Question

Doing business in global markets can be tricky,but the benefits that come from overseas successjustify much of the risk. That’s what Electra BicycleCompany’s founders discovered after theirbusiness’s growth suddenly halted. Throughoutthe early 2000s, many bicycle manufacturers concentratedon producing mountain and speed bikeswhile discontinuing casual models. BennoBazigerand JeanoErforth of Electra didn’t follow the fad,though, choosing instead to stick with cool,upright bikes perfect for cruising city streets.
The company thrived for years thanks to theirunique “comfort bikes.” However, major competitorslike Schwinn eventually took notice andbegan making their own sleek street bikes. Electra’sexplosive growth halted and the company’stwo founders searched for a solution. To grow further,the pair knew they would have to enter theglobal marketplace. They went on a search forplaces where their vintage sense of style and up-to-date technology would give them a comparativeadvantage against their bigger competitors.
Electra eventually settled on Taiwan as the sitefor its overseas manufacturing site. From Taiwan,the California-based company can simply exportbikes to neighboring Asian countries like Chinawhere bikes are most popular. They can in turnfeed their domestic demand by importing bikesinto the U.S., a practice that is actually cheaper forElectra than producing bikes on their home soil.This outsourcing of production to a foreign manufacturingplant helps Electra keep its costs down.If labor costs increase or instability flares upbetween Taiwan and China, Electra could move itsproduction to a less turbulent location.
Such unexpected problems represent just afew of the hurdles companies can face when theygo global. For example, laws against motorizedbikes forced Electra to tweak the design for itsTownie Go model in order to make the bike acceptablein some foreign markets. Despite these issues,global commerce puts companies on the radar ofmillions of new customers. This immense accesscan make all the additional effort needed for goingglobal worth it. In fact, Electra now sells morethan 100,000 bikes each year.
Electra’s success eventually brought it to theattention of Trek, a multinational corporationwith offices in Wisconsin, the UK, and Germany.The conglomerate bought Electra, which cannow use Trek’s established distribution networkto reach new markets more quickly and effectively.Letting their parent company worry aboutmatters like capitalization and manufacturinginfrastructure allows Electra to focus on otherthings, such as designing stylish bikes that are easy to ride and fun to own by people all overthe world.
Questions:
1. What major advantages did Electra gain by using a contract manufacturer in Taiwan to produce its bikes?
2. What major forces impact Electra (or any global producer) in trading in global markets?
3. What are the various strategies available to businesses looking to expand into global markets?

Answer 1

Answer:

1. The company "E" moved its manufacturing facilities from manufacturing in house to contract manufacturing in country "T".

The major advantages of moving manufacturing to the country "T" are as follows:

1. Lower labor costs,

2. No fixed costs

3. Proximity to asian markets,

4. Lower risks

• The Contry "T" is characrterized by low labor cost in comparison to the country "US" this gives the company a benefit to negotiate a lower price for the manufactured products.
• The company opted for contract manufacturing contract manufacturing allows the company to increase the capacity of manufacturing without investing heavily in set up costs.
• Being located in an aisan country allows the company to cater the need of Asian markets easily and effectively.
• This also lowers the risk as contract manufacturing allows moving to a different country for manufacturing if the political environment becomes volatile in one country.

2. The factors that impact Electra are the economical and financial situation.

• This had a strong effect for trading in global market.
• The other factors include economic differences, legal and regulatory forces.
• The difference that systems of law and regulations are also included as major forces that affect trading.