Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
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
Chapter 09 ‒ Regional Economic Integration
9-19
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
Chapter 09 ‒ Regional Economic Integration
9-20
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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
Chapter 09 ‒ Regional Economic Integration
9-21
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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?
Chapter 09 ‒ Regional Economic Integration
9-22
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
Chapter 09 ‒ Regional Economic Integration
9-23
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?
Chapter 09 ‒ Regional Economic Integration
9-24
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
