http://www.casestudyinc.

com/dell-supply-chain-case-study
Dells market share in U.S. and Worldwide (in Q1 2009) compared to other top PC maker

Dell impressed many in its early years with its distinct model of supply chain management, selling customized computers directly to customers to meet burgeoning PC demand. By using this innovative sales model, Dell became an industry and shareholders darling, a high-tech pioneer with seemingly limitless growth. Those days appear to be over: Dells profits and shares have dropped considerably from their peaks in recent times. Specifically, Chopra posited that the computer manufacturer would have to shift its longstanding direct sales model in the face of the PC businesss increasing maturity. Chopra suggested that to stay competitive, Dell would have to consider selling through retail channels such as Costco or local computer stores. About six months later, Dell announced that it would offer Dimension PCs and Inspiron notebooks through Wal-Mart and Sams Club. And in September 2007 Dell announced that it would take this channel strategy overseas, selling computers through Chinas largest electronics retailer. But what was Dells rationale for the recent sales model shift? To answer this question lets consider the argument behind Chopras assessment. In the article Chopra acknowledges that Dell could still enjoy competitive advantage from customizing computers and selling them directly to consumers, but notes that the market for such offerings has shrunk, largely because customer needs and related supply chain costs have shifted in the mature PC business. As such, Chopra endorses a hybrid model that embraces both direct and reseller channels for Dell, noting that the general lesson is that your choice of sales channel should depend on the type of product you are selling and its level of maturity. In separate communication Chopra is quick to note that he was not the only observer advocating a sales strategy shift for Dell; others, including several analysts, endorsed a similar model. Chopra presents two potentially complementary routes by which Dell could go retail. The first, a hybrid business model, combines direct and retail sales channels to serve both broad segments of the computer market: those seeking standard models and those placing a premium on customization. Using this approach, Dell would continue selling direct but also offer a selection of pre-configured computer models through retail stores. The second model, most effective when customization is valued, involves the retailers performing the final product configuration, thus decreasing inventory costsbecause supplies are maintained in component formbut increasing assembly capacity costs. Chopra notes that this model has been used successfully in India, where customization is valued and technicians inexpensive to employ.

Figure 1: Dell stock price, October 2005 to October 2007 http://insight.kellogg.northwestern.edu/index.php/Kellogg/article/a_new_channel_strategy_for_dell Abstract: This case is about one of the leading personal computer (PC) manufacturers, Dell Inc. The case discusses Dell's business model and distribution strategy. Dell, which was known for its direct selling model that was backed by strong supply chain management practices, lost its market leadership to HP (Hewlett Packard) in 2006. In the mid- 2000s, some analysts had criticised Dell for sticking to its direct-only business model. According to them, the business model that had made Dell so successful in the past was not as effective as before and the company was losing its competitive edge. In 2007, Dell announced its intention of moving beyond the direct-only model that it had zealously followed until then. Subsequently, the company rolled out its retail as well as channel partner initiatives. Though some analysts welcomed the move, others felt that significant challenges lay ahead for the company. The teaching objectives are to: (1) study Dell's direct-only business model and understand the advantages and disadvantages of such a business model; (2) understand the reasons behind Dell's decision to move beyond its direct-only model; (3) understand the issues and challenges faced by companies in managing the supply chain and in launching new channel strategies; (4) understand the issues and challenges faced by companies making a transition from a direct selling model to a multichannel model; and (5) gain insight into the fast changing global PC market and understand the competitive landscape. The case is meant for MBA / MS students as part of the business strategy / sales and distribution management / supply chain management curriculum. The teaching note includes the abstract, teaching objectives and target audience, teaching methodology, assignment questions, feedback of case discussion and suggested readings and references. It does not contain an analysis of the case.

Corporate Mass Customization High-performance products High-performance products. The standard, then, was set by . The standard, then, was set by IBM, and that was what customers wanted - and what Dell IBM, and that was what customers wanted - and what Dell offered.

offered. Direct relationship with customers Direct relationship with customers. Dell had an ongoing . Dell had an ongoing dialogue with customers. The information gave the company a dialogue with customers. The information gave the company a competitive advantage in tailoring its products and competitive advantage in tailoring its products and communications to customer thinking. Direct marketing also communications to customer thinking. Direct marketing also avoided dealer markups. This remains true today - even with avoided dealer markups. This remains true today - even with the prices of PCs declining, such rates may still be as high as a the prices of PCs declining, such rates may still be as high as a quarter of purchase price. quarter of purchase price. Efficient and flexible manufacturing Efficient and flexible manufacturing. The fledgling firm didn't . The fledgling firm didn't have much capital and the issue of inventory was a serious have much capital and the issue of inventory was a serious one. Although the firm now garners most of the market share, it one. Although the firm now garners most of the market share, it continues to monitor inventory levels, practicing JIT to remain continues to monitor inventory levels, practicing JIT to remain flexible to build machines to customers' orders. flexible to build machines to customers' orders usin

Issues:
Study Dell's direct-only business model and understand the advantages and disadvantages of such a business model. Understand the reasons behind Dell's decision to move beyond its direct-only model. Understand the issues and challenges faced by companies in managing the supply chain and in launching new channel strategies. Understand the issues and challenges faced by companies making a transition from a direct selling model to a multichannel model. Gain insight into the fast changing global PC market and understand the competitive landscape.

The Direct Model has been a revolution, but is not a religion. We will continue to improve our business model, and go beyond it, to give our customers what they need."1 - Michael Dell, CEO, Dell, Inc., in 2007 On January 31, 2007, Dell's founder Michael Dell (Michael) took over the position of the CEO replacing Kevin Rollins (Rollins). Soon after taking over, Michael revamped the top executive order and followed this up with various changes in strategy in a bid to turn around the company. One of the most significant changes brought about was its willingness to move beyond its direct-only business model. On the one hand, Dell formed alliances with leading retailers such as Wal-Mart Stores,

Inc.8 (Wal-Mart), Carrefour SA9(Carrefour), etc., while on the other, it also started a formal channel partner program for value added resellers10 (VARs).

They also noted that the company had been secretly working with some channel partners even before 2007. Dell had also made limited forays into retail in the past which had not been too successful. Analysts expected the company to indulge in a lot of activity through all the channels: stores, kiosks, and VARs, in addition to its direct selling channel. "Call it the Gatlinggun approach,"11,12 said Roger Kay, principal at Endpoint Technologies Associates.13 While some analysts welcomed Dell's decision to move beyond its direct selling model, others felt that the company was taking a huge risk by straying from what had made it so successful in the PC industry... BSTR280
MIGHTY HIGH TARGET. As things stand, Dell's growth prospects are less than stellar. Even after recent downward revisions, the Street's expectations might still be too high. While most analysts predict 20% earnings growth in the next few years, 16% to 18% might be more realistic, says Zack Schroeder, an analyst with BB&T Asset Management in Raleigh, N.C. And while the consensus projects sales to rise 16% in that period. Schroeder believes 12% to 15% will be more like it. Such growth concerns have sent Dell's stock down 7.5%, to $39, since January. Dell claims that growth will come. After the market close on April 6, Dell reaffirmed its guidance for the fiscal first quarter, when it expects to earn $0.37 a share, up 32% from the prior year, on $13.$4 billion in sales, a 16% increase on the yearago quarter. The company also announced it will spend $2 billion on its stock repurchase program in the current quarter, more than double its prior guidance. During its analyst conference slated for Apr. 7, Rollins is expected to outline his plans for turning Dell, with $49.2 billion in revenue last year, into an $80 billion company within three to four years. That target may take longer to reach if Dell's growth slows down.

Dell India
TOO FAR AWAY. Dell's lack of retail presence could hurt as well. In desktop and notebook PCs -- which contribute 79% of sales -- much future growth will come from outside of Dell's U.S. stronghold, where PC sales have slowed. About 80% of total PC unit sales from now to 2010 will come from developing markets like China and India, according to tech consultancy Forrester Research. But Dell is struggling there. Here's why: Because of cultural and technological reasons, customers in those markets buy computers from stores and system integrators, says Forrester analyst Simon Yates. That's not surprising, considering that in India, where PC ownership should jump from 7.9 million units to 78 million by 2010, most people don't have Web access. Many rural areas lack phone lines, and most people know little about computers. So they go to local stores or computer specialists to ask for advice and to make their purchases. And because Dell doesn't have a strong presence there, consumers buy their computers from local heavyweight HCL

Technologies, HP, and IBM, whose PC division is now owned by China's Lenovo. As a result, Dell gets a measly 4%

share China's PC shipments, according to tech consultancy IDC. THREE OPTIONS. The consequences of that reach far beyond PCs. Today, more than 80% of Dell's printers -- a product line that has generated lots of buzz among financial analysts in the past year -- are sold or given away with purchases of PCs, says Charles LeCompte, president of imaging consultancy Lyra Research in Newtonville, Mass. Thus, the lower the PC sales growth, the lower, potentially, are the printer sales. Bottom line: Dell has three options. One, it could stick with the direct-sales model, waiting for markets like India and China to mature technologically. Two, it could exit the PC business, as IBM has done. Or three, it could establish more of a retail presence in developing countries to ensure that it grabs a chunk of their PC sales in the next few years. That can be done through a partnership with or purchase of a local manufacturer already commanding a substantial market lead over U.S. companies in countries like India and Russia. Or Dell could set up relationships with retailers and system integrators in these countries. For the time being, however, Dell says it's sticking with option No. 1. "We're completely committed to the direct-sales model and have no plans to go retail outside of the U.S.," says a Dell spokesperson. MURKY OUTLOOK. Indeed, investors wouldn't likely be enthusiastic about any moves away from the direct-sales model. After all, that could reduce Dell's margins. Today, at 8.6%, they're way higher than HP's 5.4%. However, much faster revenue growth that might result from modifying that model could cover up some of that disappointment. More important, it might allow Dell to reach its $80 billion target faster. Of course, even if Dell's growth slows as expected, chances are investors will stick with the stock. After all, most other tech companies can't grow above the high single digits, says Larry Eakin, senior director of large-cap-growth equity at Armada Funds. Yet, Dell shares have already lost some ground, and for the first time in years, the future looks murky. Times have changed. Maybe Dell should, too.

Dell's Business Model

Individual Assignment 1: Dells business model I. Dells history and performance. Dell Computers is one of the largest Personal Computer (PC) manufacturers in the world and was founded by Michael Dell his University of Texas dorm room in 1984. From the beginning, the company has served its products directly to end customers without retailer outlets, at a significantly lower price than its rivals. In 1988, Dell raised 30 million USD in its IPO, increasing its market capitalization from $USD 1,000 to USD 85 million. In 1989, Dell entered mobile computing industry by introducing the 316LT, the companys first notebook, which soon became a core product liner for Dell. In 1993, Dell joined the top five biggest PC makers worldwide. According to Willet (2007), during the Internet boom period, direct sales brought Dell the annual growth rate of about 54% in 1990s. In 2001, Dell became the biggest of PC maker in term of global market share. After high growth rate period and facing difficulties in management, Dell firmly developed it position in the personal computer sector by pursuing a low-cost strategy. Despite being taken the number one position by the Hewlett Packard (HP) in 2006 and facing fierce competitions by other rivals, Dell has maintain its relatively high growth rate of revenue and profit. The Texas-based company accounted for 29.6% market share in the United States in 2007. In the past 10 years, Dell maintained it high growth rate of 40% although high- tech industry faced some serious crisis.

Source: Dells annual financial performance, Yahoo finance! II. Dells business model Obviously, Dells excellent performance has made it become one of the most profitable companies in personal computer industry which condenses high pressure of competition. This brilliant performance can be explained by Dells unique business model with the following characteristics: 1. Low- cost competitive strategy: This strategy is based on the following key elements: - Direct selling: Dell sells most of it products directly to end users, thus helping the company save on retail markups. The value of distribution through retailers reduces as PCs become standardized on the Window- Intel platform. Dell was the first company to exploit this trend. In 1996, Dell began its selling products via internet. After that, Dells online sales has accounted for a significant part of its annual revenue. Model 1: Dominant Model, model of other PC companies (Arms length transactions from one entity to the next): Model 2: Dells direct model (eliminate time and cost of third party distributors): - Third- party service: Dell used two low cost maintenance services of telephone-based and third party maintenance. Via comprehensive electronic maintenance system, Dells technicians could diagnose and help its customers settle most of cases. In case of necessity of the on-site maintenance, Dell hired third party services from office equipment companies such as Xerox. This strategy helped Dell avoid investing in an expensive service network without compromising on service quality. - Low accounts receivable: Dell can reduce its accounts receivable time to minimum by encouraging customers to pay by credit card or by electronic payment at the time of purchase. - Focused investment in research and development (R&D): recognizing that the most of technical innovations in PC sector were launched by component suppliers and software producers, Dell has relied on its suppliers technologies and focused on R&D to improve its assembly lines, manufacturing, sales, services and high velocity organization to quickly respond to changes. Michael Dell claims that a great deal of R&D spending is to protect proprietary and it does not benefit customers.(Chaffin 2003). Dells R&D does not follow things that other companies have invested. 2. Web-based business applications: In June 1996, Dell was the first firm in the PC industry to sell products over the Internet. Surprisingly, within three months, Dell had become one of the largest Internet commerce firms. Six years later, Dell was the largest online retailer of goods, accounting for 22 percent of all Internet retail sales (Fields 2004, p.187). Additionally, the Internet applications reinforce Dells capacity to manage collaborative relationships among Dell, suppliers and customers. Dell implemented a supply chain integration project known as DSi2, which was originated from the idea of building its business with the Internet at its core (Fields 2004). In a strategic sense, the project was to enable Dells demand and supply planning, parts procurement, build-to-order production schedules, customer order intake, and product delivery processes to operate on a single but flexible Internet-based information platform. In this way, due to the Internet communication, all involved parties could obtain business information in real time and Dell could reduce costs of inventory and logistics. Fields (2004, p.78) also notes that almost 90 percent of Dell purchases from suppliers were occurring through Web-based interaction by mid 2001. 3. Customer-centric business process: Through the direct model Dell can receive direct orders and immediate feedbacks from customers about its products without via distributors. Consequently, Dell is likely to modify their products, forecast demands, and adapt to market changes faster than other competitors are. Fields (2004) assessed that other PC manufacturers mainly work with wholesalers to get the demand of customers, which caused the delay in catching the right response from the market. On the other hand, Dells build-to-order manufacturing allows mass customization in Dells products, which benefits customers, especially corporate customers, in terms of offering a wide range of configurations and designs that fit their business demand. III. Why to choose Dells business model as object of the assignment. Obviously, Dell poses a unique business model in comparison with other companies in the PC industry. And as a result of the above business model, Dell has achieved a significant cost and focused customer advantages over its

rivals. These advantages has helped Dell maintain highly constant growth rate, increase market share, and get very high profitability in an industry that characterized by rapid technology changes, significant supplier and buyer power and intensive competition. Since the business model of Dell involved activities that are highly interrelated and involved continuous organizational innovations, Dells business model was difficult to replicate, making its competitive advantages sustainable. Dells success evoked its competitors such as IBM and Compaq to imitate parts of its business model. However, no rival has been able to replicate Dells business model successfully. It is clear that Michael Dell became one of the youngest billionaire thanks to his clever business model, which is different with other competitors in the PC industry. Therefore, Dells business model is interesting to do research. The high stock price of Dell has been trading on New York Stock Exchange proves that investor continues appreciate Dells competitive advantage and its successful performance will likely continue in the future in spite of fierce competition in PC industry. References: 1. Allison, K., Kwong, R. 2007. China chapter of Dell's retail adventure opens new analysis- Computer maker's latest move is part of the overhaul of its long held direct sales model. Financial Times, 25 Sep, p.26. 2. Ames, B. 2007. Lenovo launches 99 PC. http://www.pcadvisor.co.uk/news/index.cfm?newsid=10307. Accessed 14 March 2008. 3. Barrett, L. 2007. Dell Finds A Gome In China. http://www.internetnews.com/bus-news/article.php/3701411. Accessed 13 March 2008. 4. Chaffin, B. 2003. Michael Dell Defends His Company's R&D Record. http://www.macobserver.com/article/2003/11/24.5.shtml. Accessed 16 March 2008. 5. Coates, P. 2006. Dell goes retailand why thats a tough sale. Times, 31July, vol.168, issue 5, pp. 56-57. 6. Ewing, J., Bush, J., Lee, L., Zegnal, J. 2007. Where Dell sells with brick and mortar. Business Week, 08 Oct, p.78. 7. Fields, G. S. 2004. Territories of Profit: Communications, Capitalist Development and the Innovative Enterprises of G.F. Swift and Dell Computer. Stanford University Press, United States. 8. Gonsalves. Dell to sell PCs in Chinas largest electronics retailer. http://www.informationweek.com/showArticle.jhtml?articleID=202101030. Accessed 18 March 2008. 9. Jarvis, J. 2007. Dell learns to listen. Business Week, 29 Oct , Iss. 4056; p.118. 10. Pearlson, K. & Yeh, R. 1999. Dell Computer Corporation A Zero-Time Organization. University of Texas at Austin, United States. 11. Shah, A. 2008. Dell Tops HP as Largest PC Supplier in the U.S. http://www.pcworld.com/businesscenter/article/141449/dell_tops_hp_as_largest_pc supplier_in_the_us.html. Accessed 18 March 2008. 12. Willett, B. 2007. Dell falls on positive earnings but high price to book ratio. http://www.marketoracle.co.uk/Article2941.html. Accessed 18 March 2008. --

Dell Strategy And Quality

STRATEGY Dells business strategy is based on a system of just-in-time inventory, mass customization, and exceptional customer service. Dell is able to cut costs by using just-in-time inventory, give consumers choices when are they building their computer by utilizing mass customization, and convince consumers to return to Dell by providing exceptional customer service. Dell is a strong believer in just-in-time inventory and mass customization, which they refer to as the direct model. The direct model is based on listening to the customer, responding to the customer, and delivering what the customer wants when they want it. The direct model is based on direct selling without any retail selling. You will not find any of Dells computers at Frys, Best Buy, or anywhere else. Many of Dells competitors have to guess what the customer will think is popular,

but not Dell. The direct model allows Dell to build a computer after the customer has already placed the order. By developing and building only the systems that customers want when they want them, they almost eliminate the costs associated with buying too many components, having to store them, and then selling the surplus at a loss. In 1999, Dell was storing only six days of inventory. This enables them to save time and money and allows them to pass the savings onto the customer. Dell has basically eliminated the middleman and it has proven to be the most effective way to sell computers. Dell has always sold their computers directly, but the Internet greatly enhanced the direct model. Originally, Dell took orders over the phone, then face-to-face selling for their larger clients, and since 1996 they have been selling online. They launched Dell.com in 1994, but at that time, it was simply a technical support site for early adopters of the Internet. Shortly after the launch of Dell.com, Dell realized that the Internet was a perfect extension of the direct model and they implemented an online ordering system in June 1996. By December 1996, Dell.com was generating sales of about $1 million per day. In the year 2000, Dell.com reached sales of $50 million per day. Dell believes in purchasing quality products from quality suppliers. Originally, Dell and many other computer companies were forced to build their own computer components, such as hard drives, CDROM drives, and others. As the industry grew, companies that specialized in computer components started to surface. Dell decided it would be best to purchase components from suppliers instead of manufacturing the components themselves. Dell has learned that they can actually gain more control over the quality of the their products than if they were building the components themselves because they are able to choose from the best suppliers in the world. They are able to save money on research and development and focus on adding value for the customer. Since Dell uses a just-in-time inventory system, it is important that they can rely on their suppliers. As mentioned earlier, Dell has only about six days of inventory. If a major supplier could not deliver their products, Dell would be in serious trouble. Dell originally started out with over 140 suppliers, but now they have less than forty. Dell also believes in keeping suppliers close by. This lowers shipping costs and shortens the lead-time of the product. When Dell decided to take the business global, they told their current suppliers that they needed to become global suppliers and that they must develop the capacity to server Dell around the world. Some of the suppliers followed this advice and immediately began building factories near Dells locations around the world. For example, one of their suppliers in Ireland built factories in Malaysia, China, and Texas, directly next to Dells plants. Dell is aware of the needs of their customers. They know that not all of their customers have the same needs. An individual or small business may only need one or two computers and not often need service or technical support, but it is completely different with a large business. Dell provides different levels of sales and technical support depending on the customer. For example, Dell has over thirty people on-site at Boeing that provide software installation, peripheral merging, warranty maintenance, asset recovery, and recycling of obsolete products. Basically, Dell handles everything that Boeing or resellers would have to deal with themselves. QUALITY CONTROL Quality control is an important issue at Dell. Dells main method of promoting quality control is by forming strong relationships with its suppliers. Dell teaches their suppliers their requirements,

shares testing and validation data, and continuously helps them improve. One of the ways that Dell measures a suppliers performance is by using a supplier report card. In this report card, they tell the supplier how many defects per million they will tolerate, outline what they expect to see in field performance, on the manufacturing lines, and in delivery performance, and the ease of doing business with the supplier. The report card also tracks the suppliers progress compared to what Dell expects of them and how reliable the supplier is compared to other suppliers of the same products. Dells goal in 1999 was to achieve fewer than 1,000 defects per million finished computer systems. This means that individual components must have a defect rate of 0.00001 percent. This is a difficult task for a computer product, since the components are from many different suppliers, but Dell has been able to achieve this goal and they are constantly looking to improve it.
Dell has transformed the computer industry in recent years, establishing the direct sales model that many have tried to copy but without Dell's success. Dell moved away from the model whereby PCs were sold by manufacturers to wholesalers and dealers before reaching the buyer, going direct to the buyer. This has numerous advantages which result in lower cost to Dell, lower cost to the buyer and higher profitability, such as: Significantly lower inventory requirements. Ability to respond to consumer demand changes instantly. Getting closer to the consumer. Ease of introducing new technology. No need to dump "old" technology in the channel." An efficient manufacturing system with just-in-time inventory ensures that not only are the costs of holding inventory low but there is no risk of holding out-of-date components. This means that, as new technologies or faster components emerge, Dell is able to integrate them more or less instantly into its products while competitors have to dispose of older products first. The customer focus was routed through 360 degree feedback to employees and stock options called ROIC (expanded as return on invested capital). Employees themselves were actively part of the organizational decisions and policies. This created a system of checks and balances at every level and accountability was perfect. Closeness to customers is also very important. Through dealing direct, Dell is actually talking with the customers, not the dealers. This means that they are better able to ascertain customer demands and requirements and adjust products and services accordingly. What is interesting is how the approach to consumers changed over time, increasing the detail of the segmentation so that appropriate products and communications strategies could be developed for customer types. Within that, the direct model with every PC manufactured for a specific consumer enabled much more accurate response to consumer needs. Consumer focus and the direct model has also enabled Dell to broaden its product range, for example, to include servers. It had recognized that competitors were using the high price of servers to cross-subsidize PCs. By selling servers direct, and at a much lower price, it was able to force competitors to reduce server prices, thus preventing them from subsidizing PCs. Dell seeks to change the whole relationship to suppliers of parts and components from "outside suppliers" to "inside members of the Dell family." For example, Dell computers use Zip Drives. So Dell has gone to pains to bring Iomega, the company that manufactures Zip Drives, right into the internal corporate planning and development areas of Dell just as if they were fellow employees, and has worked to bring about an inventory relationship which is as seamless as possible. It is an attempt to move from a "them and us" status to an "all of us together" status, and it has worked consistently well. Above all, the company's early move to Internet sales is a key success factor. Dell recognized the benefits of the Web early on and, increasingly, its customers have moved towards configuring and ordering PCs over the Web. Again, this is very much geared towards reaching different types of consumers with different and more appropriate offers. In Essential Corporation, the value chain consists of many primary and support activities. Included in the primary activities is inbound logistics, which consists of transportation of products. Another primary activity, operations,

includes the biggest manufacturing plant layout of Essential, which is located in Logandale (the suburb of Grandville). Another plant location was the Hangar, which is the R&D lab for Essential. At the Hangar was where the building and testing of the system took place. The next two primary activities, marketing and sales, and customer service were also in need of much improvement. For example, there was a new product that Essential had been working on, the SOS, which they kept changing and enhancing because they were encountering problems with. These changes kept Essential from producing their new product, which they thought was going to be their breakthrough product. Due to the outbound logistics inadequacy, the organizations reputation was being threatened by their customers. Furthermore, they were lacking their motto of providing the best customer service because their customers were complaining. Moving onto Essential Corporations support activities, procurement was yet another area that Essential needed improvement on. They had long-term relationships with their suppliers, however, when they could not meet customer needs, they did not think of alternative sources for obtaining the needed parts or products. Another support activity on Essentials value chain was their R&D activities. They seemed to be taking too long with the development of their new product, the SOS, which was their primary objective and what they thought was going to better their business. In addition, the relationship between the R&D department and all other departments seemed to be lacking communication. Another support activity, their human resource management, seemed to have experienced a high turn over rate with their employees. There had been people who had quit Essential because of the lack of communication and also because employees felt intimidated by management. In my view, Dell has the right attitudes to get things done the right way. Essential is definitely working harder to get better and I think they succeeded in making things right. Dell, Michael; Fredman, Catherine "Direct From Dell" Strategies that Revolutionized an Industry (2000) Collins Paul, Dan and Cox, Jeff "The Cure: Enterprise Medicine for Business" (2003) Wiley

nternational Business Analysis

International Business Analysis Table Contents Introduction 3 Research, Objectives and Motivation 4 Company Overview 4 Literature Review 6 Porters Diamond 6 Competitive Challenge 7 Dells Advantage 14 Bartlett and Ghoshals Transnational Typology 15 Sources of Competitive Advantage 15 DELL Competitive Advantages 16 Changing for new economies of scale 18 Government, laws, regulations and policies 21 Bartlett and Ghoshal framework 21 Hofsted's Cultural Dimensions 22 Porters Diamond Of National Advantage 27 Conclusion 31 Competitive challenge 32 Collaboration Challenge 32 Culture Challenge 32 References 44

Bibliography 50 Introduction Dell is considered a very successful company. According to Govindarajan and Gupta (2005) one of the successes is its customer-direct concept that has been practiced since the companys inception. The concept involves dealing with customers directly and not through a third party, which helps maintain the quality of the relationship with its customers and the products. In addition, this concept allows Dell to eliminate unnecessary inventories, warehouse space and storage expenses. Dell succeeds by expanding its business, which can be measured by how it creates relationships with other big businesses, such as Walmart, Boeing, and Ford. Dell expands its business by providing products other than computers, for example, LCD TVs, digital cameras and financing services. Dell possesses a unique ability to manage its business well enough to continue down a path of notable growth and success in a fiercely competitive industry. The Companies commitments to reducing costs, developing its products to meet customer demands, and providing the best value to its customers are some of the ways that continue to drive the growth in Dell. Efficiencies in Dells direct business to personal customers and development of its appeal to enterprise computing customers also contribute to the success and growth of the Company. Dell follows a textbook model of effective management by incorporating planning, organizing, controlling and leading within its organization. Planning is setting goals and deciding on courses of action, developing rules and procedures, developing plans, and forecasting (Dessler, 1998). Organizing entails identifying jobs to be done, hiring people to do them, establishing department ' groups ' teams, delegating or pushing authority to subordinates, establishing a chain of command and coordinating work (Dessler, 1998). Controlling is setting standards, comparing actual performance with these standards, and taking corrective actions as required (Dessler, 1998). Lastly, leading means influencing other people to get the gob done, creating and sustaining a vision of direction and improvements, maintaining morale, molding company and group culture, and managing conflicts and communication. These are the four basic functions of management. Research, Objectives and Motivation This report focuses on the topic of Dells international business. This report is going to analyse Dells strategies for International Business in the light of following Porter's Diamond Bartlett and Ghoshal framework Hofsted's Cultural Dimensions Company Overview Dell was a corporation that had been formed as a result of the PCs open design. In 1983.At Dell new product groups and customer segments were formed to manage exploding opportunities, and new employees were hired. In the fourth quarter of 2000, the growth came to a screeching halt. Dell along with its rivals saw a slump in the stock price and market capitalization. In spite of the slowdown and Dells significantly reduced growth targets for 20012002, the companys top management remained supremely confident of Dells future success. Some in the industry however believed that the hyper expansion phase of the industrys growth was over, and that the players would have to adjust their strategies to reflect the commodity nature of the environment. In addition to continually improving its position in PCs the dell companys leadership was aggressively pursuing a multi-growth categories (storage and server), opportunities in the service side and to expand in the international market. Literature Review Porters Diamond Porters Diamond of National Advantage attempts to explain why certain companies are more stable and more capable of innovating than others and if Dell uses this diamond before making their strategies for International Markets they will be able to study the market but also will be able to align their business goals and objectives through better strategies. Porter uses the Diamond to demonstrate the main factors required to survive in an industry and explains that each point of the Diamond reinforces each other through co-operation and networking. For an company like Dell to remain strong, it must be dynamic, able to change and be embedded in the local economy.

[pic] Competitive Challenge Competitive advantage is a companys ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors. Comparative advantage resides in the endowments of a particular region. These include land, natural resources, labour and the size of the local population. Michael E. Porter argued that a nation can create its own endowments to gain a comparative advantage. Created endowments include skilled labour, the technology and knowledge base, government support, and culture. Porters diamond of national advantage is a framework that illustrates the determinants of national advantage. This diamond represents the national playing field that countries establish for their industries. Fundamental Analysis Dell, Inc is primarily a designer, developer, producer, marketer, and supporter of desktop, portable, and enterprise computers. As well, Dell provides IT support and services. Dell competes in three major markets: North America, Europe, and Asia. The company appears attractive in light of a combined analysis of the following four key measures: Relative competitiveness, prospects for growth, current earnings, and business stability. Expenditures will also be considered, as they are an important secondary confirmation of growth potential and business cost. Value Chain Costs Dell has very effectively streamlined its operations; all production processes have been calculated according to the principles of JIT manufacturing. This has resulted in improved efficiency. Dell production now has extremely low relative transfer time due to strict inventory control, and high productivity. Dell has also extended their efficient management techniques to the other aspects of their value chain, and has in-sourced these processes. The resultant efficient structuring has resulted in reduced costs-to-market and a higher profit margin. Growth: The Future Prospects for growth appear favorable: The last three analyst initiations projected FY 2005 earnings to be 1.22, 1.25, and 1.45, respectively (1.307 average). With the trailing twelve month EPS at .909, these estimates call for growth over the next two years to be 17.5% per year. Consensus estimates call for 2005 earnings of 1.21. The difference between these numbers increases the likelihood of increasing consensus earnings estimates, a catalyst for stockprice appreciation. Valuations Valuations appear attractive: The stock trades at $34.41 per share, or at 36.08 times trailing twelve month EPS, well below the companys 5-year average P/E ratio of 51.96, although this is reasonable, given decreased earnings growth expectations. The company trades with a much lower P/EG ratio than competitors; the company has a P/EG ratio of 2.64. For comparison purposes, competitors HPQ and AAPL have P/EG ratios of 3.295, and 8.24, respectively (based on 5-year EPS growth projections, and trailing earnings). Capital Expenditures It is expected that DELL will spend approximately 300 million on capital expenditures this year, in line with the prior year. The money will be spent on expansion and research and development. This is neutral information, consistent with expectations. Financials Dell has a market capitalization of 88.24 billion, has earnings of 3.45 billion (EBITDA) for the trailing twelve months, carries 5.12 billion in cash, and 506 million in debt. The company is sufficiently capitalized to proceed with operations and planned capital expenditures

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Customers Dell offers in-person relationships with corporate and institutional customers; telephone and Internet purchasing; customized computer systems; phone and online technical support; and next-day, on-site product service. Dellss products: PC, Severs, Storage and printers, were only bought for homes, offices and educational centers. But now, the new strategy expands the segment, adding all this new technology to Dellss portfolio, the company massificates and products are for everyone in the planet. Key Competitors HP A year has passed since the controversial merger between Hewlett-Packard "HP" and Compaq was initiated. The results to-date have been better than the skeptics and the opponents of the merger predicted. This was most evident in the cost savings area where HP has already reached $3.5B in annualized savings versus its forecast of $2.5B in 2004. The company did well in constructing a detailed merger process, and then executing it with diligence and decisiveness. This accomplishment was especially significant in an environment where revenue growth had stagnated due to the overall economic slowdown, and in particular, the market recession in the IT sector. The critics of the merger point to the lack of revenue growth as proof that the merger was ill conceived. It is true that a mega-merger cannot be justified and sustained solely on cost reductions. It has to prove that the merged resources and collective product offerings are stronger and more competitive than the sum of the two companies operating independently. From a product and technology portfolio perspective, the new HP is better positioned in the market. Compaq brought strength in desktop PC, handheld devices, storage, high end servers, consulting and services, and the direct selling model to better compete with Dell. The resulting company did move quickly to sort out the product overlaps and eliminated the weaker ones regardless of which side they came from. This allowed them to avoid protracted internal debates and uncertainties for their customers. It has also contributed to their ability to align the organizations quickly and achieve the cost reductions ahead of plan. It is true that HP has shown little revenue growth during the past four quarters. However, that was true of the overall IT market sector, especially in the enterprise area. Telecoms have and should remain weak due to overcapacity, pricing deflation, and a lack of significant new revenue sources. The same was true for the other sectors of the technology industry, but some are beginning to emerge from it, albeit at a slow pace. IT spending should pick up as companies invest again to get more productive use of their technology, to refresh their technology infrastructure, and to implement new business models driven by new technology. For HP, the test is whether or not it will be able to grow its revenues when that happens, and more importantly, whether it can gain market share against its key competitors IBM and Dell. IBM The number one competitor in Dellss view is IBM. Emotionally, being number two to IBM is a good reason to gain on IBM, but the challenge is significant. IBMs business has shifted its revenue and profit growth during the past decade from a dependence on hardware, to solutions/services. It was recognition of the fact that as customers move away from proprietary systems, (which was IBM's differentiation), towards open standards, hardware was becoming more of a commodity, which favors low cost producers. IBM was not one of them. In addition, commodity buyers do not have strong loyalty to their suppliers. However, solutions and services carry unique characteristics and values from the supplier to the customer, and therefore, they are differentiators against competitors. They support higher margins and have higher growth prospects because customers will depend on suppliers to provide complete solutions, ongoing support, and an increased trend towards outsourced management of their IT. To support a solution-selling model, IBM has chosen to invest heavily in software, not the packaged applications, but primarily middleware upon which the applications sit. This was an important strategic decision, because having control of the middleware made it easier for IBM to manage the integration of the third party applications. It is more effective to deliver solutions working

with one major outside party than two outside parties. Recent evidence of IBM reinforcing this direction was the acquisition of the Price Waterhouse consulting business and the selling of its storage business. HP has been working to boost its consulting/solutions revenues in its enterprise business for some years including its failed acquisition of the same PWC unit in 2000. With the merger of Compaq, HP has acquired significant assets in these areas, but it still is far less than what IBM offers. Future acquisitions in this area are likely with potential targets such as EDS and Unisys. In the software area, HP has not had good success in the past, with the exception of the Open View network management platform. It had good technologies but could not turn them into commercial successes due to a lack of effective software business management process. Has the Compaq merger brought new competence in this area? If not, HP must continue to work with multiple partners to deliver complete solutions, which can put it at a disadvantage vis--vis IBM, which has control over more pieces of a total solution. In the IT services outsourcing area, HP has made good progress with the recent high profile wins of customers such as CIBC, Procter and Gamble, Nokia, and others. The question is, at what cost? These are long-term contracts; therefore sacrifices made in margins today should carry forward for years to come. The good news is that HP has to be taken as a serious player in this growing business trend and will be given the opportunity to compete for future contracts. [pic] In this DELL Model chart we can see their distribution chain process, and what they can achieve becoming the owner of their core business by processing all their production, plants and other processes without the risk of sharing confidential knowledge, remember that Research and development is one of the key tools for their absolute advantage.

Dells Advantage Dell is a formidable competitor to HP an IBM, not only in PCs, but also increasingly in other areas including printers, storage, and handheld devices. Dellss success grounded in its direct selling business model is well proven. Dellss direct model has a 4 to 6 percentage margin advantage over HPs historical indirect channel model. One has to assume that the manufacturing costs are similar for similar products, given that the products are based on standard hardware and software components and are manufactured by many of the same contract manufacturers or ODMs. Both HP and Dell have such sufficient large unit volumes that it is questionable that either can gain significant cost advantages through higher volumes. So we believe HP has no choice but to move more aggressively towards a direct model and the Compaq merger is a catalyst in that effort (as Compaq was moving fast in that direction prior to the merger). It is a difficult transition for HP, as it has to be very careful not to alienate its long-standing channel partners. HP should have a viable PC business as the market will want an alternative to Dell, so the continuing challenge is how to make it a sustainable profit contributor to the company. Dell will be expected to use pricing pressure to gain market share globally as long as it enjoys those margin advantages. Dell has now entered into the low-end printer business with its direct model, clearly aimed at challenging HPs major profit contributor. Can Dell have the margin advantages that it enjoys in PCs in printers and supplies when it has to OEM them from Lexmark or others? Probably not now, but it has the resources to become a serious competitor over time. However, HPs brand image in printers and its commanding global market share in excess of 60% pose a very strong line of defense against Dell and other competitors. HPs imaging business should continue to do very well under a very experienced and seasoned management team.

Bartlett and Ghoshals Transnational Typology |Strategic Objectives |Sources of Competitive Advantage | | |National Differences |Scale Economies |Scope Economies | |Efficiency in |Exploit factor cost differences |Scale in each activity |Sharing investments and costs | |Operations |Low coordinator costs |Integrating online ordering |Future trend of cutting price of |

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|Outsourced based supplier chain

|Supply chain management

|storage

| |Real time access to orders information|E-commerce enable firms to intensify |Trends for Merges and acquisitions | | | |relations with trading partners | | |Flexibility |Market or policy-induced changes |Balancing scale with strategic & |Portfolio diversification | | |Technology focused on entertainment |operational risks |MP3 / TV Screens / Music Download / | | | |Big technological player |Printers | | | |Range of products | | | | |Market adaptability (new trends) | | | | |Just in time philosophy | | |Innovation and |Societal differences in management and|Experience - cost reduction and |Shared learning across activities | |Learning |organization |innovation |Closer partnership with SUN / EMC | | |Matrix structure |Low labor costs / no costs | | | | |Inventory management / | | Ghoshal`s Analysis

DELL Competitive Advantages Dell today aims to bring the same model of success it has found in the desktop PC and workstation world into the data center: Achieving economies of scale through the use of standard, off-the-shelf components. Integrating online ordering EE--commerce enables Dell to intensify relations with some of their trading partners. Manufacturing, integration and distribution of their systems. Dell has started manufacturing its own storage area network Cut the price of storage by bringing the manufacture of SANs in-house - marking a change to Dell's partnership with storage giant EMC sDell will still have to depend on its relationships with other vendors such as EMC Today outsourcing flexibility inbuilt in the non-integrated business models of Dell Computer is the competitive advantage. Dell takes ownership of components Disintermediation and Re-intermediation Dell provides direct sales to businesses and households Dell has made selling and distribution more do-it- yourself activities, replacing distributors, value-added resellers and retailers Dell has efficient customization has tended to replace do-it-yourself at another level. It makes less sense for an individual to buy all the software and Dell has increased specialization in one area, while eliminating it in another small number of partners considers low coordination costs. Inventory process enables just in time process. Constant supply of real-time information Web based integrated value chain Allows its supplier to access to its data warehouse

 Customers can track the progress of their orders. Like in Amazon. COM they have builds an online framework that enables to introduce new products to the market, MP3 media players, etc. Enables Dell to adjust production to demand. Changing for new economies of scale In this graphic we can see that most of what in the past was their target in mass-market products such as Standard PC, Storage Devices, Servers, etc, they are building a new niche in order to take advantage of their online web based integrated model. Most of the new devices such as Media Players, MP3, TV screens, downloads, etc are being part of the distribution chain of most of the companies that have build a portal in the internet to show their products. Take advantage of the web culture that is transforming market. Nowadays the marketing is focusing much more in Brands and the distribution and promotion of products by web pages, this allows Dell to have low costs in distribution chain and also diversification.

Dell product range market [pic] Dell leads all other PC brands with the highest repurchase rate among the major manufacturers. The Repurchase Brand Loyalty measure is calculated annually by MetaFacts, Inc. as part of their Technology User Profile study. The 2003 research is based on a survey of 11,175 respondents and leaves no doubt that Dell is the PC repurchase brand leader. According to the study, Dell has attracted the most-loyal PC buyers, rising to rank first among the major brands with a 77% repurchase rate. This is off the heels of the 2002 research which had Dell at an industry-leading 64.7% repurchase rate, a 19% year-over-year increase. Apple came in second in 2003 with a 57.6% repurchase rate, improving nearly 11% over its 2002 result. Although Compaq alone enjoyed a healthy 43% year-to-year improvement, when you combine HP & Compaq, the two brands are stronger than last year by 17% though still ranked third among the leaders. With Gateway decreasing from 54.5% to 47.5% from the 2002 to 2003, IBM Clones now rank fourth with 48.4%. (See table below.) |2003 PC Brand Loyalty Ranking (Previous Ranking) | |% of Projected Installed PCs that were the same brand as the previously installed brand when purchased new in 2002 and 2001 | | | |2002 |2003 |Yr/Yr | |1 |Dell (1) |64.7% |77.0% |19.0% | |2 |Apple (3) |52.1% |57.6% |10.6% | |3 |HP/Compaq (4) |47.4% |55.6% |17.3% | |4 |Clone/IBM Compatible (5) |45.6% |48.4% |6.1% | |5 |Gateway (2) |54.5% |47.5% |-12.8% | |6 |Compaq (9) |32.1% |45.9% |43.0% | |7 |e-Machines (8) |36.7% |47.1% |28.3% | |8 |Hewlett-Packard (6) |38.5% |41.4% |7.5% | |9 |IBM (Made by IBM) (10) |25.4% |37.0% |45.7% | |10 |Sony (7) |36.8% |24.0% |-34.8% | |Source: MetaFacts, Inc. Technology User Profile 2003 and 2002 |

For Dell, repurchase brand loyalty is a key measure for PC makers as they look to expand beyond the maturing personal computer market and into the highly competitive consumer-electronics market. With new products such as portable digital-music players, an online music stores and flat-panel television sets, leveraging their strong brand

loyalty with consumers will be a major factor in obtaining success in these new markets. Government, laws, regulations and policies Monetary and fiscal policies and their impact on price trends and inflation Commercial policies such as tariff controls, import restrictions Export controls and restrictions on trade Tax policies Bartlett and Ghoshal framework This framework is very crucial for any organization like Dell who enters into International Business because the nature of the business o Dell is such that there are very few but very strong rivals so in order to be a successful they need to understand the Bartlett and Ghoshal framework. Aligning these into a matrix results in the following framework: |Strategic Objectives |Sources of Competitive Advantage | | |National Differences |Scale Economies |Scope Economies | |Efficiency in |Exploit factor cost differences |Scale in each activity |Sharing investments and | |Operations | | |costs | |Flexibility |Market or policy-induced changes |Balancing scale with strategic & |Portfolio diversification| | | |operational risks | | |Innovation and Learning|Societal differences in management and |Experience - cost reduction and |Shared learning across | | |organisation |innovation |activities | Hofsted's Cultural Dimensions Culture environment could strongly influence expatriate manager for Dells global assignment. Researches show that one of the top reasons for failure of international managers is their inability to adapt to a new environment. Many of them, including the most effective international mangers, suffer from culture shock because of the culture distance among countries. Some personality characteristics and coping strategies are found to be critical for expatriates to conquer cultural barriers, such as open-mindedness, acceptance, etc. Based on these researches, various criteria are provided in the paper for international human resource selection for Dell. Hofstedes (1980) dimensions of culture have turn out to be the most extensively used model for explanation various effects across cultures. Hofstedes five dimensions comprise the subsequent. Power Distance Uncertainty Avoidance Individualism and Collectivism Masculinity and Femininity Long Term Orientation (LTO) Criticism The competitors to Dell are as follows: Hewlett-Packard, IBM, and Sun Microsystems (Hoovers). HP and IBM pose the biggest threat in competition. Dells sales overview has increased each year except for 2001 to 2004. In 2001 the annual sales in millions were $31,888 and a major increase in sales in 2004 at $41,444.0. (Hoovers). In terms of entry barriers, Dells direct to consumers sales approach has increased their sales each year and will soon be among their top competitors. Because of this approach, Dell has entered into this highly competitive market in a unique way. The biggest entry barrier that Dell has to face when entering into the technology industry is having customers gain the trust of company over the more popular veteran computer companies. Nevertheless, many of competing companies use a range of different suppliers. Competitor Sun Microsystems annual sales are lower than Dells. They offer an online service where customers can order servers, and personal computers. They differ from the rest of the organizations is that they do not use the Microsoft operating system which is a weakness compared to

the rest. Sun does not see Dell as a major competitor, in obvious place of Dell; they see Microsoft as a major competitor along with Hewlett-Packard and IBM This being said, Dell is performing in the right direction and sales are increasing dramatically overtime as mentioned above, and the competition exist between the companies and that what makes Dell unique. The increase in sales between 2001 and 2004 proves the success for the organization. Their economic status continues to improve and to grow. Operating Environment Consumers view Dell as a quality brand at a good price. Some consumers find that Dells competitors may be a little more expensive but still offer a quality brand, a new sales campaign ' Dell on Ice ' will offer 15% discounts on its Blade Centre system and on its x440 top-end Intel server. (Shankland). Dell ranks high with customers because the company offers free technical support if needed. The purchasing process has changed for the consumers with Dell because all the ordering is done online which offers convenience to its customers and minimize inventory. The flow of materials from suppliers into Dell starts by the company putting in orders to factories that are based on two categories. These two categories are product type and geography. When putting in orders for product type Dell wants to select the right factory that specializes or deals with a certain product. Geographic orders mainly focus on the where the order is coming from to minimize the transportation expense. Michael Dell and his team have superb relationships with their suppliers; they maintain those superb relationships, by ensuring that the suppliers win every time Dell wins. (Rizzo) As a consequence, Dells suppliers are perfectly willing to keep a truck load of inventory at Dells loading dock. (Rizzo) Dell leads the way in innovative material handling in that industry Dell will go through some several changes in the next couple years to develop its system, improve customer service, reduce cost, and improve supplier control. Dell will lead the technology industry and be a good example to the competitors. More technology of software and hardware will be available in the next couple years with less cost. Remote Environment The internet market has been expanding and exploding across the globe. This market has varied by market segment and already has been a big hit in the U.S. Dell knows that the way to globalize the company successfully is through e-business. Analysts agree that e-business is the most significant trigger to the achievement of economic globalization. (Reynolds) Economic For Dell to penetrate into this market it must oust the Legend brand PC which is already a big hit in China and therefore Dell has already built a factory in Xiamen, which is on the southeastern coast of China. Dells facility inside of China is a major step into the Chinese market. With this factory in Xiamen, Dell can promote its next day delivery too 400 cities which is one of the company trade marks. (Roderick) Dells China market share has grown from near zero in 1998, to 4.4%. (Roderick) Dell does not produce and manufacture parts only, it searches and sets up long-term strategy to accommodate global customers. More business and more production facilities will be opened world wide to adopt and globalization system and the global demand in the next decade. Long-Term Objectives Dell is starting to take on new projects like focusing on markets globally. Dells objective is to take over 20% of the Asia market. The internet market has been expanding and exploding across the globe. Dell knows that the way to globalize the company successfully is through e-business. The greatest opportunities for future profits are in the global market. China has a huge computer market and is growing fast. The main computer company right now in China is the Beijing-based Legend computer. There are many opportunities here for Dell because there is low penetration cost into the Chinese market, and is considered to be the third largest in the World. Despite relatively low penetration rates, Chinas $10 billion computer market is already the third largest in the world; within in a few years it is expected to past Japan and become second only to the U.S. (Roderick) The project that Dell is trying to take on is to advance into the Chinese market where they see a huge

potential increasing their revenue greatly. Dell should continue with their staff education program related to the global areas that they work to continue to develop knowledge, understanding, expertise and leadership effectiveness. To continue to remain competitive Dell should continue to expand their global supplier relationships that will enable them to operate cost effectively. Porters Diamond Of National Advantage [pic] The individual points on the diamond and the diamond as a whole affect four ingredients that lead to a national comparative advantage. These ingredients are: 1. The availability of resources and skills, 2. Information that companies use to decide which opportunities to pursue with those resources and skills, 3. The goals of individuals in the companies, 4. The pressure on companies to innovate and invest. The points of the diamond are described as follows: Factor conditions A country creates its own important factors such as skilled resources and technological base The stock of factors at a given time is less important than the extent that they are upgraded and deployed Local disadvantages in factors of production force innovation. Adverse conditions such as labour shortages or scarce raw materials force companies to develop new methods, and this innovation often leads to a national comparative advantage Demand Conditions When the market of a particular product is larger locally than in foreign markets, the local companies devote more attention to the product than do foreign companies, leading to a competitive advantage when the local companies begin exploiting the product A more demanding local market leads to national advantage A strong, trend-setting local market helps local companies anticipate global trends Related And Supporting Industries When local supporting industries are competitive, s enjoy more cost effective and innovative inputs This effect is strengthened when the suppliers themselves are strong global competitors Dell Strategy, Structure And Rivalry Local conditions affect company strategy Low rivalry makes an industry attractive. Over the long run, more local rivalry is better since it puts pressure on companies to innovate and improve. High local rivalry results in less global rivalry. Local rivalry forces companies to move beyond basic advantages that the home country may enjoy, such as low factors costs. The Diamond As A System `The effect of one point depends on the others. For example, factor disadvantages will not lead companies to innovate unless there is sufficient rivalry. The diamond is also a self-reinforcing system. For example, a high level of rivalry often leads to the formation of unique specialised factors. Governments Role The role of government in the model is to: Encourage companies to raise their performance, for example by enforcing strict product standards

 Stimulate early demand for advanced products Focus on specialised factor creation Stimulate local rivalry by limiting direct cooperation and enforcing antitrust regulations Disadvantages Of The Diamond Model It does not address cultural issues in different regions The political dynamics of a region are not factored into the model Conclusion Dell is a global leader in the computer technology industry. It is no accident when they provide innovative ways to reach out to their customers. Efficient and unique marketing techniques are carefully calculated to create and identify specific needs of customers. Dells customer-direct concept gives it a competitive edge on rivals, helping the company gain customer loyalty on a global level. In addition, Dells management team has been able to handle difficult internal/external factors effectively, making them one of the most successful companies in the world. Their ability to recognize knowledge management will guide their worldwide employment. Dell will then effectively develop global talent for diverse ideas and skills. They can then hope to understand international customer needs and convey desirable technology to developing economies. One plans success begets another. Dell opens up more time to focus on its efforts to providing low cost, high quality products. They keep up with technology changes allowing them to stay ahead of other companies. With the progress of globalization, an overwhelming majority of large-scale enterprises look globally for their markets, technologies, labour and capital, they becomes multinational enterprise and frames a series of modes to enter the world market. Nowadays, information technology has become the hottest industry and the mainstay industry of the whole world economy, Dell, a giant in this industry, is actively throwing itself in international business, and it has made enormous strides in exploiting the world market. Competitive challenge 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) Collaboration Challenge 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) Culture Challenge Dells 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) Riding with the technology wave, many firms invested in the internet and related technologies in an attempt to try to gain competitive advantage over rivals by being the first to offer their products or services online. Many firms although have found serious problems with pursuing this. The profitability of the industry was often undermined as companies competed on price in order to try to build up their market share. Many firms also saw the development of internet capabilities as a separate strategy and not an integrated part of the firms strategy, often resulting in failure of its online operations. Over the last years Dell, as a company, has proved that the increase in product variety offers

the possibility of customisation, when this is combined with modern production techniques, using the internet to take customised orders, it can prove to be a very serious competitive advantage, for the company that cannot erode easily. The sales numbers for Dells web-site are enormous, at March 1997 Dell was selling $1 million per day through the web-site and by March 1998 this number doubled to $2 million sales per day, but while much of the internet market is untapped there is still potential for this number to grow even more. Dell has created a very important advantage over their competitors because the direct to customers business model enables the company to be extremely responsive to any problem they might have to face at any point of time. Another important aspect for Dell is the service they offer, as they have created an excellent service capability based on the Dell Vision which states that a customer must have a quality experience and must be pleased, not just satisfied and further on this gives them an even larger advantage over their competitors as they have created a very strong relationship between the company and their most profitable customers. The monetizing concept argues that online businesses must first capture large audiences of users or shoppers, and then later monetize those audiences through subscription fees, advertising and e-commerce (Rayport ' 1999). Following from the above, it is obvious that Dell has an advantage over any new company that enters the market, as new entries will have to attract large number of customers first and then be able to play an important role in the market, while Dell already has captured a very large and also satisfied and dedicated audience. There is also a widely held belief that once a customer starts working with a vendor, it is much easier to keep that customer than it is to bring in new customers. So if you can build brand loyalty for a web-site early, it gives you an advantage over other vendors who try to enter the market later. Dell implemented its web-site very early and that presumably also gives them an advantage over the competition. Further on the internet can be a very useful tool for other companies that already trade in the pc market. At this point it is useful to mention Dells main competitors in the market, which are IBM, Apple, Wall-Mart, Gateway, Hewlett-Packard-Compaq and also many small local manufacturers in every region separately but there is no reason to probe on each one separately as each company follows their own strategy and different to Dells strategy, in order to gain larger market share and it is not fair to compare. Dell Computers is an excellent example of a manufacturer that has successfully used the Internet to manage many of the channel activities and it is difficult for any other company to achieve the establishment that Dell has achieved. Dell has resulted positive brand recognition by consistently building and servicing its low-cost, customized computers to customers. It fosters brand loyalty by continually providing superior customer service and technical support along with continuously incorporating the latest technology in its products. Dell has achieved market focus and competitive advantage by assembling purchased components from suppliers, thereby becoming one of the most successful companies in the global computer systems industry, as it must be noticed that in 2000 it was the No. 1 computer company in the United States and No. 2 world-wide. Dells potential for continued growth is enormous and at the same time the possibility to erode is minimised, because of its capability of providing up-to-the-minute pc technology customized for and sold directly to individual customers. The internet as a marketing channel can become a very strong advantage for any company, although at the same time Dell has been able to build up a very strong competitive advantage for the company, something that makes it very difficult for any other company in the pc market to compete and attract customers from Dell. Dell is a thriving company due to the efficient alignment of its information systems plan with its business plan. Dells business model has proved to be extremely successful due primarily to two main advantages; 1) selling straight from the factory to end users eliminated the markups of resellers, and 2) custom building orders significantly reduced the costs and risks associated with carrying large stocks of parts, components, and finished goods. These two key aspects of Dells business model is almost totally dependent on the fusion of its business objectives and processes with IT (Kearns 3). Strategic IS alignment facilitates Dells business model, competitive advantage, success within the industry, and the attainment of Dells mission to be the most successful computer company in the world at delivering the best customer experience in the markets we serve. (www.dell.com) Dell produces all its computers, workstations, and servers to order. This allows Dell customers to order custom-built servers and workstations based on the needs of their applications. Desktop and Laptop customers can order whatever configuration of microprocessor speed, RAM, hard disk capacity, CD/DVD ROM drive, modem,

monitor, and other accessories preferred (www.dell.com). Dell has assembly plants in Austin, Texas; Nashville/Lebanon, Tennessee; Limerick, Ireland; Xiamen, China; Penang, Malaysia; and El Dorado do Sul, Brazil (Thompson 82). Prior to 1997 assembly lines were operated in a traditional fashion, with each worker performing a single operation. Dell however has shifted to cell manufacturing techniques where a team operating at a work station assembles an entire PC to customer specifications. This has reduced assembly times by 75% and doubled productivity (Thompson 82). Dells philosophy is to strategically partner with reputable suppliers of PC parts and components (for example Intel and Microsoft) as opposed to adopting backward integration into parts and components manufacturing. Michael Dell, CEO of Dell Computer justified this strategic tactic with the following question; If youve got a race with 20 players all vying to make the fastest chip in the world, do you want to be the twentyfirst horse, or do you want to evaluate the field of 20 and pick the best one? (Thompson83) Hence Dell evaluates the various makers of each component, picks the best one or two as suppliers and partners with them as long as they remain leaders in their specialty. Such partnerships yield several advantages. Firstly, using the best components enhances the quality and performance of Dell PCs. Secondly, Dell is assured of getting the volume of components it needs on a timely basis. Thirdly, engineers of partners are assigned to Dells product design teams. Fourthly, Dells long run commitment to its suppliers is based on the just in time delivery of supplies to Dell assembly plants. In order to facilitate the JIT inventory system Dell openly shares its daily production schedules, sales forecasts, and new model introduction plans with vendors (Thompson 84). Using online communications technology, Dell communicates inventory levels and replenishment needs to vendors on a daily or even hourly basis. This is done through valuechain.dell.com, which provides suppliers with secure personalized access to Dells operations through a single portal. This facilitates real-time collaboration on the quality of items being supplied, helps assure the continuity of supply while minimizing inventory, and makes it possible for engineers at Dell and its suppliers to jointly develop online designs of next generation components and products. In addition an online scorecard for suppliers shows their performance against the quality standards that are agreed on and how well they are doing against other suppliers in the same class. Both tools help the company achieve its strategic objectives of product quality and reliability, rapid inventory turnover, and low costs. According to Michael Dell; We tell our suppliers exactly what our daily production requirements are. So its not, Well, every two weeks deliver 5000 to this warehouse, and well put them on the shelf, and then well take them off the shelf. Its, Tomorrow morning we need 8562, and deliver them to door number seven by 7 AM (Thompson 84). The emphasis on JIT inventory yields many cost advantages, and has shortened the time it takes Dell to get new generations of its computers to the marketplace. New advances are coming so fast in certain components that any given item in inventory is obsolete in a matter of months, sometimes quicker. Having a couple of months in component inventories can mean getting caught in the transition from one generation of components to the next. The advantages of minimal component inventory are major explains Michael Dell; If Ive got 11 days of inventory and my competitor has 80 and Intel comes out with a new chip that means Im going to get to market 69 days sooner. In the computer industry, inventory can be a pretty massive risk because if the cost of materials is going down 50 percent a year and you have two or three months of inventory versus 11 days, youve got a big cost disadvantage. And youre vulnerable to product transitions, when you get stuck with obsolete inventory (Thompson 84). Collaboration with suppliers is close enough to allow Dell to operate with only a few days of inventory for some components, and a few hours of inventory with others. Dell supplies data on inventories and replenishment needs to its suppliers at least once a day (hourly in the case of components being delivered several times daily). Dells partnerships and JIT inventory system allows zero inventory levels in some cases. For example, using sophisticated data exchange systems, Dell arranges for its shippers (Airborne Express and UPS) to pick up computers at its Austin plant, then pick up the accompanying monitors at the Sony plant in Mexico, match up the customers computer order with the monitor order, and deliver both to the customer simultaneously. The savings in time and cost are tremendous. In addition, since Dell has no stock of finished goods inventory and they sell directly to end consumers, they do not have to wait for resellers to clear out their own inventory before bringing a new model to market

(Thompson 85). Over time Dell has refined and enhanced its inventory tracking capabilities, its working relationships with suppliers, and its ability to operate with smaller inventories. In 1995 Dell averaged an inventory turn ratio of 32 days, which it brought down to 13 days in 1997, and down further to 6 days in 1999. This was favorable to the industry average of 50 days; obviously Dell had created a competitive advantage for its self. The companys long term goal is to get its inventories down to a 3 day average supply. Dell created this competitive advantage by aligning its supply chain expertise with internet technology in a first mover strategy (Kearns 266). Dell has indeed managed to streamline its supply chain to maximize efficiency and minimize the costs associated with inventory (Chan 148). Dells competitors are yet to replicate such an efficient supply chain model. Michael Dell believes that the Internet has revolutionary business potential, and he was instrumental in making Dell Computer a pioneering first-mover by using internet and e-commerce technologies. In a speech in 1999 he said: The world will be changed forever by the internetThe Internet will be your business. If your business isnt enabled by providing customers and suppliers with more information, youre probably already in trouble. The internet provides a dramatic reduction in the cost of transactions and the cost of interaction among people and businesses, and it creates dramatic new opportunities and destroys old competitive advantages. The Internet is like a weapon sitting on a table ready to be picked up by either you or your competitors (Thompson 92). Michael Dell believes that for a company to harness the power of the Internet and succeed in revolutionizing the way business is done, it has to recognize that compressing time and distance in business relationships with suppliers and customers to increase the speed of business transactions is the ultimate source of competitive advantage. Transacting business with suppliers and customers in real time drove big improvements in business efficiency ' requiring fewer people, less inventory, and fewer physical assets and speeding new products to market (Thompson 92). Dell extensively utilizes IT in providing service to its customers. This has resulted in yet another competitive advantage Dell enjoys over the industry. Selling direct allows Dell to build close customer relationships thus resulting in extensive knowledge of customer needs. Aside from using this knowledge to help customers plan their PC needs and configure their PC networks, Dell uses this information to add value to its product. For example, Dell would load a customers software onto large Dell servers at the factory with its high speed server network in a matter of seconds. In addition asset tags would also be placed on the PC at the factory. The savings of Dell carrying out these functions were considerable. One large customer reported savings of $500,000 annually (Thompson 89). The companys website has 50 country specific sites in local languages and currencies. Buyers can view Dells entire product line, configure and price customized PCs, place and track orders. The closing rate through www.dell.com is 20 percent higher than sales through telephone or fax. The company also developed several webbased customer service and support tools to enhance customers online experience. Of these tools perhaps the most ingenious is E-Support, where Dell systems detect, diagnose, and resolve most problems without the need for users to interact with Dells support personnel. The goal is to create computing environments where a PC can maintain itself, thus moving support from a reactive process to a preventative one. According to Michael Dell E-Support was; The beginning of what we call self-healing systems that we think will be the future of online support (Thompson 90). This service shortened the time it took to fix glitches and problems, reduced the need for service calls, cut customer downtimes, and lowered Dells tech support costs. It is estimated that such online support tools were used by approximately 45 percent of customers by 2000, and that customer support calls were reduced by 25 percent, thus generating savings to Dell of about $10 per call (Thompson 91). The internet is also utilized to improve order status tracking by customers from the manufacturing process through delivery, therefore eliminating tens of thousands of order inquiries coming in by phone. Approximately 80 percent of Dells order status inquiries in 2000 were being handled over the internet at a cost close to zero, saving Dell about $21 million annually and allowing employees to work on more productive tasks (Thompson 93). Dells ability to respond quickly gave it a significant advantage over rivals, particularly PC makers in Asia, which operated on the basis of large production runs of standardized products and sold them through retail channels.

Dell saw its direct-sales approach as a totally customer-driven system, with the flexibility to change quickly to new generations of components and PC models (Thompson 93). Dell has become the global industry leader in controlling costs and squeezing the efficiency out of its directsales, build-to-order business model. Dell is widely regarded as having the most efficient procurement, manufacturing, and distribution process in the global PC industry. Dell has truly embraced IS within its organization, viewing it as a critical weapon to create competitive advantage and gain market share within the PC industry (Kearns 268). The company adopted several of the critical success factors outlined by Thompson S.H. Teo. Of the 18 critical success factors those most applicable to Dell are; top management commitment to the strategic use of IT, IS management knowledge about the business, top management confidence in the IT department, top management knowledge of IT, and business goals and objectives are made available to the IS department (Teo 178). Dell is a pioneer and world leader in incorporating e-commerce technology and use of the internet into its business practices. The goal was to achieve what Michael Dell called virtual integration- a stitching together of Dells business with its supply partners and customers in real time such that all three appeared to be part of the same organizational team (Thompson 71). Dells success is due greatly to seamless strategic IS alignment. Dells IS strategy truly compliments the companys business plan, and without this perfect fit Dell would not be at the forefront on the Global PC industry. 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, Dells 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 Dells success, however, Dells direct business model still has its deficit, and Dell should take a package of flexible measure to optimize its operation. References Abraham, H. Getting in touch with Dells culture: Youve got the soul! In EnterpriseInnovator.com. Dell. Supply chain management. Retrieved on July 27, 2006, from http://www1.us.dell.com/content/topics/global.aspx/corp/environment/en/ Dessler, G. (1998). Management, Leading People and Organizations in the 21st Century. Prentice Hall. Govindarajan, V. and Gupta, A.K. (2001), Strategic Innovation: A Conceptual Road Map. Business Horizons, 3-13, 44, 4. Retrieved August 3, 2006 from EBSCOhost database. Hoovers. (n.d) Hoovers Online The Business Information Authority. Retrieved July 27, 2006. From http://www.apollolibrary.com/databases.asp?db=6 http://finance.yahoo.com/q/co?s=DELL . Retrieved August 5, 2006 from yahoo finance. Tough, M. Creating a Mission and Vision Statement. In the Sideroad. Retrieved July 28, 2006, from http://www.sideroad.com/business_communications/mission-and-vision-statement.html Sun Microsystems. Sun Microsystems news. Retrieved August 1, 2006 from http://sun.com/aboutsun/media Anon. 2004. Overseas investment of American. [On-line] Finance. Available from: http://finance.icxo.com/htmlnews/2004/12/10/504280.htm [Accessed 4 Jan 2007] Anon, 2006. what can be done to help Dell. [On-line] brandcn. Available from: http://www.brandcn.com/ppgg/ShowArticle.asp?ArticleID=74077 [3 Jan 2007] Bennett. 1999. International Business. 2ed edition. England: Pearson Education Limited. Brazil Glossary. 2004. Glossary Index. [On-line] Photius. Available from: http://www.photius.com/countries/brazil/glossary/ [Accessed 3 Jan 2007] Cao, J. W. 2001. Dell in China. [On-line] Sohu. Available from: http://it.sohu.com/70/40/article15464070.shtml [Accessed 30 Dec 2006] Cheng, X. L and Cheng. Y, 2003. A analysis about flat organizational structure. [On-line] ectime Available from:http://www.ectime.com.cn/cgi-bin/db2www.cgi/info.d2w/report?nbr=5226 [3 Jan 2007]

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w.erpworld.net/content.php?ID=25846 [Accessed 4 Jan 2007] Xie, P. L & Huang, L. P. 2004. Global operations of multinational enterprises. Shanghai: Shanghai culture press. Xu, W. 2005. Dell and its products. [On-line] It. Available from: http://www.it.com.cn/f/notebook/054/20/102569.htm [Accessed 3 Jan 2007] Yang, Z. 2004. An analysis of Dell mode: Published master dissertation. Beijing: Beijing University of Posts and Telecommunications You, H. M. 2005. Dell in China in trouble. [On-line] QQ. Available from: http://tech.qq.com/a/20051210/000093.htm [5 Jan 2007] You, H. M. 2005. The direct model in China. [On-line] QQ. Available from: http://tech.qq.com/a/20051210/000093.htm [Accessed 28 Dec 2006] Yu, Q and Sun, Y. 2006. Dell in trouble. [On-line] iwxo. Available from: http://www.iwxo.com/html/rev/biz/info/2006-1-19/111847-1.htm [3 Jan 2007] Zhang, C. 2006. Foreign logistic enterprise enter China. [On-line] Jctrans. Available from: http://info.jctrans.com/zhuanti/ztb/xw/2006119338204.shtml [Accessed 1 Jan 2007] Zhang, X. G, 2005. Dells competitive advantages in marketing. [On-line] Xinhuanet. Available from: HTTP://ITTBJ.BOKEE.COM/2777210.HTML [3 Jan 2007] Zhang, Y. L. 2005. Great Changes in Business Mode of Dell. [On-line] Ufsoft. Available from: http://www.ufsoft.com.cn/subject/digital/dm1.htm [Accessed 2 Jan 2007] Zhong, J. Y. 2005. The limitation of Dell' Direct model. [On-line] Xinhuanet. Available from: http://news.xinhuanet.com/newmedia/2005-11/24/content_3827367.htm [Accessed 28 Dec 2006] Zhou, S. P. 2006. English training. [On-line] Tsinghua. Available from: http://www.sce.tsinghua.edu.cn/publication/qhjx_htm/0504/08.htm [Accessed 3 Jan 2007] Bibliography Bartlett, C., and Ghoshal, S., Transnational Management, McGraw-Hill, USA, 2000. Besanko, D., Dranove, D., and M. Shanley, Economics of Strategy (Part III), J. Wiley & Sons, New York, 2000. Porter, M., The Competitive Advantage of Nations, McMillan, London, 1998. Dowling, Peter J. and Welch Denice E., (2004), International Human Resource Management: Managing People in a Multinational Context, Thomson Learning. ISBN: 184480013X Lewis, Richard D., (2005), When cultures collide: managing successfully across cultures: a major new edition of the global guide, Brealey, forthcoming. ISBN: 1904838022 Hofstede, Geert. (2001). Cultures consequences: Comparing values, behaviors, institutions and organizations across nations. Thousand Oaks, CA: Sage Publications. ISBN: 0803973241 Holden, Nigel, (2002), Cross-cultural management : a knowledge management perspective., Financial Times / Prentice Hall. ISBN: 027364680X Neuliep, James William, (2000), Intercultural communication : a contextual approach., Houghton Mifflin. ISBN: 0395937086 , 2nd ed ISBN: 0618218548 Tayeb, Monir H., (1996) The management of a multicultural workforce., , John Wiley. ISBN: 0471962767 Warner, Malcolm, and Joynt, Pat, (2002) Managing Across Cultures: Issues and Perspectives, Thomson Learning. ISBN 1-86152-973-2 Trompenaars, Fons and Hampden Turner, Charles, 1997, Riding the Waves of Culture: Understanding Cultural Diversity in Business, Nicholas Brealey Publishing ISBN: 1857881761 Clegg, Stewart, R., Ibarra-Colado, Eduardo, and Bueno, Luis, (1998) Global Management: Universal Theories and Local Realities, Sage Publications Ltd ISBN: 0761958150

DELLS TURNARUND STARTEGY

Wall Street Journal (WSJ) article dated May 13, 2008 titled Dell Tries to Revive Its Game PCs (you need to subscribe to WSJ to read the article), talks about surprising steps Dell is taking to reinvigorate its business. It will phase out four gaming systems its XPS line leaving Alienware line that it acquired in 2006 as its sole offering to big spending gamers. Multiple SKUs (Stock Keeping Units) always creates customer confusion. Having a strategic product roadmap that continually challenges the executives to reduce the number of SKUs is very critical in streamlining product line. Also, a single SKU need to be clearly defined for a MSS (MarketSegment Share) and that requires huge investment in marketing effort create wide moat between the MSS. In Dells case, low end XPS product and high end Alienware products did not have clearly defined MSS. When the MSS is blurred, there is a tendency where the low end products (in this case XPS system) will begin to cannibalize high end products (Alienware). This was the reason, Dell rightly decided to get rid of low end XPS systems, leaving Alienware system as the sole gaming PC product. Though this is the right move, I am not sure that Dell will be able to take back the market share from its competitors in gaming PC segment. Before being bought by Dell, Alienware gaming PCs had the premier brand image. It had dominated in its niche area of high end gaming PCs. After it was bought by Dell, its premier brand image got contaminated. Dell whose brand portrays low cost imagedistorted Alienwares brand image. Thus, it started to lose its market share to their competitors. This is an important lesson from Merger and Acquisition (M&A) perspective. Most of the companieslook at their portfolio of products. If there is a hole in an portfolio mix, they go shopping to find targetcompany with the missing product for M&A activity. Due diligence is done from financial perspective. But, brand evaluation is also an important criteria for due diligence that the company needs to do before M&A. This is where Dell went wrong. I think Dell only focused on scale advantage when it decided to buy Alienware. It did not focus on dilution of brand this acquisition would create. It will be tricky for Alienware to regain MSS in the gaming PC segment.

Dell Computer, the no-fuss PC sales machine, has set the standard for a successful direct-distribution company. But Dell is now reworking its bare-bones formula in an attempt to branch out from the PC market into more sophisticated, and profitable, computer systems. With $31.2 billion in revenues and 28% of the U.S. market share for PCs, Dell is devising a strategy to take on the likes of IBM and Sun Microsystems in the market for servers and other higher-margin business equipment. Dell is also planning to add hand-held devices and printers, long Hewlett-Packards profit driver, to its product line. And, for the first time, Dell has said it will begin to work with retail dealers. Founded by Michael Dell, 37, in his University of Texas dorm room, the company is the master of direct-delivery in the computer industry, carrying only five to seven days of inventory at any time. Competitors have been catching up to Dell, but their cycles are still weeks behind, slowed by their dependency on retail outlets.
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So far, nobody has been able to match Dell, says Gerard Cachon, professor of operations and information management at Wharton. With computer prices declining, Cachon adds, Dells quick turnaround gives it an added advantage over competitors. Dell, headquartered in Round Rock, Tx., reported second-quarter revenues of $8.46 billion and earnings of $501 million. Revenues were up 11% over the same quarter a year ago. These figures, however, cant disguise the PC markets generally unhealthy outlook. The basic problem is the desktop PC business is strategically a terrible business, saysDavid Croson, professor of operations and information management. While the industry showed signs of revival in the first quarter of 2002, it lost ground again in the second quarter. Worldwide PC shipments in the second quarter of 2002 declined 0.6% from the same period last year, according to preliminary results from Dataquest Inc., a unit of Gartner, Inc. In the U.S., PC shipments reached 10.6 million units, a 0.8% decline from the previous year. "The market undoubtedly saw the effects of inventory overhang from the first quarter, but at the same time we have yet to see any significant return to corporate buying, and in the consumer market buying appears to have fallen back further in some regions," notes Charles Smulders, vice president of Gartner Dataquests Computing Platforms Worldwide group. The second quarter, for the first time, also laid out a new competitive landscape for Dell, following the merger of Hewlett-Packard and Compaq. Hewlett-Packard moved into first place in the worldwide rankings, but just 0.6 percentage points higher than Dell. However, the merged companies combined shipments were down 16.1% from a year ago while Dell grew 13%. In the U.S. Hewlett-Packard has an 18% share of the PC market. The problem with PCs is that they are a commodity. You cant make money selling computers for, what is it now, $599? says Morris Cohen, professor of operations and information management and co-director of the FishmanDavidson Center for Service and Operations Management. There hasnt been a killer app in a few years so if you stick to PCs youre selling a commodity with a shrinking price and a shrinking margin. Unless theres some technological push, its like selling refrigerators.

To cope, Cohen adds, Dell is looking to diversify its products and move into more profitable areas, including servers, communication switches and other sophisticated business systems. They have definitely set a standard for what you call the direct model. Now they are looking at their next generation of systems development and trying to extend and enhance their model throughout the full value-chain and supply-chain network. But Dell is not operating in a vacuum. It faces a combined Hewlett-Packard with its own clout in the PC market and with suppliers. To some extent thats why Dell wants to do things like printers because they dont have that and HPCompaq does, says Cohen. Dell is up against a more diversified competitor that has some very profitable lines of business that they dont have. One approach would be to match them. Dell has already experienced some success in higher-end businesses including servers, but that market demands sophisticated customer service. According to Cohen, Dell is trying to introduce a certain degree of differentiation in the quality of service they provide to their customers right now. They already offer a completely differentiated product because it is made to order. The next challenge is to allow the customer to also specify the speed in terms of the channel of distribution and different types of delivery options on a per order basis. Thats the kind of challenge theyre working on now. Furthermore, while Dell has enjoyed a strong reputation for consumer service, that reputation has recently taken a hit. When they saw the market in 2000 starting to soften, they were fast to cut back on labor, says Cachon. They do a lot of outsourcing of customer service and some of the service hasnt really been as good as it should have been. But I doubt thats going to be something they cant fix over time. Despite its low-margin strategy, Dell has invested in brand development, with television ads featuring its impish Dell Dude proclaiming: Youre getting a Dell. But Croson says that may have its limits. The only way to differentiate from the competition is branding, but constant advertising is expensive and requires cash outflow, he notes. Consumers are more sophisticated about the fact that they are buying Intel Inside and not Dell outside. Finally, Dell is even moving away from its signature direct-distribution model. In August the company announced it would, for the first time, work with computer dealers to sell so-called White Box systems (unbranded individually customized PCs sold in retail stores). This market makes up more than 30% of the nations PC sales. Dell has said it is looking for modest revenues of $380 million from this line of business in the first year. While Dell will sacrifice some of its margins to middlemen dealers, the strategy is not likely to cannibalize its direct, Internet-based business, suggests Cachon. And while Dell may be entrenched in a slow-growing commodity business, it has profited as a financial company, Croson adds. One thing people dont know about Dell is that its PC business has really not been all that profitable in the late 1990s. Dell made a lot of money with purely financial transactions, selling put

options based on the public perception that its stock was going to go up. They have earned hundreds of millions of dollars through financial transactions which had nothing to do with PCs. Cohen points to another of Dells financial strategies: Because the company doesnt need to pay its suppliers for 30 days, its tight inventory allows it to hold cash longer than its competitors. But company earnings are dependent on share-price growth, adds Croson. Its like any derivative transaction. As soon as one little thing goes wrong, the problems pile on each other. According to him, Dells recent strategy announcements signal that the company is grasping for new direction. I think they are searching for a more profitable strategy. This symptom of floundering around when one strategy isnt working is a common sign of trouble. They are in a situation now where if they want to grow they have to do something new. The choices, he says, are difficult. Sticking with the low-end PC business dooms Dell to tight margins forever. But moving more into high-end products, such as servers, puts Dell in a market glutted with competitors struggling with overcapacity following the Internet bust. The high-end market is promising but temporarily awful. The low-end is permanently awful. You dont get a lot of benefit by avoiding the blood bath in the high-end, then going into the scorched earth of the low-end. Croson suggests that the company pull back, focus on maintaining customer loyalty and figure out what the business would look like if it turned into a cash cow rather than floundering around looking for high growth. That might be unacceptable to management [because] it looks like giving up, but you can do a lot worse than that. Meanwhile, in the leadership area, Michael Dell, who owns 12% of the stock, remains very much involved in the companys future. The rule is that you get rid of the founder fairly soon in the course of a companys development, says Cohen. Its very rare to see a founder remain in an important role. He or she usually has the major idea and cant execute. Youve got to give Michael Dell credit; hes beaten the odds. Cohen suggests that Dells newest ideas may create a dangerous lack of focus. Theres always that risk, but they also have a strategic risk in just staying still. They can afford to try this. Dells main worry is the unknown, Cachon adds. The biggest risk to Dell is that the whole concept of a PC could change. What happens if people buy boxes that hook up to their TVs, or there is some radical technological shift. Thats probably their grea