Term Paper on "Problem Solution Global Communications"

Term Paper 6 pages (2349 words) Sources: 7 Style: APA

[EXCERPT] . . . .

Global Communications

As business and markets become more global so the demands and the requirements of the computer industry in particular have undergone a radial change. The computer and it market is in essence an extremely dynamic and changeable business environment. The current trend toward the outsourcing of call and service centers, as well as other aspects, has arisen partly as a result of the changing market, workforce and technological developments. For example as one study states; "... there is an outsourcing trend that is driving demand as customers increasingly look for suppliers that offer additional services or functions..." (Atlas Copo facts in Brief 06)

Therefore, many global multinational companies are increasingly transferring parts of their business systems to offshore locations like India, that offer substantial savings on manpower costs as well as reducing employee attrition. The availability of manpower and a ready workforce is also an important factor.

According to report by Forrester Research, McKinsey & Co. Inc., the outlook for job outsourcing is envisages as follows:

3.3 million jobs in the United States are projected to leave the country by 2015.

14 million jobs in the United States are expected to be outsourced overseas. (Outlook of Outsourcing 2004)

Due to the perceived threat to local jobs, outsourcing has raised a certain amount of controversy in terms of the expansion of the global economy. There are also problems to be considered in terms of outsourcing that affect many companies, such as Dell. For example in one of the main outsourcing areas, India, there have been problems such as, "... engineers skip projects after only a few months and salaries are rising by 14% per year." (Outsourcing: Beyond Bangalore) This has resulted in many Asian countries being considered as outsourcing areas.

2. Background to Dell's situation.

For many years Dell was seen as a market leader. The company was founded by Michael Dell in his University of Texas dorm room in 1984. (Accounting problems: the tip of the iceberg) the company since then enjoyed increasing popularity and "...was loved by investors, analysts and business journalists" (accounting problems: the tip of the iceberg). However in the last three years Dell has, as one pundit puts it, "...been in serious strife" (accounting problems: the tip of the iceberg).

Dells problems have been mainly ascribed to the "...fundamental sea change that's now happening in the PC market." (Accounting problems: the tip of the iceberg). This is related to the fact that the industry in general is struggling due to slow growth, coupled with intense price competition. These two aspects are of cardinal importance as they indicate something of the rationale behind the move towards outsourcing that the company has adopted.

For example, Dell has lost its status of market leader and is losing ground to companies like Hewlett Packard, which has "...the advantage of a broader revenue base from its software, services and printer businesses" (McIntrye D. 2007). The management of Dell is therefore faced with a situation where the company "...is no longer the low-cost provider and at a time when PC sales are not racing forward" (McIntrye D. 2007).

The following statistics and data clearly indicate the problem that Dell is facing. Approximately two years ago Dell's share price was at $40. More recently this has fallen to $22.50. While its shares have dropped 40%, Hewlett-Packard's are up almost 100%. (McIntrye D. 2007)

In the 2005 fiscal year Dell revenue rose to 19% compared to the previous year. However in the most recent quarter, ending February 2, 2006, revenue fell 4% to $14.4 billion from the same quarter the year before. (McIntrye D. 2007)

This can be compared to the HP's growth rate which is about seven percent a quarter.

However as McIntyre (2007) points out, the problems that Dell faces goes further than only its competition with companies like Hewlett Packard. Another factor to consider is that "...Lenovo, the Chinese PC company that bought IBM's computer business, Acer, and Toshiba are pushing into the U.S. market as they diversify beyond their traditional markets in Asia" (McIntrye D. 2007).

More specifically and importantly for Dell is the fact that, "The labor costs in China and Taiwan give Acer and Lenovo a cost edge, while their large revenue bases in the Far East give them a capital foundation to market products in the U.S." (McIntrye D. 2007). This again points to the importance of outsourcing as a possible solution to Dell's predicament.

It must also be noted that of the core problem area that has been singled out with reference to Dell is customer services; which has been criticized in recent years. While Dell replaced its head of customer service in 2006, yet its reputation in this regard has been severely tarnished.

In summary the company is suffering due to image problems and because of the slow growth rate in the industry, as well as intense price competition. Other negative factors include reduced sales growth, falling profit margins, customer complaints and increased competition. As Robert Kieschnick, a finance professor at the University of Texas at Dallas states, "If you wanted to sum up the problems at Dell, you'd probably say that the company has repeatedly failed to adapt to changing market conditions..." (Smith a. And Godinez V. 2007). According to this analysis: "Dell effectively lost its price advantage, which means that customers are thinking more about design and service and other factors," and "... Dell has never excelled in any of these areas" (Smith a. And Godinez V. 2007).

3. Outsourcing

In an effort to compete and reduce costs in the increasingly complex global market, Dell turned to outsourcing - with mixed results. Dell has a number of call centers in India, including one in Bangalore, which is often seen as India's top technological city. The company is also in the process of expanding into other countries. (Dell's Outsourcing of Call Centers to India) the fist Dell call center in India was opened in 2001 to provide technical support to U.S. customers. A second call centre was introduced in 2003 and more call centers have been added subsequently. Essentially these centers provide work for hundred of local residents at much lower wage than would be paid in the Unites States. (Dell's Outsourcing of Call Centers to India)

The following are some of the main reasons for Dell's decision to outsource

There is seasonality to the customer service work load that Dell handles. The seasonal call center capacity is met by outsourcing, which enables them to quickly ramp up and down additional capability.

Dell also outsources because it enables them to benchmark and fix their costs.

Outsourcing allows Dell to learn from the experience gained by the outsourcers while working with other companies.

Furthermore, outsourcing gives Dell the ability to spread call centers geographically, thus mitigating natural disasters and other interruptions.

Dell's Outsourcing of Call Centers to India)

On the downside however certain problems have been experienced with these call centers. At one stage Dell stopped using Indian call centers due to customer complaints about the quality of services. "Some U.S. customers have complained that the Indian technical-support representatives are difficult to communicate with because of thick accents and scripted responses" (Dell's Outsourcing of Call Centers to India). These problems have been realized and are being addressed by corporate management. As Dell CIO Randy Mott has stated; "We were growing very quickly in that (consumer) segment. It got a little ahead of us. We took the decision to get it back under control. Our customers expect more from Dell than other companies, and we weren't meeting those (expectations)" (Dell's Outsourcing of Call Centers to India). Dell has also obviated some of the problems by considering other areas, such as the old Soviet Bloc, China, and Vietnam. (India's Outsourcing Problems)

4. Possible solutions

Dell management is well aware of the implications and seriousness of these problem areas and has instituted various plans and strategies to cope with the changing market. Company spokespersons have "...pledged to 'build, partner and buy' in the effort to increase its service business." Furthermore, the company's product design group,"...will shorten design cycles, increase speed and innovation/design that create real differentiated value for our customers." (Smith a. And Godinez V. 2007) the Company is also in the processes of financing an expansion into printers, cameras, televisions and other consumer electronics. However this is not seen as a lucrative option by some commentators. For examples, Trevis Certo, a management professor at Texas a&M University in College Station states that, "Fierce competition is driving down profit margins in all those product categories, so I'm not sure how Dell will ever make decent money on its investments there," (Smith a. And Godinez V. 2007). Certo also states that the key to Dell's access to higher margins is to move into services. This he sees as the central problem that the company should address. "The problem for Dell is that it has been slower to get into service than its competitors" (Smith a.… READ MORE

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