Originally published in Managing Global Transitions (Vol 4, Issue 1, 2006) by Phin Upham
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.
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]
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
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
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
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
U.S. stocks were little changed as investors watched corporate earnings before President Barack Obama’s State of the Union address.
Michael Kors Holdings Ltd. rallied 9.7 percent after raising its forecast in anticipation of a jump in same-store sales. Avon Products Inc. jumped 19 percent on better-than- expected profit and a plan to consider options for its Silpada jewelry unit. Coca-Cola Co. slipped 3 percent as global volume sales missed analysts’ estimates. Goodyear Tire & Rubber Co. fell 1.2 percent after providing a forecast that was below its prior estimate. Facebook Inc. sank 1.9 percent as Sanford C. Bernstein & Co. cut its recommendation.
The Standard & Poor’s 500 Index gained 0.1 percent to 1,518.54 at 12:15 p.m. in New York. The benchmark gauge reached its highest level since November 2007 on Feb. 8, completing its longest streak of weekly gains since August. The Dow Jones Industrial Average increased 33.10 points, or 0.2 percent, to 14,004.34 today. Trading in S&P 500 companies was 9.1 percent below the 30-day average at this time of day.
Full story here
“There are high hopes that the natural gas extraction technique known [as] hydraulic fracturing, or fracking, will boost the economy and bring the U.S. closer to energy independence, but if the energy industry expects to break new ground and fulfill a growing demand anytime soon, they need to make friends with the people who reside near the drilling rigs.”
So begins a recent Reuters story titled “A Local Obstruction in the Fracking Pipeline”. It’s difficult to imagine any other 60 word sentence ever written that contained more false premises and incorrect assumptions. As such, it is an unfortunately excellent example of the sort of inaccurate reporting about the oil and natural gas industry that takes place in the American media many times every day.
Let’s take the initial thought, that natural gas extraction through hydraulic fracturing “will” – presumably at some point in the future – “boost the economy”. The truth of the matter is that the extraordinary shale gas boom that has taken place over the last decade has already provided a major boost to the nation’s economy, and turned previously moribund parts of the country into marvels of economic development. From Pennsylvania to Ohio to Colorado to Louisiana to Arkansas to Texas, shale natural gas has helped to insulate communities and state economies from the seemingly intractable struggles of the national economy.
Full story here
If 2012 was the year of modest economic recovery and surprising Democratic election success, 2013 may be the year of perpetual fiscal policy crisis.
After watching the still-unresolved partisan battle over the fiscal cliff, it is increasingly hard to imagine Congress and President Obama reaching anything like a big budget deal next year. Instead, it looks as if lawmakers will spend 2013 staggering from crisis to crisis, not unlike a bunch of nasty drunks weaving their way from barroom to barroom.
First, they will somehow have to avoid this year’s cliff. Then, in late winter, they are likely to do fiscal battle all over again as the nation’s borrowing authority reaches its limit and a temporary government funding bill expires. (Yesterday, Treasury said it would hit the debt ceiling on New Year’s Eve, but it can delay the day of reckoning for a few months). At the very least, this will absorb nearly all of Washington’s energy for the first quarter of 2013. And it will leave little time and enthusiasm for a Big Deal.
Full story here
When Robert Freed walked into Pet Foods Plus, his flooded store on Midland Avenue in Staten Island, two blocks from the Atlantic Ocean, he knew what he smelled immediately: the stench of rotten kibble and cat food, a few tons of it. During good times, that $250,000 worth of inventory was the equivalent of Freed’s bank. Now his windows had been broken, the walls had been pushed in by the storm surge, and his counters and the platform they rested on were gone, washed way up the avenue. His racks and shelves were knocked over, dog food was spread all over the floor, his cat toys and doggie chews soggy and covered in what looked like seaweed.
It was Oct. 31. Rob, 47, and his younger brother Matt, 37, had waited out the storm in New Jersey. Their homes were in the highest-risk, Zone A sections of Staten Island, as was their store. The first morning the Outerbridge Crossing, one of the bridges that connect New Jersey to Staten Island, reopened, they hopped in their cars to check on their store. Rob had gotten calls from friends and neighbors telling him it was on fire, the callers shouting over emergency sirens wailing in the background. He’d dismissed these as the hysterical bulletins of those who were still in a state of shock from the flood. But after crawling across Staten Island—traffic was backed up because the traffic lights were out—he realized that the MetroPCS location next door had indeed gone up in flames. The old, wooden clapboard house was now a charred mess spilling blackened shingles into the street.
[Full article here
Now that I sit on the other side of the table, it’s easier for me to weigh in on topics that I could never have done as an admissions dean. In my last post, I talked about my disappointment in the company that provides essays for sale. Yes, I believe it is important for applicants to conduct due diligence, and essay examples may be of some use. In my opinion, however, too many applicants get caught up trying to write what others believe a school wants. What worked for one person to be admitted may not necessarily work for anyone else.
Today I’d like to comment on a related topic, the role of admissions consultants. I’ve always felt it was important for applicants to put together their own applications. Increasingly, however, the amount of work required to understand the differences among programs, take the GMAT/GRE, identify your own developmental needs and goals, and prepare all the application materials while working a full-time job can be overwhelming and stressful. While an enormous amount of information is available at your fingertips, it can be very difficult to navigate the sheer volume of advice, regardless of the source or quality.
Although I still fundamentally believe that most applicants can manage the application process successfully without help, I do recognize that the stakes for getting admitted into a program of choice are high and that many applicants have very specific questions about their candidacy that admissions offices cannot answer. This is where admissions consultants can be of great help. Advisers can help to answer all types of questions and guide candidates through the process, from self-evaluation and school choice through the decision-making process, once all school decisions have been received. Their structured approach as well as knowledge of different programs can provide customized recommendations based on your experience, developmental needs, and career aspirations. Of the many services admissions consultants provide, advisory services are probably the most valuable.
[Full article here