How Globalization Almost Took Out the No. 2 Pencil
Dixon Ticonderoga is a manufacturing company of No. 2 Pencils. During the twentieth century, Dixon was one of largest manufacturers of pencils in the United States. They were having a wonderful run until the 1990’s when China entered into the American pencil market. In this article, I will discuss the strengths of Dixon along with its weaknesses, threats, and opportunities.
One of Dixon’s strengths was that it was able to hold onto a large portion of the pencil market for almost a century. During the twentieth century, they were one of the leading manufacturers of pencils in the United States. They were well-organized with their lobbyist, they made a good product, and they made it affordable for the public. Anybody who has taken a standardized test in the United States has used a Dixon Number 2 pencil. They were able to make that particular pencil synonymous with test taking for a century. They had a firm handle on the market and held onto it for a long time.
Their weakness was that they were not able to compete with the lower priced pencils being imported from China. In the 90’s, China began to take a big piece of the pencil pie away from Dixon and did so even in the face of raised tariffs. The Chinese were just able to make a better, cheaper pencil. Dixon was unable to make a cheaper pencil. All of their attempts failed at cutting the cost of manufacturing a pencil in the United States. The wood that they used was too expensive, they had to begin importing erasures from Korea, and the recycled pencils that they tried to make were clogging up pencil sharpeners. It took them over ten years to start making a profit again because they were unable to adapt quickly to the changing business procedures and to globalization.
They did have lots of opportunities, though. Because of globalization, Dixon was able to move the manufacturing of their pencils to Mexico and China. They were not able to keep their plants in the United States, but they were able to move and cut the cost of manufacturing pencils. This would not have been possible without globalization and the breaking down of borders. It is cost efficient to move their factories, and they did so. Also, it was cheaper to have the erasures imported from Korea, making the pencil even cheaper to produce.
Their threats come from China and other countries being able to produce pencils cheaper than Dixon could make them in the United States. Dixon was the number two manufacturer of pencils in the United States, but the moment China began to import pencils, Dixon began losing a large percentage of the pencil market. Also, the United States government could not save Dixon from foreign competition. They lobbied against the Chinese and even had large tariffs put on their pencils, and still the Chinese pencils were cheaper and better made than those of Dixon’s.
Dixon is a company that has had to change the way it does business because of globalization. They went from America’s number two manufacturer of no. 2 pencils to having to move its factories into Mexico to keep up with the low prices of the rest of the world. I would not say that they are victims of globalization, but I would say that globalization has affected they way that Dixon does business. They have had to adapt the way to produce pencils so that they could compete in a changing business world.
1. China has a cost advantage of producing pencils because they have a large, cheap labor force. They have the means to produce almost any item cheaper because they pay their work force less. It doesn’t say in the reading section, but they might have cheaper wood, if they import from Korea for erasures it is close by so not as expensive, and they might have a better way of making pencils than Dixon does.
2. It is a good way to try to protect American jobs. If the government can raise tariffs and people buy more American pencils, then more American pencil companies can stay in the United States. The pencil companies like Dixon benefit from these antidumping duties while the Chinese companies and the American population looking for cheaper pencils lose in the end. Another stance would be a stance of laissez faire. Allow the free market to decide what pencil they want.
3. Dixon became a multinational company so that it could survive. It could not compete with the Chinese pencils and so they had to cut cost by moving their factories into Mexico. The economic benefit of moving into Mexico is that they can produce pencils cheaper than they could in the United States.
4. Dixon does not import pencils from their Chinese plant and instead goes through their Mexican plant because there are probably less trade barriers to go through than with China. Under NAFTA, there is free trade between the United States and Mexico. It is probably cheaper to make the finish product in Mexico and there will be no tariff placed on pencils coming in from Mexico, where there will be tariffs placed on pencils coming from China.