Dell’s dilemma in Brazil

Submitted by :Group 1

Elizabeth Eappen(F11076)Iris Charu Gomes(F11079)

Neethu Thresa Jacob(F11096)Swarupa Rani Sahu(F11116)Divyanshi Gupta (F11121)

Dell Dell founded in 1984 by Michael Dell It became the second largest PC maker

in 1999 after Compaq Direct Model-Highly efficient and low

cost model

Horizontal FDI Increased sales of PCs in Latin America Decision to locate its first manufacturing

plant in Brazil. Advantage of Market imperfections

prevailing in brazil economy

Brazilian market overview 170 million population

Attractive Market Deregulation

1992 Abandonment of market reserve policy for computers

Member of Mercosul, S. American customs unions Culture of Pragmatic Nationalism adopted by

states Inward FDI policy benefits Guerra Fiscal/taxation war

States - 1divyanshi

Sao Paolo

Benefits• Large prosperous population• Large pool of skilled labor• Large market

Limitations• Govt. indifferent to Dell’s requirements• No special financial incentives• Security issues

Minas Gerais Benefits• 70% reduction for 10 yrs, R$ 20 million

loan4yr grace and repayment period, free land site for the plant

• Promotional agency INDI with highly qualified staff

Limitations• High presence of heavy industries• Difficulty in meeting Dell’s specific needs

Rio Grande do Sul Benefits

• 75% reduction in tax for 12 yrs, R$ 20 million loan,5 yr grace period, 10 yr repayment period

• Promotion agency POLO• Well developed, modern infrastructure• Lower costs for plants overall facilities• Security factor• Well educated population

Limitations• 1 day delay in delivering to customers in Sao

Paolo

Dilemma Change in governance Opposition to grant benefits to foreign

TNCs: Govt orders re-negotiation plans Ford shifting to Bahia

Alternatives

Exiting Brazilian market Switch to another state Negotiate with the new governor of Rio

Grande do Sul

Alternate 1 : Exiting Brazilian market

Implications

Loss of zero tariff advantage enjoyed in Brazil being a member of Mercosul

Unable to tap the largest market in Latin America

Loss of incurred cost in Brazil

Alternate 2 : Switch to another state

Implications Other states did not meet the desired

requirements of : well developed infrastructure, efficient telecommunications, high security transportation, highly skilled work force

Absence of fully privatized efficient foreign investment agency in other states catering to the Dell’s requirements

Alternate 3 : The Solution

Dell should stay put in Rio Grande Best Incentives offered Chances of re-negotiation with the Govt Dell’s policy consistent with the governor’s

goals and agenda Greater employment opportunities- greater

access to information R&D collaboration with the existing state

universities Linkage benefits to the economy