Comparative Issues in International Environment

7/29/2019 Comparative Issues in International Environment

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Dell Co. And Other Multinational

Companies in India

Dated: 15/05/2013


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Executive Summary

The report revolves around the macro and micro economic factors which act as a threat or

opportunity to the multinationals that are aiming to establish themselves in India. The case givesan example of Dell Computer Company which has grown tremendously in India over the past

years. The report reveals the factors that have helped gain market for Dell in India. The

economic factors like over growing population, economic and legal factors like the government

encouragement to allow technology flourish in the country has contributed immensely to the

success of Dell in India. One major threat the company faces is the rapidly growing market

owing to which Dell needs to develop and innovate continuously to be in a situation that it shall

not be thrown out of the market.


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Introduction:

Multinational Corporation is an enterprise that manages to deliver production and service in at

least two countries. There are those large multinational corporations whose budget exceeds

those of many countries. These companies tend to be influential not only in the local economiesbut also in the international relation. These companies play a virtual role when it comes to

globalization (Korner, 2011). There are three categories of multinational corporations.

Horizontal multinational companies are those companies, which manage productions that have

been established in different countries. These companies produce similar products throughout the

countries that the company have managed to establish itself. Vertical multinational corporation

on the other hand, manage the production established in certain countries so as to produce

products that will serve as a source of input to its production in the countries the company has

established its offices (Ajami 2006). Finally, there is the diversified corporation in this case the

company does not manage the production of what has been established in different countries.

There are factors that affect multinational companies.

Multinational companies fail because of external factors especially in the countries these

companies want to establish business. These factors are political, legal, technological, economic

and environmental. These factors pose as a threat to those doing multinational businesses and in

most cases if these factors do not act positively then the companies fail. These are factors to

consider before one decides to branch or diverse into a new country. They affect the direction in

which the company may flow; if not careful, the company may fail and cause loss than the

intended returns. In as much as diversity is indispensable it is wise for companies to be careful

before establishing business in a new country (Cooke, 2003).

Introduction to Multinational companies in India:


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Since the early 90s India has experienced the presence of a multinational corporation, increasing

which in turn has caused a large increase in the economy of India. The government of India

began liberation in the early 90s and embraced the idea of policies liberation. Once India

changed the negative attitude it had on multinational companies, there was a positive change too

across the world (Nayak 2008). At that point, the united nation made a code of rules to govern

the multinational companies; this was used to silence all quarrels that might arise with the birth

of multinational companies.

Foreign investment in India began when the government of India had no choice but to cut down

on torrid spending. The government was left with no choice but to choose between public

investment and foreign investments. Foreign investment was useful especially when it comes to

patronage purposes and reelection, while, on the other hand; multinational companies fill a gap

in savings by pouring savings from abroad, which leads to domestic investment being larger in

comparison to domestic savings.

Today in India, several foreign companies have established business in the country. This shows a

positive side of the country, since many companies want to establish their business despite the

fact that it is a foreign country and the companies have to follow the rules and regulations that

the countries have put down for the foreign investors (Ajami, 2006). Though there are somechallenges associated with this investment, there is also some benefit with investing with India.

Over the years, there has been a tremendous increase when it comes to the number of foreign

investors that have opted to invest in India. Since 1991, there, has been an enormous composition

change in the rate of import and export a clear indication that the country recognizes and

embraces globalization (Ajami, 2006).

Factor Analysis:


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One of the foreign companies that have established its business in India is Dell Company. When

it comes to Dell Company, the customers are core of the business, and the company strives to

come up with new technological ways that will improve the living standard of people. In India,

the company strives to bring the customers wishes and dreams to life and Dell has a commitment

of growing and maintaining its market share there for long term. Dell is among the companies

that are fast growing in India. The reason behind this is the fact that customers in India are it in

offices, homes or organizations choose to use Dell as their solution partner when it comes to

technology (Gupta & Wang 2009).

Dell India is one of the largest employment bases that are outside the US. In fact, Dell India, in

2010 became the number one PC (Personal Computer) brand in India the market managed to

have a share of up to fifteen percent. In 2004, Dell established its core competency center in

Bangalore. This was established to innovative solution the customers not only in India but also

across the globe. In Bangalore, the company has established an IT institution that is up to date

and terms of software, hardware and enterprise solutions. With this up-to date technology, the

company ensures that customers get exactly what they need in their world of IT.

PESTEL ANALYSIS

Political:

Despite the fact that India encourages foreign traders, there are also local producers in the

country that the government puts more effort to promote. Political environment that is the

philosophy of the political parties in a country, the government ideology, the party in power and

the extent on which bureaucracy are what influence the primary groups. Legal issues and

government regulation are the political factors that are used to condition under which any

company is to operate. The government when it comes to Dell Company is affecting the

company in terms of growth and expansion.


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It is also worth noting that although the country favors the local company that make the software

equipment, the government also produces the policy on the internet usage and the rate of

expansion. The government contracts in India has a lot of red tape, thus, securing a contract

becomes a difficult task. Companies that also produce the PC and software have been protected

and production encouraged since India has restrictive policies and hinders companies from

entering the country. The companies that manage to do so tend to be bottled in small cocoon and

cannot exercise the full potential that the company has, to have full power to exercise the

companys policies, one can opt to have joint ventures with the local companies.

This however, is not the case with Dell India, Dell Company has gained loose restriction as it has

been given full access to expand and to deliver the PC in the country. The company, despite the

fact of the lose restriction have to follow the government policy that govern in India. India

benefits a lot from the dell company that is why dell has been given a leverage to expand; the

company has grown up to fifteen percent in the past five years.

Economical:

There are many elements that constitute the economic environment. These factors include the

structure of the economy to the government policies; how the capital market is organized, the

factor endowment, socioeconomic infrastructure and the business cycle. The difference between

the income level and the cost of production is the trends and factors that compose the economic

environment. These are the factors that affect pricing which in the long-run tend to affect the

buying power of the consumer and spending patterns. If the cost of production is high then

automatically the cost on buying the goods or services rises.

Dell computers in India have experienced growth of over fifteen percent in the past five years.

The growth was reflected due to the economic situation in India. It had a significant impact when

it came to the purchasing power of consumers who could afford the company's software and

other products. Another factor that also affects the company is the change in inflation rates and

fluctuation in currency. These factors hold a considerable determination on the profitability of a

company. If the rates go up then the pricing go up.


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The variation of the exchange rates of the home currency tends to hold a lot of weight age when

it comes to foreign trading. In some cases, if the products are imported then the prices will

automatically change with the changes in the exchange rate. Income that the consumer gets is

also a factor that affects multinational companies. If the pay is good, then there are high chances

consumers will purchase high quality products rather than buying more, which in turn will give

rise to a market where consumers purchase high quality goods and priced computers.

Dell Computer Company in India meets with the economic challenge since the company has to

compete with the local companies established in the country. The local companies produce PC

that is sold at a lower price in comparison to what dell sells. Dell does not only have high quality

products, but it has to deal with the expense of importing items to India and at the same time

lower the price so as to be able to compete with the competitors. It is obvious for dell that

consumers in India will go for the cheapest system.

Social:

The environment of a nation, better termed as the social dimension has a lot when it comes to

determining what the value system of a society is. This in turn ends up affecting the business and

its functioning, all factors relating to a group of people be it the number, behavior, character,

belief and growth projection is what is termed as social environment. Consumer market in most

cases have a specific need or a problem and changes done in the social market without say affect

the market differently. Change in trends can help to either create new market, or decrease the

market size or even end up increasing the market size. The organizational culture most suitable

for India is the Family Culture, as the families are headed by leader considered as caring parent

and on the other hand managers take care of their employees and ensure they are treated well.

Dell in India had to put investment on personal selling, face-to-face operations and door to door

investment so as to obtain the faith and trust of the consumer. These enabled the demand to raise

people to open up to the fact that even if dell is costly, there is no completion when it comes to

the quality and standard that the computer offers. Educating the consumer though costly is what

kept dell in the market. Education in schools is another social factor that affects the selling of the


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computer. Computers are taught in schools thus enabling children to be familiar with its

operation at a particularly early age. This in turn, increases the demand of the computer.

Dell Company is aware of the importance of educating the consumer and maintaining a strong

brand name. This is why despite the fact that the exercise is costly the company thrives to do it.

This is yet another method that enables the company to deal with competition that comes either

from within or outside India and still manage to be one of the companies that are on the rise in

India (Lamb 2012).

Technology:

The factors and trend that are related to innovation and inventions and affect the development of

market products is known as technological environment. The interesting fact about these

technological trends is the fact that it can open doors for new opportunities, have effect on the

activities in marketing or both simultaneously. By the use of technologies, marketers are being

assisted to be more productive.

When it comes to the computer industry, technology grows smaller and faster with each rising

day. Having access to technology that has been developed by institutions has become crucial in

the government resource. Today, the internet has opened a clear path for companies not only to

get the public domain but also to tailor and display the services they offer the consumers. Dell as

a business has used this method to increase in the market share in India (Sharma & Dr 2012).

One of the challenges that Dell faces in India, is the high cost of the connection of the internet.

The rate of internet connection in India is high especially for foreign companies that are striving

to establish a business. Importing of the computers is costly, and using the internet as one of the

sources of advertisement tends to put a strain on the multinational company.

Legal:

The legal environment refers to the body that governs and regulates trade in the country. When it

comes to multinational companies, the United Nations passed a bill on foreign trading that

should be used on making policies on foreign trading. On the same note, India has its own sets of


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rules and regulation that apply not only to local traders but also applies to foreigners who have

established or are intending to set up businesses. As far as the FDI is concerned, it is expected to

increase to $36 billion by 2014 (Rangarajan, 2013), which is a positive sign for Dell and the

country. This increase in the FDI would help the economy to boost up and the inflation and

interest rates would go down and would eventually benefit Dell and other multinational

companies as the purchasing power of the people would increase simultaneously.

Dell Company has to follow three sets of rules. Those set by the United Nations, those set by the

India government and those set by the china government. It is not easy to maintain a strong

image where else following strict regulations. Dell has managed to keep up its image despite

these factors. Competitors, especially those who are local keep a keen eye on the company in

case it violates any rules.

Dell Company has managed to follow all the legal rules and still manage to be on the rise in the

Indian market. Despite the fact that some of the riles are challenging and may be costly in the

long run, it is a risk the company has decided to take so as to increase in the market share and

also a clear indication that the company deals with products that are legal (Sharma & Dr 2012).

Threats:

Dell company faces one key threat when it comes to the selling of the computer other companies

offers a product that is cheaper than deal. Other than that, dell poses a threat to other companies

in India since it produces the latest models that do not only attract the consumer but also leave

the consumer satisfied.


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Computer change constantly and sometimes even daily, this mean that the company has to be on

the lookout, new software, hardware and other accessories are created with each rising day. If

dell is not in the look out, there is a high chance that the company may be outdated and thrown

out of the market (Rayport & Jaworski 2004).

The growth rate of the demand in computer and also the computer trade is slowing down. In

India, today dell has the largest share of the market. If the demand continues to slow down as it

is doing, then the competition will become even stiffer. Dell has to strive and work hard so as to

present the company as outstanding so as to be able to continue to hold a large market share.

When looking into the double edge sword of technical development and the effect that it has on

dell as a company especially in India, it is not yet quite clear if the technology works for the

benefit of the company or the benefit of the competitors. Technology is a method that dell can

use to advertise the product that it has, while on the other hand it is a method that the competitors

can use to find out what new product has been introduced in the market.

In order to continue to enjoy the market share the computer companies have to be distinct from

the rest and the company should create product that the consumer can trust. Some of the things

that the consumer likes include machine that are durable, up to date and machines that are fast. Ifdell continues producing such machine, then the possibilities of being first in the market are

high. Dell should continue holding it is position as the number one multinational company India

that produces PCs.

Opportunities:

Dell can be used as a perfect example of a company that encourages globalization. Dell is not

only appreciated in India but also in some part of the world. In terms of computing machines,

dell can be vied as a machine that is sold worldwide. The company gets an opportunity to

diversify and learn the different culture of people and how each person need can be met in the


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machine. Globalization helps to bring together people from a different area of the world and

appreciate their difference (Griffin & Moorhead 2010).

The company also promotes world peace, people from all over the world using the same product

can meet via the internet and discuss on the way that the product can be improved. Indians also

get to learn on other people and the diversity that they have (Lamb 2012).

The Successful Integration of MNCs in India:

According to a study done by Thite, Wilkinson and Shah (2011), the success of MNCs in

Emerging economies such as India can be attributed to a number of factors. But the most

important is the interaction of various factors both internal and external and how those factors

are integrated with the global HR strategies. (Refer to the appendix).

Conclusion:

India is among one of the first countries to accept multinational companies. The country

welcomed foreign traders in the early nineties. The country opened doors for foreign trading all

over the world; it made the idea of companies investing in other countries to become a reality

and not only an idea. India has welcome traders from all over the world, even those that make the

same products as the ones made locally. Friendly competition is what the company puts


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emphasis on, and encourages both local and foreign traders to work together in a friendly

environment. The economy of India rose since the introduction of foreign traders and the

relationship with other countries were made stronger.

Companies that trade in India would not like the economy of India to go down, thus, the

companies will do all it can to improve the status of India and benefit from the country along the

way. Dell Computer Company is one of the many companies that has established its business in

India and is doing exceptional in terms of growth of the company and of the country at large.

Bibliography:

Ajami, R. A., 2006.International business: theory and practice. Armonk, N.Y.: M.E. Sharpe.

Cooke, W. N., 2003.Multinational companies and global human resource strategies. Westport

CT, Quorum Books.


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Griffin, R. W., & Moorhead, G., 2010. Organizational behavior: managing people and

organizations. Australia: South-Western/Cengage Learning.

Gupta, A. K., & Wang, H., 2009. Getting China and India right strategies for leveraging the

world's fastest-growing economies for global advantage. San Francisco: Jossey-Bass.

KoRner, J., 2011. International Trade - Multinational corporations and technology transfer.

Munchen, GRIN Verlag gmbh. Http://nbn-resolving.de/urn:nbn:de:101:1-20110131740.

Lamb, C. W., 2012.Marketing. Toronto: Nelson Education.

Nayak, A. K. J. R., 2008.Multinationals in India FDI and complementation strategy in a

developing country. Basingstoke [England], Palgrave Macmillan. Available online from:

http://public.eblib.com/eblpublic/publicview.do?Ptiid=474989.

Rayport, J. F., & Jaworski, B. J., 2004. Best face forward: why companies must improve their

service interfaces with customers. Boston, Mass: Harvard Business School Press.

Sharma, S. D., 2012,India marching: reflections from a nationalistic perspective. [S.l.],

Iuniverse Inc.

Thite, M., Wilkinson, A,. And Shah, D., 2011.Internationalization & HRM Strategies across

Subsidiaries in Multinational Corporations from Emerging Economies A Conceptual

Framework, Griffith University: Griffith University Press.

C. Rangarajan (Economic Advisory Council to the Prime Minister), 2013. FDI may increase to

$36 bn in 2013-14: PMEAC- Economic Review 2012-2013. Available online from:

http://www.thehindu.com/business/Economy/fdi-may-increase-to-36-bn-in-201314-

pmeac/article4647304.ece
http://nbn-resolving.de/urn:nbn:de:101:1-20110131740http://public.eblib.com/EBLPublic/PublicView.do?ptiID=474989http://www.thehindu.com/business/Economy/fdi-may-increase-to-36-bn-in-201314-pmeac/article4647304.ecehttp://www.thehindu.com/business/Economy/fdi-may-increase-to-36-bn-in-201314-pmeac/article4647304.ecehttp://nbn-resolving.de/urn:nbn:de:101:1-20110131740http://public.eblib.com/EBLPublic/PublicView.do?ptiID=474989http://www.thehindu.com/business/Economy/fdi-may-increase-to-36-bn-in-201314-pmeac/article4647304.ecehttp://www.thehindu.com/business/Economy/fdi-may-increase-to-36-bn-in-201314-pmeac/article4647304.ece


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Appendix:

Model for diffusion of Global HR Strategies into Multinational Corporations in Emerging

Economies

Global HR

Strategies and

Practices

External Influencing Factors

1. Home Country Factors

(Economic strength; global

image; national culture )

2. Host Country Factors

(Perceived relative strength of

home & host country mgt.

practices; Environmental

factors (openness of business

systems, legal framework,

institutions )

3. Industry-specific Factors

(Degree of product integration;

level of integration between

headquarters & subsidiaries )

Internal Influencing Factors

Strategic framework (business,corporate, international, co-operative)Organizational culture/leadershipImportance of subsidiaries toMNCs bottom line & strategyMode of subsidiary set-up(Greenfield, M&A )Headquarters diffusion capacitySubsidiaries absorptive capacitySubsidiaries resourcedependency on the headquartersAvailability, ability & choice of

expatriate managers

Subsidiarie

s in

Developed

Counties

Domestic

Operation

s

Subsidiarie

s in

Developing

Countries


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Source: Thite, M., Wilkinson, A,. And Shah, D., 2011.Internationalization & HRM Strategies

across Subsidiaries in Multinational Corporations from Emerging Economies A Conceptual

Framework, Griffith University: Griffith University Press.

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Comparative Issues in International Environment