One of the main reasons for outsourcing the manufacture of PC components is the ability to choose good components and suppliers rather than having to produce them oneself. Outsourcing would allow Dell to focus on its own competencies, such as managing its efficient supply chain, customer service, research and development of new products, etc.
Since the incorporation of Dell, it has been outsourcing the manufacturing of components manufacture but not the final assembly itself. Dell does not want to outsource its manufacturing operations entirely so as to prevent the unintended creation of competitors. Outsourcing is often described as easy to replicate and the competitive advantage that it provides is not sustainable. Outsourcing is only feasible if it is separated from other supply chain activities, which is what Dell is trying to achieve.
Consumers prefer to purchase laptops in retail outlets, so they can look at and feel the design. Moreover, competitors began restructuring efforts and significantly improved their business models. The decline of the desktop PC was one of the main reasons that Dell lost its ranking as the leading global PC maker.
Knowledge as a source of competitive advantage has allowed these MNEs to surpass Dell in market share. They were able to do so as they outsourced their manufacturing operations entirely. However, Dell was still restricted by its decision to outsource only components and desire to have total control over the final assembly. Lenovo became the world's third-largest personal computing company overnight, gaining access to foreign markets beyond China. Strategies and measures that Dell undertook to address its loss of market share were many.
For example, it reduced reliance on direct sales by selling through retail channels and launched laptops and netbooks. Bartlett and Beamish describe three types of strategic approaches that an MNE can use to respond to challenges, defend worldwide dominance, challenge the global leader, and protect domestic niches.
However, doing so eroded its core competencies. Instead, Dell should defend and reinforce their existing capabilities rather than developing new ones. Dell can do so by taking extra steps to improve its customer service. For example, it introduced a concierge service for customers in April that provided personalized and remote services for customers. Instead of seeking ways to improve sales through retail channels, Dell could enhance its direct sales model by using social media.
Dell is renowned for its direct sales model that provides lots of customizability. Taking advantage of this strength, it can delve deeper into this niche by providing customers with more customizable options online. For example, Dell acquisition of Alienware in allowed it to tap into the highly profitable but niche PC-gaming market. In , Dell lobbied for the Indian government to reduce its PC tax. Finally, it can also go into mergers or joint ventures with other global MNEs.
For example, it entered into a partnership with one of its competitors, EMC, that led to sales of more than a billion dollars worth of midrange and entry-level storage products.
Forecasts for the personal computer industry are bleak and IDC expects the sales of personal computers to fall till at least until The advent of new products such as smartphones and tablets are out shadowing PCs. The impact on Dell's business is great, and it becomes more important for Dell to restore its competitive advantage. Dell has a gargantuan task of catching up with the rapid changes in technology and the evolving strategies of its competitors.
Dell was not able to gain a sustained competitive advantage due to its reliance on the direct sales model and traditional business strategies. Like its competitors, it must invest more effort in learning and innovation.
It should also evolve its global strategy such as responding to local needs and adopting other transnational strategies. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Dell has tried to put those problems behind it. What strategy he used and why? In a paper , researchers from HBS, Columbia, and the University of Chicago looked at the success of tech buyouts based on a novel measure: patents. Their aim was to determine if the companies in question became more or less innovative following the buyout.
Taken together, this research suggests at least the possibility of a Dell turnaround. Two decades later, it offers hints at what Dell must do to succeed.
There are two basic patterns to a successful turnaround, Rivkin told me in a recent interview. The company must identify some assets from which it can squeeze more cash, in order to improve its short-term position. Both strategies are evident in the case of Gerstner and IBM. And yet by the next year, due to an overreliance on the mainframe computer market and a bloated cost structure, it began posting losses.
Yet the improved financial position came at a cost. Though the history of tech turnarounds suggests some optimism about the future of Dell, the specifics are far from certain. With the PC market in decline, Dell will need to look elsewhere both to improve its short-term financials and to invest in the future. If you were to make a list of people who could make it work despite all the challenges, Michael Dell would have to be on your short list. But I think they felt they didn't have the breadth and scale to compete longer term.
In , Dell announced it would buy data storage company EMC, a deal that still stands as the largest technology acquisition of all time. In , Dell returned to the public markets as Dell Technologies. Watch the video above to see how Dell changed with the times to keep up with emerging consumer and business demands.
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