Thursday, 28 May 2015

Logitech's Global Value Chain



Logitech’s global value chain

Question 1

Configuration of the Logitech’s global value chain.

            The value chain involves a company conversion of raw materials into outputs that are usable by adding value to them. The value chain activities can be categorized into primary and support. The primary activities include manufacturing, inbound and outbound logistics, as well as sales and service.  The support activities are procurement, firm infrastructure, management of human resource, and technology development.

A global value chain is depicted by a company locating different activities of their work in different countries that maximize the efficiency of the value chain. The global value chain enables a company to increase its competitiveness among other companies. The company gains access to global resources and skills, costs are considerably creating value more effectively. However, proper management is required as the dispersed activities of the global value chain can lead to success or failure of the company (Waehrens, Riis, & Johansen, 2011).

           

            Logitech company was founded in 1981 in Switzerland but has spread out its activities in different countries. The headquarters is in California, manufacturing done in Taiwan, productions done in China, with parts being supplied from Malaysia and America.  Logitech managed to increase its productions because of the globalization and was able to win prestigious customers like Apple and IBM. Each of their activities are spread out in different countries with consideration of low costs and high volume.  Such kind of success can only be achieved through efficient operation management. The need for Logitech to gain more customers is a reason why they have to innovate their systems.  Affordable and skillful labor in China has enabled the Logitech company to have more productions. Research and development is a key element  to attaining global economies of scale. The company has kept the key element in their home country. The overseas investments are in countries with low wages and reasonable stable environment. The globalization of the company has resulted in the company to being the world’s largest known producers of computer mice.

           


Question 2

The extent to which the different trade theories explain Logitech’s configuration of its global value chain.

            Trade theories seek to explain how and why countries involve themselves in international trade and the implications of the trade. International trade theories simply explain international trade. The trading, benefit people or entities in different ways. There are factors that are used by businesses or companies to their interests (University, 2015). Because of the international a company is able to manufacture and export products they can effectively produce and, import products effectively produced in other countries.

a)      A list of different theories that have a bearing on the Logitech case.

i)                    Comparative advantage theory

ii)                  Absolute advantage theory

iii)                New trade theory

iv)                Porter’s Diamond theory

v)                  Heckscher-Ohlin theory

b)      Relevance of the theories in explaining the configurations of Logitech’s global value chain

In the 19th century David Ricardo an economist recognized that a nation may be good at producing all products but would be more efficient by specializing in one (Christopher & Daco, 2012). The international trade has been revolutionized by technological advancements, connectivity, liberalization of trade and globalization. Differences in the opportunity costs of production explain the comparative advantage theory. The theory applies where a country is able to produce goods at a small opportunity cost than another country. The comparative advantage has seen countries specializing in production of goods that they are able to produce at low costs that increase productivity. The comparative advantage helps a country know what they can specialize in.  The specialization can be on what they do best while outsourcing the rest of the activities. Availability of low cost labor in a country can lead the country specializing in production of goods that require lower costs. A country with capital availability will specialize in activities requiring large amounts of finances (Suranovic, 2015). In the Logitech case the high productions in China at a low cost is a comparative advantage to the company.

Absolute advantage in a country’s production applies when they are able to efficiently produce goods more than other countries. Therefore, absolute advantage refers to differences in productivity of countries. When a country requires less quantity input to make productions they are considered to have an absolute advantage. The absolute advantage is based on a country or company being able to produce effectively at the same time using minimal resources (Rodrigue, 2013). In the Logitech case, China availability of cheap labor is an example of an absolute advantage. The distribution of operations in different countries where each country is great at performance of a particular operation is an absolute advantage. The opening of a company in Taiwan takes advantage of the absolute theory. In Taiwan there is skilled labor, an expanding computer industry and provision of space in a science-based industrial park.  The absolute advantage helps a company gain a competitive advantage over rival companies. The company is able to spend less while making profits because of the distribution of activities.

The new trade theory suggests that countries can benefit from trade with each other even when they do not have differences in resources and technology. This theory supports the first movers’ advantage.  The theory highlights the importance of geographical location of a company. The location preference is close to customers and suppliers to help lower transportation costs. Large population areas make a good center for production. The new trade theory also focuses on the individual characteristics of a company. Therefore, the theory recognizes that there can be  variations between companies. The best companies expand replacing the weaker firms which results to higher productivity (Sydor). This is relevant to the Logitech case because it was able to win prestigious customers like Apple who were buying their mice from the Alps, a Japanese firm. Therefore, Logitech was able to compete over the Alps firm by expanding in Taiwan, where they could produce more at low costs.

The Heckscher-Ohlin theory suggests that a comparative advantage is because of national endowment factors. The factors include labor, land, or capital. Using this theory countries are able to produce goods whose production require their most abundant resources. The theory allows for trade to be influenced by factor endowment and not just differences in technology. International outsourcing in a country provides economical access to production technologies that are new. The outsourcing provides inputs that were previously not present (Egger, 2002).  In the case of Logitech China provides labor while a country like Taiwan has space in the industrial park and skilled personnel. The theory is relevant to the Logitech company as they have outsourced most of their activities to different countries. The outsourcing helps in creating a quality product at a low cost. Combined with high productivity in a low wage country they are able to sell their product at a cost that is not pricey.

The Porter diamond theory looks into the factors that make some regions have certain industries. There are six factors in the theory that include, factor condition, public policy, home-country demand, competitiveness, supporting and related industries and chance. The factor condition explains why some regions may have particular industries. The factors such as natural and created endowments to some extent affect the activities in the region. The size and nature of product demand in a home country influence industry development. The demand also plays a major role in a company’s potential in seeking a global position. Related support industries help shape an company because of presence of suppliers and providers of a product. When a home industry is competitive with other domestic industries it has a high chance of being successful globally. Public policy and chance are the last components of the model. Incentives, infrastructure, subsidies and protection are government policies that can nature global industries. The chance component is influenced by entrepreneurial initiative being present, occurrence of scientific breakthrough as well as sheer luck (Kluyver, 2015).  The Logitech company is seen to consider these factors  in distributing their activities to regions that do well in particular industries.


c)      Theories that best explain the Logitech’s global value chain.

Comparative and absolute advantage theories can be used to explain how Logitech’s global operations are configured. The comparative theory says that a country benefits when involved in trade even when there is absolute advantage where they produce all goods.

A lot of their products are manufactured in China, where they employ 4,000 people. Manufacturing done in China is cost effective because of a large population of people living in semi-urban areas. Therefore, the government would allow for foreign companies to help in the population earning of a livelihood. The mass manufacturing enables employment of many people. The mass productions help cater for the mass consumption of the Logitech products. The presence of good infrastructure and connectivity plays a role in the global supply chain. Specialized services such as sorting and packaging, quality control, simple manufacturing and processing, are carried out in China. The activities are possible because of the availability of cheap labor.

Some manufacturing is also done in Taiwan where there are industrial parks. The parks solve the problem of acquiring land for the investors. High-value-added products can be found in the industrial environment. Industrial grouping is a hub for skilled labor. In Taiwan there are qualified people with an expanding computer industry.  Launching of new products is done in Taiwan as well as operations management. Logitech takes advantage of the facilities in Taiwan to produce quality products. Employing Taiwanese skilled staff avoids the cost of training staff in their home country for productions. The industrial parks provide a strong demand base for parts of a computer. Therefore, the manufactured products are also consumed in the same place. The industrial parks also mean that the company will not need to start from scratch in a foreign country. Rather the company uses existing facilities to their advantage of making more productions.

 Basic research and development is done in Switzerland and California. Retaining some of the basic activities in Switzerland is an important strategy. The country is known for precision industry and have the right talent to develop the software used in mice. The company in California provides Logitech with an opportunity to interact with other companies. The research and development carried out in California has the advantage of emerging technologies because of the Silicon Valley. By moving its headquarters to California, the company was trying to have a good image of their company and avoid the effects of country of origin.

      The designing firm in Ireland is used for ergonomic design. The advantage is that the ergonomic society in the country is active in promoting concerns of the human being characteristics. The discovery of the knowledge is used in designing devices of all kinds.

  The Porter's diamond theory can also be used to explain Logitech’s global value chain. The factors in the theory apply to locations where the company plants are located. The availability of related and supporting industries in Silicon Valley and Taiwan is an  advantage to the company. The industries help Logitech stay in touch with modern technology and new innovations. Rivalry between similar producing goods companies help maintain healthy competition. The competition results in production of high quality goods at a good price. Factor conditions such as the availability of cheap labor in China could have facilitated setting a plant in the country. Presence of industrial parks in Taiwan is an aiding factor in the setting of Logitech branch in the country. The availability of ready suppliers in China also creates a high demand for the Logitech products. China also provides modern factories and state of the art technology and equipment. The home based factors are seen in the Logitech case to influence their setting of plants in countries with favorable conditions.





            References




Christopher, C. G., & Daco, G. (2012). Ricardo's "comparative advantage" still holds true today. Retrieved May 20, 2015, from http://www.supplychainquarterly.com/columns/20121001-ricardos-comparative-advantage-still-holds-true-today/.

Egger, H. (2002). International Outsourcing in a Two-Sector Heckscher-Ohlin Model. Journal of Economic Integration , 687 - 709.

Kluyver, C. (2015). 2.3 Clustering: Porter’s National Diamond. Retrieved May 20, 2015, from http://catalog.flatworldknowledge.com/bookhub/reader/5579?e=dekluyverglobstrat_1.0-ch02_s03.

Rodrigue, J.-P. (2013). Transportation, Globalization and International Trade. Retrieved May 20, 2015, from http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/ch5c2en.html.

Suranovic, S. M. (2015, January 12). International Trade theory and Practice. Retrieved May 20, 2015, from http://internationalecon.com/Trade/Tch40/T40-0.php.

Sydor, A. (n.d.). Global Value Chains: Impacts and Implications. Retrieved May 20, 2015, from http://www.international.gc.ca/economist-economiste/assets/pdfs/research/TPR_2011_GVC/02_Editors_Overview_e_FINAL.pdf.

University, N. C. (2015). What Is International Trade Theory? Retrieved May 20, 2015, from https://new.edu/resources/what-is-international-trade-theory.

Waehrens, B. V., Riis, J. O., & Johansen, J. (2011, August 29). Supply Chain Configuration Revisited – Challenges and Strategic Roles for Western Manufacturers. Retrieved May 20, 2015, from http://www.intechopen.com/books/supply-chain-management-new-perspectives/supply-chain-configuration-revisited-challenges-and-strategic-roles-for-western-manufacturers#SEC1.






No comments:

Post a Comment