Logitech Case Study

CASE DISCUSSION QUESTIONS

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

Logitech has configured its global value chain to lower the production costs while maintaining the value of those assets。

 It moved it’ factories from The US to Taiwan and Chinese because it needed the capacity to produce at high volume and low cost.

Taiwan is an abundant place of skilled IT engineers. And there are many computers related companies. A competition of the industry become naturally intensive, which lead to cost efficiency.

To win the game, it is wise to transfer it’ assembling factory from Taiwan to China to receive trade benefits because labor cost is lower.

I think it is the best way to produce high quality products at low price is to find an appropriate place for an appropriate activity.

Now that components are produced from any part of the world where they can be produced at low cost. (Motorola plant in Malaysia makes the mouse’s chip, Agilent technologies supplies optical sensor)

A global company can receive many benefits.

・Economies of scale

Producing each part in bulk will reduce some expenses.

・A differential in pay

Logitech will receive benefit to expand it’ business in China because Chinese labor expenses is competitively low and there are enough supply chain and infrastructure.

A similar case: Apple computer

There are many suppliers relating to Apple computer.

Most of the cases, products are produced in China.

The reason is that it can assemble many engineers easily. If it tries to assemble 9,000 engineers to produce iPhone in the US, it will take a few months to do so.

However, it will take only a few days to do so in China.

Additionally, there are high quality supply chain in China.

It can assemble 10, 000 iPhone within 4 days since all parts arrive in China.  

I can easily guess that it is smart to collect high quality parts at a low price all over the world. (Absolute advantage)

Surprisingly, a demand of Apple is tremendous. They demand that high quality products that suit for Apple products at the lowest price.

It usually orders parts in bulk to cover for the low profit. (Economies of scale)

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 operation from California?

Each country has each one’ expertise.

According to Smith, Ricardo and Heckscher-Ohlin, a country’s economy may gain if its citizens buy certain products from other nations, even if these products could be produced at home

Thus, Logitech chose an appropriate location to run a business using LIFE CYCLE THEORY, ABSOLUTE ADVANTAGE, COMPARATIVE ADVANTAGE and PORTER’S DIAMOND.

Manufacturing in China and Taiwan

I can explain why the firm changed their production base from the US to Taiwan and finally China by the product life cycle theory.

This theory suggests that early in their life cycle, most new products are produced in and exported from the country in which they were developed. (The US) As a new product becomes widely accepted internationally, production starts in other countries. (Taiwan /China) As a result, the product may ultimately be exported back to the country of its original innovation. (The US) The more a product become a major line, the more it is needed to expand it’ business at low cost.

＊Although the original home country is Switzerland, I also see The US a home country because it located it’ headquarter in the US.

Undertaking basic R&D in California and Switzerland

The theory of comparative advantage say that Switzerland excels in the production of precision instruments because it uses its resources very productively in these industry.

And Silicon Valley in the US is one of the most famous IT knowledge intensive places in the world.

I guess that the reason why they chose the two countries is that they took an absolute advantage.