CASE- 1 Solution a.

To what extent can Porters diamond help explain the choice of Taiwan as a major manufacturing site for Logitech? Porter didnt believe one country could be wealthier through trade just because that country was endowed with more land, richer soil or better climate that another country. Porter believed there is no simple explanation for describing any single contributor to the effects of free trade rather there were six specific dimensions which influence free trade, and positive sum game. The theory suggests that the trade pattern of the industry is influenced by the six attributes of the nation. Porter speaks of these six attributes as constituting the diamond. He argues that firms are most likely to succeed in industries or industry segments where the diamond is most favorable. These six attributes can be applied in the case of Taiwan, which becomes a manufacture site for Logitechs electronic goods. a. Factor Conditions d. Firm Strategy, Structure and Rivalry b. Demand Conditions e. Government c. Related and Supporting Industries f. Chance a. Factor Conditions: Porter argues that factor of production per se is not important; rather their contribution to the creation and up gradation of product is crucial for the competitive advantage. Specialized factors of production are skilled labor, capital and infrastructure. Because of availability of these factors in Taiwan in abundant, it is selected as a major manufacturing site of Logitech b. Demand conditions: Porter forwards an assumption that, the more demanding the customers in an economy, the greater the pressure the firms face to constantly improve their competitiveness through innovative products, high quality etc. With growing computer and information technology in Taiwan along with in the whole world, the local demand of the products of Logitech in Taiwan has also been an influential factor in the choice of the place. This is also the reason why Logitech started its production in Taiwan. c. Related and supporting Industries: Taiwan has a well developed supply base for the parts required to manufacture the main advantageous products of Logitech. The availability of raw materials or the upstream products required for manufacturing process of products of Logitech is fully supportive in Taiwan d. Firm Strategy, Structure and Rivalry: Logitech has adopted the strategy of producing high volume and low cost products to gain the competitive advantages over key competitors. Choosing Taiwan has advantages of low cost, well-developed suppliers, qualified people, etc. e. Government: Taiwan government had encouraged Logitech by providing suitable space at subsidized rate in its science-based industrial park to facilitate foreign companies to invest in their nation. d. Chance: Logitech won the OME contract with Apple which is not within the control of Logitech. It was during the time when Logitech entered Taiwan for manufacturing and placed the industry to high profit, the plant capacity increased to 10 million per year.

b. 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 and D in California and Switzerland, design products in Ireland, and coordinate marketing and operation from California? According to Ricardos theory of comparative advantage, it is advantageous for a country to produce good that it has specialized on. This gives overall advantage by creating trade and reducing the cost of production. In the case of Logitech the company has excellently used the theory of comparative advantage for global operation. Logitech was able to perform the specialized job in different countries accordingly where it could be advantageous. It does basic R&D work in Switzerland with 200 employees, its headquarters are in Fremont, California with 450 employees as well as some R&D, the ergonomic designs are developed in Ireland, and the products are manufactured in Taiwan and China. The comparative advantage is that it is the most cost effective to break up the business in many different countries that specialize in a certain job. Manufacturing in Taiwan and China by Logitech: Logitech developed the strategy to win the market by lowering the price and offering the high quality product. The low price is possible only through by mass production and minimum wage rate. Hence China and Taiwan are best known for their high population and thus low labor cost. This made Logitech to enter to China and Taiwan for manufacturing. For the same production volume in America or other part of Northern countries, Logitech would probably need to pay high wage rate. Research and development (R&D) activities in California and Switzerland High skilled, experienced, knowledge is needed for innovation of new idea in technological field. California and Switzerland have highly qualified labour in abundance backed by modern technologies. Hence, this is the reason why Logitech has placed it R&D activities in California and Switzerland. Designing products in Ireland Ireland is the place where the new and attractive designs are accomplished. An attractive design can be a factor that differentiates the product from the competitor and to win the competition. It is for this reason that Logitech has to focus on design and for this purpose; Ireland seems to be the best alternative. Coordinating marketing and operations from California: Marketing and operation management play key role in the success of business. Americans are highly skilled to handle the marketing and operational work. Also California is close to many of the Americas high technology enterprises. Less government intervention and support from government are also striking reasons for Logitechs corporate office located in California. This is the reason, Logitech have a corporate headquarter in Fremont, Californian. Submitted to: Mr. Yogesh Satyal Course instructor Submitted by: Dinesh Maharjan MBAe, Trimester IV Section A