Uploaded byPreston Teeter, PhD
IBUS2301 - Tutorial #2 - Chapter 6 - International Trade Theory
The document outlines the themes of an international business management tutorial focusing on international trade theories, using Logitech as a case study. It covers various topics including mercantilism, comparative advantage, and the product life-cycle, while posing questions regarding Logitech's global operations, value creation, and employment implications due to low wages in China. Additionally, it introduces key economic theories and historical perspectives on trade, presenting insights into modern implications for global business practices.
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IBUS2301 - Tutorial #2 - Chapter 6 - International Trade Theory
- 1. IBUS2301: International Business Management Tutorial#2, March 17 and 18 Chapter 6: International Trade Theory Tutor: Preston Teeter, p.teeter@business.uq.edu.au
- 2. IBUS2301: Int’l Business Mgmt Outline •Case analysis: Logitech • Mercantilism vs. Free Trade • Comparative Advantage & Heckscher-Ohlin • Product Life-Cycle & New Trade Theory
- 3. IBUS2301: Int’l Business Mgmt CASEANALYSIS: LOGITECH
- 4. IBUS2301: Int’l Business Mgmt Logitech First,read the three questions related to the case. Questions for your presentation: 1. How would you begin your presentation? 2. What secondary research would you conduct? From what sources? 3. How would you engage your audience? Note: following are some example slides to help you generate ideas. They are NOT an example of a complete presentation.
- 5. IBUS2301: Int’l Business Mgmt CaseBackground • Logitech – Global manufacturer of computer peripherals – Founded 1981 in Switzerland • Strategy – Differentiation: 91 new products in 2003 – Maintains low cost structure: global value chain • R&D: Switzerland, USA • Marketing, finance, logistics: USA • Design: outsourced to Ireland • Manufacturing: Taiwan/China
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- 7. Source: Logitech 2013Annual Report Logitech Net Sales and Gross Profit, 2011 to 2013
- 8. IBUS2301: Int’l Business Mgmt Logitech Q.1– Use one or more international trade theories to explain Logitech’s 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?
- 9. IBUS2301: Int’l Business Mgmt Global Operations •Absolute and comparative advantage – SE Asia: more efficient in manufacturing • Low costs: wages, overhead, etc • Manufacturing hubs: Taiwan, Shenzhen, etc – USA/W. Europe: more efficient in R&D/design • Highly educated, creative workforce • High-tech hubs: Silicon Valley – USA: more efficient in marketing/finance • Highly educated, creative workforce • Close to main customers, venture capitalists, stock exchange
- 10. Source: Global WageReport 2012/13 International comparison of hourly direct pay for time worked in manufacturing 2010 (US$)
- 11. Source: Martin ProsperityInstitute The Global Creativity Index Map
- 12. Source: Martin ProsperityInstitute The Global Creativity Index Rankings
- 13. IBUS2301: Int’l Business Mgmt CreatingValue Q.2 – Which country’s employees create more value for Logitech? Explain with appropriate calculations. $40 - Price • $8 (20%) – Logitech (R&D, marketing, overhead) • $15 (37.5%) - Distributors and retailers • $14 (35%) - Suppliers • $3 (7.5%) - Manufacturers
- 14. Source: Logitech 2013Annual Report Logitech’s Operating Expenses, 2011 to 2013
- 15. Source: Logitech 2013Annual Report Logitech’s Consolidated Statement of Operations (in thousands)
- 16. Source: Human CapitalReview (URL in notes)
- 17. IBUS2301: Int’l Business Mgmt Employment Effects Q.3– What are the implications of low wages in China on employment in high labor cost countries such as the USA and Australia? • Comparative advantage for China in labor-intensive work (e.g., manufacturing) • Likely to lower wages globally in these industries – See Samuelson critique • USA and Australia need to focus on their comparative advantages in trade with China
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- 19. Source: US News(URL in notes)
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- 21. IBUS2301: Int’l Business Mgmt MERCANTILISMVS. FREE TRADE
- 22. IBUS2301: Int’l Business Mgmt Mercantilism vs.Free Trade Mercantilism • 1500s • Best interest to maintain trade surplus • Advocates gov’t intervention Free Trade • 1700s • Specialize under absolute advantage • Laissez-faire What is the argument here? When and how did these ideas develop?
- 23. IBUS2301: Int’l Business Mgmt AdamSmith • An Inquiry into the Nature and Causes of the Wealth of Nations, 1776 • Scottish philosopher • “Father of modern economics” Source: Oxonianreview.org, URL in notes
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- 26. Source: Sydney MorningHerald (URL in notes)
- 27. Source: ABC News(URL in notes)
- 28. Source: The WallStreet Journal (URL in notes)
- 29. IBUS2301: Int’l Business Mgmt COMPARATIVEADVANTAGE & HECKSCHER-OHLIN THEORY
- 30. IBUS2301: Int’l Business Mgmt Comparative Advantage Howdoes the theory of comparative advantage differ from absolute advantage? Where did this theory originate? • Countries should specialize in the goods and services it produces most efficiently, even if this means buying goods from countries that it could produce more efficiently itself
- 31. IBUS2301: Int’l Business Mgmt DavidRicardo • Principles of Political Economy, 1817 • British political economist • Broker and speculator Source: biography13.com (URL in notes)
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- 33. Source: IMHE (URLin notes) Who benefits from free trade? Gross domestic product (GDP) per capita, 1950-2015
- 34. IBUS2301: Int’l Business Mgmt Heckscher-Ohlin Theory Howdoes Heckscher and Ohlin’s theory differ from Ricardo’s? • Comparative advantage arises from differences in national factor endowments – Land, labor, and capital – NOT productivity • Mixed empirical results
- 35. Source: WTO (URLin notes) Share in world merchandise exports
- 36. Source: WTO (URLin notes) Share in world service exports
- 37. Source: WTO (URLin notes) Trade to GDP ratio
- 38. IBUS2301: Int’l Business Mgmt PRODUCTLIFE-CYCLE AND NEW TRADE THEORY
- 39. 3/18/2014 IBUS2301: Int’l Business Mgmt ProductLife- Cycle Theory When did this theory develop? What does it propose? • Raymond Vernon in the 1960s, USA • Explains shift from a product being export- driven to being import-driven • Becoming less relevant in recent years
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- 41. 3/18/2014 IBUS2301: Int’l Business Mgmt NewTrade Theory What does the New Trade Theory propose? • Economies of scale have important implications for international trade • Some industries may be only able to support a small number of companies • First-mover advantage provides rationale for government intervention
- 42. Source: International Organizationof Motor Vehicle Manufacturers (URL in notes) Heavy truck production by country, 2002
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