Topics: International trade, Mercantilism, Comparative advantage Pages: 4 (1253 words) Published: October 11, 2012

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

Trade helps in reduction of product prices due to following reasons: Components are procured from any part of the world where they can be produced/manufactured at the best cost. (Motorola plant in Malaysia makes the mouse's chip; Agilent Technologies supplies optical sensors) --The intellectual capital going into any product is created at the place where the right talent is available. (Ergonomics design is done in Ireland, software programming is done in Switzerland and Fremont) --The actual assembling/manufacturing is done at the place where is can be done most cost effectively. (Assembling is done in Taiwan and China) --The products reach the customers the most efficient way by taking the services of the most efficient logistics company. (Marketing and operations from Fremont)

2. 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? Comparative advantage, as proposed by Ricardo, says that it is beneficial for nations to involve in trade even when there is absolute advantage for them to produce all the goods. So nations will invest a major portion of their resources to produce what they can produce with advantage. This theory is being applied to the case in the following way. China: It is cost effective to manufacture in China. China has a large population of semi-literate people who live in semi-urban areas. It is important for the Chinese government to provide avenues for its people to earn their livelihood. M ass manufacturing is a good way of employing many people. Since there is abundance of semi-literate human resources in China it can manufacture products which need semi-skilled labor...
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