Group Class Activity (Round 1) PDF

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Summary

Case: Logitech (p. 316)

Logitech Overview:
Logitech is one of the world’s largest producers of computer mice. It was founded in 1981 in Switzerland. The Company now generates over $2.2 Billion, mostly from products such as mice, keyboards, and low cost video cameras. ...

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Group Class Activity- Round 1 Case: Logitech (p. 316) Logitech Overview: Logitech is one of the world’s largest producers of computer mice. It was founded in 1981 in Switzerland. The Company now generates over $2.2 Billion, mostly from products such as mice, keyboards, and low cost video cameras. Connection to Class Material: Logitech’s strategic choice as an MNE seem to be very successful. By diversifying the production of their products, they are able to keep the production costs low and therefore make the most profit.This strategy was in part an attempt to win “two of the most prestigious OEM customers - Apple and IBM.” By outsourcing different parts of production, Logitech was able to offer its products at lower costs, making it more competitive with other similar companies. 1. In a world without trade, what would happen to the costs that American consumers would have to pay for logitech? The costs that American producers would have to pay for logitech products would increase if there was not trade. This is because the cost to produce the products would be greater due to wages being higher. The materials that are used to make their products would also increase in price which in turn would increase costs of production. Every aspect of the production of their goods would increase aside from logistics costs as they would not have to ship items as far, and would be able to produce it more locally than with trade. That being said the overall effect would increase the price as the cost of logistics is not enough to offset the increase in production costs. 2. Explain how trade lowers the costs of making computer peripherals such as mice and keyboards. With trade logitech is able to lower their costs by taking advantage of lower wages in other countries such as China, and Taiwan. These countries often offer benefits such as in Taiwan where logitech was able to take advantage of a $200,000 lease agreement. This lease agreement allowed them to easily adapt the production of their products very easily. Also, logitech chose countries that already has established technology production, so the people had some skill in the field and logitech did not have to spend as much money training workers.

3. Use the theory of comparative advantage to explain the way in which Logitech has configured its global operations. Why does the company manufacture in China and Taiwan, undertake basic R&D in California and Switzerland, design products in Ireland, and coordinate marketing and operations from California?

The Theory of Comparative advantage states that if one individual or group is more efficient in the production of some economic factor, then economically, it is better for each group to specializes in the production of that factor and then trade with each other. By allocating different parts of the production process to different countries, Logitech lowers its overall costs of production by engaging in their theory of comparative advantage. It is cheaper for them to manufacture in China and design in Ireland than to have all production factors completed in one place.

4. Who creates more value for Logitech, the 650 people it employees in Fremont and Switzerland, or the 4,000 employees at its Chinese factory? What are the implications of this observation for the argument that free trade is beneficial? These employees serve very different roles, however they can still be compared in relation to how much money is spent on them. The 4,000 employees at Chinese factories get paid 75$ a month, and build the hardware. Though, the final product of the company is highly valuable and is what drives their revenue, these workers are far more dispensable or replaceable than those who work in headquarters and in the research and development sectors. The article discusses the struggle that logitech went through to gain a competitive advantage in the highly competitive electronics industry. It states that moving manufacturing to asia was beneficial to lowering cost, however most of their success was attributed to the innovative technology. The R&D sector always received a large portion of their profits, and is what truly lead to their success. Their superior designs and quality of their product gained them contracts with Apple and IBM. Logitech was able to take advantage of free trade to become an internationally leading technology company. Because it was able to move its production to asia at a low cost, it was able to use the saved money to drive superior innovations in technology and become a powerful international corporation. 5. Why do you think the company decided to shift its corporate headquarters from Switzerland to Fremont? The company has several hundred employees working on R&D, specifically software programing based in Switzerland. However, they are outnumbered by more than five hundred employees in California, very close to silicon valley and many other leading technology companies. This is a very strategic location for their operations because it allows them to keep a close eye on what their competitors are creating and what their consumers want. Being in close proximity to both consumers and competitors allows them to ensure their R&D is always heading in the right direction.

6. To what extent can Porter’s diamond help explain the choice of Taiwan as a major manufacturing site for Logitech? The idea of Competitive advantage in Porter’s Diamond can help explain the choice of Taiwan as a major manufacturing site for Logitech. The interlinked factors of firm strategy, structure and rivalry, demand conditions, related supporting industries, and factor conditions influence the competitive

advantage of a nation. Logitech’s decision to manufacture in Taiwan was because Taiwan “offered a welldeveloped supply base for parts, qualified people and a rapidly expanding local computer industry.” The base for parts and qualified people put Taiwan ahead with specialized factor conditions, and the expanding local computer industry created high demand conditions, putting pressure on the firm to constantly be innovative and improve their products. These factors gave Taiwan a high competitive advantage, making it an attractive manufacturing choice for Logitech.

7. Why do you think China is now a favored location for so much high-technology manufacturing activity? How will China’s increasing involvement in global trade help that country? How will it help the world’s developed economies? What potential problems are associated with moving work to China?

China is now a favored location because technology manufacturing in large quantities require harge amount of manual labor. China has one of the largest populations in the world and the cost of labor is cheap. China’s increased involvement will help the country in economic growth and monetary prosperity. It will help the developed economies by making products a lot more affordable to the common public. Moving work to China can however, decrease employment in developed countries. Since manual labor is extremely cheap in China, and there is a minimum wage in America, many corporations might want to move their plants to China, causing a drop in employment rate....