In: Operations Management
One Question = Please analyze this case, using International Trade methodology (not a short answer please) The Schwinn Bicycle Company illustrates the notion of globalization and how producers react to foreign competitive pressure. Founded in Chicago in 1895, Schwinn grew to produce bicycles that became the standard of the industry. Although the Great Depression drove most bicycle companies out of business, Schwinn survived by producing durable and stylish bikes sold by dealerships that were run by people who understood bicycles and were anxious to promote the brand. Schwinn emphasized continuous innovation that resulted in features such as built-in kickstands, balloon tires, chrome fenders, head and tail lights, and more. By the 1960s, the Schwinn Sting Ray became the bicycle that virtually every child wanted. Celebrities such as Captain Kangaroo and Ronald Reagan pitched ads claiming that “Schwinn bikes are the best.” Although Schwinn dominated the U.S. bicycle industry; the nature of the bicycle market was changing. Cyclists wanted features other than heavy, durable bicycles that had been the mainstay of Schwinn for decades. Competitors emerged, such as Trek, which built mountain bikes, and Mongoose, which produced bikes for BMX racing. Falling tariffs on imported bicycles encouraged Americans to import from companies in Japan, South Korea, Taiwan, and eventually China. These companies supplied Americans with everything ranging from parts to entire bicycles under U.S. brand names, or their own brands. Using production techniques initially developed by Schwinn, foreign companies hired low-wage workers to manufacture competitive bicycles at a fraction of Schwinn’s cost. As foreign competition intensified, Schwinn moved production to a plant in Greenville, Mississippi in 1981. The location was strategic. Like other U.S. manufacturers, Schwinn relocated production to the South in order to hire nonunion workers at lower wages. Schwinn also obtained parts produced by low-wage workers in foreign countries. The Greenville plant suffered from uneven quality and low efficiency, and it produced bicycles no better than the ones imported from Asia. As losses mounted for Schwinn, the firm declared bankruptcy in 1993. Eventually Schwinn was purchased by the Pacific Cycle Company that farmed the production of Schwinn bicycles out to low-wage workers in China. Most Schwinn bicycles today are built in Chinese factories and are sold by Walmart and other discount merchants. Cyclists do pay less for a new Schwinn under Pacific’s ownership. It may not be the industry standard that was the old Schwinn, but it sells at Walmart for approximately $180, about a third of the original price in today’s dollars. Although cyclists may lament that a Schwinn is no longer the bike it used to be, Pacific Cycle officials note that it is not as expensive as in the past either. One Question = Please analyze this case, using International Trade methodology (not a short answer please)
ANS :-
First of all we should know about the International Trade methodology. The study of international trade is among the oldest branch in economics. But it flourishes today because of the facts and issues that brought into being continue to demand attention by all countries. Each economy is able to use its resources most efficiently and to reap significant economies of scale. Conversely, a country's international transactions impinge on the conduct of domestic policies.The foreign trade policy had a thrust towards creating a more comprehensive environment in the economy as a means to improve the productivity and efficiency of the system.
In this case study as we know that The Schwinn Bicycle Company Founded in Chicago in 1895, Schwinn grew to produce bicycles that became the standard of the industry.When companies talk about going global, they often justify their business decisions by expressing what amounts to a regret about the success of the American economic system: American workers have become so well paid that they can't compete with low-wage workers in developing countries, who can do the job.
The Rise and Fall of the Schwinn Bicycle Company, An American Institution. For nearly a century — between 1895, when Ignaz Schwinn and his partner, Adolph Arnold, incorporated Arnold, Schwinn & Company to make, buy and sell bicycles and other vehicles, and 1993, when Ignaz's great-grandson, faced with bankruptcy, presided over the company's humiliating dismemberment-by-corporate-raider — the name Schwinn came to represent the totemic American story.The need for stronger but lighter-weight material hugely accelerated the technology of bike-making, but Schwinn's aging Chicago facility could not accommodate the new processes. Gradually, the company began importing bikes from Japan, Taiwan and China, eventually becoming more a marketer than a maker of bikes.
Schwinn survived by producing durable and stylish bikes sold by dealerships that were run by people who understood bicycles and were anxious to promote the brand. Schwinn emphasized continuous innovation that resulted in features such as built-in kickstands, balloon tires, chrome fenders, head and tail lights, and more. By the 1960s, the Schwinn Sting Ray became the bicycle that virtually every child wanted. Celebrities such as Captain Kangaroo and Ronald Reagan pitched ads claiming that “Schwinn bikes are the best.” Although Schwinn dominated the U.S. bicycle industry; the nature of the bicycle market was changing .Schwinn moved production to a plant in Greenville, Mississippi in 1981. The location was strategic. Like other U.S. manufacturers, Schwinn relocated production to the South in order to hire nonunion workers at lower wages. Schwinn also obtained parts produced by low-wage workers in foreign countries. The Greenville plant suffered from uneven quality and low efficiency, and it produced bicycles no better than the ones imported from Asia
The final days of Schwinn would be almost laughable if they weren't so tragic. Strong companies are resources that should be nurtured.No one but a Schwinn would ever run Schwinn, and few not named Schwinn ever came close to real power in the companyIn the end, Edward Jr. tried to blame the company's woes on overseas competition, but the real problem was in his own backyard.