Case Discussion – No.1
Dixon Ticonderoga – Victim of Globalization
The reasons for cost advantage in Chinese pencil production: a.
Cheap labor availability
China is a country with high population and the labour is cheap compared to the US labour which results lowering of the cost. b.
Availability of raw materials
The raw material could be cheaper in China compared to the sources which US is being supplied for the pencil production. c.
Compared with US the quality parameters for a production can be lower in the Chinese companies which results in lower cost in production. For an example the factories that the Chinese pencils might not be sophisticated state of the art factories which reduce their over head costs than the US factories where high quality factory standards are being maintained. d.
Low inflation rate
Low interest rates, in China
The setting up a business of this sort can be cheaper in China compared to US as the interest rates could be lower which will result low financial costs for the companies. Therefore their operating costs can be very much lower in China compared to US.
Impose of duties alone won’t help U.S. to protect jobs. Imports continued to be uninterrupted despite of the tariffs. Therefore just by imposing the duties have not controlled China exporting the pencils to the country as they manage the cost of the duties being paid by reducing their costs. U. S. government was benefited, but the consumers had to suffer due to such exorbitant tariffs.
Instead the government would have allowed those Chinese pencil manufacturers operate; but only through strategic alliances with those local firms. In addition the US government would have imposed a quota system for the Chinese pencil exporters which will help to protect the local pencil industry and allow the local manufacturers to have tax advantages in supplying raw material etc from other countries which will able them to produce lower cost pencils....
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