Case Analysis of Dell: Selling Directly, Globally

Business Model:

Dell Inc. founded by Michael Dell in the 1984 is the world’s largest PC Manufacturer with annual sales of over $54 billion from around 170 countries. The Company was founded on a simple concept; that by selling personal computers directly to customers, Dell could best understand their needs and provides the most effective computing solutions to meet those needs. Dell provides computer systems under its enviable “low-cost direct sales model” under which the company maintains full ownership and control over manufacturing, distribution, and customer relationships. Dell has cut out middlemen, disguised as distributors, and the retail outlets from its supply chain, preferring to ship its products directly to customers.

Dell’s biggest advantage as compare to its competitors is its manufacturing operations and just in time inventory control. Dell builds PC only after it receives order from customer via web or call centre. Once order is confirmed, it relays to its suppliers details of the components required, all the components are delivered at the factory and complete computer is shipped out, all within few hours. Dealing directly with suppliers helped dell in controlling inventory, which had a direct impact on customers. Inventory costs were kept to a minimum and obsolete and dated stock holdings were minimized. Hence Dell was able to pass along to its customers the savings from reductions in system component costs quickly because of it’s just in time inventory control.

Dell discovered its core competency was in Direct Selling and Customer Service and major chunk of its revenue comes from online sales. They designed unique web pages for 44 countries in 21 languages and created customized “Premier Pages” for corporate clientele to make purchases from the company’s own intranet. They also customized web-pages for small business and home-office consumers. Providing product information, pricing and technical support on-line helped Dell to lower sales and marketing costs. In 1999, Dell reported sales of more than US $30 million in products over the net each day.

Dell diverted from its golden rule of “Never Sell Indirectly” to expand into different markets like India & China where the PC industry was dominated by vendors selling through indirect channels. Dell used distributors & retailers to sell there computers, though the benefits of reduced costs and increased attention customer experience and satisfaction were lost. But once they have a strong presence in the market and depending on the readiness of the markets, Dell expected that these markets would require less face-to-face contact and that more orders would be placed through the telephone or web thus reducing Dell’s operating cost.

Key Issues:

• Computers in Asian market were sold through vendors; hence there was an increase in operating cost & price of computers.

• Staffing was another issue in China as it was difficult to find experienced direct sales people because direct sales were a new profession in China.

• Major Customers in China’s PC market were Government and Public Companies, and securing government contract was a major problem as they were influenced by local companies like Legend and Great Wall.

• Consumer segment in China was lot different from US as the price of a PC could cost the equivalent of three months of a person wages.

• Online payment had to be made by credit card, cheque or telegraphic transfer. Average consumer could not afford an investment; very few had a bank account. This created complications and delayed the ordering process.

Biggest Key Issue:

Dells experience & knowledge with the direct model, particularly with the leadership it had in online direct selling was there biggest advantage. But Legend the leading PC manufacturer in china adopted the direct model of Dell & was able to cut down the cost and reduce inventory holdings in the process. Hence it was only a matter of time before the competition beats them at their own game.

Alternatives and Risk/Reward:

Alternatives Risk Reward

 Joint Venture with Local Companies Loss of