Dell's Macro Environment | An Analysis
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Dell Inc (Dell) is a United State (US) based company that is engaged in developing, designing, marketing, manufacturing, and supporting information technology systems. The company offered product includes laptops, desktops, storage devices and printers, among several others. Geographically, the company has its operations in the Americas, Europe, the Middle East and Africa, and Asia Pacific-Japan. The company headquartered was located at Texas, the United States (Liebert, 2009).
Dell delivers innovative technology and services where placed at number 34 on the fortune 500 list. Dell's climb to market leadership is the result of its sharp focus on delivering the best possible customer experience by directly selling, standards-based computing products and services. Dell's concept is understands customers needs and efficiently provides the most effective computing solutions to meet those needs (Shine, 2008).
2. The Macro Environment Analysis of the Company
2.1 PEST analysis
In the following, the analysis of the political, economic, social and technological factors leads to a description of the macro environment of the Dell computer industry.
Political factors include government regulations and legal issues determining the conditions under which companies have to operate. Dell has to face certain restraints while do business. For example, corporate tax rate estimated by the country's Industrial Development Agency was 39.5% in the US (Mehra, 2008).The US government restrictive their policies often hinder foreign companies from entering into their markets. This is because the policy which is maintained is to protect the domestic industries and production (Scribd, 2009). Another regulation that should follow by Dell is Waste from Electrical and Electronic Equipment (WEEE) laws which place by US Congress. The WEEE aims to reduce waste from electrical and electronic equipment and to improve the environmental friendly (Oreskovic, 2010). In May 2009, Dell became the first major computer manufacturer to ban the export of certain electronic waste, including material or chemical composition, to developing countries as part on responsible electronics disposal. Where the government is ready for such practice of responsible recycling, Dell has been an advocate for producer responsibility in such legislation (Dell, 2010).
The economic environment refers to the nature and direction of the economy in which a firm competes or may compete (Scribd, 2009). Dell was the one of the three biggest PC firm after Hewlett-Packard (HP) and IBM. Price is an important factor and hence inflation or fluctuating currency rates in a country might adversely affect the industry and margins (Mehra, 2008). Real GDP (Gross Domestic Product) growth will provide insight into the health of the computer hardware industry. Spending on computer hardware in Dell is expected to grow to $2.5 trillion in 2010 (Oreskovic, 2010). The company reported revenue in 2010 rose 22% to $15.5 billion, versus Wall Street's estimate of $15.2 billion, and doing really well in the production and selling of personal computers (Dell, 2010). Besides, Dell reported net income in its fiscal second quarter ended July 2010 was up to $545 million, from $472 million in the year-ago period (Dell, 2010). This growth of economic usually is having an impact on the purchasing power of potential customers.
The social segment is concerned with a society attitudes and cultural values (Scribd, 2009). Consumers demand for computers is dependent on the educational level in a country. In the past, the demand for laptop computers comprised only of businesspeople. Now, college student's demand represents a considerable percentage of the total demand for laptop computers. Also children are getting familiar with the use of computers at a very young age (Mehra, 2008). To fulfill younger consumers, Dell likes to come out with a brand new laptop that better artwork as its cover to attract the younger market (Eskildson, 2009). Also laptops are getting more involved in daily life with increasing complexity of work. For example, executives and managers are managing entire departments of offices is going increasingly acceptance of IT, it has provided impetus to the industry. The brand image of a computer and lifestyle trends is the main decisive for the purchasing decision. Dell adapts to this trend, by offering a wider range of notebooks by trying to create a strong brand name (Reuters, 2009).
The technological segment includes the institutions and activities involved with creating new knowledge into products, processes and materials (Scribd, 2009). In laptop industry, low cost leadership can be achieved through technological advancements and it also provides easy differentiation to the company. Dell Company's website able received at least 25 million visits at more than 50 country-specific sites (Mehra, 2008). Dell has to always keep up with technological advancements to be able to compete. Dell maintains quality by choosing the best in class component manufacturers (Intel & Microsoft) and leveraging their scale investment in Research & Development. Dell has been betting on a strong replacement cycle from 2010, helped by Microsoft's next-generation Windows 7 operating system, to help pull it out of the current slowdown (Reuters, 2009). The educational potential of computer based technologies is wide-ranging. Introducing computer based systems not only to manage student interactions, but also to support differences in learning paths and styles. This will allow more effective accommodation of a wider range of student experiences and preferences (Eskildson, 2009). For example, Dell XPS brand is new models in world class technology, and feature Intel Core I processors with Optimus technology, which is built to meet each customer's specifications. (Dell, 2010)
3. The International Consideration
3.1 Where do they operate?
The growth for the Dell in China has been tremendous in recent years, and which has become the computer maker's second-largest market after the United States. The expansion is indicative of the growing importance of the Chinese market for computer sales as well as manufacturing. The company had sales of about $4 billion in second quarter 2010 in China (GECR, 2010). Dell has two computer manufacturing plants in Xiamen and a global product engineering center in Shanghai. It also has a global service center in Dalian (Ladendorf, 2010). Dell also plans to open a second major China operations center in Chengdu and will become a manufacturing and customer support center (Reuters, 2010). Dell is the second largest supplier of computer systems in China with 9% share (Dell, 2010). Expanding to China gives the company the chance to reduce its labor costs (Fan, 2004). The average hourly labor costs for 2009 are $1.27 in China compared to $25.34 in the U.S. which is totally largely different between two countries. Cheaper labor cost helped Dell saving much more money and being a great step move up profitability (Eskildson, 2009). Dell's total spend in facilities, employment, research and development and purchases from suppliers in China is estimated to be greater than US$100 billion over the next decade. Strategic investments in China that will help company better serve the region's increasing need for technology solutions and services (Dell, 2010).
3.2 What Do They Consider When Doing International Business
Cultural environment and government regulations should be considered by Dell when doing international business in China. Guanxi in Chinese term mean interpersonal connections between each country. Guanxi has been identified as one of the most important success factors in doing business in China regarded as a source of sustainable competitive advantage (Fan, 2004). The cultural differences that Dell China has experienced include guanxi, whereas in the US, business is based on mutual understanding, such as mutually beneficial price. Dell believed that by understanding concepts guanxi is benefits for obtaining information on government policies, market trends and business opportunities. Another benefit widely cited is that the guanxi network improves efficiency by reducing the transaction costs. Dell needs attempt to minimize the influence of the large cultural distance between US and China (Connors, 2010).
Besides that, Dell should consider government regulations of other countries, when entrant to a new market. Labor law is one of government regulation must be followed by Dell to eliminate threats. Standard working hours in China is eight hours a day six days a week whereas US average working hours is six hours per day five days per week (ICTI, 2010). Dell should respecting all laws, cultures, and values in the region they are influence, if not, they would hard to penetrate market place. Dell should awareness in culture and government regulations because it is an extremely important factor when doing business in China (Reuters,2009).
3.3 What is their internationalisation method?
One of the successes of Dell in ecommerce globalization was selling product on the Web and now has sites aimed at 85 different countries and territories (Bothma, n.d). The internationalization method is known as Dell Direct method, is based upon selling directly to the customer. The customer is able to browse the products and options, respond via selection and complete a payment. Dell will then build the computer to the exact specification and deliver to the customer (Mehra, 2008). Dell uses a decentralized approach with its international sites. Dell created a common technology platform for each of its global sites, which ensures users can order and referring product information across their various international sites (Dell,2010).
Dell built manufacturing plants in each of the regions it serves, including Ireland, Brazil, China, and Malaysia. Because the company employs local customer service staff, every time a customer picks up the phone, they are dealing with someone local (Bothma, n.d). For example, customers can place their orders by calling Dell's toll-free number or by logging on to the company's Web site (http://www.dell.com). Their make order computer exactly delivery within 36 hours to their customers (Gale, 2008). This direct contact with consumers gives Dell the unique opportunity to know exactly what its consumers want and offer products that would satisfy their specific needs (Beals, 2007). One of the key benefits of the direct sales model is it work against the 'middle men'. The after sales support of Dell had built up an excellent reputation in the industry (Mehra, 2008).
3.4 Problems and solutions
The main problem faced by Dell is the fierce rivalry and competition in the industry. New entrants to a market might face a lot of competitors that already exist in the market such as IBM, HP, Toshiba, and Apple. Every computer company in the industry wants to be the first to introduce the newest technology at the lowest possible price. The technological requirements for all computer companies have increased and get more competitive. This threaten Dell, as some established firms, like IBM and Apple, have had the financial resources to invest early in marketing and research which they would not have now.
Dell solving this rivalry by invests the most up-to-date technology and IT tools that allow it to effectively move along their advanced supply chain and attain the value they are reaching for. For example, Dell recently introduced 'Microsoft SharePoint 2010' which can quickly monitor and upgrading from an older version or a brand new implementation. In short, this software is designed to enhance Dell's IT experience by changing the way interacts with new technology. It is easier to manage and more reliable, which can give Dell a competitive edge (Dell, 2010).
The second problem that faced by Dell when doing business in China is barrier of sales method. Dell computers approach direct sale model which is only available to be ordered on their website or by phone. Average Chinese consumer as generally not being very loyal and were uncomfortable using credit cards online thus hurting online sales. Over 65% of the Chinese consumers usually according to site promotions and they prefer to see and touch the computer before buying it. Besides, they were also not willing to wait the extra time for Dell to build the computer and ship it to them. Thus, this proves as a real barrier to Dell's sales method (Schmid, 2005).
To settle this problem, Dell should invest in storefronts similar to the 'Apple store' concept where the entire Dell product line can be seen and touched, a method that will probably work better with Chinese buying habits. Dell served by a hybrid business model that combines direct sales modal and retail sales channels to the international PC market. For example, Dell recently began offering Dimension PCs and XPS notebooks through Wal-Mart, Costco, and China cities through fifty Gome Electrical Appliances stores, which is largest electronics retailer (Chopra, 2007). DELL invest in international retailer channels is a best opportunities for them face to face operations to gain consumers faith and trust in Dell services and product (Scribd, 2009). Dell improved their service by launched 'IdeaStorm' to engage with customers and to understand their needs. Users are invited to share their ideas and comments in idaestorm.com, and such service gives a clear idea to Dell about what their potential customers seek. Dell would share these ideas throughout the organization to gain further thoughts to translate these ideas into products (Longhopper, 2008).
4. The Growth of Business
4.1 Ansoff's Product-Market Matrix
Dell's mission is to be the most successful computer company in the world that delivering the best customer experience in markets. The Ansoff's Growth Matrix is a tool that helps businesses decide their product and market growth strategy. Ansoff's growth matrix suggests that a business attempts to grow depend on whether it markets new or existing products in new or existing markets (Sikander.2008).
4.1.1 Market Penetration
Market penetration occurs when a company enters a market with current products. This is a best way to attract competitor's customer and new customer for the existing products, by doing advertising and promotions (Grid, 2008). Market penetration is the least risky way for a company to grow. Dell set an aggressive goal to reach $80 billion in revenue by 2010. To reach this goal, Dell should begin by adopting a broader market by offering internal workings of PC's. This help expanding its service business to include creativity in developing countries such as India and China. Software is a potent service tool while doing market penetration. Thus, Dell is congregate a services portfolio that includes e-mail disaster recovery and virus filtering (Alkerabi, 2006). It helps Dell increase the profit by actively seeking more market share in market penetration. Small and Medium Business revenue was $3.7 billion, up 24 %. In the quarter, Dell introduced new Power Edge servers, Power Vault storage, and Power Connect networking solutions that help small and medium businesses affordably update technology infrastructures with easy integration, minimal downtime and the ability to scale (Rock, 2010). Dell has already penetrated the market in China, where expected to be 80% of sales in 2011.
4.1.2 Market Development Strategy
Market development strategy is means developing a new market for the existing company product. This is help to increase company sales and profits as finding new market for the new customer (Grid, 2008). Dell developed new market for their product worldwide. Present Dell market through the creation of subsidiaries, has expanded its business model worldwide. While its core business resides in the US, operations in Asia-Pacific and Japan continue to grow, making up 29%, and the Americas were up 18%. Revenue in Brazil, Russia, India and China grew 30 % of Dell's year revenue. The company continues to expand its presence in these important countries, which now represent 13 % of total company revenue (Rock, 2010). In each market, Dell utilizes a direct sales methodology to eliminate the costs of the middle man. In each geographic market, Dell pursues three independent market segments: consumers, government and businesses. Of these three, Dell is the most reliant on the US business segment, which is responsible for 21% to $45.8 billion of Dells revenue (Alkerabi, 2006).
4.1.3 Product Development Strategy
Product development strategy is in term of developing or modifying new products and offering to the existing market. This strategy usually takes time and money for developing a new product for the market. Marketing Manager must keep in eye to check the new product whether it is feasible to introduce in the current market (Grid, 2008). Present Products and services of Dell present product line can be segmented into 5 major categories which is desktop and mobility computing, software and peripherals (printers, monitors, plasma TV's, etc.), servers and networking, infrastructure services and storage. These 5 categories span the computing industry and allow Dell to be engaged in all aspects of the individual and corporate computing experience. Within each of these categories, Dell offers products that appeal to many market segments. While often known as a low-end provider, Dell is expanding its personal computing by developed a new products with the reintroduction of its XPS brand for the consumer .This product offering will allow Dell to market its products to the entire spectrum of computer users, rather than approach the market from a broad perspective.
4.1.4 Diversification Strategy
Development of new products in the new market is called diversification strategy. It is a form of growth strategy involving a significant increase in the profit beyond past performance records. It is generally very risky in the corporate level for entering a promising business outside of the scope of the existing business unit (Grid, 2008). Dell trying to attract new market by ready to change its personality from PCs manufacturer to multi task personality with diversification. Due to diversification product, Dell plans to enter into Smartphone market .Dell trying to enter in this market, because the Smartphone market is far from settled thereby allowing new entries to more easily prosper (Dell, 2010). This new decision move up the value chain of Dell, but the risk could be high .A proper execution can lower down the risk. Dell is well known for its online retailing and service, if it will use its strategies in fine manner than they can make the Smartphone a compelling device. Moreover, Dell outperform their competitor, the main essence is depends on final designing of Smartphone (Koyler, 2010). In addition, this strategy will help ensure a continuing market for the Dell PC, server and integration service complete solutions provider businesses. It will also change Dell's Business brand from a solely value provider to a creativity.
5. New Venture
Brunei Darussalam is a country that client wants to move into new venture. Research found that, Brunei has a small rich economy that encompasses a mixture of foreign and domestic entrepreneurship. The economy is dominated by oil and natural gas sector that comprise more than 90% of exports. Brunei's per capita GDP is one of the highest in the Asian continent (Stanley, 2010).
Foreign Direct Investment (FDI) in Brunei is an entry mode should use by client. The simplest explanation of FDI would be a direct investment by a corporation in a commercial venture in another country. Today, the government of Brunei is working hard to encourage growth in foreign investment. According to the United Nations body's 2009 Statistical Yearbook, FDI net inflows to Brunei amounted to US$239 million, equivalent to 1.6% of its GDP (Too, 2010). Brunei's FDI strategy is more focused on technology and skills transfer rather than simply importing foreign capital (Brunei Times, 2010).
5.1 Porter's Five Forces Analysis
Porter's five forces framework is used for strategic industry analysis. This provides a simple perspective for analyzing the competitive strength and position of a corporation (Swathen, 2010). Michael Porter's five competitive forces tend to focus on the single, stand alone, and strategic business unit rather than a single range of products. Dell would use five forces to analyses the Brunei market for business computers.
5.1.1 Competitive Rivalry
Rivalry among competitors in Brunei is low. When the competitive force is weak, Dell may be able to raise prices, provide fewer products, and earn more profits (Too, 2010). They not need distinguish their product from competitors by price war. Brunei is a developing country, there are less computer industry to setup in local plant because the country are more depends on import product. For Brunei imports, the latest numbers are US$2.1 billion to include transportation equipment, machinery, chemicals, food, and various manufactured goods (State, 2010). Brunei locally assembled PCs are less join by international brands such as Acer, HP, Asus, Apple and Lenovo. There is no sign that any of the hardware manufacturing or assembly plants will be established in the country despite some competitive advantages, such as having the lowest tariffs on electricity, fuels and factory rentals in the region (Ehmke, 2008). Due to the small amount of industry competitors, Dell has opportunities moving smoothly into the new market segments and increases their market shares.
5.1.2 Threat of New Entrants
Threat of new entrants in Brunei is low. There are no specific restrictions of foreign equity ownership in Brunei. Analyzing the threat of new entrants is interrelated with the barriers to entry, which can restrict the firms from entering the new market. Government policy creates barriers to entry for new entrants by taxes and corporate income tax rate (Swathen, 2010). Dell must get to know the Government regulations and policies in Brunei before making entry decision into the country. Brunei government has set the normal corporate income tax rate which is 30% (State, 2010). However, there is no personal income tax or capital gains tax. New enterprises that meet certain criteria can receive pioneer status, exempting profits from income tax for up to 5 years, depending on the amount of capital invested. Furthermore, private companies must have a minimum of two but not more than 50 shareholders. At least half of the directors in a company must be residents of Brunei (State, 2010). This is some legal requirements needed follow by Dell when enter into a Brunei market. Treat of new entrants also showing low where low capital investment for independent stores of Dell is very easy to set up a new PC company in Brunei. Dell is more willing to enter an industry because they can easily liquidate their inventory and assets (Mehra, 2008). Additionally, Dell has strong brand names and has the right mixes of resources and capabilities. Due to this, they can less commitment in advertising, research and development, and capital assets, the greater the chance of new entrants to the industry (Ehmke, 2008).
5.1.3 Threat of Substitutes
Threat of substitutes in Brunei is moderate. Threat of substitute products means customers can easily switch away from one business product to a competitor's product, if your product that is undifferentiated. Analysis states that consumers of Brunei have a tendency to buy substitute products (Too, 2010). Switching costs are also high because certain programs can only work for certain computer. Moreover, Brunei consumers are able to get expensive to buy all new software for a new system in order to fulfill their needs (Ehmke, 2008). For example, Apple introduced their much-anticipated media tablet, the 'Ipad'. It offers multi touch interaction with multimedia formats including newspapers, magazines, eBooks, photos and movies. As technology changes and standardization takes place causes Brunei consumers switch away from Dell product to Apple product (Mehra, 2008). By reducing the threat of substitutes, Dell have to keep customers from substituting their product by offering more choices and with high technology software support to prevent people from switching to Apple system (swathen,2010).
5.1.4 Bargaining Power of Suppliers
Bargaining power of suppliers of Dell is high. The bargaining power of suppliers will be high when there are many buyers and few dominant suppliers. The presence of powerful suppliers will be threatening to raise prices or reduce the quality of goods and services. Thus, they reduce profitability in an industry where companies cannot recover cost increases in their own prices (Swathen, 2010). The major suppliers in Dell are Microsoft and Intel. The bargaining power of Microsoft and Intel is high because they are the huge suppliers of software and hardware in the computer market. Microsoft enforces computer manufacturers to load Windows in their computers and place their logo on laptops, desktops and server machines. On the other hand, Intel also demands computer manufacturers to place their logo on machines using Intel processor. Due to this condition, computer manufacturing companies are more relies on their products, causes Intel and Microsoft place in high bargaining power. To reduce the bargaining power of suppliers, Dell manufacturer needs to build relationship with the suppliers by working together to improve the quality and reduce the prices of the product (Mehra, 2008). For instance, Dell Computer uses partnering with its components suppliers as a key strategy to be the low-cost and high-quality computer in the market.
5.1.5 Bargaining Power of Buyer
Bargaining power of buyer in Brunei is high, where there are few buyers and many sellers. Buyer bargaining power refers to the pressure consumers can exert on businesses in order to provide them higher quality products, better customer service, and lower prices. According to Porter's five forces framework, buyer power is one of the forces that shape the competitive structure of an industry. The bargaining power of buyer becomes high while the customers are highly price sensitive and pricing wars are a common occurrence. If each brand of a product is similar, then the buyer will move their purchase decision into prices. The goal for any consumer is to receive the desired reliable computer hardware at inexpensive prices. As a result, increase the competitive rivalry among the competitors causing lower prices, and lower profitability. Due to satisfaction customers needs, most companies such as Dell, HP and Acer are competitive to sell directly by lowering the cost. This reduction in costs equally affects the desired low cost of computer hardware by consumer demand (Mehra, 2008). Dell can reduce the bargaining power of customers by increasing their loyalty to their products through partnerships or loyalty programs, such as increasing the inherent and perceived value of a product by adding features.
As a conclusion, the overall Dell's current performance in the industry is actually analysis in great shape and has far more strengths than weaknesses. Dell enjoys various strengths in terms of its uniqueness with respect to high standards for customer service and giving customers exactly what they want. Moreover, continuous updates and process improvement required from suppliers to keep up with Dell's pace of development. It also needs to take care of few threats like retaliation from competitors and bargaining power of buyer poses in a highly competitive market. Dell is much betters in control their industry, this allowed client make a FDI decision in Brunei.
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