24th of November, 2010
Introduction International Business
1. What are Dell’s FSAs? What are the macro-level requirements for the direct sales model to be successful? What are the major advantages of the direct model, compared with the traditional channel strategy in the computer business? Dell’s most important FSA is its direct sales model. The traditional model startsed with manufacturers building computers, they distributed them to dealers who sellold them. Dell started with selling PCs directly to end users. In China they also used the ‘dual system’ model (using both direct sales and distributors). An important feature necessary for the direct sales model to be successful is an efficient supply chain. Dell had this efficient supply chain, you can call this another FSA was its efficient supply-chain.as well.
The macro-level requirements for the direct sales model to be successful are a large market size, sophisticated potential customers that are willing to buy via telephone, a potential skilled sales force and capable suppliers and carriers to meet just-in-time management.
The major advantages of the direct model are several. ‘First, the closeness to end users helped Dell better understand users’ needs, forecast demand more accurately and build long-term relationships with end users’1, second, ‘the elimination of distributors helped Dell reduce not only its selling cost, but also its inventory through both accurate forecasting and integration with components suppliers’2. The traditional model has to cope with lower revenues because there is an extra step in the chain; the dealers. If they would sell the computers to the dealers for the same price as they sell it now directly to the customer, the end price for the customers would be too high. Furthermore, when using the traditional model, it is hard to find out what customers exactly want, because all the contact goes via the dealers. The integration with component suppliers is an advantage of the direct model compared with the traditional channel strategy as well, because every step less in the chain reduces costs.
2. How did Dell treat its distributors in China during the re-entry into China in 1995? Was there a vicious cycle of bounded reliability involved? Who should be blamed for Dell’s initial failure? During the re-entry into China in 1995, Dell did not treated its distributors not very well. There was a lack of effort from both Dell and its distributors. This was because it was just a matter of time that Dell would imply its direct sales model, so Dell had no intention of keeping a long-term relationship with the distributors. There was a vicious cycle of bounded reliability involved. Dell needed its distributors to sell the PCs to the consumers, because Dell did not had a reputation as a brand yet. Dell was very unknown for the Chinese consumers. Therefore, and because buying a computer was a big issue for the Chinese consumers, they did not want to sell computers by the telephone. So Dell needed its distributors to meet its consumers in China. Furthermore, it was important for Dell to rely on the distributors for not increasing the selling costs too much. Dell and the distributors both, should be blamed for Dell’s initial failure. This is because there was a lack of effort from both Dell and its distributors. Dell did not want to invest in keeping a long-term relationship. The distributors did not want to invest much in developing the market because they both knew that Dell would soon switch to its famous direct model.
3. According to Arnold’s seven guidelines, discussed in Chapter 11, what mistakes did Dell make?
Guideline number two is ‘Focus on distributors’ market development capabilities’. Number three is ‘Manage distributors as long-term partners’3. In China, Dell first failed doing this. It was waiting for the right moment to implement the direct sales model and did not want to keep a long-term relationship...
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