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Acquiring Experience

Case Aims: To illustrate that a strategy can emerge and evolve as a result of acquiring market experience.

At the outset, the founders of the Swiss company Logitech, Daniel Borel, Pierluigi Zappacosta and Giacomo Marini, operated on the basis of the somewhat indistinct aim of wishing to transfer computer technology from

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Silicon Valley into Europe (Jolly and Bechler 1992). Its initial product was a word processing system for desktop publishing. This project was terminated when a large Swiss corporate sponsor terminated funding.

Fortunately by the time this occurred, Logitech's near-term cash flow was protected because the firm's reputation as an entrepreneurial innovator had led to it being awarded a development contract to design a graphics work station for the Ricoh Corporation. As the founders gained experience in how to survive in the rapidly changing computer industry, their interest began to focus on identifying an opportunity to exploit technology as the basis for developing a product which avoided being in confrontation with any of the existing major computer manufacturers, component suppliers or software companies.

By observing the development work on computer interface devices in progress as the Ecole Polytechnique Federal de Lausanne, Logitech became convinced that the mouse would play a critical role in making computers easier to use. This was at the time when the mouse was only being used by a small number of computer engineers and scientists around the world. Jolly and Bechler described how in 1982, Logitech acquired the rights to a hybrid optical-mechanical mouse which had been developed by Professor Anto Nicoudo and was being manufactured by a small Swiss firm. Logitech used market research to develop an improved version and transferred the production to a larger Swiss manufacturer. Unable to maintain sufficient control over product quality, Logitech acquired the rights to a new generation of mouse design in 1983 and established its own small manufacturing operation with an annual output capacity of 25,000 units (Jolly and Bechler).

At this juncture, sales of personal computers began to grow at an unprecedented rate and it became clear that the potential for computer control devices was huge. Other firms such as Mouse Systems Corporation, Mouse House and Microsoft had already entered the US market but were focusing their efforts primary on establishing strong retail brands (Jolly and Bechler 1992). Logitech's solution was to focus on its reputation for innovative design and high product quality as the basis for developing a sales base supplying major OEMs. Logitech's first customer was Hewlett-Packard, which wanted to source a high-quality mouse built to its specifications. The strategy of other mouse companies was to subcontract manufacturing to low- cost, offshore suppliers. Logitech took the view that is it was preferable to locate the operation near customers to permit maximum speed of response and provide easy access for inspecting output. Therefore, it opened a large, new manufacturing facility in California. At that time the two prestigious OEMs, Apple and IBM, were buying its mice from Alps, a large Japanese firm that also supplied Microsoft. Logitech knew it could supply a technically better product but concurrently needed to fulfil the

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requirement of being able to produce high volumes at low cost. Its solution was to take advantage of the Taiwanese Government's offer of heavily subsidised space in an industrial park in Hinschu. The new facility was soon out-producing the US plant and as the scale of manufacturing increased, the firm successfully negotiated supply contracts with both Apple and IBM.

Whilst building its B2B operations, Logitech also sought to enter the huge US retail market. Jolly and Bechler noted that the first attempt, the technically advanced C7, generated little interest from either consumers or major retailers. In order to bypass the traditional channel members, Logitech decided to enter the mail-order business and placed advertisements and coupons in specialist computer magazines offering a $99 mouse at the time that the leading brand was selling for $179. Almost immediately, the company became the largest mail-order mouse supplier in the USA and this success made retailers want to start stocking the brand.

Entry into the European OEM market was simplified because of the firm's relationships and reputation with large US multinationals. Jolly and Bechler explained that with Apple operating a manufacturing base in Ireland and other firms such as IBM and Compaq located in Scotland, Logitech built a new manufacturing operation in Ireland, 18 months after opening a facility in Taiwan. When this plant came on stream with an annual output capacity of 1.5 million mice, the company closed its small scale, high-cost manufacturing unit in Switzerland. By the end of the 1980s, the company had developed a full range of products covering the upper-, middle- and lower-end of the market. Logitech's continued success in countering intense, price- based competition from Pacific Rim producers was to offer technically superior, customised products and, in the case of the OEM market, sustaining a superior position in the critical areas of product and service quality.

During the evolution from a small entrepreneurial firm based in Switzerland into a global, multilocation market leader, the founders focused on the need to sustain an entrepreneurial culture. To achieve this goal, the company culture was based upon delegating managerial autonomy to each company site whilst promoting the interchange of ideas and knowledge among employees around the world. In the world of entrepreneurial success stories, one will often encounter companies who go into decline because they have failed to be the source of the next generation of products or have not diversified into new markets to offset the falling sales of their existing products.

Logitech recognised the potential trap of becoming a 'single product company' and began to diversify into other areas of technology associated with managing the user/computer interface. Its first move was to launch a hand-held optical scanner. This was followed by acquiring majority interests in other firms that has provided access to new technologies such as pen-based computing and computer gaming equipment. The strategy of sustaining high-quality output at low cost whilst being located

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near OEMs has not, however, been neglected. For this reason, the company has opened a new manufacturing facility in Shanghai, China. With products sold in almost every country in the world, Logitech's leadership in innovation now encompasses a wide variety of personal peripherals (both cordless and corded), with a special emphasis on products for PC navigation, gaming, Internet communications, digital music and home- entertainment control, and the company has customers in 40 countries around the world (www.logitech.com).

 
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