Dell's Global Strategy, Supply Chain, and International Growth

Introduction and Global Market Context

For many organizations, their performance in the international market is more important for their survival and growth than their performance in the home market. Dell has outlined its policies for operating in the international market clearly, and these should be viewed as its global strategy — the starting point for any discussion regarding its globalization.

Dell manufactures in different regions, with one or more plants serving each particular area. 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)

Whether the company can still be called a truly global company, however, is open to dispute. Other companies generate more of their revenues outside their home countries — Siemens gathers 77% of its revenues outside Germany, and Coca-Cola gathers more than 70% of revenues outside the U.S. Companies that remain heavily dependent on domestic markets include Google at 45% and Dell at 31%, though both are working to become truly international companies. (Global by Design)

Company History and Revenue Growth

The history of the company is quite interesting. It began as Michael Dell's venture in 1984 while he was still a student in Austin, Texas. The business started as one of selling upgrades of IBM-compatible PCs and then shifted to selling its own brand. He operated on the direct sales model, in which the PC was built to the customer's specification. Dell's retailing activities began in 1990, but the business went into a slump in 1993, after which they returned to being direct vendors.

Their business grew rapidly, rising from $3.5 billion in 1994 to $25 billion in 1999. At that time, Dell was the largest seller of PCs in the United States and the second largest in the international market. (Dell Computer: Using E-commerce To Support the Virtual Company)

In 1994, Dell was still a struggling second-tier PC maker. Like other PC makers at the time, Dell ordered its components well ahead of time and carried a large amount of component inventory. When forecasts did not match actual sales, Dell had to write off large stocks of components. After changing its system over a period of four years, Dell's revenues increased from $2 billion to $16 billion — a 50% annual growth rate. At the same time, earnings per share grew by approximately 62% per year. This was reflected in the stock price, which rose by over 17,000% over eight years. In 1998, Dell's return on invested capital was 217%, and the company held approximately $1.8 billion in cash.

One of the strategies Dell adopted was to focus on customers with relatively predictable purchasing patterns and lower service costs. This helped reduce costs and increase profits. (Dell Manages Profitability, Not Inventory)

Inventory Management and Profitability

Dell also developed a core competency in targeting customers and maintained a massive database to support this effort. As a result, a large portion of Dell's business came from long-term corporate accounts whose requirements were closely tied to their budget cycles and thus highly predictable. To serve these customers, Dell developed powerful customer-specific intranet websites with predetermined custom specifications and budgets. Dell's forecast accuracy reached approximately 70–75%, largely because of careful account selection. Active demand management of these customers further closed the forecast gap.

Dell's initial internal objectives included lowering inventory by 50%, improving lead times by 50%, reducing assembly costs by 30%, and lowering obsolete inventory by 75%. The new system was introduced gradually, and component inventory dropped from seventy days to thirty to forty days, then to twenty days, and eventually to nearly zero. Correspondingly, Dell's returns grew disproportionately. Not only did Dell avoid carrying costs and obsolete stock write-offs, but it also saved significantly on component purchases at a time when component prices were falling approximately 3% per month. (Dell Manages Profitability, Not Inventory)

The regular decline in component prices continues today, but Dell was among the first companies to recognize this trend and incorporate it into corporate planning. This is one of the primary reasons for Dell's high profitability and subsequent growth — a business model notable enough for Harvard Business School to study and document.

Considering that Dell operates plants internationally, all producing goods for particular regions, it is essential that these plants maintain certain international standards. This is codified in Dell's Global Supplier Management Program. The first requirement concerns Certification and Standards: Dell suppliers must be compliant with ISO 14001, the most widely recognized standard for environmental management systems, and OHSAS 18001, a prominent standard for workplace health and safety management systems, with a target compliance date of 31 January 2004. Suppliers unable to meet the deadline were required to obtain Dell's approval of a schedule for achieving certification. The second aspect concerned adequate Training and Communication. (Principles of Globalization and Global Citizenship)

Third, all suppliers were required to sign an agreement acknowledging awareness of and commitment to Dell's social and environmental responsibility requirements, ensuring that responsible behavior is embedded in the business. Dell conducts quarterly business and supplier reviews. The fourth requirement was on-time delivery, which is central to Dell's rapid international growth. Dell reserved the right to terminate agreements with suppliers who violated or failed to comply with the company's Supplier Commitment Policy or Supply Chain Management requirements. (Principles of Globalization and Global Citizenship)

Conclusion

Dell's way of functioning by means of direct delivery gives value to its customers, and this also stems from the company's distinct values embodied in "The Soul of Dell." These values define the company's responsibilities to its employees — treating all employees with equal dignity and respect and providing opportunities for everyone to succeed — to the surrounding community, where Dell strives to be a good neighbor and a responsible environmental organization, and to its global suppliers and their employees, whom Dell encourages to uphold ethical and responsible employment and environmental practices.

Dell's global strategy is thus not merely a set of manufacturing and logistics decisions; it reflects a coherent corporate philosophy that ties operational efficiency, supplier accountability, and community responsibility into a single integrated model. The company's history demonstrates that these principles, particularly its innovative approach to inventory management and its disciplined supplier program, have been central drivers of its growth and profitability on the world stage.

References

Building technology that builds communities. Retrieved from http://www1.us.dell.com/content/topics/global.aspx/corp/citizenship/en/index Accessed 4 October, 2005.

Byrnes, Jonathan. Dell Manages Profitability, Not Inventory. 2 June, 2003. Retrieved from Accessed 4 October, 2005.

Global by Design. Web Globalization News and Design. March, 2005. Retrieved from www.bytelevel.com/globalbydesign/GBD_0305_ex.pdf Accessed 3 October, 2005.

How Dell got soul. 18 September, 2004. Retrieved from Accessed 4 October, 2005.

Kraemer, Kenneth L.; Dedrick, Jason. Dell Computer: Organization of a Global Production Network. Retrieved from Accessed 3 October, 2005.

Kraemer, Kenneth L.; Dedrick, Jason. Dell Computer: Using E-commerce To Support the Virtual Company. June, 2001. Retrieved from Accessed 4 October, 2005.

Principles of Globalization and Global Citizenship. Retrieved from http://www.dell.com/downloads/global/corporate/vision_national/Globalization_Principles.pdf Accessed 3 October, 2005.

Yunker, John. Dell vs. Lenovo in China. 6 July, 2005. Retrieved from Accessed 3 October, 2005.