Business: International Trade and Comparative Advantage

1029 WordsNov 30, 20125 Pages
HOMEWORK 11 (Last HW – Due 4/28) Read the Logitech case and answer the following questions. 1: In a world without trade, what would happen to the costs that American consumers would have to pay for Logitech’s products? 2: Explain how trade lowers the costs of making computer peripherals such as mice and keyboards. 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? 4: Who creates more value for Logitech – the 650 people it employs in California and Switzerland, or the 4,000…show more content…
What are the implications of this observation for the argument that free trade is beneficial? 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. Why do you think the company decided to shift its corporate headquarters from Switzerland to Fremont? 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. To what extent can Porter’s diamond help explain the choice of Taiwan as a major manufacturing site for Logitech? 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,
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