Logitech company overview and business operations

Logitech

Use the Theory of Comparative Advantage to explain the way in which Logitech has configured its global operations.

The Theory of Comparative Advantage was first issued by economist David Ricardo and it points out the benefits of international collaboration. As such, Ricardo states that if a country possesses an advantage in comparison to other countries, such as better skilled workforce or more natural resources, that country should focus on producing those items adherent of the industry where it holds an advantage. It should then trade these products on the international market and purchase the items for which it encounters difficulties in producing.

This theory was well understood and applied by computer device manufacturer Logitech. As such, the producer analyzed the strengths and opportunities in several countries and then established how to efficiently develop their business onto the countries' territories. As such, Logitech saw that China and Taiwan possessed the comparative advantage of cheap workforce, a most important feature to a production company. Furthermore, the two countries were also superior to other alternatives as their workers possessed expertise in the computer industry and they were extremely skilled and trained. In addition, Taiwan and China offered manufacturers the possibility to purchase their raw materials from suppliers within the countries. This generated the advantage of a more rapid, more efficient and cheaper logistics system.

In comparison to other countries, Switzerland possessed the advantage of having hosted Logitech from their beginnings. As such, these workers were extremely familiarized with the products and the company's policies and goals. Workers in Switzerland were best able to develop the products that truly represented the company.

California holds the comparative advantage of high industrial and technological development and Ireland has the advantage of innovation and dedication to product improvement.

The fact that Logitech was able to combine the benefits offered by several countries and produce the best products is the testimony to the truth behind Ricardo's theory. But the application of this theory is only possible due to the current features of the international market, meaning market liberalization and globalization.

2. Why does the company manufacturer in China and Taiwan, undertake basic R&D in California and Switzerland, design products in Ireland, and coordinate marketing and operations from California?

Logitech's manufacturing in China and Taiwan, research and development in California and Switzerland, product design in Ireland and marketing and operations in California can all be explained by a single word: globalization.

Globalization is an extensive concept used to describe the changes occurring in all domains of social, political and economical lives. The simplest way to explain globalization is revealed by market liberalization. With fewer restrictions on imports and exports, countries find it easier to apply Ricardo's theory. As such, amongst other things, globalization, in the context of Logitech's international activity, refers to outsourcing and off-shoring both services as well as products. Furthermore, it also implies the global distribution of the necessary resources throughout several countries that detain a comparative advantage.

As such, Taiwan has several arguments in favour of hosting Logitech's manufacturing activities. The crucial argument was that of reduced costs of human labour. Even though only a small percentage of the final retail price of a computer mouse is workforce related (7%), cheaper labour was a convincing incentive. But aside from cheaper workforce, there were also other arguments in favour of manufacturing in Taiwan. Logitech was able to directly purchase the base products they needed for manufacturing their products from Taiwan. This offered the advantage of reduced supply costs and a well developed logistics channel. In addition, not only that the workforce was cheap, it was also qualified. The Taiwanese people are renowned for their skills and adaptability to producers' requirements. Being a country primarily focused on producing cheap and high quality technologies for foreign companies, Taiwan attracts numerous investors. Also, the country has a high development potential in most industry, but especially in the computer industry.

Similar to the case of Taiwan, China was chosen to produce Logitech mice, keyboards and other computer hardware devices as the country offers cheap and skilled workforce, easy access to base products and a growing computer industry.