Although a number of factors influenced Dell’s decision, one of them was the generous incentives that Governor Antonio Britto of the relatively centrist Partido do Movimento Democratico Brasileiro (PMDB) had offered Dell. Rio Grande do Sul was one of the most prosperous states in Brazil with standard of living quite high.
But suddenly political climate in Rio Grande do Sul changed all together. Olivio Dutra of the Partido dos Trabalhadores (PT, or Workers’ Party) was appointed as new governor of Rio Grande do Sul and he appeared likely to rescind all the agreements made by the previous government with Dell. He considered all the agreements to be overly generous incentives offered to transnational corporations by the previous government. This was a setback for Dell Computer Corporation and Keith Maxwell had to decide amongst the three options.

The second option available to Dell Computer Corporation is to move its plant to another state in Brazil. After numerous discussions on site selection Rio Grande do Sul, had been selected as site for plant location. Determined to win high technology investment in the state Antonio Britto of Partido do Movimento Democratico Brasileiro offered best investment alternatives to Dell. But appointment of Olivio Dutra as new governor of Rio Grande do Sul foiled all the plans.Olivio Dutra was against governments granting of incentives to foreign transnational corporations. This is one of his objections against Antonio Britto’s government in his campaign for the post of governor. So the first thing he was supposed to do when he became the governor of Rio Grande do Sul was to rescind all benefits given to transnational corporations.
The states available where Dell Computer Corporation could shift base were São Paulo, Rio de Janeiro, Minas Gerais etc.If Dell Computer Corporation shifted base it will do something which Ford had done in Bahia. Minas Geraias one of the states available as option for shifting out offered incentive package similar to what Dell Computer Corporation had received in Rio Grande do Sul. Minas Geraias also had no problem in terms of foreign direct investment, was interested in working with Dell and was also knowledgeable about needs of Dell Computer Corporation. Dell Computer Corporation had not started building a plant in Rio Grande do Sul so there were no sunk costs and shifting out would be not a major issue.
Minas Gerais Alternative to negociation
PROs
Less differences between political parties * Additional incentives provided like free land * Promotion agency is mix gov and private *
CONs
Incentives are not as attractive as Rio Grande do Sul.
Lesser proportion of skilled labour
Perceived as a heavy industry belt

Faced issues
Other states did not meet the desired requirements of: well developed infrastructure, efficient telecommunications, highly skilled work force.
Absence of fully privatised efficient foreign investment agency in other states catering to the Dell’s requirements Comparative studies of incentives offered by Rio Grande do Sul and Minas Geraias

| Rio Grande do Sul | Minas Geraias | | Incentives | | | | ICMS | 75% reduction for 12 yrs | 70% reduction for 10 yrs | | Free land | no | Free land for plant site | | Loan agreements | | | | Amount | 20 million | 20 million | | Grace period | 5yrs | 4yrs | | Repayment period | 10yr program | 4yr program | | Nature of investment agency | Polo | Indi | | | Private, non-profit | 70% state owned,30% private | |

* Evaluation of chart of incentives offered by both the states show that they rank almost equally. Minas Geraias offers free land as an incentive where as Rio Grande do Sul does not offer this benefit. On the other hand in terms of repayment period of loan Rio Grande do Sul gives a better option than Minas Geraias. So when we evaluate both Rio Grande do Sul and Minas Geraias come out to be offering fairly same advantages to Dell Computer Corporation..So the option of moving out to Minas Geraias can not be ruled out totally.The impression that Minas Geraias is only focused on heavy industries like mining, steel and automobile sectors is also not true. * Dell’s selection process * The key factors that Dell would consider as requirements in settling on a potential site for manufacturing could be drawn out from the main reason for its success as a business. That is, its business model. A prospective manufacturing site must ensure that the company’s just-in-time and knowledge intensive processes perfected through time can be maintained. It must also enable speed of delivery of products to its customers. In order to stay above its competition, Dell must be able to achieve this in Brazil at the lowest possible cost. Commitment to high-technology investment and availability of skilled labour and security were also important requirements driving Dell’s decision-making process. * States considered * Keith Maxwell, Senior Vice President for Dell’s worldwide operations, and his team of * selectors considered five states in Brazil. The following is a summary of how Dell * perceived each candidate as a potential site for its business. * Sao Paulo was one of the highest ranking states during Dell’s analysis. The main * attraction was the size of its market. This state, with its large population, was Dell’s * principal market for selling computers and provided the company with access to a * large pool of appropriately skill labour. The state’s foreign investments were brokered * through the state-owned foreign investment promotion agency and were already * exposed to a large amount of foreign investment. Due to that success, the state had * adopted a policy of not offering special financial incentives this was undesirable to * Dell. Dell’s decision to exclude Sao Paulo as a candidate was also influenced by the * efforts of the promotion agency that were perceived to be negative in promoting the * state to Dell. * The coastal city of Rio de Janeiro was overlooked purely based on the reputation of * the head of its foreign investment promotion agency, as he was well known for long * and drawn-out negotiations. * The state of Pranha also suffered at the hands of (from Dell’s perspective) a poorly- * performing foreign investment promotion agency. This agency had made no efforts to * address Dell’s specific requirements and gave an impression of a “one-fits-all” * presentation. The state also offered no financial benefits to attract Dell and was * excluded from consideration. * Minas Gerias was a close contender as the preferred state. From Dell’s perspective, * the foreign investment company that was 70% state-owned and 30% private-owned * had presented a successful case for promoting the state and had offered a lucrative * financial deal that included considerable tax benefits as well as financial loans with * significant grace periods. Dell’s ultimate decision was affected by the perception that * Minas Gerias is more suited for large industries that are more capital intensive (e.g. * mining, automobile) and thus not suited for Dell’s face-paced, just-in-time oriented * company. * Rio Grande do Sul was Dell’s eventual primary selection. The state had a lot to offer * in well-developed modern infrastructure, privatised and efficient telecommunications, * a skilled labour pool with most having university qualifications, and lucrative financial * incentives that included cost compensation for extended shipping required due to its * geographic location. The foreign investment promotion agency, Polo, is the only * privately-owned such agency in Brazil and was able to leverage its business know how * and established networks to effectively persuade Dell. * The prominence of these elements warrants closer consideration of the implications of such perspectives in selecting Dell’s desired location. * Investment promotion agencies * Each state had a unique approach to promoting its attractiveness to Dell’s * requirements. This was done solely through the designated foreign investment * promotion agency of the respective state. From Dell’s (the entering business’s) * perspective, there are a number of advantages with such a setup. * For example, having such an agency to deal with means that Dell has access to one source for gathering the required information and intelligence on a state. It also means that the company has one point of contact into that state, which can lead to increased efficiencies during the selection process. Dell is also able to develop and establish useful relationships with these agencies and in turn gain access to local knowledge, customs, business practices, networks and political leverage, which are key elements driving the success of a company entering an international market. For example, through Polo, Dell was able to gain access to and gather useful market information from leading local businesses such as Gerdau Steel conglomerate and international companies such as Coca-Cola. Another benefit of having one point of contact is that Dell primarily has one point of negotiation which can reduce the time taken to enter the market. * With such a setup, a number of disadvantages that could cause both financial and non-financial costs to Dell were also prevalent. For example, the agency may be open to corruption and unethical behaviour. Having one source of information means that the information can easily be manipulated to be presented from an altered and untruthful perspective. It is easy for the agency to only disclose information that presents a favourable case for the state. For example, when Polo arranged for Dell executives to meet with major business executives, the agency could have easily hand-picked local executives who would provide the desired information or worse, could have incentivised them to present desirable information. Dell executives could have missed vital information that would have been material in making a decision. * Another limiting factor is that discovering a state’s true potential is dependent on how the agency performs. For example, as outlined above, Dell disregarded a number of states purely based on the performance of the agencies. This could have led them to miss a better opportunity with another state, especially considering the fact that Dell’s two most preferred states were represented by agencies that were either fully or partially privatised, enabling them to have access to better-qualified staff (through higher financial offerings) within the agencies. The calibre of agency staff may not necessarily represent the calibre of the state in meeting Dell’s requirements. * Financial incentives focus * Leverage in terms of financial incentives is a common goal for a company looking to expand globally. The decision for global expansion is usually driven by its vision to increase profitability or increase potential for profit growth. A key element in realising this vision is to closely manage costs involved with setting up and maintaining a business. Fixed costs such as taxes, if reduced, can add great value towards realising profit-based visions for business. Therefore, Dell was justified in seeking the best financial incentives on offer from competing states, especially given that this is a major benefit for direct investment in Brazil. More aligned with Dell’s business model, lower costs will enable the company to offer an even more lucrative price proposition to its customers by maximising its already low cost product offerings. There is also the potential of raising required capital locally through low cost loans with long grace periods on offer by state governments. This enables Dell to refocus its capital in other areas of growth. * The main disadvantage of persisting with a strong focus on financial incentives is that it could overlook or not give due consideration to one or more non-financial (e.g. political, social-cultural or environmental) risks that, in net effect, could create greater costs than the benefits gained through financial incentives. * Current situation and contributing factors * Unfortunately, Dell’s dilemma in Brazil eventuated as a result of one or more disadvantages affecting the key aspects discussed above becoming a reality. While Polo was successful in promoting and convincing Dell to select Rio Grande do Sul, the company was not able to properly investigate a key non-financial factor political risks. In a country that has seen several political reforms and delegated so much authority to state governments, a thorough analysis of the political stability and risks should have been at the top of Dell’s considerations. Upon a closer look at the factors leading to Dell’s ultimate choice of Rio Grande do Sul, it is clear that its decision was swayed by Polo’s clever promotional strategy. The foreign investment promotion agency gained Dell’s trust by comparing itself to the existing successful relationship between Dell and the Irish Development Authority. The head of Polo, Jose Cesar Martins, is a successful ex-business man who knew what concerns business executives. Therefore, he was able to anticipate and tailor the state presentations to meet Dell’s needs. For example, he was able to persuade the governor to cancel a meeting and meet with Dell executives, arrange prominent local business executives to provide a ground level perspective and arrange dinner in a location that resembled the familiar surroundings of their home in Texas. At no stage did the political situation of Rio Grande do Sul come into question. * Political situation * The state had two candidates for the position of governor: Olivio Dutra, a socialist, and Antonio Britto, a pro-business moderate. Although holding widely-divergent political views, both candidates endorsed the idea of promoting economic development within the state through foreign direct investment. During Dell negotiations, Antonio Britto was the governor elect and had been elected on promises to promote foreign investment creating jobs and economic development in Rio Grande do Sul promises that are well in line with Dell’s offering to the state. However, what Dell failed to consider in its negotiation was the political opposition and the implications of the opposition coming into power. The governor elect from the 1998 elections, Olivio Dutra, was against the government granting benefits to foreign transnational corporations. Part of Dutra’s campaign against Britto was that excessive concessions granted to foreign transnational corporations must stop. As a result, the financial incentives offered to Dell, including the loan arrangements, would need to be renegotiated. * Key entity perspectives * Dell’s selection process did not favour many of the states considered. Even Dell’s principal market for computers in Sao Paulo was seen to be inappropriate for meeting Dell’s business model. The closest competing state, Minas Gerias, was overlooked by the executives under the belief that the state could not provide for Dell’s specific requirements. In fact, based on the analysis process followed by Dell, Rio Grande do Sul was the only potential state for establishing its business in Brazil. Moreover, the findings of country and industry analysis suggest that Brazil, with its developing economy, growth in the computing market and potential access to Mercosul countries is a market that should not be discounted lightly. * From the perspective of Rio Grande do Sul, the state had just lost the investment of a major international business in Ford. This loss of investment raised dissatisfaction within the state and its people and had even triggered protests. Dutra’s Partido dos Trabalhadores (Workers Party) is a socialist party that believed in honest and effective government. They were about promoting development for people of the state by creating jobs and development opportunities. Following the loss of the Ford investment, politically, Dutra did not stand in good stead with his voters in remaining true to his campaign promises. This leaves the governor in a vulnerable position from which Dell could negotiate to arrive at a similar or better position for establishing its business in Rio Grande do Sul.