise resources. Dell has gotten enough capital and rich international marketing experience after several years of operation, so it usually uses FDI. (Fang, 2006)

4.4 The impact of this mode

Dell’s use of FDI takes lots of advantages and disadvantages as follow.

1. It helps Dell to cut production cost and increase profit.
2. Dell could sheer control the process of management and sale, and dominate all the profit.
3. It enables Dell to adjust marketing strategy in terms of specific market feature, and create competition advantages.
4. A large amount of investment may encounter certain political and economic risks, for instance, the depreciation of Renminbi, foreign exchange control and seizure of government. (Chinese management On-line, 2006)

5. THE SUCCESS AND FAILURE OF DELL

Within 20 years, the Dell Company of the USA has become the powerful chief in the field of PC all over the world, in a sense, it is successful, but it still has lots of deficiencies.

5.1 The success of Dell

1. Direct Business Model. Dell Company sells products through Internet or telephone to customers, and it would not produce computer until an order is placed by customers, who can configure and buy whatever kind of computer they want through the Internet. (Li, 2003) Figure 1 shows the operation process of Dell’s direct business model.

Figure 1 The operation process of Direct Business Model

1. Advertising agency               2. Transportation Company

3. Personal service corporation      4. Representative office

 (Information Centre of Lenovo, 1998)

It can be seen that direct business mode includes direct advertisement, direct distribution, direct communication, direct service and direct public relations, and in essence, this model is instrumental in simplifying distribution channel and doing away with distributors, dealers and other middlemen, (Xia, 2006) such a simple and efficient model is the source of Dell’s competitive power. With the power of direct model, Dell is able to have the firsthand feedbacks, so as to carry out production plan from the customers’ standpoint, deliver the appropriate products and improve the present program according to customers’ needs; it will especially slash Dell’s inventory costs and operating costs to realize nil inventories. (Zhang, 2005)

2. Supply Chain Management (SCM). The supply chain represents “the flow of materials, information, and finances as they move in a process form supplier to manufacturer to wholesaler to retailer to consumer”. (Niven, 2005) Dell’s success lies in the direct model, and SCM is at the bottom of this model. (Xiao, 2006) Dell’s SCM is agile, adaptable, and aligned; it integrated the direct model, and makes the operation smooth and efficient.

3. Direct and close relationship with customers. One of the most famous points of Dell Company is its direct and close relationship with customers. During the process of alliance with customers, Dell not just takes the cost into account but also the response of customers, and it always severs as a consultant of customers, helping customers to make a right decision is its responsibility. (Wang, 2004) This highlight distinguishes Dell from its competitors, and help Dell to determine where to best allocate its resources; also, it allows Dell to provide customers with “the latest technology, a high-quality product, and great value”, (Li, 2003) consequently Dell received customers’ loyalty.

5.2 The failure of Dell

1. Dell’s flat organization structure. There are fewer hierarchies in this organization and too many managers on a certain level, which need frequent communication to keep balance, and each manager has a large control span and under a heavy pressure. In flat organizations less mid-manager position supplied for employee. This will form the condition of few promotion opportunities for larger number of competitors. As the less promotion chance in Dell, many excellent employees turn in job-hopping. (Fang, 2004)

2. Natural deficits of direct mode. The direct mode benefits Dell, but this mode has it own limitation.

• It has natural deficits on the number of distributions. Dell have much few distribution channels, and do not have enough channels to access individual customer, but just focuses on large account. (Yu & sun, 2005) Figure 2 shows the main client of Dell.

Figure 2 Dell’s sale proportion for Clients

(Dell Computer Corporation, 2004)

It can be seen that Dell’s 85% sale from enterprise and government department, but 15% from individual. Losing small customers is a loss to Dell.

• Only if the support services of market places are in prefect conditions, the directal mode can be efficient (Chou, 2006) Actually, prefect basic facilities can only be met in several large cities (Zhang, 2006). Suppose that in an underdeveloped area where is characterised by bad transport and telecommunication system and far away from the manufactory. How does Dell’s direct mode work in such situation?

• Direct mode just suitable for the necessities on the maturity life stage (Zhong, 2005). In some developing and lower developing country or place, computers are considered to be luxury. Hence, customers can not gain reliability unless they see the products practically. This situation may occur in particular place, such as china (You, 2005).

4. Low quality of products. For purpose of reducing cost, Dell does it best to cut inputs. According to some sandal, Dell even chose the cheapest fittings for customers, which directly led to low quality of products (Xu, 2005) Even though it sets up a high quality post-buy service group for customers, this essentially is a inefficient approach, and may damage the brand reputation. (Wang, 2006)

6. RECOMMENDATIONS

According to Dell’s failure, here, some recommendations will be provided for operating more effectively in the next five years.

6.1 Enhancing qualifications of managers

Decision-making moves to the lower managerial levels in flat organization structure, which puts forward higher qualification requirement towards employees, besides, communication and interaction among lower level managers increases the efficiency of decision-making. For one thing, Dell should offer staff more opportunities of further study and training in order to strengthen individual technology knowledge. For another, creating more open communication environment in the firm is feasible. (Huang, 2006)

6.2 Adapting to Changing environment

Because of the natural limitation of direct mode, Dell could only gain outstanding achievement in cities with perfect infrastructure. Practically, electronic product market of these cities are tend to saturation, on the contrary, lower developed cities, where Dell is absent, is booming in computer operations. Dell ought to modify its mode to adapt the changing market environment, and its operation more diversiform and flexible than before to access more customers. (Zhong, 2005)

6.3 Strengthen supporting technology

Dell’s direct mode performances insufficiently when it comes to lower developing area, identified culture and custom, if they can see the product actually, they would not buy. Dell should strengthen its supporting technologies to keep contact with these kinds of customers, made them know better about their products and confident about their products. (You, 2005)    

7. CONCLUSION

All in all, when a company is strong enough locally, it is willing to take a global approach to pursue profit from the world market, but the entry mode is so complicated that every multinational enterprise is supposed to do a integrative research based on both internal organizational and the environmental of international business. Dell uses FDI mode to enter all its target market, and its mode usually involves a choice of acquiring a going concern through mergers and acquisitions, Dell’s success not just from the right entry decision, but also its effective and efficient operation concept, whatever, a strategy, which could best allocate resource and satisfy customers’ needs, will create profit for the company, looking at Dell Company, Focusing on customers and contribution to offer best consumption experience is the key of Dell’s success, however, Dell’s direct business model still has its deficit, and Dell should take a package of flexible measure to optimize its operation.

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APPENDIX

A talk about Dell’s human resource Management

(Primary date)

Q: what do you think about the role of human resource department play in such a big company like Dell?

Liu: it plays an important role in our organization structure, and keeps a cooperative relationship with other departments. In addition to charge basic human resource management works, this department allows us to attend meetings with our superior officer to find out any development problems in out company, and then we usually could refer to some advices.  

In terms of our employees, our responsibility is attracting and reserving most suitable employees, and offering promotion and learning chances for them. We can not only hunt excellent people, but also reserve them by creating favourable work environment for them.

Q: Generally, how Dell Corporation recruits new employees?

Liu：Just like other big company, Dell recruits new people through medium, Internet, head-hunting company and so on. According to the feedbacks recent years, personnel recommendation is an effective approach.

(Above Q & A comes from a telephone call with a Dell’s Chinese after-sale server, Mr. Liu. Thanks for his patient answer)