DIXON INC

Dixon Inc. Is one of the oldest companies in U.S. with a flagship product of pencil
which was introduced in 1913. The turnover in 1995 was U.S.$ 100 million. The
Americans bought an estimated 4.21 billion pencils in 1999 which was 53% higher
than 1991; but an increasing proportion of these came from China.

China entered the American pencil market in 1991 and by 1994 had 20% share of
American market. In 1995 U.S. government was persuaded by Dixon to levy Anti
Dumping Duty on Chinese imports of pencil and the imports temporarily fell, but the
Chinese kept on making better and cheaper pencils and by 1997 achieved the
market share levels of 1994. The Chinese were aggressive in marketing pencils in
U.S. and to add to the problems, exports of Dixon Inc. Also fell drastically by about
200 million units in 1999 as compared to 1991 figures.

By 1999, U.S. imported 50% of its requirement of pencils from China which forced
the U.S. Government to impose a whooping 53% Anti Dumping Duty in 2000 on
Chinese pencils. However, It did not give major boost to Dixon as expected.

Dixon Inc. during the decade tried to experiment with cheaper ways to make pencils.
The company shifted from California incense cedar wood ( which was expensive raw
material)to Indonesia jelutong wood. Dixon also started buying erasers for its pencils
from a Korean supplier instead of traditional local source.

During all this time it not only lost its share to cheap imports but was also losing
money and it strategically started a new manufacturing units in Mexico a NAFTA
partner. The original idea was to supplement the U.S. set up but with a view to be
more aggressive it expand Mexicos unit and started reducing the production of its
home base U.S.

In the year 2001, Dixon created a wholly owned subsidiary in China to Manufacture
wooden slats- as processed raw material for manufacturing pencils. These slats
were exported by Dixon from China to Mexico where they were turned into pencils.
The graphite lead for pencils is still made in USA ; but erasers are shipped from
Korea.

The Chinese subsidiary of Dixon also produces and sells its products internationally.
By 2003 Dixons performance registered a significant improvement but, the company
decided to be aggressive in international business and it shut down its U.S.
manufacturing base a Sandusky, Ohio and 09expanded it production in Mexico and
have also started manufacturing pencils from its China venture.

Questions:
1) Why do you think that the Chinese apparently have a cost advantage in the
production of pencils ?
2) Do you think that lobbying in the U.S. government to impose antidumping
duties on imports of pencils from China is a good way to protect U.S. Jobs?
Who benefits most from such duties ? who loses?
3) Why has Dixon become a multinational company ? What are the economic
benefits to Dixon of going global?
4) Why does it not simply imports finished pencils from China to the United
states, instead of making those pencils in Mexico?
5) What is the role of tariff and non tariff barrier in the whole process?