Question

Dell computer has a production facility in India. Recently, the firm was taxed at a significantly higher rate than local computer companies. Which type of risk is Dell most likely experiencing?

Answer 1

Dell company of computers, which have its own production facility in India has been rised in the year before. But, then also, the tax rates was too higher. But due to these higher taxes, the base company of Dell in US, were unable to develop their company in India. Dell was unable to improve investment and operation in the production facility in India.

The base company of Dell is situating in The Round Rock, which is a Texas based company. They were good in selling computers and servers to huge Indian Companies. But, the risk they had faced is their failure to enter into the mass market world of laptops and desktop computers.

Sales over $500 million was earned by the company in India and was levied to pay taxes according to that margin. But, as they were unable to gain the local market of laptops and desktop computers, their operations can't be expanded in India so that they couldn't improve the investment too.

The share value of Dell in India is also not that much better. Hence, rival companies of Dell such as Lenovo, Hewlett-Packard et cetera offer comparitively low prices and have better share prices. Dell company expressed their dissatisfaction and discomfort with the tax system in India. The company blamed the syste of tax in India low presence in Indian market. They said that comparing to other countries, India levies a huge amount of tariffs as well as sales taxes which may amounts to approximately 20-25% of a computer's value. Other countries levies very minimal tax or sometimes nil tax on computers.

The reason for the expensive nature of Dell is because they ships the computer systems in the form of fully-assembled parts. But their rival companies are local manufacturers and not have to bear that much expense and can sell at a comparitively low price.

Dell was planning to build plants in South India for local manufacturing so that they can reduce their own cost and thereby lowers the selling price. But, the finalization of this plan depends on the change of the tax system in India. Based on that only, Dell can decide the level of their investment in India. They tries not to sell more computer systems in Indian market, instead to stay profitable.