PLANT LOCATION PUZZLE
BY AJAY SHARMA
GLOBAL SUPPLY CHAIN MANAGEMENT
DR. BURAK KAZAZ
GSB - 486
This particular case study deals with a bicycle manufacturer named The Eldora Company (EDC). It is faced with a situation where it has prospered in the local marketplace but is suffering from stagnant growth potential. Much of their problem is due to heavy low-cost competition and a saturated marketplace. Management is therefore burdened with the decision to manufacture offshore (i.e. China, Taiwan, Mexico, etc.) and penetrate a new target market.
EDC’s success is credited to their corporate flexibility and service. They have been able to adapt quickly to changing demand and optimize the time of product introductions. Located within a high demand market segment has also facilitated the winning criteria of service and flexibility.
Prior to defining EDC’s strategy for growth it is important to work towards the corporate mission. The case does not distinguish between a global or domestic mission for Eldora. For the sake of further analysis, we will assume EDC’s mission is to become a global corporation. This assumption is supported by EDC’s joint venture with an Italian manufacturer, Rinaldi. Conclusion:
China has an established base of skilled laborers (available with other bicycle manufacturers in the area). They have also been quoted to “out compete other places”.6 Attaining a wholly owned subsidiary also ensures that EDC’s technology remains with them. This is vital in this highly competitive industry. This strategy will prevent the birth of new competitors (such as Giant). China has also prospered via increased manufacturing and growth in the past century (Appendix 1). They have also increased value added work by providing complete assemblies to the bicycle industry (SIC 3592). Six out of seven competitors studied have manufacturing locations offshore. Some are joint ventures while others are wholly owned subsidiaries (WOS). Joint ventures have resulted in the birth of new competitors and technological imitation. Design should remain in the United States. This will ensure technological advances. EDC should also exploit their joint venture in Italy to gain a larger market share in Europe. Targeting the Far East market requires the design of “simple” bicycles, which can be accomplished in the U. S. With the promotion of U. S. business in China, cultural barriers are reduced. The growing Chinese infrastructure will promote low cost automated manufacturing with low labor cost. Strategies for economic growth ensure financial stability in the Far East. Globalization further liberalizes political factors associated with trade. Therefore, leading to a more stable economic structure in the future. A driving force in this decision is the renowned success that the competitors have had with this strategy. It is essential to promote European sales while paralleling manufacturing and sales in China. A sales force in China should be set-up; preferably with a Chinese sales force to better understand the market and minimize training cost. The European market place is growing and EDC has an advantage in entering that market.
After reviewing economic, market, cultural, and cost forces regarding EDC’s decision, it is my recommendation to pursue a wholly owned subsidiary in China. Analysis:
Initially we will examine the market forces involved for EDC’s global strategy. Demand for bicycle transportation is the highest in China, followed by Netherlands, India, and Japan (appendix 2)18. Major competitors of EDC include Huffy, Trek, Specialized, Giant, and Schwinn. In 1982, Huffy boasted automation, marketing, and “manufacturability” of their bicycles. This was the driving force behind their success in the domestic marketplace.10 Within five years, management decreased from seventy to seven. This was in an effort to maintain competitive advantage.12 Four years after this drastic...
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