This tutorial includes an example of how to conduct a case analysis, using the case of Logitech, and an overview of some of the more influential international trade theories and ideologies of the past five hundred years. Particular attention is given to Adam Smith's theory of Absolute Advantage and David Ricardo's theory of Comparative Advantage.
4. IBUS2301:
Int’l Business Mgmt
Logitech
First, read the three questions related to the case.
Questions for your presentation:
1. How would you begin your presentation?
2. What secondary research would you conduct? From what
sources?
3. How would you engage your audience?
Note: following are some example slides to help you generate ideas. They are
NOT an example of a complete presentation.
5. IBUS2301:
Int’l Business Mgmt
Case Background
• Logitech
– Global manufacturer of computer peripherals
– Founded 1981 in Switzerland
• Strategy
– Differentiation: 91 new products in 2003
– Maintains low cost structure: global value chain
• R&D: Switzerland, USA
• Marketing, finance, logistics: USA
• Design: outsourced to Ireland
• Manufacturing: Taiwan/China
7. Source: Logitech 2013 Annual Report
Logitech Net Sales and Gross Profit, 2011 to 2013
8. IBUS2301:
Int’l Business Mgmt
Logitech
Q.1 – Use one or more international trade theories to
explain Logitech’s 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?
9. IBUS2301:
Int’l Business Mgmt
Global
Operations
• Absolute and comparative advantage
– SE Asia: more efficient in manufacturing
• Low costs: wages, overhead, etc
• Manufacturing hubs: Taiwan, Shenzhen, etc
– USA/W. Europe: more efficient in R&D/design
• Highly educated, creative workforce
• High-tech hubs: Silicon Valley
– USA: more efficient in marketing/finance
• Highly educated, creative workforce
• Close to main customers, venture capitalists, stock exchange
10. Source: Global Wage Report 2012/13
International comparison of
hourly direct pay for time
worked in manufacturing
2010 (US$)
17. IBUS2301:
Int’l Business Mgmt
Employment
Effects
Q.3 – What are the implications of low wages in China on
employment in high labor cost countries such as the USA
and Australia?
• Comparative advantage for China in labor-intensive
work (e.g., manufacturing)
• Likely to lower wages globally in these industries
– See Samuelson critique
• USA and Australia need to focus on their comparative
advantages in trade with China
22. IBUS2301:
Int’l Business Mgmt
Mercantilism
vs. Free Trade
Mercantilism
• 1500s
• Best interest to
maintain trade surplus
• Advocates gov’t
intervention
Free Trade
• 1700s
• Specialize under
absolute advantage
• Laissez-faire
What is the argument here? When and how did these
ideas develop?
23. IBUS2301:
Int’l Business Mgmt
Adam Smith
• An Inquiry into the Nature
and Causes of the Wealth of
Nations, 1776
• Scottish philosopher
• “Father of modern
economics” Source: Oxonianreview.org, URL
in notes
30. IBUS2301:
Int’l Business Mgmt
Comparative
Advantage
How does the theory of comparative advantage
differ from absolute advantage? Where did
this theory originate?
• Countries should specialize in the goods and
services it produces most efficiently, even if
this means buying goods from countries that it
could produce more efficiently itself
31. IBUS2301:
Int’l Business Mgmt
David Ricardo
• Principles of Political
Economy, 1817
• British political economist
• Broker and speculator
Source: biography13.com
(URL in notes)
33. Source: IMHE (URL in notes)
Who benefits from free trade?
Gross domestic product (GDP) per capita, 1950-2015
34. IBUS2301:
Int’l Business Mgmt
Heckscher-Ohlin
Theory
How does Heckscher and Ohlin’s theory differ
from Ricardo’s?
• Comparative advantage arises from
differences in national factor endowments
– Land, labor, and capital
– NOT productivity
• Mixed empirical results
39. 3/18/2014
IBUS2301:
Int’l Business Mgmt
Product Life-
Cycle Theory
When did this theory develop? What does it
propose?
• Raymond Vernon in the 1960s, USA
• Explains shift from a product being export-
driven to being import-driven
• Becoming less relevant in recent years
41. 3/18/2014
IBUS2301:
Int’l Business Mgmt
New Trade
Theory
What does the New Trade Theory propose?
• Economies of scale have important
implications for international trade
• Some industries may be only able to support a
small number of companies
• First-mover advantage provides rationale for
government intervention