Dell's dirty words: Outsourcing, proprietary

Rollins, speaking Friday at Forrester Research's Executive Strategy Forum here, responded to critics of Dell's operations outside the United States by pointing out that the company has added jobs at new domestic facilities this year and by saying Dell has both business and moral obligations to be close to its customers--wherever they are.

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"We believe (as a company that) you have to be in every region or country that you want to sell in. We continue to add jobs in the U.S.--we've announced two and will soon add a third major site in the U.S. this year," he said. But "it's ridiculous for us to say, 'We'll sell products in India...but don't put any jobs there.'"

Rollins, who became Dell's CEO in July, is quickly becoming one of the more outspoken technology CEOs, often shooting from the hip when he speaks publicly. He shared his views on Dell, the computer industry and the consumer electronics market during a question-and-answer session that lasted about 35 minutes.

Rollins' comments ranged from self-deprecating--Dell's management regarded the layoffs of 2001 as a personal failure, he said--to more wide-ranging critiques. He matter-of-factly said the consumer electronics market is in a "mess" right now because companies that operate in it are finding it hard to turn a profit.

Rollins also said Apple Computer's iPod could suffer the same fate as the Macintosh computer line if Apple continues to keep iPod technology proprietary. (Macs have a devoted following, but they garner only a small percentage of yearly global PC shipments.)

"I think they're doing a fantastic job" with the iPod, he said. But "Apple runs the risk of having the same failure with the iPod as it did with its traditional PC business" if the company continues to keep the device proprietary. In Dell's view, standard technology, which tends to be cheaper and more readily available, will win the day in most markets, including PCs, servers, storage, networking and even consumer electronics.

Rollins said it would be possible for Dell to sell a product based on processors from Advanced Micro Devices at some point. In the past, he has questioned whether the company needs to do so.

"We believe there will come a time when we use AMD products, too," he said.

When a former Lotus employee asked for Rollins' take on outsourcing and offshoring from business and moral perspectives, it appeared to strike a chord with the CEO.

Rollins responded by saying that when expanding internationally, it's important for Dell offices and factories to be located close to where its customers are for logistical reasons. With its call center in Bangalore, India, Dell is essentially going where new customers are, Rollins said. Although the call center does handle some U.S. tech support, namely calls from consumers, he argues that it is not just a tool for reducing Dell's U.S. payroll.

Dell's Bangalore techs have generated their share of complaints from customers. But Rollins also appears to feel strongly about the moral aspect of raising the standard of living in emerging markets such as India by providing good jobs in those regions.

"If we're going to develop markets, we certainly ought to develop their people as part of the process," he said. "Our model is to get close to the customer. It's not offshoring to go to India. It's going where the customers are."

Plus, "you can't deny people jobs and expect them to buy expensive U.S. goods," he added.

Although he joked about outsourcing Dell's catering service, Rollins said the practice of outsourcing can cause a company to lose critical knowledge, in the case of areas such as information technology, or raise costs in areas such as manufacturing.

"Philosophically, I'm opposed to outsourcing," Rollins said.

Because he said outsourcing can remove essential skills such as IT expertise, it "seems nuts," he said. "I don't like it for Dell, clearly, because I think it makes us higher-cost, not lower-cost." Dell keeps all its manufacturing in-house.

The company plans to build another manufacturing plant in the United States soon, in order to serve U.S. and Canadian customers. It has been eyeing a location in North Carolina, which is roughly in the middle of the southern and northern tips of the populous East Coast.

While Dell could build a plant outside the United States, logistical costs such as shipping outweigh the price of building the facility locally, Rollins has said.

Published reports have estimated that Dell's new plant could employ up to about 1,900 people and bring a total of about 8,400 jobs to North Carolina, as Dell's suppliers would also have to locate there.

Dell also plans to build new factories in Europe and Asia over the next few years, with the aim of locating the plants close to those customers as well.