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Dell's Dillemma in Brazil

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Ye Jun Lee

on 3 June 2013

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Transcript of Dell's Dillemma in Brazil

by Michael Dell in 1984
with $1000 Industry Products Locations Computer hardware
Computer software
IT consulting
IT services Internet sales over
$12 million per day  No. 1 market dominance
in computer systems provider
world wide lost its title as the
largest PC manufacturer to HP Why??? Apple Hewlett-Packard Lenovo Buyout !
Re-Innovation! Direct Method Cutting operation costs
Improving delivery time
Allows customers to customize their orders
Contributed vitally to the company's successes in both the US and overseas markets. JIT Production Deliver components
Just-In-Time! allowing them to have a constant low-inventory count ->significant cost advantages “We don’t build anything until you order.” Manufacturing Cell Doubled the company’s manufacturing productivity per square foot
Reduced assembly times by 75% Much lower price than before! OUR CASE Back to 1998... EXPANSION!! To where...? To Brazil! To Latin America Education level Number of Qualified personnel Adequate supply of electricity Quality of telecommunications Transportation Infrastructure Rio Grande
Do Sul 1. Well-developed modern infrastructure.

2. Telecommunications infrastructure was most efficient.

3. Lower costs.

4. Security was a way better than other states.

5. Standard of living was at highest level among Brazil states.

6. No political problem. But,
a problem occurs.. Change of political climate
of Rio Grande do Sul Pro-FDI Anti-FDI Antonio Britto Olivio Dutra Option 1 Option 2 Option 3 Leave Brazil! Go to Minas Gerais! Re-negotiate with Dutra Scanning/Detailed analysis Opportunities Risks SALES EXPANSION :
-Prices-Income elasticy
-Income distribution
-Culture and taste
-Existence of trading blocs

-Governmental Incentives Political Risks

Foreign Exchange Risks

Competitive Risks Option 1 Leave Brazil Option 2 Go to Minas Gerais Option 3 Re-negotiate with Dutra

Stay in Rio Grande do sul Option 1 Pros -Avoid devaluation
-Leave the unstable political environment
- No need to negotiate with Dutra Cons -Member of Mercosul

-Leave a good market Stay in Brazil Eliminate Option 1 Leave Brazil Rio Grande Do sul Low political risk
Good worker pool (experts in electronics and computer)
Bigger territory and population and high GDP.
Reduce labor cost with lower GDP per capital in Minas Gerais
Better option in land loan.
Advantage in location for domestic trade. close to some big cities; Sao Paulo and Rio de Janeiro with better transportation infrastructure. Cons Disadvantage in location for expanding foreign market within Latin America.
High cost in delivery to other Mercosul countries
Not the best option
INDI are not independent agency (under the control of government)
Low purchasing power in domestic market Pros Cons Political Risk
Higher GDP per capita, higher labor cost?
No free land Grid Analysis Minas Gerais Option 2 vs Option 3 Which state should be selected? 70% reductions of 18% ICMS
=5.4% ICMS for 10yr Population
GDP Weigh factors Weigh factors Political Stability Weight factors
adjacent to Mercosul countries Political Stability Factors Security level Weigh factors Both offers no tariff among Mercosul Free land Weight Grade 5 (Very favorable) 1 (Not favorable) 5 (Very important) 1 (Not important) Grid criteria for number Payment period Suspension period 10 Years 5 Years R$20 million 4 Years 4 Years R$20 million Put a lot of effort with starting a plant in Rio Grande do Sul
Offer best option
Negotiation advantage (Imply to Ford leaving)
Location benefit
Good for the society Rio Grande do Sul
No additional cost for Dell Tax benefit
Tariff benefit Geographic location Very important (5) Important (4) Stable operation and low risk level Low cost Competitive on low cost
Quick distribution of product Collaborative agencies Normal (3) Not important (1) Not many partisan differences

No Dutra Minas Gerais Rio Grande
do sul 4 2 Tariff Benefit Factors Minas Gerais Rio Grande
do sul 5 5 Tax Benefit Factors Minas Gerais Rio Grande
do sul 4 5 75% reductions of 17% ICMS
=4.25% ICMS for 12yr Geographical Location Factors 4 5 Minas Gerais Rio Grande
do sul Near big cities
on the east coast of Brazil Land Guarantee Factors 5 4 Minas Gerais Rio Grande
do sul No Free land,
but the location has already
been found by Dell team FDI Incentives (Loan) Factors 4 5 Minas Gerais Rio Grande
do sul Telecommunication Factors 3 5 Minas Gerais Rio Grande
do sul Has the most efficient telecommunication infrastructure in the country Homes with
fixed telephone lines 57.5% 67.9% Education Factors Minas Gerais Rio Grande
do sul Choosing a new location 3 4 Security Level Factors 3 2 Minas Gerais Rio Grande
do sul 7.1% 6.2% Percentage of people
who were victims of
robbery or theft Population Factors 4 3 GDP 4 3 Minas Gerais Rio Grande
do sul Minas Gerais Rio Grande
do sul 10.2 mil 17.8 mil 51.9 bil 41.7 bil Pros Land guarantee
FDI incentives Telecommunication Education level Helps Dell to be financially healthy For high-responsiveness Necessary for high-tech computer industry Dell is aiming for the whole Latin America market! A change of governor (Olivio Dutra of Partido dos Trabalhadores) has made the deal void between Dell and the precedent governor (Britto government).

Olivio Dutra of Partido dos Trabalhadores is from the Worker’s Party, making him more concerned about the people than his predecessor. To avoid serious conflict while operating the plant Stock Price of Dell since 1998 Huge market
Zero tariffs Dell's Dilemma in Brazil 1. Description & History of Dell

2. Description of problem

3. Problem Analysis

4. Our Recommendation

5. Discussion Questions 2009120330 Jongeak Yoon
2009120353 Yejun Lee
2010120308 KeunHo Cho
2011120307 JeongMin Lee
2011120323 Sodam Hong
2013951214 Jenny Eriksson
2013951015 Karmen Li
2013951359 Sanae Oukhay Group H Comparison of Retail Prices Agreements signed
Local personnel hired
Construction scheduled State of Preparations.. Q1. What could be the
best way to negotiate
with the new governor? Q2. How they can avoid or cover additional tax costs after the expiration to keep their competitive price level? Thank you! :)
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