Business: International Trade and Comparative Advantage Essay examples

1041 Words Dec 6th, 2012 5 Pages
HOMEWORK 11 (Last HW – Due 4/28)

Read the Logitech case and answer the following questions.

1: In a world without trade, what would happen to the costs that American consumers would have to pay for Logitech’s products?

2: Explain how trade lowers the costs of making computer peripherals such as mice and keyboards.

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?

4: Who creates more value for Logitech – the 650 people it employs in California and Switzerland, or the 4,000
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With trading in place it allows for economies of scale. The technology can be developed in one country, the ergonomics in another country, the production in another country, and the assembly in yet another country. The shipping costs are much less than it would be to perform these tasks in one country. This is called absolute advantage, where someone is great at one thing. With this in mind you will get a product that has the best resources available at the lowest cost, which is comparative advantage. Finally, specialization is where everyone is doing what they do best and pulling their resources together to make one incredible product.

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?
Logitech is very brilliant when it comes to comparative advantage. 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

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