The Challenges Faced In International Trade Theory Commerce Essay

International trade theory explains the form of international trade and the distribution of the additions from trade. Strategic advantage one concern entity has over its rival entities within its competitory industry is called competitory advantage. Achieving competitory advantage strengthens and places a concern better within the concern environment.

In this study, Logitech as a instance survey of international trade and competitory advantage to the full discussed in signifier of replying survey inquiries.


Logitech is a universe leader in personal peripherals, driving invention in PC pilotage, Internet communications, digital music, home-entertainment control, bet oning and wireless devices. ”

Key merchandise lines

mice, trackballs, and keyboards

webcams, talkers, headsets, and earphones

synergistic gambling devices

web music systems

video-security solutions

advanced cosmopolitan remote controls


1981 – established in Switzerland, opens Palo Alto office the undermentioned twelvemonth

1982 – introduces its first computing machine mouse, the P4

1984 – secures foremost major OEM contract with HP

1985 – introduces the C7, which sells for under $ 100 and does non necessitate a separate power supply

1986 – opens fabricating centre in Hsinchu, Taiwan, still a cardinal centre for world-wide operations and technology

1987 – reaches an OEM understanding to fabricate mice for Macintosh computing machines sold in Europe

1988 – opens OEM gross revenues, fabrication and distribution hub in Cork, Ireland

1989 – wins OEM contract for IBM ; introduces the Series 9 mouse, the first mouse designed to suit the natural curve of the human manus

1991-92 – introduces foremost cordless mouse, first digital still camera, and first mic/speaker jazz band

1994 – clears first fully-owned fabrication installation in Suzhou, China, which now employs 4,000 people

1995 – introduces trackball engineering ; unveils foremost web camera and gambling control stick

1997 – listed on Nasdaq ; unveils foremost USB mouse

2000 – introduces the first mouse with optical detector to track motion

2001 – acquires Labtec, spread outing its sound concern ; unveils foremost cordless optical mouse

2003 – surpasses $ 1 billion in one-year gross ; ships its 500 millionth mouse

2005 – opens new installation in Suzhou, China

2006 – 130 new merchandises introduced ; 143 million merchandises shipped worldwide

Logitech Today

Global operations

California – selling, finance, and logistics ( some R & A ; D )

Switzerland – research and development ( programming )

Ireland – design, mechanical technology, gross revenues support

Netherlands – European distribution

Taiwan – worldwide operations

Suzhou, China – fabrication


more than 9000 employees

distribution in more than 100 states

projected gross revenues, $ 2.4 billion ( 11 % OEM ; 89 % retail )

Literature reappraisal

International Trade Theory

Brown ( 2005 ) defines comparative advantage means the comparing of comparative monetary value differences between states to explicate the form of trade. For illustration, compare the comparative monetary value of wheat in footings of cheese at place to the same comparative monetary value in the foreign economic system in a conjectural equilibrium with no trade ( autarky ) or with restricted trade. The state with the lower comparative monetary value of wheat is said to hold a comparative advantage in wheat while the other state has, symmetrically, a comparative advantage in cheese. Buy low, sell high logic predicts that a state will export the good in which it has a comparative advantage.

Theory of Comparative Advantage

Free trade between international states construct was structured and built by David Ricardo an economic expert. He stated that states goes for trading with other states would extremely profit from this trade every bit specialisation as at that place in these states.

In free trade there are no any duties or revenue enhancements on entrance or surpassing goods and services. Typically, states revenue enhancement incoming goods in an effort to maintain domestic manufacturers competitory.

Harmonizing this theory all trading spouses even less efficient manufacturers will profit from specialisation and free trade.

Porter ‘s Diamond and Competitive Advantage

Due to globalisation, most of organisations schemes were changed towards being international wise. Even if an organisation does non be after to import or to export straight, direction has to look at an international concern environment, in which actions of rivals, purchasers, Sellerss, new entrants of suppliers of replacements may act upon the domestic market. Information engineering is reenforcing this tendency.

Michael Porter introduced a theoretical account that allows analysing why some states are more competitory than others are, and why some industries within states are more competitivethan others are, in his book The

Figure.1: Porter ‘s Diamond theoretical account

Competitive Advantage of Nations. This theoretical account of finding factors of national advantage has become known as Porters Diamond. It suggests that the national place base of an organisation plays an of import function in determining the extent to which it is likely to accomplish advantage on a planetary graduated table. This place base provides basic factors, which support or hinder organisations from constructing advantages in planetary competition. Porter distinguishes four determiners:

Firm scheme, construction and competition

Related and back uping industries

Factor conditions

Demand conditions

Factor Conditionss

The state of affairs in a state sing production factors, like skilled labour, substructure, etc. , which are relevant for competition in peculiar industries. These factors can be grouped into human resources ( making degree, cost of labour, commitment etc. ) , material resources ( natural resources, flora, infinite etc. ) , knowledge resources, capital resources, and substructure. They besides include factors like quality of research on universities, deregulating of labour markets, or liquidness of national stock markets.

These national factors frequently provide initial advantages, which are later built upon. Each state has its ain peculiar set of factor conditions ; hence, in each state will develop those industries for which the peculiar set of factor conditions is optimum.

This explains the being of alleged low cost-countries ( low costs of labour ) , agricultural states ( big states with fertile dirt ) , or the start-up civilization in the United States ( good developed venture capital market ) . Porter points out that these factors are non needfully nature-made or inherited. They may develop and alter. Political enterprises, technological advancement or socio-cultural alterations, for case, may determine national factor conditions. A good illustration is the treatment on the moralss of familial technology and cloning that will act upon cognition capital in this field in North America and Europe.

Home Demand Conditions

Describes the province of place demand for merchandises and services produced in a state. Home demand conditions influence the defining of peculiar factor conditions. They have impact on the gait and way of invention and merchandise development. Harmonizing to Porter, place demand is determined by three major features: their mixture ( the mix of clients demands and wants ) , their range and growing rate, and the mechanisms that transmit domestic penchants to foreign markets.

Porter states that a state can accomplish national advantages in an industry or market section, if home demand provides clearer and earlier signals of demand tendencies to domestic providers than to foreign rivals. Normally, place markets have a much higher influence on an organisation ‘s ability to acknowledge clients ‘ demands than foreign markets do.

Related and Supporting Industries

The being or non-existence of internationally competitory provision industries and back uping industries. One internationally successful industry may take to advantages in other related or back uping industries. Competitive providing industries will reenforce invention and internationalisation in industries at ulterior phases in the value system. Besides providers, related industries are of importance. These are industries that can utilize and organize peculiar activities in the value concatenation together, or that are concerned with complementary merchandises ( e.g. hardware and package ) . A typical illustration is the shoe and leather industry in Italy. Italy is non merely successful with places and leather, but with related merchandises and services such as leather working machinery, design, etc.

Firm Strategy, Structure, and Rivalry

The conditions in a state that determine how companies are established are organized and are managed, and that determine the features of domestic competition. Here, cultural facets play an of import function. In different states, factors like direction constructions, working morale, or interactions between companies are shaped otherwise.

This will supply advantages and disadvantages for peculiar industries. Typical corporate aims in relation to forms of committedness among work force are of particular importance. They are to a great extent influenced by constructions of ownership and control. Family-business based industries that are dominated by owner-managers will act otherwise than publically quoted companies.

Porter argues that domestic competition and the hunt for competitory advantage within a state can assist supply organisations with bases for accomplishing such advantage on a more planetary graduated table.

Porters Diamond has been used in assorted ways. Organizations may utilize the theoretical account to place the extent to which they can construct on home-based advantages to make competitory advantage in relation to others on a planetary forepart.

On national degree, authoritiess can ( and should ) see the policies that they should follow to set up national advantages, which enable industries in their state to develop a strong competitory place globally. Harmonizing to Porter, authoritiess can further such advantages by guaranting high outlooks of merchandise public presentation, safety or environmental criterions, or promoting perpendicular co-operation between providers and purchasers on a domestic degree etc.


Question 1

In a universe without trade, what would go on to the costs that American consumers would hold to pay for Logitech ‘s merchandises?

Question 2

Explain how trade lowers the costs of doing computing machine peripherals such as mice and keyboards.

Question 3

Use the theory of comparative advantage to explicate the manner in which Logitech has configured its planetary operations. Why does the company industry in China and Taiwan, undertake basic R & A ; D in California and Switzerland, design merchandises in Ireland, and organize selling and operations from California?

Question 4

Who creates more value for Logitech, the 650 people it employs in Fremont and Switzerland, or the 4,000 employees at its Chinese mill? What are the deductions of this observation for the statement that free trade is good?

Question 5

Why do you believe the company decided to switch its corporate central office from Switzerland to Fremont?

Question 6

To what extent can Porter ‘s diamond aid explicate the pick of Taiwan as a major fabrication site for Logitech?

Question 7

Why do you believe China is now a favorite location for so much high engineering fabrication activity? How will China ‘s increasing engagement in planetary trade aid that state? How will it assist the universe ‘s developed economic systems? What possible jobs are associated with traveling work to China?


Answer 1:

The costs American consumers would hold to pay for Logitech merchandises would increase significantly in a universe without trade. A This is due to the face that production, assembly, resources, and sale of their merchandises would all hold to be conducted in the US. A Logitech would no longer be able to trust on China for inexpensive labour and assembly, or Taiwan for efficient and inexpensive fabrication. A Therefore these increased disbursals would necessitate a rise in retail monetary value for the consumer.

Answer 2:

Trade helps in decrease of merchandise monetary values due the followers:

Components are procured from any portion of the universe where they can be produced or manufactured at the best cost. ( Motorola works in Malaysia makes the mouse ‘s bit ; Agilent Technologies supplies optical detector ) .

The existent assembling/manufacturing is done at the topographic point where is cab done most cost efficaciously. ( Assembling is done in Taiwan and China )

The merchandise reach the clients the most efficient manner are taking the services of the most efficient logistics company. ( Marketing from Fremont )

Answer 3

Comparative advantage, as proposed by Ricard, says that it is good for states to affect in trade even when there is absolute advantage for them to bring forth all the goods. So states will put a major part of their resources to bring forth what they can bring forth with advantage. This theory is being applied to the instance as follow:

China: It is cost effectual to fabricate in China. China has a big population of semi-literate people who lives in semi-urban countries. It is of import for the Chinese authorities to supply avenues for its people to gain their support. Mass fabrication is a good manner of using many people. Since there is copiousness of semi-literature human resources in China it can fabricate merchandises which need semi-skilled labour most expeditiously. Thus Logitech uses China to fabricate mice.

Taiwan: Taiwan has invested in making industrial Parkss. It is giving land in these Parkss at really nominal rates. It had developed a strong supply base for computing machine parts, it has good qualified people. Its local computing machine industry is besides spread outing. Taiwan has done all these with an aim of being a major participant in the electronics constituents fabricating. Logitech is taking advantage of the installations developed.

California: California is located strategically due the Silicon Valley. Having an office in California provides an chance for any company to interact with the other companies. It besides gives penetrations into the emerging engineerings. These advantages make Logitech take California as a centre for R & A ; D. Since California besides houses many big corporation, it makes perfect concern sense for Logitech to hold their selling operations here.

Switzerland: It is known for preciseness industry. The right endowment is available here for developing the package for mice. Hence, Logitech is developing primary package in Switzerland.

Irish republic: The design house in Ireland is used by Logitech for biotechnologies design. The Ergonomics Society of Ireland is really active in advancing the find and exchange of cognition refering the features of human existences that are applicable to the design of systems and devices of all sorts.

Answer 4

Logitech make $ 8 for every mouse being sold. Let us presume that $ 3 of this is spent on R & A ; D and package scheduling. The earning per employee composing the package are codification 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 R & A ; D people is greater.

Free trade is good because, it is the free trade which is leting Logitech to take advantage of the low cost work force available in China. If free trade were non available, Logitech would be forced to fabricate its mice in US at much higher cost.

Answer 5

It helps Logitech to remain near to its clients. It can react to the demands of the clients more quickly. Fremont is besides the topographic point where a batch of technological inventions are go oning. Logitech being in the hi-tech industry, uninterrupted invention is a cardinal success factor for its concern. Fremont is besides an of import in footings of managerial endowment. All these grounds make it convenient for Logitech to travel to Fremont.

Answer 6

Porter ‘s diamond considers four of import properties which will make an environment helps the domestic industry. The four properties can be applied to Taiwan going a fabrication hub for electronics goods as shown below:

Pool of resources: Taiwan has good qualified people for fabricating electronic goods. It has good substructure and transit installation.

Demand conditions: There is demand throughout the universe for electronic merchandises produced in Taiwan. All major planetary companies beginning their electronic constituents from Taiwan.

Associating and back uping industries: Taiwan has a well-developed supply base for parts and quickly spread outing local computing machine industry.

Firm Strategy, construction and competition: there is competition and competition among local companies which help in better efficiency.

In add-on, authorities function: The authorities has created Science-based industrial Parkss through which they encourage companies to put in Taiwan. Land is given at really subsidize rates in these Parkss.

Answer 7

All the factors, in Porter ‘s diamond are at drama in China really expeditiously. It has immense human resources, land, H2O and other natural resources. It has good substructure for transit, ports, and communicating. It has created particular zones for advancing exports, therefore guaranting a good demand for the goods they manufacture. The competition among the domestic houses is besides really strong. Government supports export oriented houses through financess. The cost of labour is really low. Technical human accomplishments are available. These factors make China a favorite location for high-technology fabrication.

China ‘s addition in planetary trade will guarantee that investing flows into China for fabrication. Its balance of payment place will go really strong. It can utilize the trade a lever for political milage. As more investing happens it will assist China to harvest the advantages of economic sciences of graduated table. It can supply better life conditions for its citizen. It will besides bring forth financess for planned investing.

The universe ‘s developed economic sciences will be able to take advantage of the low cost fabrication available in China. The planetary companies can better the efficiency of their supply concatenation be fabricating in China.

The followers are the possible jobs associated with traveling to work in China:

The political alterations, when they happen, can take to break of work.

Decision devising at the authorities degree is opaque, which can do jobs if unfavourable determinations are taken.

When there is problem in the political relationship between the place state and China ; the companies may lose an chance to develop an surrogate to China as a fabrication hub.


It is evidently clear to any 1 that Logitech has strongly satisfied Porters ‘ diamond properties by guaranting resources ( China and Taiwan ) , go with Demand ( Taiwan ) , Firm Strategy, construction and competition ( California, Swaziland and Fremont ) and maintain involve in what is up-to-date ( Taiwan, Switzerland, California and Fremont ) . By accomplishing this, Logitech is considered one of aggressive rivals all over the universe with high competitory advantage utilizing invention as a cardinal tool.


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