International Business - Dell Computer Corporation - Case Study Example

Introduction Trade has become increasingly global in some scope today and there are reasons for this. One is the advancement in technology including communication efficiency and modernization where people are migrating to live in areas where they feel they are comfortable. Increasingly, rapid technology lifecycles has increased competition among countries as to who can produce the best in the market hence the need to employ competitive marketing and business strategies (Dole, 2003) This paper will deal with Dell Inc. as a computer hardware and software company. It will investigate the current business strategies used by the company to conquer international markets, licensing and franchising, market strategies and ownership factors. The company Dell Inc. is an American computer hardware company which is based in Texas, U.S. The company manufactures, supports, develops and sells a wide variety of products and services including; PCs, data storage devices, network switches, software, computer peripherals etc. Dell Inc. is one of the biggest companies in the world but it has currently encountered a lot of competition from other players in the industry including IBM and HP. By the end of 2006, the company had an employee capacity of 78,700 throughout its branches all over the world. The company is owned by Michael Dell who, in 1984 while being a university student, founded the company in his dorm room. The company is currently a wholly owned subsidiary of Dell Computer Corporation Market entry strategy After deciding to enter oversees market a variety of options were open to the company. These options vary with cost, risk and the degree of control which can be exercised over them in terms of security. Dell Inc. uses the following two methods of international marketing especially in some countries, such as those in Europe where the countries have developed infrastructure, organized import duty regulations etc. But in developing countries where level of economy is low, the company uses the direct method of exporting. Exporting Exporting is the direct sale of domestically produced goods in another country and does not require that the goods be produced in the target country. An example of this kind of marketing is counter trade. Counter trade is the expansion of operations in markets where competition is less but currency based exchange is not possible (Hollensen, 2004). Direct method In this method, DELL Inc. may agree to build a plant in a certain country and either assembles or manufactures their products and then operates as a full entity in the target country. An example of this method of trading is the barter trade. Direct methods have the following disadvantages i. It is difficult to set price and service quality ii. 'Dumping' may occur since it is not covered by GATT iii. Inconsistency in specifications and delivery iv. Quality may not be of international standards becoming so costly to the customer and trader. Indirect method The method of marketing does not require that the company invests in production facilities in the country and therefore, it is cheaper. The only costs that will be incurred are the marketing, transport and government expenses. This kind of marketing require full corporation of the following players; exporter which will be in this sense Dell Inc., importer in the target country, transport agents and the government trade officers. This is the marketing of goods produced in one country into another. In this case, there is no direct manufacturing in the intended country but significant investments in marketing are required. DELL Inc. can therefore manufacture their products in either Europe or Africa and export them directly to these countries. The advantages for this method are; production is home based hence less risky, gives an opportunity to learn markets abroad, potential risks of operating abroad are minimized. The only disadvantage of this method is that the company is at the mercies of unscrupulous agents who make more profit than the company itself. Suitability of their methods of expansion Dell Inc. has since its inception utilized direct export only to the states within the U.S and it has employed the indirect export strategy to other countries for a long time. It has been able to set up assembly companies in Singapore, Mexico and Canada in the recent past but it is changing that tactic because they have realized that the strategy was failing. With a press release read out by the CEO, Michael Dell, the company has now opted to develop products and services depending on the customer's needs especially in Asia. The company have not utilized the management contract methods because it feels that it has had many legal suits that have affected its financial performance. The company has developed a wholly-owned factory in Xiamen China which serves as a pivot point for all the provinces in China. It is also a source point for the Asian markets such as South Korea. This has been made possible because of the flexible import duty regulations that china endows its neighbours. In the recent past, China has assisted Japan in promoting trade among the Asian countries in terms of providing transport access, shipping etc Many analysts in international business believe that the company has failed to utilize the best strategies available in the market so far. The notable prove of this, is the over-take in financial base of the Dell company by the HP Corporation in late 2006. The management of the company has been accused of failing to appreciate joint ventures as a means of getting into the fragile markets with a large customer base especially in Africa and Asia where the products are currently in high demand. The main disadvantages of the method used by the company are; trade barriers and tariffs add to costs, transport costs are usually high, access tom local information is limited and the company is viewed as an outsider; The advantages are; risks of investment is reduced, scale is maximized i.e. it uses existing facilities, the speed of entry into the international market is high Other suitable strategies There are many other strategies that can be used by the company to improve its international base and marketing. Many business analysts especially those in the technology sector would recommend that Dell utilises them if they need to remain competitive in the market. They include; Foreign direct investment (FDI) FDI is the direct ownership of processing, manufacturing or assembling facilities in a target country by a mother company. The company such as Dell Inc. can transfer resources to developing country which has a good customer base and then set up branches in any other regions or areas of the country. The resources include; technology, personnel and capital. The company will be able utilize the resources in the target country including in the human resources. Joint ventures The joint ventures are forms of market entry that allows for technology sharing and joint product development (Hollensen, 2004). The main advantage of joint ventures is to get proper political connections that will allow for favours to be achieved. It is usually suitable when; the market power, resources and size of the partner is small compared to the industry leaders. If Dell can merge or have a joint venture with any company which is still junior in Africa and then boosts its market power, it will be able to meet the demands in that particular region. The main issues that are usually sorted out during the discussions for joint venture are; agreement periods, pricing methods, ownership and control, local firm capabilities and technology transfer. Many marketers who have been in the business for international marketing for a long time believe that more than one mode of international marketing is suitable for a company. Companies such as IBM have in the past employed a multiple of joint ventures, direct exporting and indirect methods, franchising etc to meet the requirements of its customers. The choice of a particular method depends on many factors; the capital base available, the number of customers, the efficiency of reach, the government regulations and laws , protectionism and the number of competitors in that country. Licensing and franchising Franchising is about the application of economic endeavours in the area of product and services from the manufacturing, supply, processing, distribution and marketing. The company can be able to subcontract services from one company to be able to ease expenditures. On the other hand, licensing is not a standard document but depends on the parties involved; it can change in terms of how it is structured. It is a document to show the commitment of each and every member of the party. Both franchise and licenses are legal vehicles which are used to conduct businesses among different parties hence able to protect themselves from the any legal suits or disagreements. Effects of WTO and GATT Since the time WTO replaced GATT as the world's global trading body, it has continued to provide policies that are intended to make sure that no country has unfair trading practices over the other. GATT had at first developed stringent measures that would ensure that companies are taxed highly especially those considered to produce products which pollute the environment and increase global warming. Dell, being a company that produces computer hardware which needs recycling in order to keep the environment safe, has been negatively affected by the measures introduced by the organization In the U.S for example, the environmental agency had required that, companies producing electronic waste need to invest heavily in recycling programs. This has cost huge amounts of dollars in revenue for companies such Dell. The company has been struggling to ensure that it meets the requirements as set by the environmental agencies in the world especially in developed countries where the laws are stricter. On the other hand, the WTO has been ensuring that global trade goes on smoothly and predictably among all nations of the world. Types of market strategies employed by Dell Inc. P.E.S.T analysis P.E.S.T analysis has been used by Dell to analyze their external business environment. The simple analysis involves understanding the organization's political, economic, social and technological environments with reference to those who do business with the company. The analysis is used to investigate the way the export strategy will enable Dell Inc. to enter the Chinese market 1. Political-political factors may have a direct and indirect effect on the performance of the company. Some of the decisions made by the federal government of the U.S have impacted negatively on the operations of Dell. Take for example legal suits brought against it in 2001 and the decision to minimize the production and marketing of high performance computers to countries believed to be a threat to U.S security. Chinese market for example is best suited because of the fact that the U.S has strong ties with it in terms of cordial relations. Compared to other markets such as Iran and Russia where the U.S companies do not penetrate much, China is politically strategic to be a target market. This have had huge implications to the company 2. Economical- every business is affected by economic factors. Fiscal policy rates, interest arte policy, currency exchange rates, consumer factors, etc. It is possible that the U.S climate of the economy dictates how the consumer behaves in the society. If an economy is booming, recessing or recovering, the confidence of the consumer will automatically change. The Chinese economy is currently booming and it is the second largest in Asia hence Dell Inc. can export directly to the country. 3. Social factors-Forces within the society such as media, family and friends have affected the way Dell has sold its products. Most of the customers have been mislead to believe that products made from America are of high quality. This means that companies such as Dell have benefited heavily. Social factors affect our attitude, opinions and interests on the way we view products from certain companies. Other social factors that can promote export marketing for Dell Inc., is population of the market. The Chinese population which currently stands at about 0.25% of the world's total population will provide huge market potential for exported Dell products. 4. Technological factors- The way Dell operates its business has changed as technology changes. The internet for example, has assisted companies such as Dell to meet new markets and extend its global outreach. It has had a profound impact on the marketing mix strategies of many organizations. Business should keep in touch with changing technology and modernization in this ever changing world. With a booming technology, infrastructure, transport and other development factors that promote export trading will be possible especially if the company tries to trade with China Encirclement strategies This strategy is also called the envelopment strategy and is a more subtle, gentle, broader and a bit non-offensive but harmful way of attacking the competitor. Normally, this kind of attack is undertaken in two ways. One, introduction of a broader range of products that are similar to the competitor's products and each of these products will get a share of the same market the competitor is. In the long run, the competitor will be demoralized, weakened and discouraged leading to a state of siege of the competitor. This first method will ensure that full scale confrontation is avoided between the attacker and the target competitor. Secondly, the encirclement can also be based on market niches rather than the products themselves. In this case, the market share is liberated from the target competitor via the expansion of market niches that surround it. Porter generic strategies These are strategies relying on the dimensions of the strategic scope meaning the market penetration and strategic strength referring to the firms or sustainable competitive advantage such as cost leadership, product differentiation and market segmentation which are required to meet the challenges of the competition (Cinchona, 2005). These strategies include; growth strategies, innovative strategies, among others. Although they are believed to be the best in the market so far, they are yet to be applied by most companies but the Dell Inc. have been trying to use them to counter high competition. Conclusion Dell Inc. has employed good marketing strategies to realise its success. Being a company that was just born the other day and it has gone ahead to compete with companies such as HP and others. It combines both direct and indirect methods of exporting to reach the international markets. In addition, it employs the use of P.E.S.T analysis to measure its business environments with reference to their performance. Also, WTO and GATT have positively and negatively affected the business strategies employed by Dell in terms of strict policies which require millions of dollars to implement. References Cinchona, M.R., Ronkainen, I.A, (2005), International Marketing, 7th Edition, Thomson Dole, I. and Lowe, R, (2003): International Marketing Strategy; Analysis, Development and Implementation. 4th. Edition, Thomson Learning Hollensen, S. (2004): Global Marketing, a Market-Responsive Approach, 2nd Edition, Essex, and Pearson Education Kotare M and Helena K., (2004): Global Marketing Management, 3rd Edition, New York, John Wiley and Sons Read More