Page 160 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

144 Dubai & Co.

14
they pass Dell’s certification programs. Each GCC nation has at
least one Dell Partner; the larger ones have several. In essence, these
partners serve as extensions of Dell Inc. in the GCC, even though
they are not owned directly by the multinational. To the consumer,
dealing with a Dell Partner is no different from dealing with the
American computer giant itself. 15
Dell’s relationship with its GCC partners demonstrates the
power and flexibility provided by partnership agreements. From
Dell’s perspective, qualified local partners provide speedy, low-cost
access to the GCC market, and potentially just as quick an exit if
operations do not succeed. Instead of taking on the burdens of con-
structing sales outlets (which would be a major departure from
Dell’s sell-direct model), hiring qualified professionals, dealing
with regulatory reform as the GCC integrates more completely into
the WTO, and worrying about minimizing losses if it became
necessary to close up shop, Dell uses these partnership agreements
as a hedge against expansion risk and a speedy path to market.

DRAWBACKS OF SHALLOW ENGAGEMENT

The shallow-engagement level of the Engagement Spectrum does,
however, have significant limitations. The first of these is straightfor-
ward business economics: multinationals who rely on local firms to
bear the risk must forgo a significant portion of the rewards that
come from being in the market. Multinationals who engage in simple
distribution and revenue-sharing agreements gain a stable income
stream but have no equity stake in the underlying business they
enable. Although the firm’s business in the region may grow in value,
ownership of that business resides entirely with the local distributor
or franchisee. Local firms are often able to use the foreign brand,
retain control of the market, and expand their organizational capac-
ity (not to mention their capital base) while the multinational firm
gets a check in the mail from a business it may not fully understand.
Many savvy executives—especially when they view a business as a
strategic priority—seek to capture both annual income and long-
term capital growth through owning equity in their businesses and
therefore seek to migrate beyond shallow engagement.
A second, and related, drawback of straightforward distri-
bution agreements is that such agreements inherently limit the