Times are a changin’ at Dell

Dell’s decision to farm out its PC factories to third party contractors is an acknowledgement that its business model needs to change.

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By  Derek Francis Published  September 8, 2008

What’s happened to Dell? The Wall Street Journal has got wind of plans for change at the world’s second largest PC seller. Two sources spoke out about the company’s approach to contract manufacturers, as it looks to outsource the production process by selling its factories. If true, this would be a major shake-up; an acknowledgement that the firm’s existing business-plan has lost its competitive edge to the likes of HP.

Rewind nine years ago and Dell was sitting pretty at the top of the U.S. PC market, having made fast bucks from its online PC customisation model. But more recently, it has been losing out to its rivals that have streamlined their models and outsourced the production – allowing them to concentrate on design and marketing. For the likes of HP and Apple, this has led to some serious gains.

But Dell isn’t a complete stranger to contract manufacturing. In its efforts to cut manufacturing costs, many of Dell’s products are partially built in Asia, and then shipped to one of Dell’s own factories to complete the process, which is known as ‘two-touch’, because each machine goes out to two factories. Its reliance on the likes of Taiwan’s Foxconn and other companies has helped, and it’s looking to continue this process.

Founder Michael Dell, who returned as chief executive last year, has pledged to cut costs by US $3 billion over the next three years and make sweeping changes to the vendor’s strategy. But what does it mean for the consumer?

Firstly, the major difference is that Dell will become more of a name in retail outlets. The company is moving beyond its direct sales model and has begun to forge partnerships with distributors to place its products in retail stores. In the Middle East, where some products are already sold in stores, this would arguably mean that we’ll be seeing more Dell products on shelves, which isn’t a bad thing at all.

To my mind, I’ve always envisioned Dell machines with a no-nonsense design and great performance that rarely has problems. But recently, it’s been clear the vendor is paying more attention to style, particularly as the laptop market takes off for home users.

And by freeing up this manufacturing cost, Dell can concentrate on product design – which may or may not be to the benefit of us all, should the company start rolling out a wealth of cool computers.

But should this cost-cutting drive go any further, perhaps the current Dell customers are the ones that will be losing out. Part of the vendor’s great success over the years is the level of customer support it provides, and this could take a nosedive if it outsources it all. Surely, this is already a trend across various industries, and there’s already a massive Dell call centre in India. I remember, while in Hong Kong, having to go through a regional technical support centre in Singapore to get answers to my queries – which wasn’t the easiest of procedures.

A few years later with a new Dell machine in the UK, I had a faulty motherboard (one of the only problems I’ve experienced after owning at least 10 Dell products). Using my Collect & Return warranty, I called Dell and was shunted through to a call centre in India. The process was arduous and painful – but in the end, I did get my desktop collected and replaced, in complete working order. So if the level of support deteriorates, in my view, this wouldn’t bode well for Dell customers.

More worryingly for me, outsourcing its production also means that build quality could potentially fall if its subcontractors aren’t as eagle eyed in terms of quality control.

The commentators we’ve read online seem doubtful whether or not this move will affect Dell’s reputation. At the end of the day, we – as end-users – don’t really care whether we own a machine that’s made in Poland, China or the U.S. In fact, Dell also operates plants in Malaysia, Brazil and Ireland, so there’s a chance your Dell PC has been worked on in some foreign country. So a Dell computer will remain a Dell computer. If it lifts the company’s fortunes, then it may just regain some of what it has lost in the past few years.

Derek Francis is the deputy editor of Windows Middle East English.

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