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Direct from Dell.

Michael Dell is one of the few members of the one-name-only technology club, having built a computer-assembly business from a University of Texas dorm room--a school from which he famously dropped out to pursue Dell--into a US$41 billion global enterprise. His focus hasn't changed: Sell hardware directly to customers via hyper-efficient yet custom production with personalized, individual contact. Dell talked with LATIN TRADE Editor-in-Chief Greg Brown about free trade, squeezing out inefficiencies and his plans to almost double the size of his 20-year-old company.

You once sold in Mexico through distributors. Describe that decision.

Well, if you look at the world, what we have basically done is try to be a direct presence in all of the big markets around the world. Of course, when we started the company, we only had one, which was the United States. And then as we grew we added more and more. So we tended to start the countries with a partner kind of relationship and then over time transition to a fully direct business. Many times we were able to keep those partners engaged in some kind of some kind of special capacity, whether for services or for unique value add. But if you look at global GDP [gross domestic product], we serve roughly 97% of the world's GDP on a direct basis.

Interest rates in Brazil are coming down. How are sales?

Well, we've done really well. Latin America has grown quite dramatically for us. Over 40% growth in each of the last two years. We've grown our market share quite considerably across the region.

What are your market shares now?

In Mexico it's about 12.5%. In Brazil, it's only about 4%, which is actually pretty high considering.... What you have in Brazil is a whole lot of, essentially, smuggling and evasion of the tariffs. Which ultimately raises the price of computers. It's an odd way of progressing a society, because the thing you to advance is the thing which is taxed. Usually, if you want something, you have less taxes on it and if you don't want something you have more taxes on it, so they kind have got it a little backwards, in my opinion.

You manufacture in Brazil, Is that in order to avoid high import taxes?

Well, partly, but also partly because, you know, it's a large market to itself and you want to be close to the customer in terms of being able to deliver products rapidly. Brazil is a huge country, and then there's obviously huge land mass involved in South America, Latin America. So we tend to have regional factories everywhere in the world to support delivering products rapidly to customers, that are configured to their needs.

The no-name, "white box" computer business is huge in Latin America. How do you defeat that?

I think the price and the value are not necessarily the same when you are buying something like that. We have pretty rigorous requirements we place on our suppliers. So a supplier has a requirement for a certain level of quality in terms of supplying to Dell. if that level of quality isn't met, they can't be a supplier to Dell anymore. But they still got to sell their stuff somewhere. The level of science involved in building these white boxes isn't very high, so what you end up with is all the stuff that didn't meet the quality requirements of the first-tier manufacturers. And, it's essentially this kind of tax-evasion system, which ultimately doesn't help the country develop the way it should. But, you know, if we look around the world the good news for trade in general is that tariff barriers and the cost of trade keep coming down. And so there's more and more trade across nations and economic capacity is expanding and that's a good thing. I'm confident that it'll happen in Brazil, too, I just don't know when.

Global free trade is a pretty hard sell these days. Would you summarize why Latin American congresses should ratify the deals before them?

In any short-term context, you can say, 'Hey, this is going to be difficult because we're going to have transition this industry or that industry.' But, if you look at any 10-plus-year context, global economic capacity has expanded dramatically in the last 50 of 100 years, and it's all down to trade. There's just sort of no denying that. Also, I think, the countries that close their doors to trade are the ones that don't work, that don't develop in a full economic sense.... One of the reasons China is thriving is because it has opened up its trade barriers. China is actually buying huge amounts of stuff, whether it's raw materials of finished equipment of electronics, computing, pharmaceuticals, etc. from other nations. Sure, it's exporting a lot, but Brazil and other countries in Latin America have an enormous opportunity given their proximity to the largest economy in the world, but the barriers have to come down. And you have to have transparency in governments. You have to have rule of law. You have to have clear investment and return horizons. There's no reason why those 650 million people can't rival some of the other nations that are thriving in Asia.

Every one I talk to, no matter what business it is, seems to really want to talk about supply chain. Could Dell outsource its expertise or set up in new industries--commodities, health care, anything like that--and make it work the Dell way?

Well, I suppose that we could go into that business. But we don't have any intention of doing that. We want to use our expertise to deliver that in the market we're in, which we see as an $800 billion market. At Dell, we have had to figure out what we're not going to do more than figure out what we are going to do because there's more opportunities than we know what to do with, so we have to be pretty selective. We're not going into the supply chain consulting business, although we are pretty good at supply chains. We're not a consulting company, we're a product and service company, and there are a multitude of additional products and services we can deliver using our knowledge.

Is your method applicable outside Dell at all?

If you take just Dell's 115 turns of inventory per year, our supply chain is a very tightly linked information system, and an example of how much room there is for other companies to improve their supply chain. Most manufacturers, their inventory turns are 10 times or 20 times less than ours. Inventory turns of seven, or eight or 10 would be considered pretty good in a lot of industries, and we're 115. That's basically three days of inventory. That kind of velocity is actually possible by lots of companies with the right information systems. Which actually shows, that no, we're not at the point of diminishing returns and that all companies have figured out how to use IT [information technology] and the game's over. We're actually still at the very beginning, where a lot of companies haven't figured out how to use the stuff, they still haven't linked their customers and their suppliers together, and there's still massive excess costs in the economy that are wasted because of inefficient communications.

It's not a very pretty argument to make, but in developing markets these kinds of inefficiencies keep a lot of people employed.

Ah, the paradox of productivity. What happens if we all become really productive? Will we have any jobs left? That's kind of the problem we have in the United States, where we're so productive we're putting people out of work. At the same time, we're taking those same people and putting them into much higher value-add activities.

Are there no obstacles ahead for Dell?

Oh, sure. Probably the biggest challenge for us is growing and developing our leadership team to keep pace with the growth. Seven years ago we were a $7 billion company. Last year were we $41 billion. In a few years we'd like to be $70 billion. So where do all the leaders come from that cause that to happen? That's the biggest challenge we have.

How do you hire people?

Well, it's a myriad a ways. More and more of our leaders are coming from inside the company, that have grown up inside the company and have developed and understand the culture of the company. What we try to do is challenge them with different assignments across the organization so that they get a good sense for many areas of the business. It's really hard to take people who don't know anything about how we interact with customers, the way our business works, and just all of a sudden teach them everything you need to know to be successful.

Should everyone drop out of college right now?

I wouldn't recommend that, no.
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Title Annotation:Technology
Author:Brown, Greg
Publication:Latin Trade
Article Type:Interview
Date:Aug 1, 2004
Words:1493
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