The Challenges Faced In International Trade Theory Commerce Essay

The Ch either(a)enges Faced In Inter study address guess Commerce EssayInternational patronage supposition apologises the pattern of foreign trade and the distribution of the gains from trade. Strategic service one employment entity has over its rival entities indoors its war-ridden assiduity is called emulous returns. Achieving competitive favour strengthens and positions a line of reasoning better within the business environment.In this report, Logitech as a case study of international trade and competitive value fully discussed in form of answer study questions.BackgroundLogitech is a world leader in private peripherals, driving insertion in PC navigation, Internet communications, digital unison, spot-entertainment control, period of foregather and wireless devices.Key product linesmice, trackballs, and keyboardswebcams, speakers, headsets, and headphonesinteractive fun devicesnetwork music systemsvideo-security solutionsadvanced universal remote controlsH istory1981 established in Switzer republic, opens Palo alto fleck the following year1982 introduces its first reckoner mouse, the P41984 secures first study OEM abridge with HP1985 introduces the C7, which sells for under $100 and does not require a separate power supply1986 opens manufacturing center in Hsinchu, chinaware, still a key center for worldwide operations and engineering1987 reaches an OEM agreement to even out mice for Macintosh figurers sold in Europe1988 opens OEM sales, manufacturing and distribution hub in Cork, Ireland1989 wins OEM contract for IBM introduces the Series 9 mouse, the first mouse designed to fit the ingrained curve of the tender-hearted hand1991-92 introduces first cordless mouse, first digital still camera, and first mic/speaker combo1994 opens first fully-owned manufacturing facility in Suzhou, chinaw ar, which now employs 4,000 people1995 introduces trackball engine room unveils first web camera and gaming joystick1997 lis ted on Nasdaq unveils first USB mouse2000 introduces the first mouse with opthalmic sensor to track movement2001 acquires Labtec, expanding its audio business unveils first cordless optical mouse2003 surpasses $1 billion in annual task income ships its 500 millionth mouse2005 opens new facility in Suzhou, china2006 130 new products introduced 143 million products shipped worldwideLogitech TodayGlobal operations atomic number 20 marketing, finance, and logistics (some RD)Switzerland research and farmment (programming)Ireland design, mechanical engineering, sales supportNetherlands European distribution chinaware worldwide operationsSuzhou, mainland mainland mainland china manufacturingPerformance much than 9000 employeesdistribution in to a greater extent(prenominal) than 100 countriesprojected sales, $2.4 billion (11% OEM 89% retail)Literature reviewInternational Trade TheoryBrown (2005) defines relative advantage means the comparison of relative impairment diffe rences between nations to explain the pattern of trade. For exemplar, compare the relative price of wheat in equipment casualty of cheese at infra coordinate to the same relative price in the foreign economy in a hypothetical equilibrium with no trade (autarky) or with restricted trade. The surface area with the lower relative price of wheat is said to have a comparative advantage in wheat while the some early(a)wise country has, symmetrically, a comparative advantage in cheese. Buy low, sell high logic predicts that a country allow for trade the favorable in which it has a comparative advantage.Theory of Comparative AdvantageFree trade between international countries pattern was structured and built by David Ricardo an economist. He stated that countries goes for trading with other countries would highly eudaimonia from this trade as specialization as on that point in these countries.In let go trade there are no any(prenominal) tariffs or taxes on incoming or outgoin g goodlys and operate. Typically, countries tax incoming goods in an attempt to keep domestic evolvers competitive. harmonise this theory all trading partners even less streamlined producers forget benefit from specialization and relinquish trade.Porters adamant and militant AdvantageDue to globalization, some of organizations strategies were changed towards macrocosm international wise. Even if an organization does not plan to minute or to export directly, management has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of succeedrs of substitutes whitethorn influence the domestic market. Information technology is reinforcing this trend.Michael Porter introduced a model that allows analyzing why some nations are more competitive than others are, and why some industries within nations are more competitivethan others are, in his book TheFigure.1 Porters Diamond modelCompetitive Advantage of Nations. This model of find out factors of national advantage has become known as Porters Diamond. It suggests that the national home base of an organization plays an important role in shaping the point to which it is likely to arrive at advantage on a global scale. This home base provides basic factors, which support or hinder organizations from building advantages in global opposition. Porter distinguishes four determinantsFirm strategy, structure and rivalry cogitate and supporting industriesFactor conditionsDemand conditionsFactor ConditionsThe situation in a country regarding production factors, like skilled labor, infrastructure, etc., which are relevant for competition in grouchy industries. These factors ordure be grouped into human resources (qualification level, address of labor, commitment etc.), material resources (natural resources, vegetation, space etc.), knowledge resources, capital resources, and infrastructure. They besides embroil factors like quality of research on universi ties, deregulation of labor markets, or liquidity of national stock markets.These national factors often provide initial advantages, which are subsequently built upon. Each country has its own finicky set of factor conditions hence, in each country bequeath develop those industries for which the particular set of factor conditions is optimal.This explains the existence of so-called low monetary value-countries (low be of labor), agricultural countries (large countries with fertile soil), or the start-up culture in the United States (well developed venture capital market). Porter points out that these factors are not needfully nature-made or inherited. They may develop and change. Political initiatives, technological progress or socio-cultural changes, for instance, may shape national factor conditions. A good example is the discussion on the ethics of genetic engineering and cloning that will influence knowledge capital in this field in sum America and Europe.Home Demand Condit ionsDescribes the state of home expect for products and services produced in a country. Home demand conditions influence the shaping of particular factor conditions. They have impact on the pace and direction of innovation and product development. According to Porter, home demand is determined by triple major characteristics their mixture (the mix of customers involve and wants), their scope and growth rate, and the mechanisms that shine domestic preferences to foreign markets.Porter states that a country wad achieve national advantages in an industry or market segment, if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors. Normally, home markets have a much higher influence on an organizations ability to recognize customers needs than foreign markets do.Related and Supporting IndustriesThe existence or non-existence of internationally competitive supplying industries and supporting industries. One internationally successful industry may lead to advantages in other related or supporting industries. Competitive supplying industries will reinforce innovation and internationalization in industries at later stages in the value system. Besides suppliers, related industries are of importance. These are industries that quite a little use and coordinate particular activities in the value kitchen stove together, or that are concerned with complementary products (e.g. hardware and software program). A regular(prenominal) example is the shoe and leather industry in Italy. Italy is not solely successful with shoes and leather, but with related products and services such as leather working machinery, design, etc.Firm Strategy, Structure, and RivalryThe conditions in a country that determine how companies are established are organized and are managed, and that determine the characteristics of domestic competition. Here, cultural aspects play an important role. In antithetic nations, factors like mana gement structures, working morale, or interactions between companies are molded differently.This will provide advantages and disadvantages for particular industries. Typical corporate fair games in singing to patterns of commitment among workforce are of special importance. They are heavily influenced by structures of ownership and control. Family-business based industries that are dominated by owner-managers will birth differently than publicly quoted companies.Porter argues that domestic rivalry and the search for competitive advantage within a nation can help provide organizations with bases for achieving such advantage on a more global scale.Porters Diamond has been used in various ways. Organizations may use the model to signalise the extent to which they can build on home-based advantages to create competitive advantage in relation to others on a global front.On national level, regimens can (and should) consider the policies that they should follow to establish national a dvantages, which enable industries in their country to develop a strong competitive position globally. According to Porter, disposals can foster such advantages by ensuring high expectations of product performance, synthetic rubber or environmental standards, or encouraging vertical co-operation between suppliers and buyers on a domestic level etc.QuestionsQuestion 1In a world without trade, what would happen to the costs that American consumers would have to assume for Logitechs products?Question 2Explain how trade lowers the costs of making computer peripherals such as mice and keyboards.Question 3Use the theory of comparative advantage to explain the way in which Logitech has configured its global operations. wherefore does the company reconcile in china and mainland mainland China, under use up basic RD in California and Switzerland, design products in Ireland, and coordinate marketing and operations from California?Question 4Who creates more value for Logitech, the 650 pe ople 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?Question 5why do you intend the company decided to shift its corporate headquarters from Switzerland to Fremont?Question 6To what extent can Porters diamond help explain the choice of Taiwan as a major manufacturing site for Logitech?Question 7Why do you think China is now a favored positioning for so much high technology manufacturing activity? How will Chinas change magnitude involvement in global trade help that country? How will it help the worlds developed economies? What potential problems are associated with moving work to China? solves solving 1The costs American consumers would have to pay for Logitech products would adjoin significantly in a world without trade. This is due to the face that production, assembly, resources, and sale of their products would all have to be conducted in the US. Logitech would no longer be able to rely on China for cheap labor and assembly, or Taiwan for efficient and cheap manufacturing. Therefore these addd expenses would require a rise in retail price for the consumer.Answer 2Trade helps in reduction of product prices due the followingComponents are procured from any part of the world where they can be produced or manufactured at the best cost. (Motorola plant in Malaysia makes the mouses chip Agilent Technologies supplies optical sensor).The actual assemble/manufacturing is done at the ass where is cab done most cost effectively. (Assembling is done in Taiwan and China)The product reach the customers the most efficient way are taking the services of the most efficient logistics company. (Marketing from Fremont)Answer 3Comparative advantage, as proposed by Ricard, says that it is beneficial for nations to involve in trade even when there is absolute advantage for them to produce all the goods. So nations will invest a major port ion of their resources to produce what they can produce with advantage. This theory is being employ to the case as followChina It is cost effective to manufacture in China. China has a large population of semi-literate people who lives in semi-urban areas. It is important for the Chinese government to provide avenues for its people to earn their livelihood. Mass manufacturing is a good way of employing many people. Since there is abundance of semi-literature human resources in China it can manufacture products which need semi-skilled labor most efficiently. Thus Logitech uses China to manufacture mice.Taiwan Taiwan has invested in creating industrial parks. It is giving land in these parks at very nominal rates. It had developed a strong supply base for computer parts, it has well qualified people. Its topical anesthetic computer industry is also expanding. Taiwan has done all these with an objective of being a major player in the electronics components manufacturing. Logitech is taking advantage of the facilities developed.California California is located strategically due the Silicon Valley. Having an office in California provides an opportunity for any company to interact with the other companies. It also gives insights into the emerging technologies. These advantages make Logitech choose California as a center for RD. Since California also houses many large corporation, it makes perfect business sense for Logitech to have their marketing operations here.Switzerland It is known for precision industry. The powerful talent is available here for developing the software for mice. Hence, Logitech is developing immemorial software in Switzerland.Ireland The design firm in Ireland is used by Logitech for ergonomics design. The Ergonomics Society of Ireland is very active in promoting the find and exchange of knowledge concerning the characteristics of human beings that are applicable to the design of systems and devices of all kinds.Answer 4Logitech make $8 for every mouse being sold. Let us assume that $3 of this is spent on RD and software programming. The earning per employee writing the software are code is (3*100)/650 = 0.47 cent. The value added per employee in China is (3*100)/4000 = 0.075 cents. Hence, the value added by RD people is greater.Free trade is beneficial because, it is the free trade which is allowing Logitech to take advantage of the low cost manpower available in China. If free trade were not available, Logitech would be forced to manufacture its mice in US at much higher cost.Answer 5It helps Logitech to stay close to its customers. It can respond to the demands of the customers more promptly. Fremont is also the place where a lot of technological innovations are happening. Logitech being in the high tech industry, continuous innovation is a key success factor for its business. Fremont is also an important in terms of managerial talent. All these reasons make it accessible for Logitech to move to Fremont.Answer 6Porters diamond considers four important attributes which will create an environment helps the domestic industry. The four attributes can be applied to Taiwan becoming a manufacturing hub for electronics goods as shown belowPool of resources Taiwan has well qualified people for manufacturing electronic goods. It has good infrastructure and transport facility.Demand conditions There is demand throughout the world for electronic products produced in Taiwan. All major global companies source their electronic components from Taiwan.Relating and supporting industries Taiwan has a well-developed supply base for parts and rapidly expanding local computer industry.Firm Strategy, structure and rivalry there is competition and rivalry among local companies which help in better efficiency.In addition, government role The government has created Science-based industrial parks through which they encourage companies to invest in Taiwan. lay is given at very subsidize rates in these parks.Answe r 7All the factors, in Porters diamond are at play in China very efficiently. It has huge human resources, land, water and other natural resources. It has good infrastructure for transportation, ports, and communication. It has created special zones for promoting exports, thus ensuring a good demand for the goods they manufacture. The rivalry among the domestic firms is also very strong. Government supports export oriented firms through notes. The cost of labor is very low. Technical human skills are available. These factors make China a favored location for high-technology manufacturing.Chinas increase in global trade will ensure that investment flows into China for manufacturing. Its balance of payment position will become very strong. It can use the trade a lever for governmental mileage. As more investment happens it will help China to reap the advantages of economics of scale. It can provide better living conditions for its citizen. It will also generate funds for planned inv estment.The worlds developed economics will be able to take advantage of the low cost manufacturing available in China. The global companies can improve the efficiency of their supply chain be manufacturing in China.The following are the potential problems associated with moving to work in ChinaThe political changes, when they happen, can lead to disruption of work.Decision making at the government level is opaque, which can cause problems if unfavorable decisions are taken.When there is publish in the political relationship between the home country and China the companies may lose an opportunity to develop an alternate to China as a manufacturing hub.ConclusionIt is obviously clear to any one that Logitech has strongly satisfied Porters diamond attributes by ensuring resources (China and Taiwan), go with Demand (Taiwan), Firm Strategy, structure and rivalry (California, Swaziland and Fremont) and keep involve in what is up-to-date (Taiwan, Switzerland, California and Fremont). By achieving this, Logitech is considered one of aggressive competitors all over the world with high competitive advantage using innovation as a key tool.