Dell Goes for La Vida Loca:
New, $108 Million Plant Headed for Brazil
In a significant change in strategy, Dell Computer (www.dell.com) is going for the gusto in Latin America.
The Austin, Texas-based PC power has announced that it's going to open a US$108.5 million manufacturing and customer center in Alvorada, Brazil, in the state Rio Grande do Sul. Pending government approval, the company expects to manufacture, sell, service and support computer systems from its new location, with the new facility going online in 2000.
Dell has heretofore exported its computers to only a few Latin American markets, including Mexico and Colombia. But it hadn't sold in the markets of the nations that comprise Mercosur, the Latin American free-trade bloc made up of Brazil, Argentina, Uruguay, Paraguay and Chile, much less set up a facility there.
That Latin American location reticence, say Dell insiders, rested partly in the company's concerns over the area's bureaucratic red tape and its sometimes poor infrastructure. Now, however, Dell has come up with a "virtual" logistics plan for its operation in southern Brazil that appears unique among the companies that have ventured into Latin America.
Dealing with a market as vast as Mercosur, location was an inordinately important concern in siting Dell's first Latin American operation.
The new facility will occupy a 123-acre (49.2-ha.) site in Alvorada, which is located in the metropolitan area of Porto Alegre. Plans for the Brazil operation call for growing the labor force to more than 250 local employees over the next two years.
Daryl Robertson, vice president of Dell Latin America, said Dell was attracted to Rio Grande do Sul because of the area's well-educated local labor force, its strong location for export to other South American countries and the "economic incentives designed to attract technology-manufacturing companies . . ." that the company received.
The site in south Brazil lies only a few hours' flying time from Mercosur's four major markets: Buenos Aires in Argentina, Rio de Janeiro and São Paulo in Brazil and Santiago in Chile. Together, those four areas generate roughly half the region's wealth. More critically for Dell, most of Mercosur's computer users are concentrated in those four areas. And PC demand in Latin America is growing by some 15 percent a year, with 5 million units sold in the region last year.
In addition, the 1998 privatization of Brazil's telecom systems has spurred an expansion and upgrade of the nation's network. That, in turn, is accelerating the growth of Internet usage inside Latin America's biggest economy.
"This move places us closer to our customers in a market that presents excellent long-term growth opportunities for Dell," said Dell Computer Vice Chairman Kevin Rollins. "The expansion into Brazil is a significant milestone for Dell as we continue our global expansion."
Locating within the Mercosur market (which is called "Mercosul" in Portuguese-speaking Brazil) will also allow Dell to take advantage of the "made in Mercosur" designation.
If the company meets the Brazilian government's criteria for local content and attains production volumes to which it's agreed, the products manufactured in the new operation in Rio Grande do Sul will be designated as "100 per cent locally made." As such, Dell's Brazilian-made products will automatically attain duty-free access to all the nations in the Mercosur pact.
"Dell's plan to establish its eighth plant worldwide in Rio Grande do Sul fills us with pride," said Antonio Britto, governor of the state of Rio Grande do Sul. "We are committed to Dell's success in this initiative, and we believe that this partnership will bring many benefits for all those involved."
Analysts consider Dell's move a bold one - and one that faces formidable challenges.
One of the major challenges lies in logistics, which have been the downfall of many less experienced firms that have ventured into Latin America in an effort to serve the huge Mercosur market.
Dell, however, has hammered together an agreement with Brazilian tax and customs authorities to set up a "virtual warehouse." That virtual warehouse, Dell officials explained, will provide high-speed clearance of the company's exports and imports.
Tax and customs officials will monitor the movement of Dell's goods online, making sure that the company pays the appropriate taxes and duties and pays them punctually.
For Dell, the benefits of its virtual warehouse are substantial. The company will be able to quickly unload its parts from incoming airplanes and rapidly transfer them to its plant in Rio do Sul. That will mark a substantial departure from the lengthy customs-approval delays that legions of companies have complained about while operating in the Latin market.
Even with the innovative virtual warehouse, however, Dell faces daunting infrastructure challenges in serving the vast Mercosur market.
In fact, Dell officials have already said that the company is not going to duplicate the five-day delivery that it promises in the United States. Company officials add, though, that product delivery times won't be much longer than five days.
Even with its airport customs problems alleviated, Dell must still contend with the region's roadways, which can range from good to dreadful. In addition, as a virtual unknown in Latin America, Dell will have to have its marketing machines revving in very high gear. And then there's the simmering trade war between Brazil and Argentina, Mercosur's kingpin economies.
Company officials, however, remain optimistic that Dell's model will work within Mercosur. They seem particularly emboldened by the company's successful experience with its plant in China, a nation that presents its own fierce challenges in terms of infrastructure, red tape and sheer physical distance.
"In each market that we have entered, there have always been doubts about the Dell model," said Fernando Loureiro, Dell's director of corporate affairs. "In the end, though, it has always worked out to be wholly right,".