Michael Dell's first foray into the computing world was at the age of 7, when he

owned his first computer, the Apple II, designed by the great Steven Wozniak. Now,
Apple has grown to become one of Dell's greatest competitors.
Introduction
In 2013, Dell was ranked 165 in Fortunes Global 500, a list of the largest
multinational corporations in the world. Since its incorporation, it has growing
steadily to become one of the largest MNEs in the world. As the market leader, it fell
from the top spot to the third place behind Hewlett Packard and Lenovo in 2012. This
article seeks to detail how it was able to achieve this initial success in the early 2000s
and eventually declined towards the end of the decade.
The report describes the Dells successful direct sales business model, superior supply
chain management and other sources of its initial competitive advantage. Dells
choice in the location of its manufacturing plants operations and decisions in its
outsourcing operations are also discussed.
Finally, the reasons behind Dells slump as a leading PC maker and loss of its
competitive advantage are explained. The report sums up with the possible strategies
that Dell could take to restore its competitive advantage can undertake are
recommended.

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Replacing Inventory with Information
Replacing inventory with information is a supply chain management concept that
seeks to manage and reduce inventory through the use of information. The key is to
have the right amount of inventory to suffice supply and demand without
compromising the service level.
Replacing inventories with information has the main benefit of a lean and agile
supply, suggesting a minimal inventory level that is still flexible enough to adapt to
changes in supply and demand. This contributes to cost reduction.
Having a large inventory on hand acts as a buffer and protects against uncertainties in
the supply chain. This is because supply and demand is difficult to predict and
subjected to variation. However, excess inventory is not an asset and it is in fact
considered a liability. Such uncertainties take up 60% of the supply chain cost due to a
lack of available information.
Thus, having access to vital information (e.g. market trends, sales data etc.)
contributes to benefits such as improved forecasting and planning. For example, 3M
Canadas implementation of the i2 Factory Planner and Supply Chain Planner
software solutions has reaped rewards. The software solutions provide valuable real-
time information such as predicting demand and changes in the market. Since then,
planning and scheduling productivity has increased by 20% and inventory decreased
by 23%.
With its strategic use of information such as its internet-based ordering system and
updating its suppliers with the latest demand trends, Dell was able to perfect the
balance between demand and supply. Its inventory was reduced to only 3 days worth
which the lowest in the industry.
Dells Initial Competitive Advantage
As a multinational enterprise, Dell is very competent in executing its global strategy
and provided it with an initial competitive advantage that was unrivaled in the first
half of the 2000s.
One of the sources of Dells initial competitive advantage can be attributed to its
famous direct selling and built-to-order approach. This just-in-time (JIT) strategy that
was adopted allowed it to operate with minimal inventory, in fact the lowest level in
the industry. Reduction of excess inventory provided Dell with a significant cost
advantage as component costs depreciates as much as 1% weekly in the electronic
industry. Direct selling has also allowed Dell to bypass intermediaries such as
wholesalers and retailers, reducing costs even further. In addition, Dell offered
customizable options that proved to be customer centric and attractive.
Dells global force of 200 suppliers had access to automated and real-time information
such as demand trends and volume expectations of their components. This close
relationship with its suppliers and the direct selling model has allowed Dell to balance
demand and supply remarkably.
Dell conducts its business operations worldwide in many different foreign markets.
One of Dells motivations to internationalize is to secure supplies and gain access to
low cost factors. Dell situated manufacturing plants across the world provide location
specific advantages such as low labour costs and a highly productive workforce. The
manufacturing operations are also in close proximity to important regional markets to
minimize delay between purchase and delivery. Dells choice of the locations had
indeed armed it with an initial competitive advantage.
Dells Global Manufacturing Plants
Why did Dell choose to locate its manufacturing plants in certain geographic
locations?
Bartlett and Beamish (2011) identifies three conditions that must that must be fulfilled
if an MNE is to internationalise its operations. One of the conditions is that a foreign
market must offer location-specific advantages. Dell operates manufacturing plants in
Brazil, China, India, Ireland, Malaysia and Poland which offer Dell such advantages.
One of the main advantages is the lower costs of labour but high productivity of the
local workforce. For example, labour costs in Malaysia are cheaper than neighbouring
Singapore but the quality of labour remains comparatively high. When Dell
established its manufacturing operations in Malaysia, it received a 100% tax
exemption for 5 years, an initiative by the Malaysian government to attract
investments.
The next advantage is the proximity to important markets. Dell chose to locate its
manufacturing plants close to such regional markets for better market access, lower
shipping costs and responsiveness in delivery. The success of Dell in India was
attributed to its manufacturing plant in the country, which cuts delivery time by 50%
and improved its sales drastically. In the past, customers in India would have to wait
for up to a month for the delivery of computers as they were manufactured in
Malaysia.
However, akin to globalization, this choice of location is not without its
disadvantages. Locating its manufacturing operations beyond the United States comes
with certain disadvantages. Bartlett & Beamish (2011) describes the distance and the
liability of foreignness as some of these disadvantages. Generally, the greater the
distance from the home market, the more difficult it will be to conduct its operations.
To elaborate, there may be differences in culture, beliefs, language, political
landscape and infrastructure which can affect Dells global supply chain. The
geographical distance makes control over the manufacturing operations even more
difficult. In February 2007, a major fire broke out at one of the plants in Aisin Seiki,
one of Toyotas main suppliers. The crisis caused Toyota the loss of 70,000 vehicles
and 160 billion in revenue. However, due to similar culture, beliefs and proximity of
manufacturing operations, the recovery effort was incredibly fast with the aid of local
firms. If such an accident were to happen to Dells global manufacturing plants and
caused disruptions its supply chain, the consequences would be disastrous. Recovery
would also be difficult due to the distance and liability of foreignness.
Outsourcing Manufacturing
One of the main reasons for outsourcing the manufacture of PC components is the
choice of good components and suppliers rather than vying to produce one. Michael
Dell once said in an interview, If youve got a race with 20 players all vying to make
the fastest graphics chip in the world, do you want to be the twenty-first horse, or do
you want to evaluate the field of 20 and pick the best one? Dells strategy was to
build good relationships with its global network of suppliers rather than manufacture
components of their own.
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.
In an interview with Louise OBrien, former Vice President of Dell, she emphasized
that Dells main business is personal computers and it should not give up its
capabilities in production. Since the incorporation of Dell, it has been outsourcing
components manufacture but not the final assembly itself. Dell does not want to
outsource its manufacturing operations entirely to prevent the unintended creation of
competitors. Outsourcing is often described as easy to replicate and the competitive
advantage that it provides it not sustainable. Outsourcing is only feasible if it is
separated from other supply chain activities, which is what Dell is trying to achieve.

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How Dell Lost its Ranking as the Leading Global PC Maker
The desktop computer, which was Dells focus, was being overtaken by substitute
products such as portable computers in the late 2000s. Dells manufacturing and direct
sales model was not well suited for the portable PC market. Consumers prefer to
purchase laptops in retail outlets as they are able to look and feel at the design.
Moreover, competitors began restructuring efforts and had significant improvements
in their business models. This decline of the desktop PC was one of the main reasons
that caused Dell to lose its ranking as the leading global PC maker.
Dells major competitors such as Hewlett-Packard, Apple, Acer and Lenovo had
adopted a greater focus on worldwide innovation and learning in the knowledge era.
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 firm decision of
outsourcing only components and having total control over the final assembly. A
notable example is Apple, who surpassed Dells market cap in 2006 with its catalogue
of innovations such as the iMac and MacBook Pro.
The cross collaboration efforts and entrance into foreign markets by its competitors
had caused Dells slip in rankings. For example, Lenovos acquisition of IBMs PC
Division in May 2005 had a significant impact on PC makers globally, including Dell.
It had become the world third largest personal computing company overnight and
allowed it to gain accelerated entrance to foreign markets beyond China.
Strategies for Sustained Competitive Advantage
Strategies and measures that Dell undertook to address the loss of its market share
were aplenty. For example, it reduced reliance on direct sales by selling through retail
channels and launch laptops and netbooks.
Bartlett and Beamish (2011) describes three types of strategic approaches that a MNE
can respond to challenges, through defending worldwide dominance, challenging the
global leader and protecting domestic niches.
In the competitive PC market, Dell was forced to develop new capabilities such as
selling through retail channels and playing catch-up to its competitors new products.
However, this 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 2013 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 such as utilizing social
media.
Dell is renowned for its direct sales model that provides optional 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 2006 allowed it to tap into the highly profitable but niche PC-gaming
market. PC Gaming Alliance reported that the PC gaming industry hit record revenues
of $6.8 billion in 2012.
Dell can strive to protect its domestic niches and defend against its competitors
global advantage. By responding to local needs, Dell can reshape its personal
computers to suit the consumers taste.
To offset competitors advantage, Dell can employ defensive strategies such as
lobbying for changes and assistance. In 2007, 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 for a decade that led to sales of more than a billion dollars worth of midrange
and entry-level storage products.
Conclusion
Forecasts for the personal computer industry are bleak and IDC expects the sales of
personal computers to fall till at least 2017. The advent of new products such as smart
phones and tablets are out shadowing PCs.
The impact on Dell's business is great and it becomes ever 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.
Dells rise and fall in PC industry have sent an important message and reminder to
itself - that a sustained competitive advantage, motivated by constant changes, is
crucial for the future of the company.