Dell Case
What should Maxwell recommend to Michael Dell?
Executive Summery
In order to expand their business to Latin America and set up a manufacturing unit there, Dell choose to set up a manufacturing unit in Brazil. The reason for choosing Brazil as the country to set up the unit was that the rise in sales in personal computers as the highest in Latin America compared to the world and Brazil was one of the largest Latin American countries with a population of more than 1500. This made Brazil a very attractive country.
The company chose to set up its unit in the state Rio Grande do Sul as the company found that the state had the requisite number of qualified personnel, adequate supply of electricity and requisite infrastructure for telecommunications and transport. The state also offered special financial incentives to the company. During that period Brazil was divided into a number of states and each state was fighting with each other to get Dell to set up their unit in their states.
However after the new government came to power, the states were given a lot more power to govern than they earlier had. Now they could dictate industrial policy of their state. The new government challenged the financial concessions that the previous government had been given to Dell. This led the company to seriously contemplate how to tackle the situation and what steps it could take to resolve the crisis so that it could achieve its business objectives.
The Options for Dell
Maxwell who was then the prime advisor to Dell, suggested three options to the company. The first option that Dell had was to leave the state of Rio Grande do Sul and move onto another state. This would be similar to the step that what Ford had taken in the case of Babia. The other states which had been visited by Dell before it decided to select Rio Grande do Sul, had made some equally interesting financial and special status offers o the company. Hence the company had the luxury of having similar options from other states Maxwell though that Minas Gerais could be one of the options for Dell to shift base in Brazil.
Maxwell noted...
Therefore Dell could avoid any confrontation with the present government of Rio Grande do Sul and easily move on to any other state in the country. The advantage according to Maxwell, of moving onto Minas Gerais was that the state did not have the same level of partisan attitude towards foreign direct investment. Therefore the company would be welcome in the new state.
This was the primary reason why Dell was facing problems in Rio Grande do Sul where the government was questioning the validity of the concessions made to Dell by the earlier government. During the selection process, Dell had also noted that Minas Gerais were also aware and knowledgeable of the needs of Dell. This meant that the company would be at ease setting up and operating from the state of Minas Gerais. Another pro-for selecting another state for setting up the manufacturing unit was that Dell had not yet invested in infrastructure in the state of Rio Grande do Sul. Therefore the company would not stand to lose financially if it chose to shift.
However there were a number of negatives that the most prominent alternative state Minas Gerais held up for Dell shifting its unit there from the state of Rio Grande do Sul,. The primary among them was that the state was more oriented and keen to promote and encourage the industries of mining and automobile industry. But this was also something that Dell did not have concrete proof of and Maxwell wanted to give the benefit of the doubt to the state stating that it was not very clear that the state would not pay attention to the development of other industries as well.
The second option before Dell was to stay back in the state of Rio Grande do Sul and continue to try and negotiate and convince the government. The company's Corporate Affairs Director suggested that the company negotiate with the governor and talk about the benefits that the situation of staying back of the company would be beneficial to him personally. Though this might seem a little unethical, however this was a viable option for the company to stay back in the…
