Dell's Brazil Strategy Case Study

Length: 5 pages Sources: 1 Subject: Business Type: Case Study Paper: #2001663 Related Topics: Bureaucracy, Merchandising, Deception, World Trade Organization
Excerpt from Case Study :

Dell

Over the last several years, globalization is having a profound impact on the way investors will look at the risks and rewards of specific countries / regions of the world. Inside many developing countries, they need their support in order to enhance growth and encourage them to create jobs. However, several major problems have emerged with certain areas having a lack of transparency and basic safeguards. The result is that investors will become reluctant to provide capital in regions where they do not receive the support and protections they require. ("Dell's Dilemma," 2014)

This could have a negative impact on the development of Brazil with local governments not honoring their commitments. The case with Dell is illustrating how the firm is facing challenges in opening a manufacturing plant in Minas Gerais. The best option is to abandon building facilities inside the country and concentrate on outsourcing their manufacturing to other nations nearby. This will reduce the costs and the firm can use free trade agreements to avoid tariffs. These changes will enable Dell to connect with this market by focusing on the sales and support vs. manufacturing. ("Dell's Dilemma," 2014)

The second alternative is to hold the local government accountable for not honoring its agreements. This will force them to meet their obligations by using the WTO and the situation in Brazil to place added amounts of pressure on them. However, the strategy will require considerable amounts of time and investment with uncertain outcomes. As a result, it is advisable for Dell to outsource manufacturing to locations such as Mexico. Instead, they can focus on expanding sales, service and support in other states where the local government is more business friendly. In the long-term, this will offer the cost savings they are seeking and reduce the risks of opening a plant in Minas Gerais. ("Dell's Dilemma," 2014)

Pros of Option A

Under this choice, Dell can outsource their manufacturing to countries where they have existing facilities in place. Then, import the finished product to Brazil to reach consumers and businesses. This approach is being utilized by a variety of firms, who will go to locations close by and establish their manufacturing for the region. If this were to occur, the company can expand their Mexico operations and have the end merchandise transported to customers using a similar strategy in other locations. This will reduce costs and it will eliminate any kind of bureaucracy the firm is facing from local government officials. ("Dell's Dilemma," 2014)

At the same time, Brazil is known for having tremendous amounts of instability. This is because the currency is depreciating, the governments are unstable and long-term policies are socialist leaning. If Dell were to outsource to other locations (i.e. Mexico); they can increase the profitability and avoid these issues with Brazil. Alternatively, the firm can concentrate on those regions that will realize the greatest benefits for the organization. This is something a number of competitors are using to address these challenges. ("Dell's Dilemma," 2014)

Cons of Strategy A

The biggest drawbacks are the proposed strategy will make it harder for Dell to establish continuing operations in Brazil. This is because the firm will focus its manufacturing efforts elsewhere. The problem is that these areas do not improve the company's visibility and capacity to dominate the marketplace. Instead, Dell will concentrate on developing its marketing challenges and limiting production. This means that any kind of delays in shipping or transportation could create order backlogs. ("Dell's Dilemma," 2014)

However, if the firm invested in locations nearby, they have the potential to offset any issues inside a specific country. This is what the most successful organizations will utilize to increase their exposure and ability to deal with volatile situations in certain regions. Over the long-term, the shifts could make it more difficult to compete (especially if competitors establish facilities in states where the local governments are more business friendly). ("Dell's Dilemma," 2014)

Pros of Option B

In the case of option B, Dell could seek to negotiate...

...

One possible strategy is to take their case to the World Trade Organization (WTO). The WTO is focusing on two areas to include: commerce in goods / services and foreign investments via international trade law. Both are relevant in protecting investors through a series of investment agreements. The most notable include: bilateral treaties and preferential trade agreements. In general, 55% of all foreign direct investments are covered by these agreements. ("Dell's Dilemma," 2014)

Under the WTO Dispute Resolution, all member states are obligated to use this process as a way to settle any outstanding issues. This arises when a particular government may not be following various agreements and the standards they promised to uphold when they were welcomed into the WTO. The process is focused on creating a solution that will address these issues. ("Dell's Dilemma," 2014)

In most cases, some kind of settlement is reached with the different parties before it goes to the panel. If someone feels that they did not receive a fair hearing, they can appeal the decision based upon the interpretations of the rules. The appeals panel has the ability to alter or override previous decisions. If Dell utilized this process against the state government, they can use Brazil's international treaty obligations to force them to comply. This means that they will have to honor their agreement and cannot engage in activities to subvert the company's position. Once this happens, is the point the Mayor would be forced to allow the firm to build its plant in spite of his opposing views. ("Dell's Dilemma," 2014)

Cons of Strategy B

The biggest challenge moving forward is investors are shielded by various treaties and agreements. This means seeking out resolutions for these issues can be very cumbersome. Once this occurs, there is the possibility they could become caught up in the overlapping areas of jurisdiction and responsibility. Moreover, it is reserved for issues they are having with governments. In many cases, there could be challenges with a corporation or another individual. In this aspect, the WTO may not be able to address these issues. At the same time, the process is focusing on having the two sides negotiate an acceptable settlement. In this situation, investors may have to back off in their position, in order to receive what they are looking for. These issues are problematic, as the individual or government, who committed acts of deception against them, may not be held accountable for their actions. ("Dell's Dilemma," 2014)

This has the potential to allow this kind of behavior to occur in the future. The way this is occurring, is to prevent the individual or institution from doing the same thing in the future. This is because they believe that nothing really happened and can continue with these activities. When they are caught, there will be a negotiation with no one declaring any wrongdoing on their part. This is troubling for many investors, who are relying on the integrity of the system. The inability to address these issues; makes them concerned about safety and the capacity to go after fraudulent practices. ("Dell's Dilemma," 2014)

These areas are troubling, as they are not dealing with the root causes of the problems. Instead, Dell is seeking to force the local government to comply. Once this happens, is when they may not honor the proceedings or the commitments they made to the firm. This is challenging, as it has the potential to cost the firm even more money and it does not address the root causes of the issues they are facing. This is when they could lose market share to competitors, who went to other states and constructed their own facilities. ("Dell's Dilemma," 2014)

Recommendations

Clearly, option A is the best choice. This is because Dell can outsource their manufacturing to countries where they have existing facilities in place. Then, import the finished product to Brazil to consumers and businesses. This approach is being utilized by a variety of firms, who will go to locations close by and establish their manufacturing for the region. If this were to occur, the company can expand their Mexico operations and have the end merchandise transport the end product using a similar strategy in other locations. This will reduce costs, eliminate any kind of bureaucracy the firm is facing from local government officials and help the company to decrease their risks. ("Dell's Dilemma," 2014)

The second alternative is holding the local government accountable for changing its position. This will force them to meet their obligations by using the WTO and the situation in Brazil to place added amounts of pressure on them. However, the strategy will require considerable time and investment with no certain outcomes. As a result, it is advisable for Dell to outsource manufacturing to locations such as Mexico. Instead, they can focus on expanding sales, service and support in other states where the local government is more business friendly. In the long-term, this will offer the cost…

Sources Used in Documents:

References

Dell's Dilemma. (2014). Thunderbird School of Global Management.


Cite this Document:

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