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 ...view middle of the document...
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
Less differences between political parties
* Additional incentives provided like free land
* Promotion agency is mix gov and private
Incentives are not as attractive as Rio Grande do Sul.
Lesser proportion of skilled labour
Perceived as a heavy industry belt
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...