Global Dimensions of Business Mark McKenna BUS 1875, Fall 2008 Charles H. Hill, International Business: Competing in

1. Global Dimensions of Business Mark McKenna BUS 187(5), Fall 2008 Charles H. Hill, International Business: Competing in the Global Marketplace, 7th ed. (New York: McGraw-Hill/Irwin, 2009) Adapted from PowerPoint slides prepared for the text by Veronica Horton

2. WEEK 7 (Oct. 8) Logitech Case Discussion 2

3. Logitech Overview �Logitech is a world leader in personal peripherals, driving innovation in PC navigation, Internet communications, digital music, home-entertainment control, gaming and wireless devices.� Key product lines mice, trackballs, and keyboards webcams, speakers, headsets, and headphones interactive gaming devices network music systems video-security solutions advanced universal remote controls

4. Logitech History 1981 � established in Switzerland, opens Palo Alto office the following year 1982 � introduces its first computer mouse, the P4 1984 � secures first major OEM contract with HP 1985 � introduces the C7, which sells for under $100 and does not require a separate power supply

5. Logitech History 1986 � opens manufacturing center in Hsinchu, Taiwan, still a key center for worldwide operations and engineering 1987 � reaches an OEM agreement to manufacture mice for Macintosh computers sold in Europe 1988 � opens OEM sales, manufacturing and distribution hub in Cork, Ireland 1989 � wins OEM contract for IBM; introduces the Series 9 mouse, the first mouse designed to fit the natural curve of the human hand

6. Logitech History 1991-92 � introduces first cordless mouse, first digital still camera, and first mic/speaker combo 1994 � opens first fully-owned manufacturing facility in Suzhou, China, which now employs 4,000 people 1995 � introduces trackball technology; unveils first web camera and gaming joystick

7. Logitech History 1997 � listed on Nasdaq; unveils first USB mouse 2000 � introduces the first mouse with optical sensor to track movement 2001 � acquires Labtec, expanding its audio business; unveils first cordless optical mouse 2003 � surpasses $1 billion in annual revenue; ships its 500 millionth mouse 2005 � opens new facility in Suzhou, China 2006 � 130 new products introduced; 143 million products shipped worldwide

8. Logitech Today Global operations California � marketing, finance, and logistics (some R&D) Switzerland � research and development (programming) Ireland � design, mechanical engineering, sales support Netherlands � European distribution Taiwan � worldwide operations Suzhou, China � manufacturing Performance more than 9000 employees distribution in more than 100 countries projected sales, $2.4 billion (11% OEM; 89% retail)

9. Case Questions 1 and 2 In a world without trade, what would happen to the costs that American consumers would have to pay for Logitech�s products? Explain how trade lowers the costs of making computer peripherals such as mice and keyboards.

10. Case 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?

11. Case Questions 4 and 5 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? Why do you think the company decided to shift its corporate headquarters from Switzerland to Fremont?

12. Case Questions 6 and 7 To what extent can Porter�s diamond help explain the choice of Taiwan as a major manufacturing site for Logitech? Why do you think China is now a favored location for so much high technology manufacturing activity? How will China�s increasing involvement in global trade help that country? How will it help the world�s developed economies? What potential problems are associated with moving work to China?

13. WEEK 7 (Oct. 8) Review Midterm Exam 2

14. International Trade Theory Trade theory Mercantilism Absolute (Smith) and Comparative Advantage (Ricardo) Heckscher-Ohlin Theory Product Life-Cycle Theory New Trade Theory (Paul Krugman) National Competitiveness (Michael Porter) Questions What are the key assumptions of each theory? What do they explain and what are the gaps? What to they say about the benefits of trade and the role of government?

15. Trade Theory A situation in which a country specializes in producing the goods it produces most efficiently and buys the products it produces less efficiently from other countries, even if it could produce the good more efficiently itself is referred to as: A. strategic trade policy B. pertinent advantage C. comparative advantage D. absolute advantage

16. Political Economy of Trade Instruments of trade policy Subsidies, tariffs, quotas, VERS, local content requirements, administrative policies, and antidumping policies Political arguments for intervention Protecting jobs, domestic industries and consumers National security and foreign policy objectives Retaliation Economic arguments for intervention Protecting infant industries Pursuing strategic trade policies Remember the lessons of the �Trade Barrier� game

17. Political Economy of Trade An administrative policy is an informal instrument or bureaucratic rule that can be used to restrict imports and boost exports. Such policies benefit ______ but hurt _______. A. trade associations, producers B. consumers, producers C. consumers, trade associations D. producers, consumers

18. Foreign Direct Investment FDI trends Increase in the flow and stock of FDI Historical shift toward greater FDI in developing countries Forms of FDI Mergers and acquisitions Greenfield operations Horizontal and vertical FDI Questions When is it appropriate to engage in FDI? What are the costs or benefits to home and host countries? What conditions are likely to constrain FDI flows?

19. Foreign Direct Investment All things being equal, ______ is more expensive and more risky than _______. A. exporting; licensing and FDI B. licensing; FDI and exporting C. FDI; exporting and licensing D. exporting and licensing; FDI

20. World Trade System Emergence of the world trade system after WWII The Bretton Woods institutions The role of the GATT The mandate of the WTO Implement rules on trade in goods (GATT), services (GATS), and intellectual property (TRIPS) Strengthen trade monitoring and enforcement Improve dispute resolution The Doha Round What are the key issues being addressed in the Doha round? What are the key stumbling blocks to progress?

21. World Trade System The key issues being address in the Doha Round include all of the following, except A. Cutting tariffs on industrial goods B. Reducing anti-dumping laws C. Removing barriers to labor migration D. Phasing out agricultural subsidies

22. Regional Economic Integration Levels of economic integration Free trade area, customs union, common market, economic union, political union Important regional trade groups The European Union NAFTA, CAFTA, MERCOSUR, FTAA APEC, ASEAN, SAARC The pros and cons of regional integration Why do countries enter into regional economic alliances? What challenges do they pose to the world trade system? What are the opportunities and threats?

23. Regional Economic Integration NAFTA represents which of the following levels of regional economic integration? A. Free trade area B. Customs union C. Economic union D. Common market