Dixon Ticonderoga
Victim of Globalization

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by
Tapiwa Chibota & Clay Clifton
Afro American

Dixon Ticonderoga – Victim of Globalization

Date:
Class Name:
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Contents
Executive Summary 3
Situation Analysis 4
Research 5
Strategic Alternatives 6
Recommended Strategy 8
Implementation 9
Appendix 1 10
Appendix 2 11
Work Cited 12
Executive Summary
“ We are moving rapidly away from a world in which national economies were relatively self-contained entities, isolated from each other by barriers to cross-border trade and investment; by distance, time zones, and language; and by national differences in government regulation, culture, and business systems.”(Hill, 4). The company was founded in the 1870 by Joseph Dixon as The Joseph Dixon Crucible Company. He introduced the No. 2 yellow pencil to the United Sates, and came to be the world’s largest dealer, and consumer of graphite world wide What began as a small business in Salem, Massachusetts with the discovery of graphite as a stove polish and an additive in lubricants, foundry facing, brake linings, oilless bearings, and non corrosive paint and manufactured lubricants soon expanded nation wide with annual revenues of a hundred million dollars and more. In 1982 Joseph Dixon Crucible merged with Bryn Mawr Corporation forming the Dixon Ticonderoga Company (www.dixonusa.com). However, in 1990 business was not as easy (refer to Appendix 2). The Company was faced with some foreign competition .Which could put the American pencil industry out of business. “The Chinese were dumping pencils on the U.S market” (Hill, 32). The American pencil industry felt threatened and heavy antidumping duties where placed on Chinese pencils which raised their price. However the Chinese still had a better product and continued to eat up the American market. The Dixon Ticonderoga Company had to realize that the economy was shifting more and more towards globalization. The global market place is where business now lies. Trading relations between countries have improved as well as the falling barriers to cross-border trade have made it easier to sell internationally.
Situation Analysis
Facts or Size Up Dixon Ticonderoga started of as a very promising business. They where 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. 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.
Business or Marketing Strategy Strengths • The product was well known • The No. 2 pencil was not their only product • Had very little competition to begin with

Weakness • 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 Threats • Could have lost all their pencil industry to foreign markets

The Dixon Ticonderoga Company had to realize that the economy was shifting more and more towards globalization. The global market place is where business now lies. Trading relations between countries have improved as well as the falling barriers to cross-border trade have made it easier to sell internationally. What the company went through was globalization of production. With the declining trade and investment barriers it only made business sense to move production to where it would be cheaper.
Outside Research An article entitled “Buy American Mention of the Week” emphasized that “America could be in danger of losing its pencil industry unless patriotic consumers raise their awarness” Dixon and Stanford both the largest pencil makers in the US realized that pencils can still be imported cheaper than they can be manufactured (Roger Simmermaker, www.americanreformation.org). With the exchange rate changing and the US dollar being stronger labor is cheaper in China and Mexico than it is in the US. Because of the low rates, the pay rate of employees minimum wages was some what reduced. An American employee would be paid an average of $7.00 an hour. In China that would convert to roughly 57 CNY, according to the exchange rate of 1 USD to equal 8.276 CNY. A report done by Expeditors showed recently, that there had been a rescission of antidumping duty which took place in 2003. This information can be read in Appendix 1.
Dixon Ticonderoga has been making strong improvements with its decision to venture into Globalization. On February 14 2002 they announced that its pro forma net loss from continuing operations for the fiscal quarter ended December 31, 2001 decreased by 43% to $648,719 compared to with a pro forma net loss from continuing operations of 1,114,175 in the prior year. The Chairman and Co-Chief executive Officer N. Pala was quoted saying “Historically, we incur losses in the first half our fiscal year due to the seasonal nature of our consumer business. We are encouraged by this trend of significant improvement evidenced by our early results and are hopeful this will continue during the balance of our fiscal year so as to build on the operating success realized last year ”( PR Newswire, www.looksmart.com).
Strategic Alternatives 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. Dixon did try to lower costs for themselves by switching to different woods used on the pencils but it went overseas to do that. We don’t see how that would help them stay in the grove of an American business because it contributed to the Chinese economy, therefore supporting the companies that were opposing them. At the end Dixon finally broke down and went into business in Mexico making pencils in factories there instead of in the US. That move hurt the American work force some by taking away jobs. Finally the company moved wholly over the China once the Mexican plants did not work out as planned. The wood comes from China to Mexico, erasers come from Korea to Mexico, lead comes from the US to Mexico, and then the assembly happens there. After all that is said and done, the pencils are imported into the US for sale. That seems like a lot of moving around and extra cost to me. WE do think there would be a better way to manage the process.
Recommended Strategy The strategy we would propose would be as we mentioned above under “Strategic Alternatives.” we would have recommended 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 couldn’t they have just built the pencils over there and send them here in one piece to be sold under the Dixon name? WE think it 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.

Implementation Plan The plan we proposed would have been a huge step for the primarily American based company to take because of their roots being from the States and not overseas. we am sure it would have caused the company to hire many people with international business back ground to run the show overseas and to deal with the many problems that might arise from the change. It’s obvious that other countries do business much different than the US does and without understanding of that the Dixon Company could have gotten itself into a lot of trouble. There would also be problems dealing with Chinese and American Governments dealing with trade and import/export that might have caused some problems. Those things would have to be thoroughly researched before and steps were taken to make the move. One of the largest problems would have ended up being the different money systems and the economy over there that isn’t related to ours. It would take some consulting and research to learn how to deal with that aspect of business. All in all the problems could be overcome because there are hundreds of companies doing it every single day. we think in the long run the benefits would have overridden the faults.
Appendix 1
03-2971 ADD-3353208-CSD.PENCILS-CHINA

ADMINISTRATIVE MESSAGE 03-2971 12/22/2003
TITLE: ADD-3353208-CSD.PENCILS-CHINA
TO : ALL ABI BROKERS.

FROM : HQ OAB

SUBJECT : ADD-3353208-CSD.PENCILS-CHINA

DATE : 12/19/2003

MESSAGE NO: 3353208 DATE: 12 29 2003

CATEGORY: ADA TYPE: OTH REFERENCE: REFERENCE DATE:

CASES: A - 570 - 827 - - - - - - - - - -

PERIOD COVERED: 11 04 2003 TO

LIQ SUSPENSION DATE:

TO: DIRECTORS OF FIELD OPERATIONS PORT DIRECTORS

FROM: DIRECTOR, SPECIAL ENFORCEMENT

RE: NOTIFICATION OF RESCISSION OF ANTIDUMPING DUTY NEW REVIEW AND TERMINATION OF THE BONDING PRIVILEGE - CERTAIN CASED PENCILS FROM THE PRC (A-570-827)

1. ON 03/07/2003, THE DEPARTMENT OF COMMERCE NOTIFIED U.S.
CUSTOMS AND BORDER PROTECTION (CBP) THAT IT WAS CONDUCTING A
NEW SHIPPER REVIEW OF THE ANTIDUMPING DUTY ORDER ON CERTAIN CASED
PENCILS FROM THE PEOPLE'S REPUBLIC OF CHINA. SEE MESSAGE NUMBER
3066216. THE NEW SHIPPER REVIEW COVERED SHIPMENTS OF CERTAIN
PENCILS FROM THE PEOPLE'S REPUBLIC OF CHINA EXPORTED AND PRODUCED
BY BEIJING DIXON TICONDEROGA STATIONERY COMPANY LTD. THE PERIOD
OF REVIEW IS 12/01/2001 THROUGH 11/30/2002. MESSAGE NUMBER
3066216 ALSO NOTIFIED CBP THAT A BOND OR OTHER SECURITY
DEPOSIT FOR ESTIMATED ANTIDUMPING DUTIES IS PERMITTED, AT THE
IMPORTER'S OPTION, FOR SHIPMENTS OF CERTAIN CASED PENCILS FROM THE
PROPLE'S REPUBLIC OF CHINA EXPORTED AND PRODUCED BY BEIJING DIXON
TICONDEROGA STATIONERY COMPANY LIMITED, ENTERED, OR WITHDRAWN
FROM WAREHOUSE, FOR CONSUMPTION ON OR AFTER 02/04/2003.

2. ON 11/04/2003, THE DEPARTMENT OF COMMERCE PUBLISHED IN THE
FEDERAL REGISTER A NOTICE OF ITS RESCISSION OF THE ABOVE-REFERENCED

3. THEREFORE, AS OF 11/04/2003, THE OPTION OF A BOND
OR OTHER SECURITY DEPOSIT, IN LIEU OF A CASH DEPOSIT FOR
ESTIMATED ANTIDUMPING DUTIES, IS NO LONGER IN EFFECT FOR
SHIPMENETS OF CERTAIN CASED PENCILS FROM THE PEOPLE'S
REPUBLIC OF CHINA EXPORTED AND PRODUCED BY BEIJING DIXON TICONDEROGA
STATIONERY COMANY LIMITED. THUS, FOR SHIPMENTS OF CERTAIN CASED
PENCILS FROM THE PEOPLE'S REPUBLIC OF CHINA EXPORTED AND PRODUCED BY
BEIJING DIXON TICONDEROGA STATIONERY COMPANY LIMITED, ENTERED, OR
WITHDRAWN FROM WAREHOUSE, FOR CONSUMPTION ON OR AFTER 11/04/2003,
YOU SHALL COLLECT CASH DEPOSITS OF ESTIMATED ANTIDUMPING DUTIES
AT THE RATE IN EFFECT ON THE DATE OF ENTRY.

4. DO NOT LIQUIDATE ANY ENTRIES UNTIL YOU HAVE RECEIVED
LIQUIDATION INSTRUCTIONS.

5. IF THERE ARE ANY QUESTIONS REGARDING THIS MATTER BY CBP
OFFICERS, THE IMPORTING PUBLIC, OR OTHER INTERESTED PARTIES,
PLEASE CONTACT DAVINA HASHMI OF IMPORT ADMINISTRATION,
INTERNATIONAL TRADE ADMINISTRATION, OFFICE OF AD/CVD ENFORCEMENT
GROUP I, OFFICE 2, AT (202) 482-0984 (GIO2: MZ).

6. THERE ARE NO RESTRICTIONS ON THE RELEASE OF THIS INFORMATION.

CATHY SAUCEDA
Work Cited

http://domino.expeditors.com/apps/customs/customs.nsf/0/92234aa06ed9dbac88256e04007b6a6d?OpenDocument

http://www.americanreformation.org/policy/BuyAmerican/WritingAmerican.htm

http://www.findarticles.com/cf_dls/m4PRN/2002_Feb_14/82842352/p1/article.jhtml

http://biz.yahoo.com/e/030513/dxt10-q.html

http://www.dixonusa.com/index.cfm?fuseaction=company.start

McGraw-HIll, International Business, page 32
Appendix 2