Analysis of Dell Computers Business Development Strategy during Global Expansion Phase - Term Paper Example

Business in International Environment – Analysis of Dell Computers’ Business Development Strategy during Global Expansion Phase Introduction In the highly competitive and technology driven market place of today, the companies operating in different fields remain open and willing towards global expansion of their business operations. The expansion of business at international level has become a preferred and common business trend over the last decade because the companies can enjoy wide array of benefits through global expansion including economies of scale, diversification, technology transfer and high revenues. The advancements in communication and transportation technologies have also facilitated the companies to easily spread their business network across the globe. However, it is also a fact that the companies have to encounter many critical issues and challenges during the expansion phase and it is imperative that the firms must have adequate strategies and plans to face these challenges. The following essay aims to discuss and analyze the business development strategy adopted by the “Dell Computers” during the phase of their business expansion. In this regard, the essay explores different areas of Dell business operations that went through managerial changes in order to comply with the demands of global expansion process. The essay also identifies the main challenges and obstacles faced by the management of Dell and the strategies adopted by Dell computers to overcome these challenges and barriers. The discussion aims to examine the company strategies and their outcome in terms of achievement of the desired goals and targets of international expansion of the company. Dell Computers – An Introduction Dell is an American technology based company located in Texas US. The company is involved in the development, manufacturing, sales and support of the personal computers as well as servers, data storage devices, software, hardware, computer peripherals and different other technology related products (Banham, 2003, p21). The company operates worldwide and by the year 2006 there were more than 78,700 people employed by Dell in different parts of the world. Dell became a reputable name of the industry especially during the 1980s and 1990s and it has been recognized as a leading name in the manufacturing and sales of computers and servers (Fields, 2004, p43). Dell was also considered as the world leading computer brand name however the merger of Hewlett Packard with Compaq in 2002 takes the company HP on the first position and now the Dell is rated as number 2 after HP in the computer industry. Dell was also ranked as the 25th largest company of the world in the list of 500 countries prepared by the Fortune Magazine in 2006. Moreover it was also rated at the 8th position in the list of 20 most admired companies of the world (Lousie, 2006, p1). The company was founded by Michael Dell in 1984 when he was a student at the University of Texas at Austin. He established the company with an investment of $1000 capital. The first name of the company was PCs Limited. Michael started the operations of the company from the off campus dorm room located at the Dobie Centre (Fields, 2004, p43). He started the business with the intention to sale the IBM compatible computers after building them from the stock components. He led his businesses with the belief that if a company sales computer direct to the customer then there is greater possibility that it will achieve better understanding of the needs and demands of the customers and they can also provide the solutions to meet the demands of the people in more effective and efficient manners (Banham, 2003, p21). He then expanded his business by investing more in to it and in order to concentrate more on business he left his studies and spare most of his time to the business. The first computer of its own design was produced by the company in 1985. The computer was given the name of “Turbo PC” and it was containing an Intel 8088 compatible processor that runs at the speed of 8MHz. The promotion and advertisement of the computer system was done in the national computer magazine and the consumers were offered the opportunity of direst purchase from the company. They were provided with the options that they can order each unit by selection from different options and the company will build the custom assembled PC as per order of the customers (Fields, 2004, p43). The people were also offered lower prices as compared with the prices of the retail brands and in addition to the people also get an advantage that they can go for selecting different options for the assembling of their computers. There were few more companies that were already engaged in such business however they were not as successful and the company established by Michael Dell became the first successful company of its field and in the first year of operation the company succeeded to earn the profit of more than $73 million. (Lousie, 2006, p1) Global Expansion of Dell Computers As the company kept on meeting success it also expanded its network and in 1987 the first operation in UK was established by the company (Smith, 2000, p13). Later there were eleven more international operations were formed within four years of the establishment of the first operation. Along with the expansion in the network of the company, its market capitalization was also grown from $30 million on to $80 million and 3.5 million shares were also offered to the public at the rate of $8.50 a share. In the year 1998 the name of the company founded by Michael Dell was changed from the “PCs Limited” to “Dell Computer Corporation”. (Banham, 2003, p21) The advent of internet further added to the growth and expansion of the company and from the year 1996, Dell started the sales of computer thought the website of the company as well. The company uses internet as a means of extending and sales and eventually the company has become a leader in the computer hardware market. The company uses most update tools and devices of information technology that results in successful and superior supply chain management of the company. Dell has established a value chain through which the suppliers and the company exchanges different information and interact with each other. (Fields, 2004, p43) From the year 2002 the company expanded its business operations and also tapped in to the business of multimedia and home entertainment market by introducing the televisions, handhelds and audio digital players (Banham, 2003, p21). Moreover the company has also introduced the Dell-brand printers for home and small-office use. While aligning to the expansion of the business operations on the company, it was decided to change the name of the company and in the year 2003 the annual meeting was held in which the stockholders of the company approved that the name of the company will be “Dell Inc” so that the name can identify that the company now operated beyond the manufacturing and sales of computers and expanded its manufacturing and sales business to entrainment and multimedia industry as well (Lousie, 2006, p1). Barriers to Expansion and Dell’s Business development Strategy During the expansion phase, Dell computer faced number of critical issues and barriers and the company developed and adopted different strategies and plans to cope up with the problems. Dell Computers was right on the edge of declaring bankruptcy in 1985, until the company developed the Demand Management system (Banham, 2003, p21). It is a new kind of marketing strategy that totally reversed the direction of the company. The whole idea in a nutshell was “sell what you have” instead of “sell what you plan”. Previously, supply on hand was matched to incoming demand. That is, new parts were ordered to fulfill the ordered units, regardless of what was already in inventory (Fields, 2004, p43). Dell basically relies upon the strategy of direct marketing from its beginning and to the present day, people can buy only directly from the company. Dell used incentives and pricing strategies to minimize the drop in sales between different models of its products. The entire strategy of Dell strategy became a combination of building products to order, manipulating the market to sell what could be made with current inventory and buying components in line with demand. Dell executives moved their forecasting efforts to high end products with a longer shelf life, closing the gap. (Lousie, 2006, p1) The effective logistics operations play a major role in the success of the company and it is believed that the company has secures competitive advantage over the other companies of the computer industry because Dell has established an effective and efficient supply chain and distribution system. The success of the company is largely contributed by the knowledgeable use of information, communication, e-commerce, e-business, internet, and web technologies by the company. Through internet Dell remain in contact with its suppliers (Fields, 2004, p43). Dell has provided an opportunity to the customers that they can order a customized computer system via their website and after a week of their order Dell provided the computer system at the home of the customers (Smith, 2000, p13). This opportunity has added to the profitability and popularity of dell. At the same time the role of logistics also become very crucial in the context because to fulfill the commitment with the customers the company must provide them with their ordered product within the given time otherwise their credibility will be questioned(Dell's Business Strategies, 2009). That’s why the company always remain in tough with the suppliers and as soon as an order is received regarding the manufacturing of a customized PC, the suppliers of the components are informed about the required components so that they can immediately respond with the cost estimated and the company can complete its manufacturing function in time (Lousie, 2006, p1). For effective management of worldwide logistics of the components the company has developed a state of the art “production planning program”. Through this program the components required in the manufacturing of the computer system are forecasted and then the suppliers are informed about the requirement that allow the suppliers to provide the components on time and then Dell manufactures the customized computer system to complete the order. The on time delivery of the computer system is also very necessary and the role of efficient logistics operation has become very crucial here (Dell's Business Strategies, 2009). The business pattern of Dell is the basis for its current logistics patterns and is echoes throughout the industry of supply chain management in different ways by other large multinational global companies. The idea was to introduce more flexibility into the system, so Dell based its choice of about 100 suppliers upon quality, service and flexibility, rather than on price, and worked out deals with those suppliers that met their quality standards consistently. This allowed Dell to adjust quickly to changing market demands, and the higher quality resulted in fewer returns. Dell directly influenced the market, instead of being influenced by it (Smith, 2000, p13). This shift in business model entailed a whole new method of supply chain management, in essence, making the suppliers and the shippers partners in a new paradigm. As a result of the cooperation Dell was able to broker among its suppliers, Dell had an unprecedented cycle of growth and then moved in a totally new direction. Dell suppliers made less money on each component, but the massive sales made the smaller profit per unit into a much larger overall total (Smith, 2000, p13). Dell began by assembling and selling the designs of other companies. However, Dell was able to induce its staff to develop new skills to fit the changing needs. Marketing managers and buyers learned to predict short term needs up to ninety days and marketing personnel developed a whole new system or marketing, including a dynamic web strategy which matches inventory to buyers, and also harvests customer feedback in real time (Haag et al, 2004, p87). Dell marketing professionals created an e-commerce model and new stakeholders were developed. These were ISP and marketing affiliates with links all over the web. Web marketing entails lower cost, higher response and dynamic feedback which deliver information on trends immediately as people shop. Dell uses partners or affiliates and pays only for the actual traffic to market its products on a pay per click-through basis. Advertising links are moved from low performing sites to higher performing sites on a moment’s notice. This new stakeholder group: the affiliates, works hard to optimize the traffic to Dell’s links to increase their own profit. These forms of advertising are a huge stretch from the old pay in advance of sales methods (Dell's Business Strategies, 2009). As a part of its business development strategy, Dell has also moved into doing extensive R&D itself and has created its own branded products preloaded with branded software. A new product area includes custom servers made in Dell’s three assembly factories using manufacturing teams, called "cells", to individually custom build each new server to customer specifications. Dell’s supply chain is totally automated, and the parts used are added to the real time orders as they are used. Dell staff even loads custom software packages according to the customer’s needs before shipment. This allows the server to be shipped to a final destination with software loaded and preconfigured to MIS department specifications. (Smith, 2000, p13) Dell calls this its “DELL plus Service.” This is a large part of Dell’s new business and is totally dependent upon a flexible supply chain. The last major change Dell made was to partner with major outlets to sell its products at their direct prices, thus giving their customers the choice of on line purchase or purchasing in a local retail outlet. Dell did this without opening one single retail outlet (Dell's Business Strategies, 2009). The logistics operations are manages at Dell in quite effective manner that’s why the company successfully competes with other companies (Haag et al, 2004, p87). For efficient management of the logistics operations Dell used the “i2 Supply Chain Management” solution that streamlines the supply chain of Dell by providing component suppliers so that the company can meet the demand of computer order at global level. The i2 Supply Chain Management provides Dell with the real-time factory scheduling and inventory management that allows the employees to generate key reports based on accurate and timely data, pinpoint inventory on the factory floor, and to receive supplier deliveries on a true just-in-time basis (Dell's Business Strategies, 2009). Through this system the company is able to change the manufacturing schedule after every 2 hours so that they can keep their work align with the customers orders (Dell's Business Strategies, 2009). The suppliers of Dell also have an access to the accurate information about the schedule of dell at timely basis due to which the suppliers become able to work with facts instead of forecasts (Haag et al, 2004, p87). Ultimately the waste is reduces and the efficiency of suppliers, employees and the entire company is improved. When information is received by the suppliers about the need of any component then they are order to deliver the material at specific manufacturing point for the assembling of any system (Dell's Business Strategies, 2009). The company uses the Windows NT operating system and Intel-based servers for all of the i2 applications. Internet and computer based technology has a leading role to play in the logistics operations of the company and the internet based infrastructure of the company not only allow it to determine trends and forecast the demands of their products but also help them in gaining superiority among the competitor companies of the computer industry(Dell's Business Strategies, 2009). There were some problems also faced by the company in the logistics operation (Smith, 2000, p13). For example in Australia the company faced the challenge of efficient supply chain management because of inbound logistics. The company products have to travel through different far destinations like Malaysia and South Asia that prolong the delivery time of the products. That’s why the company decided to reengineer the process of outbound supply chain and the system benefited the company is such a way that it become able to deliver the products with an average time of 5days; earlier this time was 14 days. The reengineering of the Dell logistics strategies is called as “BPI (Business Process Improvement)” by the personnel of Dell. This is a re-engineering technique that is a combination of Six Sigma and Lean Manufacturing. (Lousie, 2006, p1) As a result of successful implementation of business development strategies, the company has reached a 70% accuracy rate by using constant customer feedback. The resulting drop in inventory improved the company’s profitability. The company has also won corporate business award with its reputation for delivering quality products on time (Smith, 2000, p13). Moreover the company took advantage of each drop in component prices as they had not paid the higher price to keep inventories. The resulting float created by selling via credit card and paying its suppliers on a schedule was another profitable advantage (Dell's Business Strategies, 2009). With the aid of effective business development strategies Dell became able to face all the problems and challenges evolved during the period of global expansion and now it is successfully operating worldwide (Lousie, 2006, p1). Dell is amongst the best computer manufacturing companies of the world not because they produce strongest brand but their position is largely contributed by the fact that they have established a build-to-order mail-order service as a new, cost-effective distribution channel for PCs. This service has provided excellent opportunities to the customers all around the world and at the same time Dell has secured good reputation at global level. Thus, it is revealed from the above discussion that Dell computers have adopted adequate business development strategies during the period of the expansion of their business at international level. The efficiency and adequacy of these strategies allow Dell to attain the desired objectives of global expansion and at present, it is successfully operating worldwide. Dell has to face several issues related with supply chain management, logistics management, sales and marketing strategies implementation and establishment of international network to support global business activities. The business development strategies formulated and adopted by Dell allow the company to successfully overcome all these issues and challenges. Hence, it is concluded from the above discussion that Dell has successfully faced all the challenges and obstacles encountered during the period of international expansion with the help of affective business development strategies. References Banham, R. (2003). Does Dell stack up? The company that triumphed by selling "good enough" technology wants to challenge IBM and Hewlett-Packard. Is it good enough? p21, CFO, Magazine for Senior Financial Executives Becker, Howard S. (1996), the epistemology of qualitative research. University of Chicago Press, 1996 Dell's Business Strategies Part 1 (2009), Retrieved online from http://www.itmweb.com/f031099.htm Dell's Business Strategies Part 2 (2009), Retrieved online from http://www.itmweb.com/f070802.htm Fields, G (2004), Territories of Profit: Communications, Capitalist Development, and the Innovative Enterprises of G.F. Swift and Dell Computer. Stanford, CA: Stanford University Press. Haag, S., Cummings, M., McCubbrey, D., (2004), Strategic and Competitive Opportunities: Using IT for Competitive Advantage. In McGraw Hill Irwin (Ed.), Management Information Systems for the Information Age (pp. 86-87). Boston, MA: George Werthman. Louise, L. (2006), "Dell Goes High-end and hip", Business Week, March 23, 2006, retrieved online from http://www.businessweek.com/technology/content/mar2006/tc20060323_034268.htm Smith, R. (2000), "Explaining Relative Firm Performance in the Personal Computer Manufacturing Industry; A Balanced Scorecard Framework", June 2005, Ph.D. dissertation, University of California, Irvine Read More