Changes in Communications, Transportation and Technology - Dell INC - Case Study Example

Business Plan for Dell Inc Introduction In the recent years, the business environment has rapidly changed to become more competitive globally. Changes are felt in every aspect starting from the fundamentals to the more advanced elements of business environment. Changes in communications, transportation and technology have driven the global business environment to enhance its competitive quotient. The cross border trading has almost faded with an increasing number of companies stepping into the worldwide business arena. The overall objective of this report is to present a business report on the global business opportunities available to Dell. The report has been designed to provide a more comprehensive analysis of the competencies of the organisation and at the same time to assess the business environment to avail the proper opportunities. The description encompasses Dell’s competence and competitive advantages. By evaluating its advantageous attributes, a business venture has been planned and proposed to the organisation. This proposal encompasses an analysis of the market size, approximate cost estimation and integrated risk. An environmental analysis of the domicile country is significant before shaping its global growth strategies. The environment analysis considers the social, political, environmental and economic conditions of the home country. The persisting trade barriers can put certain hurdles to an organisation which might prevent it from extending its business activities across the border. Apart from all these factors, a company needs to be well informed about its competitors and their strategies to be ahead of them. The report consists of a review of the competitors and their strategies drawn after accumulating various data and information. An insight into the different entry modes and their respective pros and cons will help the organisation to settle on a particular entry mode which will help Dell to enter in the foreign regions. In general, this business report is an effort to offer an analytical representation of the accumulated data and information which will provide an insight into the global business prospects of Dell. Dell Inc: An overview Dell Inc is one of the leading suppliers of computers across the globe. The organisation offers a wide range of technology products for home, small and medium enterprises, education institution, large enterprises and government sectors. The company has expanded its name starting from desktop to data centre. The organisation has a broad line of desktops and laptops. Apart from that, Dell provides a range of network servers, printers, data storage systems, Ethernet switches, printers and peripherals, like projectors and displays (Hoovers, 2010). Dell also markets a number of third party software and hardware. The emergent services of this company include asset recovery, infrastructure consultancy, financing, system integration, support and training. Head quartered in Unites States, this company fetches half of the revenue generation from other regions outside US. Starting its journey in the year 1984, the organisation has emerged as the no 1 direct sale computer vendor across the globe. The company has its operations based mostly in United States, Asia Pacific, Europe, Africa and Middle Asia regions. The company has built up its strategies in such a way so occupy the leading position in computer products and services. It provides the customers with full support on information technology and internet infrastructures. There exists ample number of evidences to prove the triumph of their strategies. In 2006, the organisation was ranked as the 25th largest company in the Fortune 500 list by the Fortune magazine. Dell was also ranked 8th in the list of top 20 most admired companies in the United States. Competitive advantage of Dell Any organisation needs to possess certain tactical advantages over its competitors to attain sustainable growth in the respective market. A firm needs to discover its competitive competence in the market against its competitors. The most important part is to sustain the competitive advantages in the long run. Dell must possess a well formed strategy, which will not only attain the competitive advantages against its competitors, but should also try to uphold the same. Competitive advantage is the organisation’s ability to outdo their competitors’ competences by doing the activities what the other competitors are doing or doing something in a different, still successful way. By the end of 1990s, the personal computer market almost became saturated. In that scenario even Dell was able to trim the costs and boost up their sales by the use of the internet (Ecommerce, 2010). As a part of their competitive strategies, the organisation started selling computers via the web world. Most of the selling was done to the customers who previously used to place the orders via telephones. That meant, the customers were able to place the orders as per their choices, configuration options and quantity looking at the price quote. This site also enabled the customers to know their order status. Through this site, Dell also offered support services to their customers. As more and more purchases were taking places on websites; the phone bill amount decreased for the firm. Dell was among the first organisations, which used to sell their PCs through mail or phone order (University of Management and Technology, 2002). Another competitive advantage of Dell is its ability to build mass customisation using high quality reliable components. Dell has made it a point to keep their prices a bit lower than the comparative products in retail stores. The company has created its competitive advantage by ensuring customer satisfaction. Dell offers 24 x7 support service on phone. They even provide on site warranty and support services to their customers. The personal computers and laptops come bundled with user friendly instructions and reliable software. The marketing strength of this company lies in its heavy advertisements in relevant publications. Apart from it, the main advertising strength of this organisation lies in advertising its products and services to the prospective customers through direct mails (University of Management and Technology, 2002). With the advancement of web based PC purchasing systems, Dell had become more efficient to handle the continually increasing sales volume. Even Dell has found out ways to handle the rising sales without any severe increase in its employee base. The ‘build to order’ operation model used by Dell has also enabled them to keep low inventory which results in low cost and higher profit margin (University of Management and Technology, 2002). Core Competencies of Dell Back in 1994, Dell was nothing but a struggling PC maker. As like other PC makers Dell used to place order of the PC components in advance; hence used to end up with large inventory level. Many a times because of wrong forecasts, Dell used to have large ‘write downs’ on its book. Situations changed after the introduction of its new business model ‘build to order’. Dell started ‘direct selling’ of its products to the customers. The indigenous steps taken by Dell to reduce the inventory have changed the scenario in just 3-4 years (HBS, 2003). Profitability management through a proper coordination of the daily activities was the core of this success. Dell introduced a firmly aligned business model which enabled it to manage its inventory in a much controlled manner in a way that a huge amount of working capital were freed and Dell got a good amount of cash to carry on its manufacturing and distribution processes. Dell deliberately selects its customers having almost predictable purchase pattern at a much lower service cost. The company shaped up its core competency in targeting the customers and maintains a large database for the same. Most of Dell’s revenues come from its long term relationship with the corporate. Supplier management has been another core competency of this firm. The firm’s relationship with the suppliers has helped Dell to inject flexibility in the systems. This has enabled Dell to have just in time inventory and manages it with the same (HBS, 2003). Strong manufacturing and distribution facilities, supply chain model, proper inventory management, strong relationship management with suppliers and buyers are the core competencies of Dell. Such strategies give it the required edge over their competitors. Environment Analysis The environmental analysis is an effort to get an insight into the economic, social, political and cultural aspects of the home country which can impact the business prospects for Dell to expand its business in foreign countries. Economic With a per capita GDP of $46,900, the US has the largest and more importantly most technologically powerful economy on the globe. In this market oriented economy, the individuals and the organisations are free to take most of their decisions. Moreover, the business firms in US get much more flexibility than the firms in Europe and Japan in the arena of decision making and expansion of their businesses, lay off surplus employees and in developing new products. US is the proud possessor of the largest number of patents on the globe; giving evidence that the economy encourages creativity and such a path. No doubt, the economy supports Dell’s inventive distribution and manufacturing processes, at the same time there are certain points which may put hindrance to persuade business opportunities in foreign countries. The rivalry faced by the US firms to enter the home country of their competitors is much higher than that faced by the foreign organisation to enter into US market. This means that Dell may have to face certain trade barriers to expand its business (Central Intelligence Agency, n.d.). Political The leading political parties in US include Democratic party, Liberian party and Republican party and Green party. With the election of a new president, the political state of US is supposed to offer a stable environment for business activities. As specified earlier the US government does not interfere in the individual decisions of the US firms and prefer to give them enough space to grow, to be a leader in respective industry or sector. Social People in US are more inclined to innovation and creativity. People, here, are given enough liberty to take their own decisions. This autonomy has encouraged the American people to move with their dreams and that must be why this country hosts a number of big company names. US has been experiencing dramatic increases in the number of aged people and hence a sharp decline in the number of employable people, which may impact the country’s productivity in the long run (Age Healthy, n.d.). Cultural US is a multicultural nation, being the host of a wide range of ethnic groups, value and traditions. Social trends as environmentalism, modern feminism and multiculturalism of US have given the individuals enough social mobility. Evaluation of Entry modes Dell can take the way of different entry modes to enter into the foreign markets. On the foreign ground, the organisation can build up its business from the very beginning. However this would initially incur a large set up and operational cost involved with it, without any guarantee of success. In an unconventional market, it might turn to be difficult for Dell to build up its customer base from the population, who would not be much conversant with the brand name and products of Dell. As Dell needs the right innovative and technologically advanced calibre for their business; in foreign countries, the company may have to face challenges in the recruitment processes. To be conversant with the business environment, while surviving against the competition through the development of own customer base, would not be easy for the organisation. For these many reasons, it is preferable that Dell takes certain other ways like merger, acquisition and other consolidation approaches to enter into foreign markets. In such a way, Dell would be in a better position to understand the political, legal, social and economic framework of the destined countries. The company can merge with another company, preferably which operates in the same industry as Dell does. It would be good for Dell to hold on the control, if the preferable target organisation is of equal or same size as is Dell. This is significant from the perspective that then Dell would have requisite qualified employees, an existing customer base to build upon and it would be able to fetch the advantages of their technologies and research divisions. However, in merger, conflicts can arise in the division of managerial control between the two companies, which would not be there in acquisitions. “Acquisition provides a rapid means of gaining an established product market position” (Schoenberg, 2004). The Competitors of Dell and their Strategies Two of the major competitors of Dell are Apple Inc and Hewlett Packard Company. Hewlett Packard is one of those companies offering products and services in a comprehensive portfolio of hardware and software. For HP, sustainability, profitability and efficiency are very much correlated. The organisation aligns its products and services to build a sustainable global environment in future. Sustainability has been their competitive advantage (Lowitt & Grimsley, 2009). HP feels that the core competencies of the company are its human resource and their expertise in information technology, which would fetch them sustainable business growth in coming years. Apple is the name of a revolution in the industry of personal computing and digital media distribution (Hoovers, 2010). Innovative design and technology with remarkably stylish ease to use features are the core competencies of Apple. No doubt, it has been able to create the craze of its products with the latest technology pouring in. The venture: Potential Market size, Cost and Risk Involved The potential market size As the living standards of human beings have taken pace, the global market of electronic goods has also taken its own momentum. By the next 2-3 years, the global market for electronic goods is supposed to increase by $3.2 trillion. Starting from 2003 till the year 2008, the market has seen a compounded annual growth rate of over 9 % (PR Log, 2008). No doubt, Dell has got its extended operational arena to have enough business growth in the coming years. The cost incurred in the venture In acquisition, the cost incurred would be the fair value of the acquired company. The outstanding obligations of the target company must be taken into account while carrying on the valuation process and zeroing down on the target company. Adding to this cost, the company can incur cost while going through restructuring procedures. The cost amount would depend on the intensity and altitude of restructuring. The Risk Associated Dell may have to face certain challenges and risks while going through the acquisition procedures. Sometimes in acquisition the acquirer may have to experience protests from the local employees as they deny the managerial control of the organisation. The organisation may have to keep certain local management personnel in their team to have better control and attain better trust from the local employees. Some other risk which can be there in global trading is exchange rate risk, interest rate risks etc. Dell needs to carefully formulate its business plans to hedge these types of financial and operational risks. Conclusion Undoubtedly Dell has been able to put a mark in its respective industry. Its competitive advantage and core competencies have enabled it to face the challenges and sustain itself in a competitive environment. The introduction of ‘build to order’ business model has successfully led the organisation to grab the position of the market leader in technology. “Over a four-year period, Dell's revenues grew from $2 billion to $16 billion, with a 50 percent annual growth rate. Earnings per share had increased by 62 percent per year. Dell's stock price had increased by over 17,000 percent in a little over eight years. In 1998, Dell's return on invested capital was 217 percent, and the company had $1.8 billion in cash” (HBS, 2003). These evidences are enough to prove the triumph of Dell’s business model. However, a number of its competitors are adopting the same business model and modifying it with more advanced supply chain management processes. To retain its competence over the competitors, Dell must get conversant with today’s competitive market and bring about specific modifications in the supply chain model but it should also ensure that its core competencies are kept intact. Reference Age Healthy. No Date. Environmental Threats to Healthy Aging. [Pdf]. Available at: http://www.agehealthy.org/pdf/execsum_0926.pdf [Accessed on April 13, 2010]. Central Intelligence Agency. 2010. United States. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/us.html [Accessed on April 13, 2010]. Ecommerce. 2010. Competitive Advantage. [Online]. Available at: http://ecommerce.hostip.info/pages/236/Competitive-Advantage.html [Accessed on April 13, 2010]. HBS. February 6, 2003. Dell Manages Profitability, Not Inventory. [Online]. Available at: http://hbswk.hbs.edu/archive/3497.html [Accessed on April 13, 2010]. Hoovers. 2010. Dell Inc. [Online]. 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