978-1259929441 Chapter 9 Part 3

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Chapter 09 ‒ Regional Economic Integration

9-18

End of Part Case Notes

Part Three

Legal Outsourcing

QUESTION 1: What are the benefits to a law firm of outsourcing of legal services to a

foreign country? What are the potential costs and risks?

QUESTION 2: What kind of legal services are most amenable to outsourcing?

QUESTION 3: Which groups gain from the outsourcing of legal services? Which groups

lose?

ANSWER 3: Lawyers in foreign countries such as India stand to gain from outsourced legal

work. Lawyers who are recent graduates typically do “grunt” work at U.S. law firms. With

this type of work going overseas, new lawyers in the United States may have a difficult time

getting hired.

QUESTION 4: On balance, do you think that this kind of outsourcing is a good thing or a

bad thing? What are the risks here?

ANSWER 4: Students’ answers will vary. From a client standpoint, sending “routine” legal

QUESTION 5: Why were the services in this case outsourced to India, as opposed to

another country such as China? What does this case tell you about the kinds of factors that

are important when a firm is considering whether to outsource a value creation activity, and

where to outsource it?

ANSWER 5: India is favored because local universities produce a steady stream of lawyers

trained in common law, which is the legal tradition India inherited from the British. The

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The Global Financial Crisis and Protectionism

QUESTION 1: Why do you think calls for protectionism are greater during sharp economic

contractions than during boom periods?

ANSWER 1: Sharp economic contractions are of course directly linked to slowdowns in

QUESTION 2: Despite the sharp economic contraction during 2008–2009, the increase in

protectionist measures was fairly modest. Why do you think this was the case?

ANSWER 2: Thanks to the greater number of trade agreements in place today as well as

WTO rules, many countries found they had limited options when they tried to respond to the

QUESTION 3: During 2008–2009, many developed nations gave subsidies to their

automobile producers. How might this have distorted international trade? Was this a

reasonable thing to do given the circumstances?

ANSWER 3: The 2008-2009 financial crisis prompted many countries including the United

States to provide subsidies to automakers. While the assistance helped companies remain in

business and protected jobs, it also created an artificial environment for them and may have

QUESTION 4: What might occur if renewed economic slowdown triggered a wave of

protectionist measures around the world? Would protectionism protect jobs, or would it

make things worse?

ANSWER 4: In mid-2011, the global economy was still unstable, and the threat of a double-

dip recession was very real. Many students will probably suggest that if the economy fails to

fully recover, many companies will continue to face low demand and because of the

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lobby for further protection. However, some students may point out that many governments

are now facing their own financial challenges and may be less willing to help. Other

students may wonder whether governments may focus on bureaucratic policies as a means

of helping companies in the future rather than on subsidies. In the end, most students will

probably agree that while protectionist measures can protect jobs in the short-run,

companies must ultimately become more efficient, and countries must support industries

that will be sustainable in the long-run.

QUESTION 5: The volume of world trade rebounded sharply in 2010 on the back of a fairly

modest growth rate in the world economy. What does this tell you about the nature of

international production in today’s global economy? What does this tell you about the

vulnerability of the world economy to any future trade wars?

ANSWER 5: Most students will probably recognize that today’s economy is truly global in

nature. A modest increase in demand can result in a substantial increase in the volume of

NAFTA and Mexican Trucking

QUESTION 1: What are the potential economic benefits of the trucking provisions in the

NAFTA treaty? Who benefits? Who might lose?

ANSWER 1: Under the NAFTA agreement trucks from Mexico are no longer required to

unload their goods and reload them onto U.S. trucks. Instead, Mexican trucks can simply

QUESTION 2: What do you think motivated the Teamsters to object to the trucking

provisions in NAFTA? Are these objections fair? Why did Congress initially align itself

with the Teamsters?

ANSWER 2: The Teamsters have rigorously objected to the provisions of NAFTA allowing

Mexican truckers to cross U.S. borders and deliver their goods to their destination. Prior to

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are upheld. Students may suggest that it is only because of the union’s power that the United

States delayed implementing the agreement.

QUESTION 3: Does it make economic sense for the United States to bear the costs of

punitive tariffs as allowed for under NAFTA, as opposed to letting Mexican trucks enter the

United States?

ANSWER 3: When the United States initially failed to abide by provisions set forth in

NAFTA regarding trucks, Mexico gave the country a second chance to honor its

commitment. The United States responded with bureaucratic measures designed to block

QUESTION 4: Why do you think the Obama administration brokered a deal with Mexico to

allow Mexican truck drivers to access the United States? Do you think this is a reasonable

deal?

ANSWER 4: Under NAFTA, Mexico has the right to place tariffs on goods shipped from

the United States to Mexico. California was hit hard by these tariffs because it exports a

The Rise of the Indian Automobile Industry

QUESTION 1: What are the attractions of India as a base for producing automobiles for

domestic sale, and for export to other nations?

ANSWER 1: From 2003 to 2008, India’s exports of automobiles jumped fivefold. South

Korean automaker Hyundai led the way exporting more than one-third of its Indian

QUESTION 2: Both Hyundai and Nissan made their investments in the southern Indian city

if Chennai. Is there an advantage to be had by investing in the same region as rivals? What

is it?

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ANSWER 2: Nissan’s decision to invest in the same city as Hyundai was probably driven

by the support structure that Hyundai’s investment helped to create. When Hyundai initially

QUESTION 3: What are the drawbacks of basing manufacturing in a country like India?

What other locations might be attractive?

ANSWER 3: One of the major challenges facing companies in India is its inadequate

infrastructure. Roads are poor and overcrowded making it difficult for companies to

QUESTION 4: If Hyundai, Nissan, their suppliers, and other automobile companies

continue to make investments in the Chennai region of India, how might this region evolve

over time? What does this suggest about manufacturing location strategy?

ANSWER 4: It has been suggested that over time, India’s Chennai region could develop

Logitech

QUESTION 1: In a world without trade, what would happen to the costs that American

consumers would have to pay for Logitech’s products?

ANSWER 1: Logitech moved its manufacturing to Taiwan and China in an effort to save

money and maintain a competitive edge. While labor costs were a factor in the decision to

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QUESTION 2: Explain how trade lowers the costs of making computer peripherals such as

mice and keyboards?

ANSWER 2: The theories of Smith, Ricardo, and Hecksher-Ohlin show why it is beneficial

for a country to engage in international trade even for products it is able to produce for

QUESTION 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?

ANSWER 3: The theory of comparative advantage suggests that it makes sense for a

country to specialize in producing those goods that it can produce most efficiently, while

QUESTION 4: Who creates more value for Logitech, the 650 people it employs in Fremont

and Switzerland, or the 4,000 employees at its Chinese factory? What are the implications of

this observation for the argument that free trade is beneficial?

ANSWER 4: Logitech has taken great care in configuring its global value chain to lower

production costs while maintaining the value of those assets that lead to differentiation.

Logitech undertakes basic R&D work in Switzerland, and also in Fremont. Fremont is also

QUESTION 5: Why do you think the company decided to shift its corporate headquarters

from Switzerland to Fremont?

ANSWER 5: Switzerland is still important to Logitech. Indeed the company undertakes

basic R&D work there. However, in an effort to be closer to many of America’s high–

QUESTION 6: To what extent can Porter’s diamond help explain the choice of Taiwan as a

major manufacturing site for Logitech?

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ANSWER 6: According to Porter, four broad attributes of a nation shape the environment in

which local firms compete, and these attributes promote or impede the creation of

QUESTION 7: Why do you think China is now a favored location for so much high-

technology manufacturing activity? How will China’s increasing involvement in global

trade help that country? How will it help the world’s developed economies? What potential

problems are associated with moving work to China?

ANSWER 7: Foreign companies now account for three-quarters of China’s high tech

exports. Porter’s diamond would suggest that like Taiwan, China has strong factor