Case study 20

Introduction1990 was a very difficult phase for Dixon ,the problem was not fall of demand but it was the rising
demand of Chinese pencils instead of Dixons pencils in U.S. Foreign competitors were providing
pencils at a price lower than Dixons i.e. Chinese were dumping pencils in the us market. As a result
Dixon imposed antidumping duties on the import of Chinese products, imports fell dramatically
,but Chinese continued making further better cheaper pencils and returned to levels more than before
the imposition of duties.
So Dixon realised the importance of globalisation and decided to go international .
Analysis of position of Dixon before going internationalDixon Ticonderoga making annual revenues of a little over $100 million during the early
nineteenth century. When China managed to find ways to produce their product at low cost, the
American pencil industry started to loose business. They lost 200 million dollars worth of business
between 1991 and 1999.Domestic consumption of pencil fall from 2.4 billion to 2.2 billion. Trying
domestically to find cheaper ways to produce pencils did not lower cost or improve business.
Research was done to try make pencils out of recycled paper cases, but that was a disaster. They took
steps in trying to find cheaper places to purchase wood for production. Erasers where bought from a
Korean supplier and took big steps to establish a manufacturing operation in Mexico. A wholly-owned
subsidiary was created in 2000. Now the company conducts operations in Canada, Mexico, United
Kingdom and China. Eventually they chose to globalize their productions.
Strategy adopted by DixonStrengths

The product was well known

The No. 2 pencil was not their only product
Had very little competition to begin with

Did not improve on their product technology fast enough

Took a long time to realize that labor was cheaper in China and Mexico.
Depended too much on trade barriers to keep competition at bay as well as to
control foreign competition
Poor quality pencil

Could have lost all their pencil industry to foreign competitors.

Weakness

Threats

There is a cost advantage in setting up a subsidiary in China because of following reasons

1. Easy availaibility of raw material and good infrastructure of machines
2. Availaibility of cheap labour
3. Demand for labour intensive goods was rising in us
4. Export focused with emerging domestic market
Dixon decided to set up a manufacturing plant in Mexico because land was cheap there.

Theory that holds relevance with the case

ECLECTIC THEORY-it is a blend of macroeconomic theory of international trade(L) and
microeconomic theories of firm(O&I)
The ownership factor-for the investing firm to e profitable ,it needs to possess some core
competencies or specific advantage not shared by competitors.
The location factor-locational advantages of a host country is the key determinant to its relative
attractiveness as an investment decision
The internalisation factor-specific knowledge and know how possessed by the firm form the basis of
economic gains .it explains why MNE opts for wholly owned subsidiaries rather than licensing or
monitoring ownership for accessing foreign markets.it helps the firm lessen the incidences of market
failure.
Conclusion
The main problem that Dixon Ticonderoga faced was losing sales in the US because of Chinese
imported pencil sales. The Chinese pencils are the same quality pencil with a lower price tag. It was
impossible for the American company to compete. Since the Dixon Company was so well established
in the states and grossed a little over $100 million annually they would seem to be a power house in
the pencil making field. They are well equipped with product knowledge and experience, so WE think
it would have been possible to raise the bar on the Chinese pencil makers and blow them out of the
water. This could have happened on the basis of quality, marketing, advertising, or even making sure
retail establishments sold Dixon products instead of the Chinese type. There is a chance if Dixon
would market the pencils as American Made then they might have sold in the light of the late
patriotic movement in the US.
Another idea would be to use the money and power that Dixon posses and go over seas and
buy out the company competing with them. That way Dixon would now have a shot at the
international business world as well as keeping true to its roots in the US with its factories here.
Instead Dixon waiting until things got real bad before it started to branch out little by little.
Dixon could have pressed the US Government a little more to stop the dumping of Chinese
pencils in American and start dealing in high tariffs so that pencil making would no longer be a
profitable endeavor for the Chinese markets.
Another way could be that Dixon Ticonderoga take steps to buy out the Chinese competition and
continue in their place using the advantages that come with international production. In the end Dixon
had to succumb to the fact that they would have to include China some where in the process of
producing pencils. They ended up creating a subsidiary over there to produce the wood needed for the
manufacturing process, and instead of shipping it to this side of the world to build, why couldnt they
have just built the pencils over there and send them here in one piece to be sold under the Dixon
name? Ist would have been smart for Dixon to jump on that opportunity then instead of waiting until
they were forced into it. This decision would have saved time and money in the long run and would
have prevented some of the trial and error that went on for the years until they saw the light.