Dixon Ticonderoga

Dixon Ticonderoga is one of the oldest public companies in the United States which is known for its flagship product, the ubiquitous yellow pencil, introduced in 1913, which is known to almost anyone who have attended schooling in the States. Dixon is the second largest pencil manufacturer in the country an annual revenue of a staggering $100 million. Dixon had always been a success story , but the 90s decade proved to be a troublesome time. The US based company had to undergo a turnmoil.

The problem originated in the early 90s when Chinese manufacturers hit the American market with more economical (cheap priced) pencils. Dixon Ticonderoga made efforts of retaliation by accusing the Chinese company of dumping pencils on the U.S. market at below cost and lobbying the government for protection. In 1994, when foreign pencil imports accounted for 16 percent of the market, the United States then enacted heavy antidumping duties on Chinese pencils, imposed tariffs on their companies in an audacious attempt to effectively raise their price resulting in the fall of rates drastically, but the Chinese never failed to surrender , they kept making better, cheaper pencils, and after a couple of years imports returned to the levels attained before the imposition of duties. In 1999, U.S. manufacturers shipped some 2.2 billion pencils domestically, down from 2.4 billion in 1991. During that time, imports jumped from 16 percent to over 50 percent of the market, with China leading the importers. The pencil industry continued to lobby for protection in an attempt to make things better for them and they were able to do so, as in the mid-2000 the Untied States renewed duties on pencil imports from China, imposing import tariffs as high as 53 percent on some brands.

Despite these efforts, Dixon was’nt that stable , hence they tried to meet the foreign competition on price by deploying innovative methods to come up with cheaper ways to make pencils. The company tried to make pencils out of recycled paper cases, but quickly backed away after the product jammed pencil sharpeners. Then the company looked at the wood used to make pencils-traditionally California incense cedar-and decided it was too exorbitant for all but the company’s premium brand. After this, the company switched to lower priced Indonesian jelutong wood. As an additional cost reduction measure instituted in the late 1990s, Dixon started to buy the erasers for its pencils from a Korean supplier, rather than its traditional U.S. supplier.

Despite these steps, the company continued to lose share to imports, and by 1999 it was beginning to lose money, too. Realizing that it could bring in finished pencils cheaper than it could manufacture them in the United States, Dixon established a manufacturing operation in Mexico. The original idea behind the Mexican operation was to supplement its U.S. manufacturing, but in late 2000 the company realized it needed to be more aggressive and switched many of its processes from the United States to Mexico, cutting some 40 jobs at its U.S. facility. In another strategic move, in 2000 Dixon created a wholly owned subsidiary in China. This subsidiary manufactures wooden slats for pencil manufacturing. The slats are then sent to Mexico, where they are turned into pencils. The lead for the pencils (carbon) is still made in the United States by Dixon, while the erasers are shipped from Korea. However, the Chinese franchise is still responsible for the production and distribution of certain

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