Dell Tries to Crack South America

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John Barham examines the US computer-maker’s strategy for expansion using a Brazillian base

Dell Computers, the Texas-based computer-maker that was among the pioneers of online ordering, is preparing to attack the difficult Latin American market.

Soon, Dell will start making computers at a new factory in the small, southern Brazilian city of Eldorado in its first manufacturing venture in South America. Within a few hours’ flying time of Eldorado lie four of the continent’s main metropolitan regions – Buenos Aires, Rio de Janeiro, Sao Paulo and Santiago –which generate about half the region’s wealth and where most of the computer-using populace is concentrated. Dell hopes to serve all these markets – including more distant regions in northern Brazil and the Andean countries – from Eldorado.

According to Dell’s plan, aircraft from Miami will land at a nearby international airport carrying computer components that will be sent straight to Dell’s factory. Together with parts delivered from suppliers in Brazil, they will be assembled to order, packed and delivered to consumers across the continent.

The challenge for Dell is not only to mount an effective marketing campaign to educate customers about online ordering, it must also manage a complex logistics system and deal with the problems of unreliable road and air transport networks. And it must operate in half a dozen volatile Latin countries, with unpredictable governments and consumers as well as well-established competitors.

Dell could not afford to ignore the South American market much longer. It currently exports computers to a few Latin American countries such as Mexico and Colombia, but has never sold to markets in Argentina or Brazil .Latin American consumers last year bought 5 million PCs and demand is growing at 15 per cent a year. Growth is likely to remain strong for some time to come: in Brazil, the region’s largest market, only 3-4 per cent of the population owns a PC.

Dell is not the first company to view South America as a single market. For a decade, Ford and Volkswagen and many other multinational companies have operated in the region’s main countries as if they formed one integrated market. That was a natural reaction to falling import tariffs and consolidation of the Mercosur customs union linking Argentina, Brazil, Paraguay and Uruguay, However, the distances, the red tape and the animosities between national governments often make fulfillment of this strategy difficult.

Dell decided to locate in Brazil because it is the region’s biggest market and because the government gives computer companies substantial tax incentives as part of its plan to develop local high technology industries. If Dell meets Brazilian local content criteria and attains agreed production volumes, its products are considered to be 100 per cent locally made and automatically gain duty-free access to Mercosur countries.

However, there is little Dell can do about the internal transport networks in Brazil or the bureaucracy in neighbouring countries. Although roads, air transport and delivery systems are tolerably efficient in south eastern Brazil and parts of Uruguay, Chile and Argentina, Dell may still find it is struggling to co-ordinate operations and sales over a vast region.