Question

Case Study 1

Reference: Hutt, M. & Speh, T. (2014), Business Marketing Management: B2B (11th edition), South-Western Cengage Learning.

Chapter 6 – Case Study page. 171-172

Schwinn: Could the Story Have Been Different?

At its peak, Schwinn had more than 2000 U.S. employees, produced hundreds of thousands of bicycles in five factories, and held 20 percent of the market. Today, however, Schwinn no longer exists as an operating company. The firm, founded in 1895, declared bankruptcy in 1992 and closed its last factory one year later. The Schwinn name is now owned by Canada-based firm and all of the bikes are manufactured in Asia. Harold L. Sirkin, a senior vice president at Boston Consulting Group, argues that Schwinn's story could have been different. He outlines two alternative pathways that might have provided a happier ending to the Schwinn story.

Alternative Reality One: Aim High

Under this scenario, Schwinn decided to center on midrange and premium segments of the market, leaving low-end bicycles for competitors. However, the firm determined that it could substantially reduce cost by turning to low-cost partners in rapidly developing economies for labor-intensive parts. Schwinn interviewed hundreds of potential suppliers and locked the best ones into long-term contracts. Schwinn then reconfigured its operations to perform final assembly and quality inspection in the United States. Still, the changes forced Schwinn to make some painful choices- nearly 30 percent of the workforce was laid off. However, such moves allowed Schwinn to produce bikes at half the previous cost, maintain a significant position in the midrange bicycle market, and leverage its product design capabilities to build a strong position for its brand in the high-end market. As a result, Schwinn is extremely competitive in the U.S. market and is a major exporter of premium bikes to China and Europe. Because of this growth, Schwinn now employs twice as many people in the United States as it did before outsourcing began.

Alternative Reality Two: If You Can't Beat Them, Join Them

Schwinn went on the offensive and moved as quickly as possible to open its own factory in China. By bringing its own manufacturing techniques and by training employees in China, Schwinn was able to achieve high quality and a much lower cost. However, the decision meant that 70 percent of Schwinn's U.S. workers would lose their jobs. But Schwinn kept expanding its China operations and soon started selling bicycles in Chinese market, not only at the low-end but also to the high-end, luxury segment, leveraging its brand name. Schwinn then extended its global operations and reach by adding new facilities in Eastern Europe and Brazil. The company has sold over 500,000 bikes in new markets.

My question is

How distinctive types of international strategy and the essential components of a global strategy are applied to this case study? Apply the theory studied in chapter 6 as well in other chapters to answer the question and also support the answer with other academic resources. (500 words).

it says that it is from chapter 6 of the Book Business Marketing Management (11 edition), Chapter 6.

Answer 1

As given in the case, Schwinn used two distinctive strategies. The first was creating a global supply chain which used international trade and optimized the business using global strategy to ensure the best results were obtained. When dealing with optimization of resources there are different approaches which are undertaken in both the cases. For a global strategy, optimization needs to be at a global scenario considering the best opportunity and value delivered in all regions. Suppose the raw material available is limited and the firm has to ensure the profit is maximized, then the optimization model and planning would be done in such a way that all the different parameters in a business which is relevant across different geographies are considered and only based on that the optimized results are obtained. In the given case Schwinn in the first scenario, used such a model to identify the best optimal results which was focused on reducing the cost of each product. This meant there were certain layoff`s in the US factory but overall the firm focused on ensuring the product was cheaper. They sourced the best materials and suppliers and entered into long term contracts with them which is the ideal scenario when dealing in global strategy and dynamic markets.

In the second scenario, they used international strategy where they brought the same concept as in the US factory to a new region in China, trained the staff to the same process and setup factories which provided the bikes were made at a very low cost. This enabled Schwinn to leverage not only the low end segment but also the high end and luxury segments. This shows the core feature of international strategy where the firm uses a local concept, goes to a new region and establishes practices which are replica of the same process. The firms in such cases focus on ensuring each region or factory can perform well individually. But in this case, since the China operations were providing the higher returns on investment, it was a decision the leader at Schwinn had to take regarding reducing the manpower by 70 percent in US factory. Another byproduct of such international strategy is also seen evident in the case, where a new profit center takes away all the investments and the low profit generating regions are shut down.

All the decisions taken were from a long term strategic view. Both the cases show different approach to a same problem which is regarding cost optimization of the bikes. The business goal of cost optimization was achieved through different approach in both cases. The business plans and strategic decisions were taken in such a way that the optimized result was obtained at Schwinn.