Summary

Logitech is a modern global corporation. It was founded in 1981 in apples, Switzerland. It has
been differentiated from its competitors by the policy of continuing innovation. It is the first
company which produced a mouse that used infrared tracking rather than a tracking ball. Its
main revenue comes from selling low cost mouse, keyboard and video camera in worldwide. It
is legally a Swiss company but its corporate headquarter is in Fremont, California. Its R&D work
is done in Switzerland. The products of the company are designed in Ireland. In the late1980's it
had expand its business in Asia and opened a factory in Taiwan. Then it began to serve
prestigious OEM customers like Apple. Logitech knew that if they didn't lower their product
costs they would quickly lose market share. So, in the late 90s Logitech decided to manufacture
products out of Taiwan when at that time Logitech were still manufacturing most of their
products in America. At that time Logitech moves to China for establishing production plant
with a view to manufacture products at a lower cost. By this way finally Logitech able to take its
comparative advantage from cost, design, R&D, marketing, finance, executive activity &
became the ultimate gainer in the competitive market. Using the Logitech business as an
example we can clearly see free trade in a global environment assists to lower prices, increase
consumption, improve the economies of the countries involved in the trade, increase efficiency
within production environments and promote competition.
1. In a world without trade, what would happen to the costs that American consumers would
have to pay for Logitech's products?
Answer: In a world without trade, the costs that American consumers would have to pay would
be very high. The product that the case study gives for an example, Wanda, retails for $40, of
which only $3 is the production cost from China. This $3 cost would rise immensely if
production was in the United States because the American economy demands high wages.

2. Explain how trade lowers the costs of making computer peripherals such as mice and
keyboards.

Answer: It is amazing to think that trade helps to lower the costs of a product. As we saw in the
previous question, if the United States were to build a product entirely domestically, the retail
price would not be feasible to most consumers. With trading in place it allows for economies of
scale. The technology can be developed in one country, the ergonomics in another country, the
production in another country, and the assembly in yet another country. The shipping costs are
much less than it would be to perform these tasks in one country. This is called absolute
advantage, where someone is great at one thing. With this in mind you will get a product that
has the best resources available at the lowest cost, which is comparative advantage. Finally,
specialization is where everyone is doing what they do best and pulling their resources together
to make one incredible product.

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?

Answer: Logitech is very brilliant when it comes to comparative advantage. It does basic R&D
work in Switzerland with 200 employees, its headquarters are in Fremont, California with 450
employees as well as some R&D, the ergonomic designs are developed in Ireland, and the
products are manufactured in Taiwan and China. The comparative advantage is that it is the
most cost effective to break up the business in many different countries that specialize in a
certain job.
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?

Answer: The 650 employees in Fremont, California and Switzerland create more value for
Logitech. It is where all of the R&D and designs are developed. The 4,000 employees of China
add $3 to the Wanda product, which is almost nothing in comparison to the remaining $37.
Free trade is beneficial because labor costs can be brought way down.

5. Why do you think the company decided to shift its corporate headquarters from
Switzerland to Fremont?
Answer: America specializes in R&D. The headquarters were moved because of the company’s
global marketing, finance, and logistics operations. That is what Americans do best.

6. To what extent can Porter's diamond help explain the choice of Taiwan as a major
manufacturing site for Logitech?
Answer: There are four parts to Porter’s diamond:
(1) Factor of endowments, which is a nation’s position in factors of production such as skilled
labor or the infrastructure necessary to compete in a given industry;
(2) Demand conditions, which is the nature of home demand for the industry’s product or
service;
(3) Relating and supporting industries, which is the presence or absence of supplier industries
and related industries that are internationally competitive;
(4) Firm strategy, structure, and rivalry, which are the conditions governing how companies are
created, organized, and managed and the nature of domestic rivalry.
Taiwan’s factor of endowments was that it had a science-based Industrial Park in Hsinchu. The
demand conditions were that the Taiwanese were already trained to deal with technology. The
relating and supporting industries were that Taiwan was the best as building technology as the
lowest cost. The firm strategy, structure, and rivalry were that Taiwan had no domestic rivalry;
they provided the lowest cost.
7. Why do you think China is now a favored location for so much high technology
manufacturing Activity?
Answer: Chinese laborers are some of the cheapest in the world. Even though the workers are
not treated very well, they are starting to rise up and demand more wages.

8. 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?

Answer: The increase in foreign trade for China has helped to increase their economy. The
world’s developed economies will benefit because of the globalization of production. The
potential problems are that Americans are losing jobs to foreign markets.