Group: A 02

Today• US$2 Billion Company • Nearly 200 Million products sold every year• Distributed in more than 100 countries• 9,000 Employees

History• Founded by Daniel Borel, Pierluigi Zappacosta and Giacomo Marini in 1982

Apples, Switzerland• Founders had a global vision from the start• Operated in 3 countries within 5 Years• Design in Ireland….

Logitech: Company Overview

Fremont - USAR&D, Finance, Logistic, Marketing

EuropeSwitzerlandR&D

Asia-PacificTaiwan

Production

Asia-PacificChina Production

EEMEAIreland Design

Switzerland

Research and Development

Fremont

Finance, Marketing and Logistics

+Research and Development

Ireland

Product Designing

Taiwan

Manufacturing

China

Manufacturing

Logitech and International Trade

In a world without trade, what happen to the costs that American consumers would have to pay for Logitech's products?

Q1. In a world without trade, what happen to the costs that American consumers would have to pay for Logitech's products?

That means,• US have to execute the entire Logitech operation irrespective of whether

they are good or bad in terms of all the operation functionality

• No access to locations where there are cheap labor and comparative advantage

Even they manage to do it,• Operational cost will increase dramatically. (US labor is around 6 times of

Chinese labor)

So the bottom line,• Increased cost will reflect in the selling price• American consumers have to pay USD several hundreds more for all the

products. For ex. USD 40 Mice will be something like USD 350.

Global Outsourcing

Economies of Scale

Comparative advantage / Specialization

Maximize Efficiencies

Lowers the cost

Competitive Advantage

Q2. In a world without trade, what happen to the costs that American consumers would have to pay for Logitech's products?

Fremont - USAR&D, Finance, Logistic, Marketing

EuropeSwitzerlandR&D

Asia-PacificTaiwan

Production

Asia-PacificChina

Production

EEMEAIreland Design

Q3 . 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?

• Comparative advantage exists when firm has ability to produce goods and/or services at a lower opportunity cost than other firms.

ChinaNo.1 rank in the Global Manufacturing Competitiveness Index for the past decade

Competitiveness Drivers: Cost of labour and materials, Government investments in manufacturing and innovation, Local market attractiveness and Supplier network

Q4.1 Who creates more value for Logitech, the 650 people it employees in Fremont and Switzerland or the 4000 employees at its Chinese factory?

Q4.2 What are the implications of this observation for the argument that free trade is beneficial?

• Value creation is where there is R & D Source: Logitech International S.A., (2008).

Therefore, Fremont and Switzerland add more value for Logitech. China factory benefits them in terms of cheap labour and scalability.

• Free trade is what it enabled Logitech to take advantage of the low cost manpower available in China

• Agglomeration effects / Cluster

• Location specific advantages

• High density of Intellectual talent, entrepreneurship and innovation

Q5. Why do you think the company decided to shift its corporate headquarters from Switzerland to Fremont?

Q6. To what extent can Porter's diamond help explain the choice of Taiwan as a major manufacturing site for Logitech??

Factor conditions• Qualified workforce• High standard infrastructure

Demand conditions• High demand for electronic products

Relating and supporting industries• Well-developed Computer/

electronic cluster

Firm Strategy, structure and rivalry• Competition and rivalry among local

companies

Government Role• Science-based industrial parks• Land is given at very subsidize

rates in these parks

Power of Management Top Management Engagement

Cheapest labour rates in the world (USD 75 month)

Mass Production

China Favored for Manufacturing

Q7.1. Why do you think China is now a favoured location for so much high technology manufacturing activity?

• Increase the standard of living in China• Maintain the GDP growth momentum• Attract more FDIs• Strong position of the balance of payment • Technology transfers• Expanding economies of scale

Q7.2 How will China's increasing involvement in global trade help that country?

• to lower product costs

• supply chain efficiency

• China continuous growth

(Q7.3) How will it help the world's developed economies?

• Loosing Job opportunities in home courtiers • Competitor could rise form Chinese domestic company• Low Quality standards • Political changes could disrupt the work which lead to • Intellectual law violations• Heavy relying on China

Q7.4 What potential problems are associated with moving work in China?

?