Pest analysis of Dell Inc in the USA

1.0 Introduction

Dell Inc is a US-based company that is engaged in designing, developing, manufacturing, marketing, and supporting information technology systems. The company offered product portfolio includes laptops, desktops, workstations, storage devices and printers, among several others. Geographically, the company has its operations in the Americas, Europe, the Middle East and Africa, and Asia Pacific-Japan. The company is headquartered at Texas, the United States(Liebert,2009).

Dell delivers innovative technology and services where placed at number 34 on the fortune 500 list. Dell’s climb to market leadership is the result of its sharp focus on delivering the best possible customer experience by directly selling, standards-based computing products and services. Dell’s concept reads that by selling computer systems directly to customers, it understands their needs and efficiently provides the most effective computing solutions to meet those needs (Shine,2008).

revenues of (U.S. Dollars) USD 61101.0 million during the fiscal year ended 2009, a decrease of 0.1% from 2008. The operating profit of the company was USD 3190.0 million during the fiscal year 2009, a decrease of 7.3% from 2008. The net profit of the company was USD 2478.0 million during the fiscal year 2009, a decrease of 15.9% from 2008.

2.1 PEST-analysis

In the following, the analysis of the political, economic, social and technological factors leads to a description of the macro environment of the Dell computer industry.

a) Political

Political factors include government regulations and legal issues determining the conditions under which companies have to operate. Dell Inc has to face certain restraints,while do business.For example,corporate tax rate estimated by the country’s Industrial Development Agency at 39.5 per cent in the US.

The US government have restrictive their policies which are maintained to protect domestic industries and production. Such policies often hinder foreign companies from entering into their markets..(Scribd,2009) Research founds that,

U.S. Congress to place Waste from Electrical and Electronic Equipment (WEEE) laws on the export of nonfunctional electronic products to developing countries that lack sufficient recycling and disposal infrastructure.In May 2009, Dell became the first major computer manufacturer to ban the export of certain electronic waste (ewaste) based on its material or chemical composition, to developing countries as part of global policy on responsible electronics disposal.As such, Dell has been an advocate for producer-responsibility legislation where the government is ready for such an approach and is prepared to support local communities, businesses and consumers work to develop a culture and practice of responsible recycling.(Dell,2010) The WEEE Directive aims to reduce waste from electrical and electronic equipment and to improve the environmental performance of everything involved in the life cycle of the equipment.

b) Economic

The economic environment refers to the nature and direction of the economy in which a firm competes

or may compete.(Scribd,2009) Dell was the one of the three biggest PC firm after Hewlett-Packard and IBM.(Oreskovic,2010)The computer industry expects a growth of approximately ten percent over the next few years. This growth is influenced by the economic situation in a specific country, having an impact on the purchasing power of potential customers. The GDP growth rate of counties also impacts the sale of computers. Spending on computer hardware is expected to grow to $2.5 trillion in 2010.Real GDP (Gross Domestic Product) growth, rising consumer confidence and currency exchange rates all provide insight into the health of the computer hardware industry.

Price is an important factor and hence inflation or fluctuating currency rates in a country might adversely affect the industry and margins. (Mehra,2008)

The company reported revenue in 2010 rose 22% to $15.5 billion, versus Wall Street’s estimate of $15.2 billion,and doing really well in the production and selling of personal computers. (Dell, 2010) One of the reason that Dell’s economic growth is the best known and renowned computer brands. Dell reported net income in its fiscal second quarter ended July 2010 was up to $545 million, from $472 million in the year-ago period.(Oreskovic,2010).

2.3 Social

The socio-cultural segment is concerned with a society attitudes and cultural values. .(Scribd,2009) United State demand for computers is dependent on the educational level in a country.

In the past the demand for laptop computers comprised only of businesspeople. Now, college students’ demand represents a considerable percentage of the total demand for laptop computers. Also children are getting familiar with the use of computers at a very young age. (Mehra,2008)

To fullfil younger consumers, Dell likes to come out with a brand new laptop that better artwork as its cover which will attract the younger market. (Scribd,2009)

are spending more time working away from the office. These executives are managing entire departments from home offices in a sign that telecommuting is going increasingly more main stream.

Also laptops are getting more and more involved in daily life with increasing complexity of work. For example, executives and managers are managing entire departments of offices is going incresingly acceptance of IT, it has provided impetus to the industry. Besides,the brand image of a computer and lifestyle trends get more and more decisive for the purchasing decision. Dell adapts to this trend, example by offering a wider range of notebooks and by trying to create a strong brand name. (Mehra,2008)

2.4 Technological

The technological segment includes the institutions and activities involved with creating new knowledge into products, processes and materials. .(Scribd,2009) in laptop industry as crucial low cost leadership can be achieved through technological advancements and it also provides easy differentiation to the company. The company’s application of the Internet to other parts of the business –including procurement, customer support and relationship management — is growing at a rate of 30 percent. The company’s Web site received at least 25 million visits at more than 50 country-specific sites.

Dell has to always keep up with technological advancements to be able to compete.Dell maintains quality by choosing the best in class component manufacturers (Intel & Microsoft) and leveraging their scale investment in Research & Development R&D. Dell has been betting on a strong replacement cycle from 2010, helped by Microsoft’s next-generation Windows 7 operating system, to help pull it out of the current slowdown. (Reuters,2009)

The educational potential of computer based technologies is wide-ranging. Introducing computer based systems not only to manage student interactions, but also to support differences in learning paths and styles, will allow more effective accommodation of a wider range of student experiences and preferences.

For example,the Dell XPS brand is renowned for delivering the latest, world-class technology, and that legacy continues in the new models, which feature Intel Core i processors and the latest NVIDIA GeForce 400 series graphics with Optimus technology.(Dell,2010) Each Dell system is built to order to meet each customer’s specifications.

Sophiticated technology in Dell provides 24 hour on-line technical support, order status information, and downloading of software.Additionally, Increased Research & Development have caused permanent innovation processes which lead to short product life cycles resulting in a faster depreciation of the products.(Schmid,2005)

Because the rate of technology innovation has greatly slowed, the opportunity for companies to compete on the basis of rapid, significant changes has almost completely been eliminated.

Wide reach of internet provides a great impetus to the industry.

Dual-core technology, the most influential technology in laptop industry had been transited from high-end server to laptop for mass consumption. The upgrade cycle drives waves of new purchases among business and consumer customers as technological change transpires.

where they operate

The growth for the Dell in China has been tremendous in recent years,and which has become the computer maker’s second-largest market after the United States. The expansion is indicative of the growing importance of the Chinese market both for computer sales as well as manufacturing. The company had sales of about $4 billion in second quarter 2010 from China, moreover, the U.S. Sales also grew 81% in China.(GECR,2010)

Dell has two computer manufacturing plants in Xiamen and a global product engineering center in Shanghai. It also has a global service center in Dalian.(Ladendorf,2010)Dell also plans to open a second major China operations center next year in Chengdu and will become a manufacturing and customer support center. (Reuters,2010)Dell already employs about 6,000 people in China, and is the No. 2 supplier of computer systems in China with 9% share.(Dell,2010)

Expanding to China gives the company the chance to reduce its labor costs.(Ladendorf,2010)) . The average hourly labor costs for 2009 are $1.27 in China compared to $25.34 in the U.S. which is totally largely different between two country.Cheaper labour cost helped Dell Inc. saving much more money and being a great step move up profitability.(Eskildson,2009)

Dell’s total spend in facilities, employment, research and development and purchases from suppliers in China is estimated to be greater than US$100 billion over the next decade. Strategic investments in China that will help company better serve the region’s increasing need for technology solutions and services.(Dell,2010)

problems and solution

The main problem faced by DELL is the fierce rivalry and Competition in the Industry..New entrants to a market might faced a lots of competitors that already exist in the market such as IBM,HP,Toshiba,and Apple.Every computer company in the industry wants to be the first to introduce the newest technology at the lowest possible price.The technological requirements for all computer companies have increased and get more competitive. This threaten Dell, as some established firms, like IBM and Apple, have had the financial resources to invest early in marketing and research which they would not have now.

Dell solving this such rivalry by invest the most up-to-date technology and IT tools that allow it to effectively move along their advanced supply chain and attain the value they are reaching for.For example, Dell recently introduced ‘Microsoft SharePoint 2010’ which can quickly monitor and upgrading from an older version or a brand new implementation. In short,this software are designed to enhance Dell’s IT experience by changing the way interact with new technology.It is easier to manage and more reliable, which can give Dell a competitive edge.(Dell,2010)

The second problem that faced by Dell when doing business in china is power of buyers.Dell computers approach direct sale model which is only available to be ordered on their website or by phone.Average Chinese consumer as generally not being very loyal and were uncomfortable using credit cards online thus hurting online sales.Over 65% of the chinese consumers usually according to on-site promotions and sales pitch and they prefer to see and touch the computer before buying it.especially for an enormously expensive “luxury” item like a computer. Besides,they were also not willing to wait the extra time for Dell to build the computer and ship it to them.Thus,this proves as a real barrier to Dell’s sales method.

.(Schmid,2005)

To settle this problem,Dell should invest in storefronts similar to the ‘Apple store’ concept where the entire Dell product line can be seen and touched, a method that will probably work better with Chinese buying habits.Dell served by a hybrid business

model that combines direct sales modal

and retail sales channels to the international PC market.For example,Dell recently began offering Dimension PCs and XPS notebooks through Wal-Mart, Costco,and Chinese cities through fifty Gome Electrical Appliances stores,which is largest electronics retailer.(Chopra,2007)DELL invest in international retailer channels is a best opportunities for them

face-to-face operations to gain consumers faith and trust in Dell services and product.(Scribd,2009)This would put the company in direct competition with the number one computer maker in China, Lenovo, who operates over 4,800 retail shops.

IdeaStorm: Dell launched IdeaStorm in 2007 to engage with customers and to understand their needs and preferences to develop products. It is an incredible market research initiative with an added personal touch. Users are invited to share their ideas and collaborate with each other. This gives a clear idea to Dell about what their potential customers seek and to share these ideas throughout the organization to gain further thoughts to translate these ideas into products. In essence, Dell has converted its customers, non-customers and potential customers into a massive product development team.(longhopper,2008)

Things that should consider

When Dell Inc. doing international business in China,the first thing that should consider is their cultural environment, government regulations.

Guanxi in Chinese term referring to interpersonal connections between each country.Guanxi has been identified as one of the most important success factors in doing business in China regarded as a source of sustainable competitive advantage .(Fan,2004)

The cultural differences that Dell China has experienced include: guanxi, whereas in the US, business is based on mutual understanding, such as mutually beneficial price. Dell believed that by understanding concepts guanxi is benefits for obtaining information on government policies, market trends and business opportunities.Another benefit widely cited is that the guanxi network improves efficiency by reducing the transaction costs.

Dell need to exercise control and their attempt

to minimize the influence of the large cultural distance between US and China.

Dell should consider government regulations of other countries, when entrant to a new market. Labour law is one of govrnment regulation must be followed by Dell to eliminate threats.

Standard working hours in china is eight hours a day six days a week whereas US average working hours is six hours per day five days per week. (ICTI,2010)Dell should respecting all laws, cultures, and values in the region they are in,if not, they would hard to penetrate market place.Dell should awareness in culture and government regulations because it is an extremely important factor when doing business in China.

international method

One of the successes of Dell in ecommerce globalization was selling product on the Web and now has sites aimed at 85 different countries and territories.(Bothma,n.d) The internationalisation method is known as Dell Direct method, is based upon selling directly to the customer. The customer is able to browse the products and options, respond via selection and complete a payment. Dell will then build the computer to the exact specification and deliver to the customer.(Mehra,2008) Dell uses a decentralized approach with its international sites.Dell created a common technology platform for each of its global sites, including a template for ordering and product information, which ensures a consistent user experience across their various international sites.

Dell built manufacturing plants in each of the regions it serves, including Brazil, Ireland, China, and Malaysia. Because the com­pany employs local customer service staff, everytime a customer picks up the phone, they’re dealing with someone local.(Bothma.n.d)For example, customers can place their orders by calling Dell’s toll-free number or by logging on to the company’s Web site (http://www.dell.com). Their make order computer exactly delivery within 36 hours to their customers. (Gale, 2008)This direct contact with consumers gives Dell the unique opportunity to know exactly what its consumers want and offer products that would satisfy their specific needs. (Beals, 2007) One of the key benefits of the direct sales model is it negates the ‘middle men’.

The after sales support of Dell had built up an excellent reputation in the industry.(Mehra,2008)

Ansoff product matrix

Dell’s mission is to be the most successful computer company in the world at delivering the best customer experience in markets. The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy. Ansoff’s growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.(Sikander.2008)

Market penetration

Market penetration occurs when a company enters a market with current products. The best way to do is to attract competitors customer and looking for potential customer for the existing products, with advertising or other promotions.(Grid,2008)

Market penetration is the least risky way for a company to grow.

Dell set an aggressive goal to reach $80 billion in revenue by 2010. To reach this goal, Dell should begin by adopting a broader market offering of internal workings of PC’s, expanding its service business to include creativity to better match societal realities in developing countries such as India and China. Software is a service that can recognize as a potent market penetration tool. Thus, Dell is assembling a services portfolio that now includes e-mail disaster recovery, virus filtering and archiving via its Message One acquisition. (Alkerabi,2006)

It helps Dell increase the profit by actively seeking more market share in market penetration.

Small and Medium Business revenue was $3.7 billion, up 24 percent. In the quarter, Dell introduced new Power Edge servers, Power Vault storage, and Power Connect networking solutions that help small and medium businesses affordably update technology infrastructures with easy integration, minimal downtime and the ability to scale.(Rock,2010)

Dell has already penetrated the market in China, where expected to be 80% of sales in next dadecade.

Market development Strategy

Developing a new market for the existing company product is called market development strategy. This is the process of finding new market for the new customer to increase company performance by increasing sales and profits. Companies can develop market on geographical such as city, country, region, and state. (Grid,2008)

Dell developed new market for their product worldwide.

Present Market Dell, through the creation of subsidiaries, has expanded its business model worldwide. While its core business resides in the U.S., operations in Asia-Pacific and Japan continue to grow, making up 29%, and the Americas were up 18%. Revenue in Brazil, Russia, India and China grew 30 % of Dell’s year-to-date revenue. The company continues to expand its presence in these important countries, which now represent 13 % of total company revenue.(Rock,2010)

In each market, Dell utilizes a direct sales methodology to eliminate the costs of the middle man. In each geographic market, Dell pursues three independent market segments: consumers, government and businesses. Of these three, Dell is the most reliant on the U.S. business segment, which is responsible for 21% to $45.8 billion of Dells YTD revenue. (Alkerabi,2006)

Product Development Strategy

Developing or modifying new products and offering to the existing market is called product development strategy. This strategy takes time and money for developing a new product. Marketing Manager must conduct a detailed survey to find out whether it is feasible to introduce new product in the current market. (Grid,2008)

Present Products and services Dell’s present product line can be segmented into 5 major categories which is desktop and mobility computing, software and peripherals (printers, monitors, plasma TV’s, etc.), servers and networking, infrastructure services and storage. These 5 categories span the computing industry and allow Dell to be engaged in all aspects of the individual and corporate computing experience. Within each of these categories, Dell offers products that appeal to many market segments. While often known as a low-end provider, Dell is expanding its personal computing by developed a new products with the reintroduction of its XPS brand for the consumer .This product offering will allow Dell to market its products to the entire spectrum of computer users, rather than approach the market from a broad perspective.

Diversification Strategy

Diversification Strategy is the development of new products in the new market. Diversification strategy is adopted by the company if the current market is saturated due to which revenues and profits are lower. At the corporate level, it is generally very risky and interesting strategy for entering a promising business outside of the scope of the existing business unit. (Grid,2008)

Dell trying to attract new market by ready to change its personality from PCs manufacturer to multi task personality with diversification. Due to diversification product, Dell plans to enter into Smartphone market .Dell trying to enter in this market, because the Smartphone market is far from settled thereby allowing new entries to more easily prosper.(Dell,2010)

This new decision move up the value chain of Dell, but the risk could be high .A proper execution can lower down the risk. DELL’s USP services play as a risk lowering factor. DELL is well known for its online retailing and service, if it will use its strategies in fine manner than they can make the Smartphone a compelling device. Moreover,Dell outperform their competitor, the main essence is depends on final designing of Smartphone.(Koyler,2010) In addition, this strategy will help ensure a continuing market for the Dell PC, server and integration service complete solutions provider businesses. It will also change Dell’s Business-to-Business brand from a solely value provider to a creativity.