Read the case Logitech below and answer the following questions: 1.Analyse and e

Question

Read the case Logitech below and answer the following questions:

1.Analyse and explain the configuration of Logitech’s global value chain? Configuration Why this configuration?

2.To what extent can the different trade theories in the prescribed book explain Logitech’s configuration of its global value chain? Analyse the relevance of each theory. Theory to what extent can the theory explain Logitech’s configuration of its global value chain?

3.Which of the theories, in your opinion, give the best explanation of Logitech’s global value chain? Clarify and discuss your choices.

Logitech

Best known as one of the world’s largest producers of computer mice, Logitech is in many ways the epitome of the modern global corporation. Founded in 1981 in Apples, Switzerland, by two Italians and a Swiss, the company now generates annual sales of over $1.5 billion, most from products such as mice, keyboards, and low-cost video cams that cost under $100. Logitech made its name as a technological innovator in the highly competitive business of personal computer peripherals. It was the first company to introduce a mouse that used infrared tracking, rather than a tracking ball, and the first to introduce wireless mice and keyboards. Logitech is differentiated from competitors by its continuing innovation, high brand recognition, and strong retail presence. Less obvious to consumers, but equally important, has been the way the company has configured its global value chain to lower production costs while maintaining the value of those assets that lead to differentiation.

Nowadays Logitech still undertakes basic R&D work (primary software programming) in Switzerland, where it has 200 employees. Indeed, the company is still legally Swiss, but the corporate headquarters are in Fremont, California, close to many of America’s high-technology enterprises, where it has 450 employees. Some R&D work (again, primarily software programming) is also carried out in Fremont. Most significantly though, Fremont is the headquarters for the company’s global marketing, finance, and logistics operations. The ergonomic design of Logitech’s products – their look and feel – is done in Ireland by an outside design firm. Most of Logitech’s products are manufactured in Asia. Logitech’s expansion into Asian manufacturing began in the late 1980s when it opened a factory in Taiwan. At the time, most of its mice were produced in the United States. Logitech was trying to win two of the most prestigious OEM customers – Apple Computer and IBM. Both bought their mice from Alps, a large Japanese firm that supplied Microsoft. To attract discerning customers like Apple, Logitech not only needed the capacity to produce at high volume and low cost, it also had to offer a better designed product. The solution – manufacture in Taiwan. Cost was a factor in the decision, but it was not as significant as might be expected, since direct labour accounted for only 7 percent of the cost of Logitech’s mouse. Taiwan offered a welldeveloped supply base for parts, qualified people, and a rapidly expanding local computer industry. As an inducement to fledging innovator, Taiwan provided space in its science-based Industrial Park in Hsinchu for the modest fee of $200,000. Assessing the opportunity as a deal that was too good to pass up, Logitech signed the lease. Shortly afterward, Logitech won the OEM contract with Apple. The Taiwanese factory was soon out-producing Logitech’s U.S. facility. After the Apple contract, the Taiwan plant also started service Logitech’s other OEM business, and the plant’s total capacity increased to 10 million mice per year. By the late 1990s, Logitech needed more production capacity. This time it turned to China. A wide variety of the company’s retail products are now made there. For example, one of Logitech’s biggest sellers, a wireless infrared mouse called Wanda, is assembled in Suzhou, China, in a factory that Logitech owns. The factory employs 4,000 people, mostly young women such as Wang Yan, an 18-year-old employee from the impoverished rural province of Anhui. She is paid $75 a month to sit all day at a conveyor belt plugging three tiny bits of metal into circuit boards, which she does about 2,000 times each day. The mouse Wang Yan helps assemble sells to American consumers for about $40. Of this, Logitech takes about $8, which is used to fund R&D, marketing, and corporate overhead. What remains after that is the profit attributable to Logitech’s shareholders. Distributors and retailers around the world take a further $15. Another $14 goes to the suppliers who make Wanda’s parts. For example, a Motorola plant in Malaysia makes the mouse’s chips and another American company, Agilent Technologies, supplies the optical sensors from a plant in the Philippines. That leaves just $3 for the Chines factory, which is used to cover wages, power, transport and other overhead costs. Logitech is not alone in exploiting China to manufacture products. According to China’s Ministry of Commerce, foreign companies account for three-quarters of China’s high-tech exports. China’s top 10 exporters include American companies with Chinese operations, such as Motorola and Seagate technologies, a maker of disk drives for computers. Intel now produces some 50 million chips a year in China, the majority of which end up in computers and other goods that are exported to other parts of Asia or back to the United States Yet Intel’s plant in Shanghai doesn’t really make chips; it tests and assembles chips from silicon wafer made in Intel plants abroad, mostly in the United States. China adds less than 5 percent of the value. Intel’s U.S. operations generate the bulk of the value and profits

Explanation / Answer

1-Logitech one of the largest producers of computer peripheral product like mouse, keyboard and webcam followed a robust global value chain. The swiss incorporated company has headquarter in Fremont, California and major assembly work done in China and Taiwan. It has positioned itself in the according to the need of customer it can satisfied and choose those places for its operation where it can create more value by optimizing cost. The production of its component in China reflect its consciousness of cheap labor, land and other overheads and also providing economic opportunities to the needy people in China. It has been creating value for its shareholders, customers, vendors and also the region where it operates. The globalization concept best fit for Logitech which is exploiting it for the fullest benefit it can get. The stated configuration in value chain Logitech as chosen because to get competitive advantage in the market and remain relevant in the industry.

2-I will shortlist three international trade theory which suits with Logitech namely Comparative advantage, Heckscher-Ohlin Theory and New Trade Theory. Under comparative advantage what Logitech is doing is it is producing its product in China and selling in other countries where demand is quite high and cost of production if higher. It sells product to apple which in turn sell the product by assembling with its own product globally. Had apple produce inhouse in US the cost of production may e higher. Under Heckscher-Ohlin Theory, comparative advantage arises from differences in national factor endowments. This theory is majorly followed by Logitech in its global value chain. It made Fremont its headquarter, design in Ireland, basic R&D in Switzerland and produce majorly in China and Taiwan because of the national endowment and these places possess advantageous position for Logitech. Under New Trade Theory, economies of scale is major concern for large scale production. Logitech has established such robust global value chain system for attaining economies of scale.

3-As I stated above I will support Heckscher-Ohlin Theory which majorly support the global value chain of Logitech.

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