1

INTERNATIONAL BUSINESS

CASE STUDY

Competitive advantage at Dell Inc.

Case Discussion Questions

Q#1: Answer

Dell’s manufacturing sites are in Brazil, China, Malaysia, Ireland, and the U.S. Advantages of these locations are that some of them are low cost (Brazil, China, Malaysia and, relatively, Ireland), they have educated work forces that are highly productive, and they are near large regional markets.

Advantages Low labor cost High productivity of local workforce Important regional markets

Dell prefers closest regional market to reduce shipping cost and increase the speed of delivery to customer.

Disadvantages Cultural differences Differences in accent It has to train the un-educated and unskilled lower cost labor in some countries

Q#2: Answer

Dell outsources because it enables Dell’s business model to be successful. Dell’s comparative advantage is in

Pricing customization and rapid order fulfillment

All advantages gained through supply chain management and logistics. By outsourcing, Dell does not carry risks connected to inventory such as obsolescence. Dell can maintain flexibility in its manufacturing, and Dell has lower coordination costs than if it were vertically integrated, producing its own parts. Outsourcing allows Dell to focus on what it does best.

Q#3: Answer

Dell has been able to achieve the lowest inventory levels in the industry.

In 2004, that was only three days of inventory on hand, compared to 30, 45, or even 90 days’ worth at competitors.This is a critical advantage in the computer inventory,

BBA-5

2

INTERNATIONAL BUSINESS

Where component costs account for 75 percent of revenues and typically fall by 1 percent per week due to rapid obsolescence. Replacing inventory with information has contributed greatly to Dell’s business model. It is the cornerstone of their cost structure. Reducing inventory also reduces the need for working capital. In sum, replacing inventory with information boosts profitability.

Q#4: Answer

Yes, Dell’s model can be imitated, but the managerial skills are difficult to build. Other companies who are trying to replace inventories with information include Wal-Mart, Target, Best Buy, and Circuit City. Auto manufacturers also have been making strides in this direction.

Q#5: Answer

The chief factor that makes it difficult for other PC firms to adopt Dell’s model has to do with managerial know-how. Knowing what to do is simple. Knowing how to do it is immensely complicated.Dell’s model gives it competitive advantage and other firms find difficult to adopt it as they can’t have such managerial skills and capabilities and they are working on totally different model from the start.

Q#6: Answer

Low cost is the source of Dell’s competitive advantage. Dell seems to be able to counter competitive challenges, which evidences management capability. This indicates a relatively secure advantage, but because it is imitable, it is not tremendously secure.

Q#7 Answer

There are many risks associated with Dell’s supply chain management. If the transportation links are disrupted (work stoppages, terrorism), Dell’s approach will be affected. In addition, they are vulnerable to problems their suppliers have. Dell is also vulnerable to IT issues

like hacking, system failures. Their competitors would be facing the same issues, though. The risks that need most to be mitigated are the supplier ones because competitors would not share

them. These can be mitigated by integration with the supplier, and Dell has integrated with the supplier’s supplier as well.

BBA-5