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]
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.”
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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.
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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.
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When the U.S. Justice Department charged Standard & Poor’s with fraud earlier this month and demanded $5 billion in restitution, it was the culmination of the Obama administration’s four-year pursuit of financial chicanery masquerading as sacrosanct credit ratings.
Two dozen lawyers were assigned to a probe they called “Alchemy,” for the medieval pseudo-science that tried to turn lead into gold, as the department modeled a federal case on an analogy for failed mortgage-debt packages. They dug into 30 million documents, found cooperating witnesses and say they’ve got the evidence to win in court on an issue President Barack Obama since 2009 has been saying helped bring the U.S. economy to the brink of collapse.
“From the beginning of our effort to deal with the crisis, we had the ratings agencies high on the list,” former Representative Barney Frank, a Democrat and co-author of the 2010 Dodd-Frank financial regulation law, said in a telephone interview. “Our only frustration is that we couldn’t come up with better ways to deal with them, but we did everything we could think of in the legislation to restrict them.”
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From The New York Times
Zhang Xiaoping’s mother dropped out of school after sixth grade. Her father, one of 10 children, never attended.
But Ms. Zhang, 20, is part of a new generation of Chinese taking advantage of a national effort to produce college graduates in numbers the world has never seen before.
A pony-tailed junior at a new university here in southern China, Ms. Zhang has a major in English. But her unofficial minor is American pop culture, which she absorbs by watching episodes of television shows like “The Vampire Diaries” and “America’s Next Top Model” on the Internet.
It is all part of her highly specific ambition: to work some day for a Chinese automaker and provide the cultural insights and English fluency the company needs to supply the next generation of fuel-efficient taxis that New York City plans to choose in 2021. “It is my dream,” she said, “and I will devote myself wholeheartedly to it.”
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Wall Street rose on Thursday, with the S&P 500 hitting a five-year intraday high, as investors were cheered by rosy economic data and better-than-expected results from online marketplace eBay (EBAY.O).
In encouraging signs for the labor and housing sectors, data showed the number of Americans filing new claims for unemployment benefits fell to a five-year low last week, while residential construction jumped in December.
“It reminds us that although the situation on the job front hasn’t improved significantly, slowly but surely it is getting better,” said Andres Garcia-Amaya, global market strategist at J.P. Morgan Funds, in New York.
EBay’s shares rose 3 percent to $54.50 a day after it reported holiday quarter results that just beat Wall Street expectations. It gave a 2013 forecast that was within analysts’ estimates.
The S&P climbed above an intraday peak set in September to its highest since December 2007.
Gains were capped by weakness in the financial sector, with Bank of America (BAC.N) and Citigroup (C.N) down more than 2 percent following results.
Full story here
From The New York Times
The pink Toyota Crown sedan that took center stage at a holiday event here last week was meant to shock, and it did.
The Crown, the preferred ride of staid Japanese executives, had gotten an edgy makeover. With a new oversize grille, vamped-up hybrid engine and an unveiling at a fashion mall, there was nothing stodgy about this car.
“Reborn,” read a logo beamed onto a large screen.
“My initial reaction was: ‘You’re kidding! Please, not pink,’ ” Akio Toyoda, the Toyota chief executive and a scion of the Japanese automaker’s founding family, told reporters at the event. “But being reborn does mean taking on new challenges.”
Toyota has spent much of the last year trying to leave behind what has been a tumultuous four years in which the automaker booked its largest loss ever, became embroiled in a recall scandal, struggled with a decimated supply chain after the 2011 tsunami and weathered the punishing effects of a strong yen.
One by one, the pieces have been falling into place.
In 2012, Toyota leapfrogged General Motors and Volkswagen to regain its title as the world’s largest automaker, selling 9.7 million vehicles, a record for the company. Now the company is on the cusp of a recovery, analysts say, that could put it on track to post the kind of growth promised before the crises.
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“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
Since Wang Guan arrived in the U.S. from Beijing in February, the correspondent for state-owned China Central Television embedded with the U.S. Navy and broadcast live from the Republican and Democratic conventions. “It’s exciting?…?to observe democracy in action,” he says.
Guan is one of 100 journalists who CCTV has put to work in Washington, D.C., this year. He and a few dozen colleagues send dispatches in Mandarin to 42 channels back home, while 60 others produce business and news-magazine shows for a new English-language channel. Dubbed CCTV America, it airs on cable and satellite and is meant to burnish China’s image in the U.S. “There’s an overall sense in government circles that China is not always given a fair shake in Western media coverage,” says Jim Laurie, a veteran of ABC (DIS) and NBC (CMCSA) who consults for CCTV. “They see opportunities at a time when the U.S. media is contracting.” CCTV officials declined to be interviewed.
The push is part of a broader expansion of Chinese media in the U.S. Xinhua, the government-owned news wire that launched an English-language edition in America in 2010, announced the opening of its U.S. headquarters in a Midtown Manhattan tower last year with a massive LED-lit billboard in Times Square. According to the U.S. Department of State, the U.S. issued 868 visas to Chinese journalists in 2011, up from 616 the prior year. “The Chinese see the BBC, CNN (TWX), the Qataris, the Russians as the big players,” says Laurie. “They say?…?‘We want to be part of the game.’”
Full article here