1. Does Shimano's home base fit Porter's definition of an advantaged location? 2. Did the advantages or disadvantages of its location change over time? If so, how did Shimano respond - does it fit Porter's framework of a global strategy? 3. Would you recommend that Shimano develop additional functions in North America (besides sales and service) as it has in Asia and in Europe? Why or why not?
November 16, 2011
International Business MBAD 6244
Professor Rafael Lucea
George Washington University School of Business
Introduction. Over Shimano’s lengthy history, shifts in factor conditions; demand conditions; supporting and related industries; firm strategy, structure, and rivalry; and government and regulatory factors (see Exhibit 1) have heightened and dulled Sakai, Japan as an advantaged location for its home base. This analysis examines Shimano’s competitive advantages over four distinct periods in the company’s life: early history (1920-70), rise to industry leadership (1971-79), explosion of the mountain bike market (1980-1990), and recent competition with SRAM (1991-2001) (see summary in Exhibit 2). Using Porter’s Diamond framework, this paper dissects the events and conditions contributing to Shimano’s successes and struggles during each of the aforementioned periods and prescribes a global strategy to add value to the firm for the future. Early History. (1920-1970) As a major center of bicycle production in Japan, Sakai provided favorable factor conditions such as local expertise in bicycle manufacturing and highly skilled, innovative workers. The long tradition of samurai sword-making provided a strong related industry, given that both require skilled metalworking. Furthermore, the presence of bicycle manufacturing in Sakai since the introduction of the bicycle to Japan in the late 19th century strengthened its advantage as a location from the perspective of both supporting industry and competition. These local suppliers and competitors provided not only domestic rivalry but also sold into international markets in neighboring Asian countries, fulfilling Porter’s requirement for internationally-competitive local suppliers. Additionally, Shimano’s family-business structure and dedication to quality and reliability were aligned with Japanese cultural values, making Japan an excellent strategic location for its production. Moreover, although only high-end components had typically been branded in the past, part of Shimano’s strategy from early on involved branding its group-sets, helping it to change this industry trend and strengthening the dominance of Japan as an advantaged location for the bicycle industry. Perhaps the weakest point of the diamond was the domestic demand over this period. It was not characterized by sophisticated and demanding customers, though it was strong in the sense that consumers and manufacturers were in need of bicycles and componentry, respectively. Demand conditions were further aggravated by the tumultuous economic and political events of the Great Depression and World War II. However, demand factor shortcomings were overcome by the strength of the innovation culture, industry cluster, branding strategy, and cultural alignment to make Japan an advantaged location for Shimano during its early history. Rise to Industry Leadership. (1971-1979) By the early 1970s, the changing character of the bicycle industry had eroded the advantaged-location status Shimano had enjoyed up to that point. Domestic demand still presented a problem as it had not grown in sophistication, while the European market had become the clear leader in terms of demand for high-end componentry and innovation. While domestic demand was unable to provide the basis for product innovation, Shimano employed a global strategy to diminish the negative impact of the demand conditions of its home-base location on international growth by establishing a marketing subsidiary in...