Phin Upham: How Taiwan’s Giant Bicycles broke into the US Bicycle Market
Originally published in Managing Global Transitions (Vol 4, Issue 1, 2006) by Phin Upham
Abstract:
I argue that capabilities and barriers to entry are, in certain circumstances, interconnected in such a way that sacrificing one of them can lead to the subsequent vulnerability or erosion of another capability or barrier to entry. I illustrate this through a study of the US bicycle market in the 1980′s in general, and Schwinn Corporation and Giant Manufacturing in particular, arguing that both the barriers to entry and the firm capabilities were interrelated. A specific set of decisions by Schwinn had broad and unanticipated effects that went beyond the capacity they explicitly relinquished. In this case manufacturing and distribution were tightly linked in such a way that without some form of tight link between them successful incremental innovation became difficult. Seemingly unrelated capabilities and strengths become mutually reinforcing or interconnected. Instead of being able to choose to add a single capability, or choose to discard one, companies may instead be choosing between sets, groups of interlinked, or patterned capabilities. A seemingly small change may require a major reorganization of other core capabilities that its ostensible status belies.
Preview:
On a sunny day in 1972 in Tachia, a port city in western Taiwan, a new bicycle company called Giant Manufacturing o?cially opened its doors. Back then, the vast majority of the world bicycle market was dominated by established brands such as Schwinn Corporation, Derby Cycle, andHu?y Corporation. A handful of domestic u s brands controlled 76% of the u s market. These ?rms had an enviably entrenched industry position in the u s. From the industry perspective, bicycles were a hard market to break into indeed: the level of technological expertise was high, the name brand crucial, the distribution painstakingly complex, and,perhaps most importantly, the distribution networks of specialty shops were relationship-based and complex (Porter 1980; Porter 1996). When these hurdles are combined with the high e?ciencies of scale intrinsic to bicycle production, the barriers to entry in that industry were indeed substantial and Giant’s obstacles were great.
Given this, the rise of the bicycle maker Giant Manufacturing has been surprising. By 1980, Taiwan was the largest exporter of bicycles in the world and today with over $ 400 million in total sales; Giant Manufacturing is one of the largest bicycle producers in the world. Indeed, in2001, Giant was named one of Fortune Magazine’s ‘20 best small companies in the world’ (http://money.cnn.com/magazines/fortune). Perhaps almost as surprising as Giant’s rise is the fall of the old guard of bicycle producers. Derby Cycle had gone into bankruptcy and was largely broken up, Schwinn had been sold out of bankruptcy to Paci?c Cycle fora mere $ 86 million and then acquired by Dorel Industries in 2004, and Hu?y went into bankruptcy in 2004 for restructuring, emerging in 2005. All this was during a period of 30 years of healthy growth in the bicycle industry as a whole.
[full essay available at: link]
Phin Upham attended the Wharton School of the University of Pennsylvania. Phin is a Term Member of the Council on Foreign Relations. He can be reached at PhinUpham.com.
Fake Or Not, New York Times’ Tesla Review Speaks Truth About Electric Cars
From Forbes
Elon Musk, the founder and chief executive of Tesla Motors, is accusing the New York Times of faking data about how the electric Model S performed in cold Northeast weather.
In a series of tweets and then in a phone call to CNBC, Musk blasted reporter John Broder’s damaging review of the plug-in sedan in last Friday’s New York Times, saying the car died because the reporter didn’t follow the company’s test-drive instructions. And Musk claims he has proof: “Vehicle logs tell true story that he didn’t actually charge to max & took a long detour,” according to one tweet. Musk told CNBC that Broder took “an extended tour through Manhattan” and at times drove “10 miles or above the speed limit.” He promised more details in an upcoming blog post on Tesla’s website.
The New York Times shot back, saying the account was “completely factual, describing the trip in detail exactly as it occurred. Any suggestion that the account was ‘fake’ is, of course, flatly untrue. Our reporter followed the instructions he was given in multiple conversations with Tesla personnel. He described the entire drive in the story; there was no unreported detour. And he was never told to plug the car in overnight in cold weather, despite repeated contact with Tesla.”
Full story here
Retail sector weighs on job openings in December
From Fox Business
A steep decline in retail job vacancies pulled down the number of jobs open in the United States in December, a government report showed on Tuesday.
Job openings – a measure of labor demand – slipped to 3.6 million from 3.8 million in November, the Labor Department said in its monthly Job Openings and Labor Turnover Survey.
Retail sector job openings dropped 76,000 to 420,000, while manufacturing saw openings declining to 259,000 from 281,000 in November.
Full story here
KC Fed Chief Says Economy At Risk When Bonds Sold
From Fox Business
Kansas City Fed President Esther George said the Federal Reserve may cause problems for the economy when it begins to sell the securities it is buying in an effort to support the economic recovery, according to a report from the Omaha World Herald, citing a talk she delivered to the University of Nebraska at Omaha. George was the only voter to dissent at the Federal Reserve’s last interest-rating meeting. According to the report, she said the increased balance sheet and low interest rates could defeat the goal of encouraging stable growth without higher inflation, the report said. “I also know that keeping (interest) rates low has its own set of consequences,” George said, citing the higher returns pension funds and insurers have to chase, the newspaper added.
Full story here
Apple CEO: Einhorn Lawsuit ‘Bizarre’
From Fox Business
Apple (NASDAQ: AAPL) CEO Tim Cook on Tuesday described as “bizarre” a hedge fund’s efforts to force the technology giant to spend or otherwise disperse some of its $137 billion in cash holdings.
It’s “bizarre” that Apple is being sued for something Cook apparently views as being beneficial to shareholders, the CEO said at a technology conference sponsored by Goldman Sachs in San Francisco.
Cook called the lawsuit a “silly sideshow,” a “waste of shareholder money,” and “not a seminal issue for Apple.”
High profile hedge fund manager David Einhorn is suing Apple in an effort to get the company to spread its wealth around. Einhorn, founder of Greenlight Capital, criticized Apple last week for existing with a “Depression-era” mentality in which a giant cash horde is seen as a buffer against bad times.
Full story here
Group of 7 Says It Will Let Market Decide Currency Values
From The New York Times
Seven major developed countries including the United States and Germany pledged on Tuesday to let foreign exchange markets determine the value of their currencies.
The statement by the Group of 7 prompted relief in Japan, where policy makers have been under fire from some officials in Europe and the United States who say they are unfairly seeking to give their economy a shot in the arm by bringing down the value of the yen.
The statement “properly recognizes that steps we are taking to beat deflation are not aimed at influencing currency markets,” said Taro Aso, the Japanese finance minister.
In a statement, the G-7 powers said they would consult closely to avoid moves that could hurt stability. But they restated a commitment to market-determined exchange rates.
“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,” the G-7 said in the statement, which was posted on the Web site of the Bank of England.
Full story here
Slower Growth of Health Costs Eases U.S. Deficit
From The New York Times
A sharp and surprisingly persistent slowdown in the growth of health care costs is helping to narrow the federal deficit, leaving budget experts trying to figure out whether the trend will last and how much the slower growth could help alleviate the country’s long-term fiscal problems.
In figures released last week, the Congressional Budget Office said it had erased hundreds of billions of dollars in projected spending on Medicare and Medicaid. The budget office now projects that spending on those two programs in 2020 will be about $200 billion, or 15 percent, less than it projected three years ago. New data also show overall health care spending growth continuing at the lowest rate in decades for a fourth consecutive year.
Health experts say they do not yet fully understand what is driving the lower spending trajectory. But there is a growing consensus that changes in how doctors and hospitals deliver health care — as opposed to merely a weak economy — are playing a role. Still, experts sharply disagree on where spending might be in future years, a question with major ramifications for the federal deficit, family budgets and the overall economy.
Full story here
How Did Karen Mills, the Departing SBA Chief, Do?
From Businessweek
You already know about the Pope’s resignation. In case you missed the latest member of President Obama’s Cabinet to step down: It’s Karen Mills, the head of the Small Business Administration.
She announced her departure today in a note to her staff and indicated she would stay on until her successor is confirmed. In a statement, Obama thanked her for her “outstanding work” and credited her with helping “America’s small businesses recover from the worst economic crisis in generations.”
Mills, a Harvard-educated former venture capitalist who took the reins at the federal agency in 2009, is leaving on a positive note. Over the last four years, she said, the SBA supported more than $106 billion in lending to more than 193,000 small businesses and entrepreneurs, including two record years of delivering more than $30 billion in loan guarantees. When she inherited it, the agency had languished under the George W. Bush administration, which cut its funding by about 26 percent since 2001 and sliced staff by 18 percent since 2003, according to our story at the time of her Senate confirmation.
Full story here
The U.S. Economy Probably Grew After All, Thanks to Oil
From Businessweek
There were big headlines—here and elsewhere—after the government reported on Jan. 30 that the U.S. economy shrank in the fourth quarter.
Never mind. A little more than a week later, surprisingly good trade figures today are leading economists to predict that the government will revise its gross domestic product estimate for the last three months of 2012 into positive territory.
The Department of Commerce said the trade deficit shrank 21 percent to about $39 billion, the smallest trade gap since January 2010. Oil was the biggest factor. The U.S. imported the fewest barrels of crude in almost 16 years, while fuel exports actually rose.
Commerce’s Bureau of Economic Analysis releases its first estimate on quarterly GDP growth just a month after the quarter ends, so it’s forced to make assumptions and extrapolations to fill in for missing data. The accuracy of its estimate improves as more complete information arrives.
Full story here
Higher Chocolate Prices May Follow Africa’s Cocoa Shortfall
From Businessweek
This Valentine’s Day, Americans will spend a record $1.05 billion on chocolate and candy, according to the National Confectioners Association. But while Mamert Kablan Angora helps keep sweethearts sweet by growing cocoa on part of the 15 hectares (37 acres) of Ivory Coast land his family has farmed for generations, his 31-year-old son with the same name prefers an office job in the nation’s biggest city. “I have seen my parents suffering in hoping that days will be better in growing cocoa, but the situation is deteriorating year after year,” says Mamert’s son, who works at an import/export firm in Abidjan, where he can use his master’s degree in business. “Cocoa can no longer allow someone to take care of oneself or of a family.”
Villagers in West Africa, which produces 70 percent of the world’s cocoa, are abandoning the crop because its price is volatile, farms are too small to be economical, yields haven’t risen for decades, and alternative crops such as rubber are more lucrative. “Everybody is worried that the farmer is living on the edge of poverty,” says Barry Parkin, the head of global procurement and sustainability at Mars, whose products include M&M’s, the best-selling chocolate candy in the U.S. “They produce half a ton per hectare of cocoa, and it has been that way forever. All major agricultural products have improved their yields by a factor of 5 to 10 in the last 50 years, and cocoa hasn’t.”
Full story here
