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Logitech: Case Study

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CASE STUDY: LOGITECH

# SUMMARY:

Logitech is a modern global corporation which founded in 1981 in apples, Switzerland. It has been differentiated from its competitors by the policy of continuing innovation. It made its name as a technological innovator in the highly competitive personal computer business world. 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, & video camera in worldwide. It is legally a Swiss company but its corporate headquarter is in Fremont, California. Its R&D work (primarily software programming) is done in Switzerland & the products of the company are designed in Ireland. In the late 1980's it had expand its business in Asia & 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.

Question 1:

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

Answer:

In a world without trade American consumers would have to pay more for Logitech products as it would be more expensive to manufacture locally with high interest rates, scarce and expensive raw materials, and most of all high labor cost. Without international trade, manufacturing and production is limited and dependent on local demand. While with international trade, new markets are opened and can be explored, there is unlimited demand.

Question 2:

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

Answer:

In Logitech's case, trade may be beneficial in terms of lowering cost of mice and keyboards due to following reasons:

- Parts are procured from any part of the world where they can be manufactured at the lower cost. Example: Motorola plant in Malaysia makes the mouse's chip.

- Assemble parts where it is most cost effective. Example: Assembling in Taiwan & China.

- Design products where creativities are available. Example: Design is done in Ireland.

- Software programming where experts are available. Example: R&D works in Switzerland.

- Use of efficient distribution channel. Example: Marketing products from Fremont, California.

Question 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:

Theory of comparative advantage states that if one country is better at producing one good and another country is better at producing a different good then they should trade for such goods.

- Logitech manufacture in China and Taiwan as both countries have a comparative advantage on cheap labor cost.

- Undertake basic R&D in California and Switzerland as these places have a comparative advantage in R&D and home of many high technology enterprises.

- Ireland has a comparative advantage in design as it has the largest range of art and design degrees in the State, undergraduate and postgraduate level.

- Marketing and operations are done in California as almost all related industries are based in California.

Question 4:

Who creates more value for Logitech, the 650 people it employs 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:

Both create value for Logitech in their own respective specialties. The matter is how

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