Dell's dilema in Brazil: Purpose: 1) Related to foreign investment or negotiations between multinational corporati ons and host country

governments. 2) The case demonstrates effective ways to negotiate in Latin American countries in such situations. 3) It also throws light on effective ways of attracting foreign direct investmen t. Overview: - University of Texas student, Michael Dell, began selling IBM-compatible comput ersfrom his dorm room in 1984. - Using parts he purchased at wholesale prices, Dell built the machines to close ly resemble IBM models and then sold them to PC users directly. - Head Quarters: Round Rock, Texas. - The company grew internationally with is first operations opening in Ireland i n 1987. - Now have offices in 34 countriesand sales in over 170 countries. Why Dell has an Upper Edge: - Follows its revolutionary business approach - direct model. - As a result, Dell shipped its products to its customers directly from the fact ory without any intermediary retailers. - Followed JIT procedure to maintain minimal inventory. Global Strategy: - Dell s core business is the assembly and sale of computers to meet specific cust omer requirements. - The characteristics of Dell s global operation resemble a global strategy for expa nsion with a centralised hub. - This is due to the fact that the keydecision-making, along with financial deci sions, are made centrally from headquarters in Texas, while manufacturing or assembly of the company s products are strategicallyposit ioned across the globe to better realise its direct to customer and speed of ser vice business goals. The Expansion Plan at Brazil: - Wants to have its manufacturing unit in Latin America in Brazil, since sales o f pC's were growing tremendoulsy there. - Also in 1992, the Brazilian govt. had abandoned its market reserve policy, whi ch allowed only domestic manufacturers to make computers in the country. - Moreover Brazil was a member of Mercado Comun do Sul where in the export of pr oducts within the Mercosul countries were at a zero tariff. - Next question : Where in Brazil? - Brazil - Federal system with 26 seperate states. Analysis and synthesis:

- Within Dell s determinations in relation to each of the 26 states above, there w ere two consistently prominent elements: 1)The involvement and the level of importance of the investment promotionagenc ies 2)the focus on financial incentives offered by each of the states. Competition between the states: - The guerra fiscal: - Tax incentives between states - Free land for infrastructure - Govt. loans at a very low rate of interest - including lengthy grace Why Rio Grande was chosen: Other states: - Sao Paulo did not have a policy of offering special financial incentives - Rio De Janerio - gave importance to automobile industry - and did not give an impressive finacila incentive hoping Dell to get back with a counter offer. - Minas Gerais - offered 70% reduction on tax for 10 years, a loan for $20millio n with a four year grace period and a 4 year repayment period, free land for pla nt site. - but Minas is accustomed to working with large , capital intensi ve , heavy industry firms and not knowledge intensive. - Rio Grande - The private investment promotion agency Polo made a concerted eff ort to understand Dell's specific needs. - Modern infrastructure - First state to privatised its telecommunicationscompany - Security - Home to well regarded universities - 75% reduction in tax, $20 million loan with 5 year grace period, payback period of 10 years. Change in govermnet: - Appointment of new governor - olivio Dutra - member of worker's party - Was against excessive concenssions granted to foreign transnational corporatio ns - As a result Ford left Rio Grande and set up its factory at Bahia - It is the dilemma of Dell now having 3 options: 1) Leave Brazil altogether 2) Migrate to a different state 3) Negotiate with the new governor