Dell decided to invest in Brazil because of its strategy to expand internationally. Dell had operations in many countries but did not have any manufacturing plants in Latin America, which was the fastest growing market for computers. Brazil was the ideal place for its manufacturing plant in Latin America because it presented a huge potential market for Dell since it was Latin America’s largest country with over 170 million people. Dell felt that the only way to dominate and become effective it the Brazilian market was to have its own manufacturing plant in Brazil.
In addition, Brazil contained high import tariffs which would cut away at Dell’s profits if it had to export products from the U.S. into Brazil. Also attractive was Brazil’s membership in Mercosul. This would be beneficial for Dell because any company producing 60% of a product in a Mercosul country would be exempt from all tariffs when exporting to other countries associated with Mercosul. These countries associated with Mercosul included Argentina, Uruguay, Paraguay, Chile, Boliva, and Brazil. Therefore, Dell would have an advantage when exporting its products from Brazil to any of these other Mercosul countries.
2. What were the pros and cons of the five short-listed states for Dell’s investment in Brazil? Why did Dell select to invest in the state of Rio Grande do Sul?
The 5 short listed states for Dell’s investment in Brazil included Sao Paulo, Rio de Janeiro, Parana, Rio Grande do Sul, and Minas Gerais. Some of the pros that were common in all of these states were adequate levels of education, a sufficient pool of qualified labor, a steady supply of electricity, and sufficient telecommunications and transportation infrastructure.
Beginning with the pros for Sao Paulo, this state contained the largest market for personal computers in Brazil due to its large population. It also had a huge supply of skilled labor. Sao Paulo presented two attractive locations for the plant in the cities of Sao Jose dos Campos and Campinas. The cons for Sao Paulo included the mannerisms of the state government officials who seemed indifferent to Dell’s specific needs and concerns. Sao Paulo’s investment promotion agency did not seem catering to Dell’s selection team since the state did not have any problems attracting foreign investment. In addition, Sao Paulo did not offer Dell any special financial incentives to attract their investment.
Next, Rio de Janeiro had several pros common to all 5 states as previously mentioned. However, the state offered Dell very few financial incentives with the intention of receiving a counter offer from Dell. Dell responded negatively to this initial low offering of incentives and did not return to renegotiate.
Parana also contained the same pros that were common among the 5 states. On the other hand, the main negative of the state included the amount of financial incentives that the government was offering. These financial incentives did not compare to the financial incentives that other states such as Rio Grande do Sul offered. In addition, the state and its promotional agency did not seem determined to attract Dell’s investment. Dell was given a general presentation that did not address the company specifically.
Aside from the common pros listed above, Minas Gerais greatest advantage was its investment promotion agency INDI. The agency was very qualified and catering to Dell’s concerns. The INDI even set up meetings for Dell’s selection team to meet state government officials. The state also offered favorable financial incentives that included a 70% reduction in ICMS tax for 10 years and a loan of R$20 million to be paid back in a 4 year period with a 4 year grace period. The state also offered free land for the plant to be built on. However, the cons of Minas Gerais centered around the region being highly industrialized. The Dell selection...