Dells Dilemma in Brazil: Negotiating at the State Level Harvard Case Solution & Analysis

Background

In this case analysis the globally famous Dell Computer Corporation is trying its level best to discuss an agreement in Brazil to construct a manufacturing facility in their country. Mr. Keith Maxwell, who is working as senior vice president of entire worldwide operations, along with his site management team visited Brazil several times to monitor and analyze the overall situation. Out of the twenty-six states in the entire Brazil they visited around five different states. The basic purpose of the team was to look for some specific qualifications to sustain their fast growth such as, security, an attractive and potential market, well educated people, relatively low tax obligations, capable and trained staff to work in the manufacturing facility, electrical energy issues, and outstanding telecommunications infra-structure.

Dell simply required to keep in mind that specifically in Brazil each and every state competed with each other by offering several benefits like the lowest possible taxes rates, despite the average tax rate in Brazil was 12%. These competing states not only offered the better and better tax rates but also offered some exceptional benefits like, free of cost land to construct the manufacturing facility, offer loans with extensive pay back periods and relatively low markups. After visiting and evaluating the all five dissimilar states Minas Gerias, Sao Paulo, Rio de Janerio, Rio Grande do Sul and Parana, Dell finally understood that they each had diverse and dissimilar organizational structure and methodology. Rio Grande De Sul was essentially selected after being employed with the Polo’s investment promotion agency since they were well aware of the Dell’s particular needs and wants. Dell’s officials had all the data and info they actually needed. Their ultimate choice was to get operational in Rio Grande do Sul. This decision was taken because of the financial encouragements the administration of Rio Grande do Sul presented, and their exceptional understanding of Dell’s exclusive necessities. Though, before plants construction could begin there was a vital obstruction because of the unfavorable political situation. Olivio Dutra was appointed as the new governor. He resisted in contradiction of allowing benefits for external or international companies approaching to their states and receiving ‘extraordinary treatment,’ such as exceptional benefits. Keith Maxwell and the other dell officials had to choose what their next step would be.

Problem

Should Dell follow and stay in agreement which they have already signed with the previous management of Rio Grande Do Sul or they must start analyzing the potential opportunities offered by the different states in Brazil.

Swot Analysis for Better Decision Making

SWOT Analysis

Alternatives

Leave Brazil entirely

Move the plant to another state within Brazil

Try to renegotiate with Governor Dutra.

Keep head office in Rio Grande do Sul and take rest to Minas Gerais

Option 1
Dell can leave the Brazil.
Advantages

Need not to face any unstable political situation

Extra cost for security can be saved

Not have to concern about an unbalanced, still a growing society.

Disadvantages

Lose a massive opportunity to open a manufacturing facility directly in Brazil

Need to incur more cost related to shipping specifically to the South American clients

Need extra time to deliver the product specifically in South America

Finding new shipping track for Brazilian clients

Option 2
Stay in Brazil and look for another state, like Ford did (Bahia)
Advantages

A gigantic reduction of 70% for 10 years period on the loan

Free of cost land from government

20 million load for the 4 year tenure

Easy repayment plan of around 4 years

Drawing attention of more technological schools

Disadvantages

Need to build the entire infrastructures near to the facility like housing, roads and schools

Need to bring an enormous amount of work force

Definitely a shortage of highly experienced workers and professionals

Need to influence the government colleagues that they must support the company and provide all the maximum facilities

Option 3
Stay and go for negotiations with the newly appointed governor

Advantages

It would be great for the Dell’s image that it would stay here and serve the community by giving free personal computers

Dell’s first choice is still Rio Grande do Sul

Rio Grande do Sul possess a variety of well reputed universities, and well-educated people.

This state has the wealthiest people in Brazil.

75% Discount for the next 12 years on Loan of $ 20 Million with an exceptional grace period of 5 years supported by a 10 year payback period

Relatively low crime rate and better transportation

Dell officials feel safe in Rio Grande do Sul’s Capital

Extraordinary benefits and encouragements to Rio Grande do Sul combined research and development projects

Dell also assured to employ 260 direct workforces in the very first year and around 700 local people in the upcoming next five years......................

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Dell recently completed the process of selecting a site in Brazil, to determine where it will find its plant in this country, which will be its first plant in Latin America. After a long process of selection of the site in the first half of 1998, with the participation of the five states in Brazil - S Sao Paulo, Rio de Janeiro, Parana, Minas Gerais and Rio Grande do Sul - Dell decided to find a plant in the state of Rio Grande do Sul, Brazil. Despite a number of factors influencing the decision to Dell, one of them generous incentives that Governor Antonio Britto relatively centrist party in Movimento Democratico Brasileiro (PMDB) suggested Dell. However, after Dell makes this solution a new governor, Olivio Dutra of the Party shower Trabalhadores (PT, or Workers' Party) was elected in October 1998 and took office in January 1999. PT is a socialist party. Making the question of what he considers overly generous incentives offered to multinational corporations during his election campaign, Governor Dutra is likely to cancel the incentives that the government proposed Britto. Given this situation, Kate Maxwell, senior vice president of Dell's operations around the world, must make a recommendation to Michael Dell. The case presented three possible options for Dell: (1) to leave Brazil in full, (2) to move the plant to another state in Brazil, and (3) attempt to revise the Governor Dutra.
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by Roy C. Nelson Source: Thunderbird School of Global Management 14 pages. Publication Date: September 30, 2003. Prod. #: TB0143-PDF-ENG

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