DIXON TICONDEROGA-VICTIM OF GLOBALIZATION

SYNOPSIS

Dixon Ticonderoga is one of the oldest public companies in the U.S. The company
produces yellow No 2 pencils introduced in 1913. With annual revenues of 100 million,
Dixon is the second largest pencil manufacturer in the country.

In the1990s Dixon faced new challenges, Chinese manufacturers entered the U.S.
market with low priced pencils. The pencil industry lobbied the U.S. government for
protection. In 1994 when Chinese pencils accounted for 16% of the market the U.S.
enacted heavy anti dumping duties on Chinese pencils effectively raising their price. The
Chinese kept making pencils cheaper and better. The U.S imposed tariffs sometimes to
the tune of 53% on some brands.

To try to meet foreign competition on price, Dixon experimented with cheaper ways of
making pencils. They then set up a Mexican operation initially to supplement its U.S.
operation. In late 2000, Dixon had switched many of its processes from the U.S to
Mexico. By the year 2000 they had set up a wholly owned subsidiary in China. By 2002
Dixon had shut down its manufacturing plane in the U.S

TEACHING OBJECTIVES

The main teaching objectives of the case are:

1. To understand the complexities of the global trade environment.

2. To illustrate some of the ways in which governments can help industries in the
face of global competition that is unfair.

STRATEGIC ISSUES AND DISCUSSION QUESTIONS

1. Why do you think that the Chinese have an apparent cost advantage in the
production of pencils?
The Chinese have a cost advantage because of cheap labor.

2. Do you think that lobbying the US government to impose antidumping duties on

importer of pencils from China is a good way to protect U.S. jobs? Who benefits most
from such duties? Who loses? What alternate policy stance might the government take?
Lobbying the U.S government to impose antidumping duties is important because if a
country sells its products overseas at prices below the cost of production, no one can
compete with that. The pencil industry and all workers connected with that industry stand
to benefit from antidumping laws. Consumers pay higher prices and stand to loose. The
government can encourage firms to set up foreign subsidiaries to take advantage of some
of the low costs. Also the Government can encourage the Chinese to set a fair price
which is comparable to the price of pencils imported from other countries.

3. Why has Dixon become a multinational company? What are the economic
benefits to Dixon of becoming an international business?

Dixon has become a multinational company to take advantage of lower costs and other
efficiencies in China and Mexico.

4. Now that Dixon has a production operation in China, why does it not simply
import finished pencils from China to the United States, instead of making those pencils
in Mexico?

Dixon already has a manufacturing operation in Mexico. One reason could be because it
circumvents the whole anti dumping laws or tariffs that may be in place for Chinese
imports into the U.S. Further, with NAFTA, Mexico and the U.S have very good
economic relations. In China which still has a communist form of government, doing
business still posed a lot of risks. Some of that pressure has been alleviated after China
joined the WTO.