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INTRODUCTIONIn 2001, Dell Computer became the world’s largest personal computer vendor, continuing togain market share and post profits in an industry struggling with slumping sales and billions ofdollars in losses. Dell sells 90% of its PCs directly to the final customer, largely bypassing thereseller channel that accounts for most of the world’s PC sales. This direct customer relationshipis the key to Dell’s business model, and provides distinct advantages over the indirect salesmodel. Dell’s direct relationship with the customer allows it to tailor its offerings to customerneeds, offer add-on products and services, and use the Internet to offer a variety of customerservices. In addition, Dell’s PCs are built to customers’ specifications upon receipt of an order,giving Dell additional advantages over indirect PC vendors who must try to forecast demand andship products based on those forecasts. Dell’s direct sales and build-to-order model has achievedsuperior performance in the PC industry in terms of inventory turnover, reduced overhead, cashconversion, and return on investment (Kraemer, et al., 2000).

Dell’s business model is simple in concept, but very complex in execution. Building PCs toorder means that Dell must have parts and components on hand to build a wide array of possibleconfigurations with little advance notice. In order to fill orders quickly, Dell must have excellentmanufacturing and logistics capabilities supported by information systems that enable it tosubstitute information for inventory.

The demands of Dell’s model have led it to adopt a new organizational structure referred to as avirtual company or value web (Figure 1). It is marked by a focus on a few key strategicactivities, and extensive outsourcing of non-strategic activities. Dell works closely with externalpartners to produce its PC products and to offer its customers an array of additional products andservices that add value and allow Dell to capture a larger share of the customer’s IT spending.

To manufacture its products, Dell coordinates a global production network that spans theAmericas, Europe and Asia, combining in-house final assembly with heavy reliance on outsidesuppliers and contract manufacturers. Manufacturing of printed circuit board assemblies(PCBAs), subassemblies (box builds), and some final products (mainly notebook PCs) is handledby contract manufacturers or original design manufacturers such as SCI, Solectron, Celestica,Hon Hai, Quanta and Arima. Like other PC makers, Dell relies on outside suppliers forcomponents and peripherals such as disk drives, CD-ROM drives, semiconductors, add-on cards,monitors, keyboards, mice and speakers. Its PCs can be bundled with standard software such asMicrosoft Office or with specialized software requested by corporate customers.

Dell relies on outside partners for services such as system integration, installation, on-site repairsand consulting. Partners include Wang, Unisys, IBM and BancTec. It also works with resellerswho support Dell hardware and receive referral fees for recommending Dell to customers.

3FIGURE 1. Dell’s Value Web ModelDell Custome rSystemintegratorsLogisticscompaniesCMs/OEMsComponentsuppliersThird partyHW and SWsuppliers DistributorsRepair andsupportcompaniesPhysical flows, including products and servicesInformation flowsAs Dell has moved beyond its home market in the U.S., it has had to adapt its business activitiesand organizational structure to the different markets in which it operates. In effect, Dell has hadto create similar but distinct value webs in each of the major regions, and to further customize itsmarketing and service functions for individual countries. The process of globalization hasshaped Dell’s own structure, but Dell’s success has conversely helped to reshape the globalstructure of the PC industry.

This paper looks at how Dell organizes its activities globally, regionally and within regions, andwhat factors determine its location decisions. The focus is on the PC manufacturing value chainincluding procurement, manufacturing, distribution and the logistics involved throughout thevalue chain. This includes Dell’s own assembly operations and the location of its suppliers inresponse to Dell’s decisions. We will also briefly discuss the organization and location ofmarketing, sales and service functions as they relate to Dell’s overall global organization.

GLOBAL ORGANIZATIONDell is a global company operating in 34 countries in three world regions, with about 35,000employees and $30 billion in sales. Dell is organized along geographic lines into the Americas,Asia-Pacific and Japan, and Europe/Middle East/Africa (EMEA). Corporate headquarters is inRound Rock, Texas, which is also the regional headquarters for Dell Americas. Each of theregions has its own regional headquarters and its own assembly plants and supply network.

Regional headquarters include Bracknell, U.K. for EMEA, Hong Kong for Asia-Pacific andKawasaki for Japan (Table 1).

4Dell’s business activities are organized in each region around different customer segments.

These vary somewhat, but generally include: (1) relationship (large corporate) customers; (2)home and small business (sometimes called transaction customers); and (3) public sector(government and educational) customers.

Product development is largely centralized in the U.S., and the same base products are soldworldwide. These products are customized for different regional and country markets withappropriate power supplies, keyboards, software and documentation. Other functions such as ITand e-commerce applications usually originate in the U.S., and then are adopted with necessarymodifications in the other regions. Manufacturing processes are always being upgraded, and thenewest plant is usually the most advanced wherever it is located. Improvements developed fornew plants are implemented in existing plants as much as possible.

Table 1Dell’s Worldwide Locations, With Employment and Sales, End of 2000Country City Employees Sales(FY2000)HQ ManufacturingWORLDWIDE 40,000 $25.3BTHE AMERICAS 27,200 $17.9BUnited StatesRound Rock and Austin TX 20,800 World and Americas YesNashville, TN area 2712 YesBrazil Eldorado do Sul 200 YesCanada n.a.

Chile n.a.

MexicoASIA-PACIFIC 3,200 $1.8BHong Kong (PRC) 25 A/PAustralia n.a.

China 330Xiamen 200 YesIndia Bangalore n.a.

MalaysiaPenang 1600 YesNew Zealand n.a.

Singapore 130Taiwan n.a.

Japan Kawasaki 700 JapanSouth Korean.a.

EUROPE, MIDDLEEAST AND AFRICA9,000 $5.6BUnited KingdomBracknell 500 EMEAIreland Limerick 3,400 YesBray 600• Dell has subsidiaries in 16 other EMEA countries, not listed here.

• Source: Dell web site and various news reports5LOCATION OF MANUFACTURINGWhile Dell does not manufacture its own components or subassemblies, it does handle finalassembly for nearly all of its desktop PCs and servers. Notebook PCs are manufactured byTaiwanese manufacturers Quanta and Compal. In some cases the notebook PCs are shippedcomplete to the final customer. However, Dell is increasingly ordering base units from itssuppliers and doing final configuration of notebooks in order to offer more configuration optionsto customers.

Dell organizes manufacturing by region, operating one or more assembly plants to serve itsmajor markets. Plants in the Austin, Texas and Nashville, Tennessee areas serve North America;Eldorado do Sul, Brazil serves Brazil and South America; Penang, Malaysia serves the Asia-Pacific region; Xiamen, China serves China and Japan; and Limerick, Ireland serves Europe, theMiddle East and Africa (Table 1).

Dell began manufacturing its own brand of PCs in Round Rock, Texas in 1985. It subsequentlyexpanded to new production sites outside the United States as follows (from Dell’s web site):1990: Opens manufacturing plant in Ireland1996: Opens manufacturing plant in Malaysia1998: Opens manufacturing plant in China1999: Opens manufacturing plants in Tennessee and BrazilIn addition, Dell has greatly expanded its production capacity in the Austin/Round Rock areaover the years, and now operates four facilities there. These plants produce the full line of Dellhardware products. Until the Tennessee plant opened, they supplied the entire North Americanmarket. Similarly, Dell has expanded its production capacity in Limerick, Ireland and nowoperates two plants there.

Employment worldwide is closely correlated with sales (Table 2). The Americas account for72% of Dell’s revenues and 68% of employment; EMEA has 20% of sales and 22% ofemployment; Asia-Pacific equals 8% of sales and 10% of employment. The only slight surpriseis the lack of bias toward the home country, even with the presence of corporate functions inTexas. An explanation could be that the large size and homogeneity of the U.S. market allowDell to achieve economies of scale in its production sites, call centers and other operations, andthus have a higher revenue per employee than other markets.11 We heard this explanation several times in interviews with Dell people in the EMEA region. They pointed out thatDell EMEA deals with 13 different languages, 18 different currencies, and 18 different tax rates whereas Dell NorthAmerica deals has only 3 different languages, currencies, and tax rates.

6TABLE 2Sales and Employment by Region (End of 2001)Americas EMEA Asia-PacificSales (last 4 quarters) $22.2B $6.6B $3B% of total sales 70 21 9Employment 21,600 8,250 4550% of total employment 63 24 13Revenue/employee $1,027,000 $800,000 $659,000Source: Dell web siteDELL’S LOCATION DECISIONSDell’s decisions about where to locate are driven by the need to minimize costs while extendingthe build-to-order, direct sales model around the world. Given the need to have production andsupport capabilities in the major markets, Dell selects specific locations based on a combinationof factors including labor costs, transportation and information infrastructure, market access,proximity to markets and government incentives. The role of these factors can be seen bylooking at particular locations of Dell facilities.

The AmericasTexasDell’s original headquarters was in Austin, Texas, where Michael Dell founded the company in1984. In 1994, Dell was offered a package of incentives from the neighboring city of RoundRock that Austin did not even try to meet. After collecting the usual 2% tax on Dell sales, thecity rebates 31% of those tax collections to Dell for 60 years; property tax abatement of 100%for 5 years; 75% for 5 years; 50% for 50 years (Schnurman, 2000). Dell moved its headquartersto Round Rock, built other facilities there, and eventually had over 12,000 workers in the formerbedroom community.

Dell maintains manufacturing facilities in Austin, including its high-volume Metric 12 plant thatassembles an estimated 4 million PCs per year. Overall, Dell has about half of its 36,000employees in central Texas, owing to incentives, a relatively low-cost workforce (compared toother U.S. locations), and a tendency to expand existing capacity rather than look elsewhere asthe company grew.

TennesseeDell opened its first North American manufacturing facility outside of Texas in 1999, inNashville, Tennessee. Nashville was chosen for very generous state and local tax incentives,good transport infrastructure, good labor supply and location central to East Coast markets.

Tax and other incentives from the state of Tennessee included:Infrastructure assistance (road improvements and utilities to service the facility totaling about$12 million7Job training assistance for Dell employees, which could range from $12 million to $20million over five years based on the employment projects of the companyJobs tax credits of $2,000 per employeeThe local Nashville government offered even more lucrative incentives, including:The gift of 100 acres of airport-area property valued at $6.5 million, and the leasing ofanother 600 acres for 40 years at fair marketAbatement of all property taxes on the facilities for 40 years$8 million in infrastructure improvements (beyond the state’s $12 million), and $1.5 milliontoward demolition of old buildings on the site (Locker, 1999)Dell now has two manufacturing facilities in Tennessee: one in Lebanon making consumerdesktop PCs and one in Nashville making consumer notebook PCs. It also has a sales andsupport call center in Nashville.

BrazilIn 1999, Dell began manufacturing at a facility in Eldorado do Sul, Brazil. The decision wasmotivated by the need for production to supply the South American market. Locating in Brazilenabled Dell to avoid tariffs that can nearly double the price of an imported $1,000 PC,according to Dell. Our own research (Dedrick et al., 2001) shows that tariffs on PCs can reachabout 30% of the price, so perhaps Dell is also including transportation or other costs into thisestimate. In any case, Brazil is by far the largest market in South America, and it would beimpossible to compete there with such a price disadvantage. Also, PCs produced in Brazil canbe exported without tariff to other Mercosur countries, which include Argentina, Uruguay andParaguay.

The specific choice of Rio Grande do Sul state was somewhat surprising, as most of Brazil’scomputer industry and supplier base is located near Sao Paulo. However, there were reportedlyfinancial concessions offered by the state government, and the southern state is centrally locatedto supply the other Mercosur countries. Michael Dell said in a statement that the region is a”phenomenal opportunity” for Dell. “Rio Grande do Sul is an excellent base of operationsbecause of its sophisticated labor force, its economic incentives to attract technologymanufacturingcompanies to the region and its strategic location as an export hub to other SouthAmerican countries,” (Mahoney, 1999).

Europe/Middle East/Africa (EMEA)Dell’s EMEA headquarters are in Bracknell, United Kingdom. It also operates a sales andsupport call center there for consumer and small business (transaction) customers in Europe.

Dell opened an assembly plant in Limerick, Ireland in 1990 to serve the European market, andsubsequently opened a second plant and administrative center there as well. It also operates asales and customer support center in Bray, Ireland to support larger corporate and otherinstitutional (relationship) customers. Dell located in Limerick initially because of the low costand high quality of labor. Today labor costs are much higher, but the work force is still highly8skilled and non-union. Dell has received good cooperation from technical schools anduniversities in the area to develop the skills Dell needs. Now 50% of the people working forDell in Limerick have at least a bachelor’s degree.

Another advantage of Ireland is its low corporate tax rates. In addition, Ireland is part of theEuropean Community, so products made in Ireland can be shipped to Europe without paying thevalue-added tax. Also, because Ireland is now adopting the Euro, Ireland will have currencystability with the rest of Europe, eliminating the exchange rate risk within Europe. This is amajor factor in Dell’s decisions to expand production in Limerick (Loughran, 2000).

Another factor was the tax incentives and other support offered by the Irish DevelopmentAgency. The agency helped Dell find land, set up its facilities, and assisted with job training.

More recently support has been provided in the form of per capita grants for each Dell employee(Kennedy, 2000a). Finally, Ireland is attractive due to the presence of suppliers such as Intel andMicrosoft, the presence of contract manufacturers such as SCI, and the quality of its freight andtransportation infrastructure (Kiely, 2000).

In addition to Ireland and the U.K., Dell operates subsidiaries in 16 other countries aroundEMEA, mostly for sales and local technical support. It also operates five logistics hubs wherePC units are brought together with monitors, peripherals and other add-ons for distribution to endcustomers. Furthermore, these hubs also provide repair services.

Asia-PacificDell opened its first manufacturing center in the Asia-Pacific region in 1996 in Penang Malaysia.

Malaysia was chosen for its central location in the region, proximity to suppliers, reasonablewage rates and attractive incentives. When Dell built its factory in Penang, it received a five-yeartax holiday. High-tech companies investing in Malaysia are entitled to five years without havingto pay the country’s 30% corporate income tax. Projects that the government thinks will have asignificant impact on the economy can qualify for strategic-project status, which provides for a10-year tax exemption, so Dell began working to get a better deal according to Phil Kelly, Dell’spresident for Asia-Pacific operations at the time (Arnold, 1997). Evidently, Dell got what it waslooking for. In 2000, the company announced it would more than double its capacity in Penangby opening a new facility that will produce notebook PCs for the Asia-Pacific and U.S. markets.

In 1998, Dell opened a new manufacturing facility in Xiamen, China. The plant is directlyacross the straits from Taiwan, and is home to a number of Taiwanese computer and componentsmakers. This provided Dell with a base of suppliers and other support services. Having a plantin China was necessary to sell in the main land China market. With China’s tariffs and taxes,importing is not a viable strategy, and if Dell hopes to sell to government agencies and stateenterprises, it needs to have production in China. In 2001, Dell announced it would beginproducing desktop PCs for the Japanese market in Xiamen, shifting production from Penang.

General Location FactorsLooking across the regions and sites, the following are the major factors affecting Dell locationdecisions. As was suggested by each of the vignettes above, no one of these factors is sufficient9by itself to determine a location decision. Rather they seem to operate in a nested hierarchy withmarket considerations first, followed by labor and infrastructure, and then by governmentincentives.

Market access: Texas is central to all of the U.S; Tennessee to the East Coast. Malaysia iscentral to the huge Asia-Pacific region. Ireland is offshore but close to the big markets of theUK, Germany, and France. Also, as part of the European Union (EU), Ireland providestariff-free access to EU markets. Brazil and China plants are set up for market access and toget around tariffs and taxes that would make PC prices uncompetitive if imported.

Labor costs and quality: Texas and Tennessee are cheaper than Silicon Valley. Malaysia ischeaper than Singapore (although more expensive than Thailand or Indonesia). Ireland isstill cheaper than most other EU countries (although more expensive than Portugal orGreece). Eastern Europe is cheaper than Ireland and more centrally located within Europeand, as a result, many of Dell’s contract manufacturers and suppliers are locating there andcreating speculation that Dell will follow (Kennedy, 2000b). The quality of labor is high ineach of these locations as well. Besides having well-educated workers, engineers andtechnicians, each location has little or no labor union activity.

Transportation and telecommunications infrastructure: Logistics is a bigger cost thanmanufacturing labor according to Michael Dell, so transport infrastructure is very important.

The Tennessee locations, for instance, are in close proximity to major highways and to amajor Federal Express distribution center. Telecommunications bandwidth, cost, and qualityare also factors, especially for call centers and data centers.

Government incentives: Major incentives were offered by Round Rock to get headquartersand call center operations. Dell also received valuable incentives in Tennessee. Apparentlyfinancial incentives were offered in Brazil by the state government, and also in Malaysia inthe form of tax holidays. It is unclear what was offered in Xiamen, China, but it is commonfor local governments to offer incentives in China. Ireland’s low corporate tax rate was amajor incentive, but Dell also received support in finding land, building facilities and trainingemployees; today it received per capita grants for each employee.

Industry clusters: Dell generally avoids existing industry clusters, preferring to locateproduction where labor markets are not as tight. For instance, it avoided industry clusters inSao Paulo (Brazil) and Shenzhen (China). Its locations in Penang and Ireland were decidedbefore those locations had developed into IT industry clusters. Most of Dell’s operations donot rely on access to research universities and high concentrations of specialized engineeringtalent, so it can avoid the higher costs associated with such locations. It also does not need tobe very close to suppliers’ manufacturing facilities; rather it requires that suppliers simplyship to supply hubs close to Dell’s assembly plants.

SOURCINGUnlike other PC makers, Dell has avoided outsourcing final assembly of its products. Itoutsources subassemblies, such as motherboards and bare-bones PCs, and outsources nearlycomplete assembly of notebook PCs, doing only limited final configuration in its own assemblyplants. Also, in 2001, Dell outsourced production of a standard, non-configurable PC called theSmartStep to Taiwan’s Mitac, which is manufacturing the product in its plants in China(Commercial Times, 2001). But in general, Dell prefers to keep control over the key final10assembly and configuration processes for the bulk of its products. One reason is a concern thatby outsourcing its manufacturing completely, Dell might be creating its own competitors, as U.S.

television makers did when they outsourced to Japanese suppliers. Also, unlike some of itsmajor competitors (IBM, HP, Compaq), Dell’s main business is PCs, and it feels it cannot affordto give up its capabilities in PC production (Louise O’Brien, 2001).

A network of suppliers and contract manufacturers supports each production facility. Sourcingdecisions are made by worldwide procurement and product development in Austin with inputfrom the regions. Most sourcing is global, which means that Dell sources major components forall locations from their headquarters. This allows Dell to consolidate its buying power and getbetter terms from suppliers.

While sourcing of materials for PCs (major components and systems) is done centrally, sourcingof consumables is local (box and shipping material, printing of keyboards, printing of manuals,etc.). The majority of sourcing is from low cost suppliers in Asia, but some sourcing is fromlocal producers. For example, monitors for the EMEA region are purchased from Sony,Samsung and Acer, and shipped by sea from Asia, but monitors are also purchased locally fromPhillips and Nokia. This might be due to product specifications, need for backup supply or price.

For major components, Dell looks for suppliers with global capabilities such as Intel, SCI, IBM,Samsung, Toshiba, Sony and Seagate. For each major component, it usually works with only afew suppliers, e.g., with Seagate, Maxtor, Western Digital and IBM for disk drives. Localsuppliers in each region provide other parts.

Suppliers are required to maintain inventory near or in Dell plants to support Dell’s build-toorderproduction. They can produce elsewhere and ship to supply hubs, or they can set upproduction nearby. For EMEA and the Americas, Asian suppliers increasingly do both. In someplants, components are actually kept in trucks backed up to shipping docks, and are pulled off asneeded. Suppliers are required to maintain ownership of that inventory until it is actually pulledoff the truck and onto the assembly line (Intel is the exception; its market power allows it to setits own terms, which require PC makers to take ownership as soon as the product leaves Intel’sfacilities).

Impacts of Dell’s Location on Supplier/Partner LocationWith so many different suppliers and partners involved, the location decisions of thesecompanies naturally vary by company and location. Many parts and components aremanufactured in Asia and shipped to distribution centers near Dell facilities. This is usually thecase for hard disk drives, floppy drives, power supplies, CD-ROM drives, cables and connectors,and many add-on cards such as modems, sound cards and video cards. On the other hand, alarger share of motherboard production is located regionally. For instance, Solectron and SCIsupply Dell’s U.S. plants from their plants in Guadalajara, Mexico, and from plants in the U.S.

In Europe, Dell’s Ireland plants are supplied from Asia and from local plants. Many of Dell’ssuppliers came to Ireland at Dell’s insistence. After opening the first Limerick plant, Dell gave11Irish suppliers eight months to show they could meet Dell’s demands. When local supplierscould not do so, Dell brought in outside suppliers (Kennedy, 2000a). The outsiders bought someIrish companies, consolidated others, and took over much of the supply industry. The companiesthat came in were global companies that were already serving the PC industry. They included,for example: Fullerton — a Scottish company from Glenrothes that does work for Dell and forIBM in Raleigh, NC; Lightening Beech — a U.S. company that supplies sheet metal; Trend Tec–a company that does metal and plastics in the U.S. and serves Dell and Compaq; and APW,which bought two Irish companies and does chassis, plastics, and metal. In addition, contractmanufacturers already in the UK or Ireland supply Dell: Jabil supplies Dell with PCBAs fromScotland, SMS from Wales, and SCI from Fermoy, Ireland (Kennedy, 2000a). One Irishsupplier, Keytech, did make the grade. Keytech is located in Shannon near Dell’s Limerickplants, and made cases, chassis and subassemblies (Kennedy, 2000a,b).2For the Ireland plant, the breakdown of supplies by region is as follows:Asia 65%Europe 25%US 10%For some specific components and peripherals, the locations are as follows:Monitors Europe and Asia (Phillips, Nokia, Samsung, Sony, Acer)PCBs Asia, Scotland, and Eastern Europe (SCI, Celestica)Drives Asia, mainly Singapore (Seagate, Maxtor, Western Digital)Printers Europe (Barcelona)Box builds Asia and Eastern Europe (Hon Hai/Foxteq)Chassis Asia and Ireland (Hon Hai/Foxteq)SCI (now owned by Sanmina) makes 90% of the motherboards used by Dell in Cork. However,a new deal with Hon Hai to supply motherboards globally may change that. Three differentsuppliers provide the chassis. The suppliers’ truck, located on the inbound side of the plant, isthe local warehouse, and the suppliers’ people deliver chassis to the production cells as needed.

Overall, not much actual manufacturing is located very close to Dell’s plants, except inMalaysia, and much of that was already there. But more components are produced regionally assuppliers and CMs organize their own production regionally. For instance, PCB assembly andbox builds are done in Mexico and Europe as well as in Asia to supply much of Dell’s demand inthe U.S. and EMEA. It is hard to attribute any of this to Dell alone, as Compaq, Apple andGateway are all in either Ireland or Scotland and in either Malaysia or Singapore, so CMs cansupply multiple PC customers from one location. Dell’s BTO model clearly does not requirehigher value components to move closer, nor do very low value components such as powersupplies and keyboards need to move closer. It’s the mid-level components such as box builds,motherboards and other PCB assemblies that seem to be moving closer to Dell’s assemblyplants. This is particularly the case for large, bulky items such as box builds (nearly completesystems) that would be expensive to ship by air to meet volatility in demand, and at the same2 While Key Tech was successful in surviving the initial shakeout, it is no longer a supplier to Dell. Key Techindicated that it stopped bidding on Dell procurements because Dell kept driving down prices. Key Tech hasfocused on building higher value-added storage products that better fit its cost structure.

12time are too expensive to risk holding in inventory. Although light in weight, motherboards tendto be assembled locally because the build-to-order model does not allow sufficient time for themto be assembled in Asia and then shipped. However, baseboards for PCB assemblies aremanufactured in Asia and shipped in by air.

DELL’S OTHER OPERATIONSDell’s other operations tend to follow the location of its production facilities, but they do notfollow in a simple pattern, as each operation seems to have its own organizational logic andlocation considerations. This is illustrated by looking at a few of Dell’s other operations:logistics, call centers, marketing and sales and data centers.

LogisticsDell’s organization of logistics in EMEA provides a good illustration of the general logic forlogistics. All of Dell’s inbound logistics for material needed in assembly of PCs are handled bysuppliers who must have supply hubs or production facilities located within 30-minutes’ traveltime of the Limerick plants. Third parties operate some hubs for a number of suppliers.

On the outbound side, Dell has five distribution hubs in EMEA to take advantage of locationclose to major markets, transportation networks and logistics expertise. These distribution hubsare as follows in EMEA:Limerick for Ireland, Eastern Europe, Middle East and Africa (except South Africa);Liverpool for UK;Tillberg, Netherlands for middle Europe;Gottenberg, Sweden for Nordic countries; andJohannesburg for South AfricaA different logistics partner operates each hub. Similar outbound staging areas and arrangementswith logistics partners exist in the Americas and Asia-Pacific.

Call CentersDell makes extensive use of call centers, both for sales and for technical support. Dell generallyorganizes its call centers around its major customer segments with different call centers forrelationship and transaction customers. It tends to locate call centers regionally to optimizetelecommunications and language considerations, but customers may at different times be routedto call centers in different locations. Regional call centers are located as shown below. TheEMEA call centers illustrate the complexity within any one region.

U.S.: Round Rock and Nashville. A new call center is planned in Fort Worth, Texas.

EMEA: Limerick, Ireland; Bracknell and Bray, U.K. Relationship customers are handledthrough Bracknell, whereas HSB customers are handled through regional centers inMontpelier, France for France, Spain, Italy and the southern countries; Amsterdam for themiddle and central countries; Copenhagen for the Nordic countries; and Bray, Ireland for theUK, Ireland and other English speaking countries. The Limerick call center specializes in13higher-level technical issues, and also operates as a backup call center whentelecommunication problems occur or call volume is exceptionally high.

Asia-Pacific: Bangalore, India.

Marketing, Sales and SupportDell’s marketing function is directed from global and regional headquarters with specialmessages targeted for the different country markets. However, the sales, service and supportfunctions are located in the individual countries because these activities must be close to endcustomers. To compete for large contracts from corporate and public sector customers, Dell’sdirect sales force must be on the ground in each country in order to be aware of salesopportunities, interact with procurement personnel and negotiate through the competitive biddingprocess. Moreover, since many Dell contracts are large and Dell hopes to expand its businesswith every customer, the account executives assigned to each large customer must be within easyreach. Similarly, although telephone technical support is centralized in regional call centers,field service and support require location close to the customer. As a result, Dell has sales andservice offices in 34 countries around the world, usually in a large urban area and with multipleoffices in some countries.

IT and Data CentersA network of data centers supports Dell’s sales, manufacturing, logistics and other operations.

The data centers are regionalized and have their own development as well as operations staffs.

Global applications such as online sales tools, order management, and supply chain managementgenerally are developed or first implemented in Austin. The regional data centers are thenresponsible for transferring these applications and adapting them to the local markets. Datacenters are as follows:Americas IT and data center is in Austin/Round RockThe EMEA data center, located in Bracknell, England, is the Internet hub for Europe,including intranets, extranets and Internet. It was located there despite the fact that Limerickis Dell’s production hub because Ireland did not have adequate telecommunications facilitiesfor these functions whereas England did. There are also major data centers in Limerickserving the two production facilities and an administrative center, which includes finance,administration, tech support, customer service, and Dell online.

Asia-Pacific data center and IT operations are in Singapore, which has the besttelecommunications infrastructure in the region.

Dell’s Service PartnersRather than do everything itself, Dell has made extensive use of business partners to help serveits customers, especially as it has moved into producing servers and targeting the small andmedium business market. Three functions - systems integration, service and repair, andconsulting - all have to be located very close to the customer, as they involve direct contact withthe customer. Dell partners with companies that can deliver these services globally - or at leastregionally.

14System integration: Dell partners for procurements with integrators like Electronic DataSystems (EDS) who will install Dell servers and link them up with end user devices.

Service and repair: Dell also partners with firms like IBM, Unisys, Wang and Banctec forfield service and repair. While 90% of service incidents are handled by telephone in Dell’scall centers, about 10% involve field calls, which Dell has outsourced to these partners.

Their field service units are tied to Dell electronically, and get the orders for field servicewithin an hour or two of a call coming in to Dell.

Consulting: Dell partners with Arthur Andersen and Gen 3 in the U.S. to provide consultingservices to companies that seek to emulate Dell’s success with the direct model and InternetbasedIT.

Reaction to Market Slowdown in 2001Like all PC makers, Dell’s sales were affected by the decline in PC demand that started in late2000 and continued throughout 2001. Dell was the only PC maker to show any growth in salesin 2001, as it made major gains in market share, but it still saw much slower growth than the 30-50% annual gains it was used to. It also saw its margins reduced by the price war that itlaunched to gain market share.

In order to cut costs, Dell laid off about 5,000 workers, mostly in the Austin, Texas area. Theseincluded cuts in headquarters staff and some other functions. Smaller cuts of a few hundredemployees were made in Tennessee. About 600 workers were laid off in Europe. Theconcentration of layoffs in the U.S. appears to be due to the focus on cutting corporate staff morethan a shift of production or other activities away from the U.S.

CONCLUSIONSAlthough Dell only entered the PC business in 1985, it has become a global company with globalproduction networks spanning the three major world regions: Americas, EMEA and Asia-Pacific. These networks, which are complex and multi-level, are able to take advantage ofcapabilities that serve the entire PC industry. In many cases, the capabilities were first createdby with the introduction of the IBM PC when IBM sourced parts and components globally inorder to break into the PC market fast (Dedrick and Kraemer, 1998). The networks weresubsequently expanded and enriched by both traditional computer makers such as IBM, Hewlett-Packard and DEC, and by newer PC companies such as Compaq, Gateway and Acer.

Broadly speaking, market potential is the driving force behind Dell’s general location decisions,while costs and capabilities are the driving forces behind the specific location of Dell’s activities.

In other words, Dell targets markets that appear receptive to its business model. To serve thosemarkets, Dell sources from locations that have the production capabilities and cost structure itneeds to be competitive in the targeted markets.

The markets in which Dell operates vary by global region and by countries within these regions,and so Dell has organized its operations by region and by country. Headquarters offices,assembly production and call centers are centralized within each region (although not all in thesame country), whereas sales, service and support are decentralized to individual countries.

15Supply/logistics hubs are organized by sub-regions covering several countries. The choice ofspecific sites for production within a region is discussed below.

Dell’s location decisions are not based upon any single factor, but rather upon an array of factors.

The best way to understand how these factors come into play is to view them as multi-tiered.

The first tier involves market considerations. These include the character and potential growthof prospective markets and country requirements for market access. For example, when Dellwent into Europe, it went into the English speaking markets of Ireland, UK, and Sweden, whichwere similar to the U.S. in language and business culture, before venturing into the large Germanand French speaking markets. Likewise in Asia-Pacific, Dell concentrated on English-speakingmarkets such as Australia, Singapore and Malaysia first, followed by Japan, the second largestPC market in the world. Having built a regional infrastructure, it later entered China to gainaccess to its rapidly growing and potentially very large market.

Once a decision has been made to enter a market, then second tier considerations of labor andinfrastructure come into play when deciding where to locate production activities. These areused to narrow location choices to several countries. The primary consideration with regard tolabor is cost or wages, but skill levels, quality and availability also enter into decisions.

Theoretically, the ultimate factor should be cost relative to productivity, and it appears that this isthe case, as Dell has located facilities in places with a combination of low (but not the absolutelowest) cost and high quality workers. Infrastructure considerations include transportation,logistics expertise and telecommunications quality and cost.

At the third tier, factors such as government incentives come into play and affect the choice ofone country, state, or even city, over another. Such incentives usually include land, facilities,export processing flexibility, and/or employee per capita grants.

Dell has a major impact on its supplier location decisions in three ways. First, Dell requires thatsuppliers locate material within a specified delivery time from its assembly plants. Asiansuppliers (and U.S. suppliers producing in Asia, such as disk drive makers) maintain supply hubsnear Dell assembly plants worldwide, where material is pulled as it is needed for production.

Second, Dell requires that its suppliers continually reduce the price they are charging Dell; inexchange it agrees to reward these suppliers with larger orders and longer-term contracts. Thisrequirement causes suppliers to continually seek lower wage production sites in order to meetprice pressure from Dell (and other PC makers as well). Third, Dell requires that suppliers haveadequate inventory to supply the needs of its direct, build-to-order production model. Demand ishighly volatile, and consequently suppliers cannot meet Dell’s fluctuating demand totally fromAsia. Material must be produced regionally, so suppliers and contract manufacturers must alsoorganize regionally. Thus, within the EMEA region, some Asian suppliers have built localmanufacturing capability, initially close to production hubs in Ireland, Scotland and Wales butincreasingly in lower cost sites in Eastern Europe.

Both the American CMs and Asian suppliers are moving to lower cost production sites: EasternEurope for EMEA, Mexico for the Americas, and China for the Asia-Pacific region. It is saidthat they are often moving at the insistence of the computer makers. It is unclear whether Dellwill follow its suppliers to low cost production sites or outsource final assembly to its contract16manufacturers. Dell has already gone to China, mainly for market access, but is now producinga line of non-configurable PCs in China for sale in other markets (including the U.S.).

Dell makes extensive use of outsourcing, but claims it will never outsource the final assembly ofconfigure-to-order products. Dell insiders argue that execution of the build-to-order model isstrategic to the company; therefore, final assembly/configuration for different markets andcustomers will not be outsourced. “Dell doesn’t want to pass on the secrets of the direct modelto subcontractors. Dell is bringing in more of the box with more stuff in it from suppliers, butkeeps control of the complex and proprietary parts of the process. Dell’s model is very good andvery unique in the industry. The focus is on execution. There will always be boxes needed inthe market. Dell doesn’t have to move away from making boxes. It simply needs to keepfocused on quality, price, and delivery” (Corkery, 2000). They further argue that Dell plants aremajor showcases that help sell large corporate customers on Dell as their supplier (Freake, 2000).

They leave open the question of whether they will eventually move to lower cost sites for finalassembly.

In summary, the organization of Dell’s production network is changing. Whereas the networkwas previously located mainly in Asia, today it is increasingly being regionalized in order tobetter target markets with the direct model and to respond to rapid changes in markets. Theseregional production networks involve a combination of Asian suppliers and U.S. contractmanufacturers. Regional suppliers are also playing a role. Sales and employment across worldregions are generally in line with one another, with the Americas showing somewhat greaterproductivity. More than two-thirds of Dell’s employees are in the Americas, and mainly theUnited States, where Dell continues to expand its operations through new plants and call centers.

Dell maintains control over its value network by a new model of organization–the virtualorganization–wherein Dell’s ownership of the customer relationship gives it the power andleverage to coordinate the entire network.

REFERENCESArnold, Wayne. 1997. Two major PC firms stand to save big in Malaysia. The Asian Wall StreetJournal, 21 January: 6Corkery, Sean. 2000. Interview with Sean Corkery, General Manager, EMF3, Limerick Ireland,November.

Commercial Times. Taiwan’s Mitac Wins Desktop PC Orders from Dell. October 31.

Dedrick, Jason and Kraemer, Kenneth L. 1998. Asia’s Computer Challenge: Threat orOpportunity for the United States and the World? New York: Oxford University Press.

Dedrick, Jason, Kraemer, Kenneth L, Palacios, Juan J, Tigre, Paulo Bastos. 2001. Economicliberalization and the computer industry: Comparing outcomes in Brazil and Mexico.

World Development, 29(7):1199-1214.

Freake, Reginald. 2000. Interviews with Reginald Freake, Industry Relations, Dell Computer.

Limerick, November.

Kennedy, Tom. 2000a. Interview with Tom Kennedy, Enterprise Ireland, October.

Kennedy, Tom. 2000b. Interview with Tom Kennedy, Enterprise Ireland, November.

Kiely, Stephen. 2000. Interview with Stephen Kiely, Dell Computer Ireland. December.

17Kraemer, Kenneth L., Dedrick, Jason and Yamashiro, Sandra. 2000. Dell Computer: Refiningand extending the business model with IT. The Information Society, 16(1):5-21.

Locker, Richard. 1999. Nashville wins Dell Computer with hefty incentives, thousands of jobspromised. The Commercial Appeal, 7 May: A1.

Loughran, Declan. 2000. Interview with Declan Loughran, Manager, Logistics IT Development,Dell Computer, Limerick, Ireland, October.

Mahoney, Jerry. 1999. Dell Computer to open factory in Brazil today, KRTBN Knight-RidderTribune Business News: Austin American-Statesman – Texas, 3 November.

O’Brien, Louise. 2001. Interview with Louise O’Brien, Dell Computer, April.