Michael Dell Urges India to Lower PC Taxes

Dell founder and CEO Michael Dell called on India to lower its taxes on foreign-made computers, saying the fast-growing market could invite more investment by doing so.

Dell, whose namesake company is set to open its first Indian PC production plant in the southern city of Chennai later this year, said his company’s sales in India are on pace to double this year and will reach US$1 billion within a few years.

“Dell in India is now a half-a-billion dollar enterprise in terms of local sales. Last year, it grew by 70 percent and we are rapidly heading towards $1 billion,” he told reporters.

India Is ‘Taxing Progress’

Still, the country is in danger of losing out to other nations that have more favorable tax programs in place, Dell added, citing massive investments by his company and others in Vietnam and China as examples.

“You are taxing progress,” Dell said to reporters after a meeting with Indian government officials. “Today, if you spend 20 to 25 percent on taxes and duties for computers, it is far too high compared to other countries around the world,” he continued.

Dell has made investments in India, but the comments suggested more may be in the offing if additional favorable tax structures were in place.

Dell separately announced that the plant near the southern city of Chennai that Dell began working on last year would begin producing PCs in July of this year, with a capacity to churn out up to 400,000 units per year.

Holding Back

India would see even more investment if it lightened the tax burden on PCs, Dell argued. He cited the example of the telecommunications industry, which India taxes more favorably. As a result, telecom companies have made plans to pour billions into the country, including $2 billion worth of investments announced last month by the UK’s Vodafone.

By contrast, PC makers are finding more favorable environments for investment elsewhere in Asia, he said.

“That’s why Dell and its global chain of 86 suppliers is spending $19 billion in China and Vietnam and the equivalent in India is zero,” Dell noted. “In fact, one such supplier is investing $5 billion in Vietnam and not in India. These are investment dollars India too could attract.”

Bridging its Digital Divide

Dell also argued in favor of more investment in broadband connectivity and other areas to bridge India’s own digital divide. Just 5 percent of the country’s population, or about 50 million people, are active Internet users, he said, “far below potential.”

As a company, Dell has had a somewhat tumultuous relationship with India over the years. It was among the first wave of companies to outsource customer service support functions to India and other overseas locations, only to be roundly criticized for its poor performance in that area. In 2003, the company announced it would recall some customer support functions back to North America.

By early 2006, however, Dell was back on the bandwagon, saying it would double its employee head count in the country to 20,000 as it beefed up support, research and development and production capabilities there.

Build There, Sell There

In addition to being a source of highly skilled but relatively inexpensive technology labor, India is also one of the most important PC markets for Dell and rivals such as Hewlett-Packard and Lenovo.

Its location also makes India a logical manufacturing and distribution base for other emerging markets, such as Russia and the rest of Eastern and Central Europe.

Dell’s share of the Indian computer market has traditionally been in the 5 percent range, well behind HP and Lenovo, which moved into the market earlier. However, Michael Dell said his company had gained a foothold in sales to larger companies — those with 1,000 or more workers — grabbing a 19 percent market share in that niche.

Strong Growth

Gartner and IDC have both predicted PC sales growth of around 15 percent for the Asian market in the coming year, a growth rate ahead of most other, more established markets.

“Dell’s challenge is to keep its costs low while driving new growth in these burgeoning markets,” Gartner analyst Martin Reynolds told the E-Commerce Times. While emerging markets typically have lower price points and sometimes smaller profit margins, finding a way to make the markets work is a top priority for Dell.

“These markets are where the growth is going to come from, so the major PC makers want to have a presence there, both in sales and on the ground,” he noted. Companies such as Dell, with massive research and development and manufacturing budgets, can have significant leverage in getting countries to be more welcoming to foreign investment.