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For many organizations, their performance in the international market is more important for their survival and growth than their performance in the home market and this performance has to be achieved. Dell as a company has outlined clearly its policies for operating in the International market and these should be viewed as its global strategy. This also should be the starting point for any discussions regarding its globalization.
The history of the company is quite interesting and it had begun as the company of Michael Dell in 1984 while he was still a student in Austin. The business started as one of selling upgrades of IBM compatible PCs and then shifted to a business of selling its own brand. He was operating on the direct sales model where the PC was built to the specification of the customer. Their retailing activities started in the year 1990, but the business went into a slump in the year 1993 and then they went back to being direct vendors. Their business grew rapidly and reached from $3.5 billion in the year 1994 to $25 billion in the year 1999. At that time, they were the largest sellers of PCs in United States and the second largest in the International market. To achieve this, the company manufactures in different regions with one or more plants for a particular region. (Dell Computer: Using E-commerce To Support the Virtual Company)
Plants in the "Austin, Texas area and Nashville, Tennessee serve North America; Eldorado do Sul, Brazil serves Brazil and South America; Penang, Malaysia serves the Asia-Pacific region; Xiamen, China serves China; and Limerick, Ireland serves Europe, the Middle East and Africa." (Dell Computer: Using E-commerce To Support the Virtual Company) Yet, whether the company can still be called a totally global company is open to dispute. Other companies generate more of their revenues outside their home countries - Siemens gathers 77% of its revenues out of Germany, and Coca-Cola gathers more than 70% of revenues out of the U.S. Companies that are dependent on domestic markets now include Google at 45% and Dell at 31% though they are also trying to become truly international companies. (Global by Design)
In the year 1994, as mentioned earlier, Dell was not doing well and Dell was a struggling second-tier PC maker. In comparison to other PC makers, Dell also ordered its components well ahead of time and carried out a huge amount of component inventory. If the forecasts did not meet the actual sales, Dell had to write off large stocks of components. Then they changed their system and over a period of four years, the revenues of Dell increased from $2 billion to $16 billion, which is a 50% annual growth rate. At the same time, earnings per share were enhanced by about 62% per year. This was reflected in the stock price rise of Dell which enhanced by over 17,000% in over eight years. In the year 1998, the return on invested capital of Dell was 217%, and the company had about $1.8 billion in cash. One of the strategies selected was to choose customers with relatively predictable purchasing patterns and service costs which were lower. This helped in lowering costs and increasing profits. (Dell Manages Profitability, Not Inventory)
The company also developed a core competence level for targeting customers, and maintained a massive database to carry this out. This led to a situation where a large portion of Dell's business came from long-term corporate relation accounts and these customers had predictable requirements which were closely related to their budget cycles. For keeping records of these customers, Dell developed customer-specific intranet Web sites which were powerful and which had predetermined custom specifications and budgets. Dell's forecast accuracy was around 70 to 75%, and the reason for this high accuracy was careful account selection. Demand management of these customers was also done and this, in turn, closed the forecast gap. The first set of objectives of Dell internally was based on lowering inventory by 50%, enhancing lead time by 50%, reducing the amount of assembly costs by that of 30%, and lowering the amount of obsolete inventory by 75%.
The new system was slowly brought in and the component inventory dropped in response from seventy days to a period of thirty to forty days, later to twenty days, and then to nearly zero as inventory disappeared. Correspondingly, the returns of Dell grew disproportionately. Not only did Dell avoid carrying costs and writing off obsolete stock, but importantly, at the same time it was saving a lot of money on purchasing components as at the same time component prices were dropping 3% per month. (Dell Manages Profitability, Not Inventory) The regular drop in prices of obsolete component prices continue even today, but Dell were probably one of the first to recognize this trend and take it into corporate planning. The principles of Dell are observes all over the world. This is also one of the main reasons why Dell achieved high profitability which led to its growth, and the matter was interesting enough for Harvard Business School to take note of.
Considering the fact that Dell has so many plants internationally, all producing goods for particular areas, it is important that these plants maintain certain international standards. This is contained in Dell's Global Supplier Management Program. The policies there are clear. The first check is on Certification and Standards and Dell suppliers must be compliant with ISO 14001, which is the most widely recognized standard for environmental management systems, and OSHAS 18001, a prominent standard for workplace health and safety management systems and the target date was 31 January 2004. If there were any problems, they had to obtain Dell's approval on a schedule for achieving certification. The second aspect was adequate Training and Communication. (Principles of Globalization and Global Citizenship)
The third aspect was that all suppliers had to sign an agreement acknowledging awareness of and their commitment to Dell social and environmental responsibility requirements. This was to ensure that responsible behavior is built into the business, and Dell conducts quarterly business and supplier reviews. Fourth point was to ensure that products came in time as that is the reason for the rapid international growth of Dell. Dell reserved the right to terminate its agreements with suppliers who violated or failed to comply with the company's Supplier Commitment Policy or Supply Chain Management needs. (Principles of Globalization and Global Citizenship)
In the year 2001, Dell Computer became the world's largest personal computer vendor, and it is still gaining market share and showing profits while the industry struggles with slumping sales and billions of dollars of losses. Dell sells 90% of its PCs directly to the final customer, and does not sell to the reseller channel that accounts for most of the sales of world's PCs. To succeed in selling, Dell has concentrated on a few key strategic activities, and is extensively outsourcing non-strategic activities. Dell works closely with external partners to produce its PC products to provide the best products to its customers. (Dell Computer: Organization of a Global Production Network)
For the purpose of manufacturing its products, Dell coordinates a global production network that includes the continents of Americas, Europe and Asia. This needs combination of in-house final assembly with heavy reliance on outside suppliers and contract manufacturers. Manufacturing of printed circuit board assemblies -- PCBAs, subassemblies, and some final products which were mainly notebook PCs is done by contract manufacturers or original design manufacturers like SCI, Solectron, Celestica, Hon Hai, Quanta and Arima. As in the case of other PC makers, Dell relies on outside suppliers for components and peripherals like disk drives, CD-ROM drives, semiconductors, add-on cards, monitors, keyboards, mice and speakers. Its PCs also can be sent with standard software like Microsoft Office or with specialized software when requested by corporate customers. (Dell Computer: Organization of a Global Production Network)
The partners of Dell include Wang, Unisys, IBM and BancTec. There are also resellers who support Dell hardware and receive referral fees for recommending Dell to customers. (Dell Computer: Organization of a Global Production Network) Even after twenty years, Dell has retained an informal and the energy to execute decisions as it happens in a start-up company. Dell is a flat organization. From the factory floor to corporate headquarters, decisions are made quickly and without considerations of hierarchy. If a supervisor on the factory floor sees methods for reduction of component inventories, he does it, and does not have to go up the chain of command for approval. Dell's internal communications are efficient, and decisions that do not require the attention of senior management do not get them. (How Dell got soul)
Dell has now become a global company operating in 34 countries in three world regions, with a total of 35,000 employees and about $30 billion in sales. Dell is organized along geographic lines into three areas of Americas, Asia-Pacific and Japan, and Europe/Middle East/Africa -- EMEA. Corporate headquarters are located in…[continue]
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