Schwinn: Could the Story Have Been Different.

At its peak, Schwinn had more than 2000 US. employees, produced hundreds of I thousands of bicycles in five factories, and held 20 percent of the market. Today, g 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 a Canada-based firm and all of the bikes are manu factored in Asia. “I Harold L. Sirkin, a senior vice president at the 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. 5Il

Alternative Reality One: Aim High

Under this scenario, Schwirm 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 costs by turning to _low»cost partners in rapidly developing economics for labor-intensive parts. Schwinn inte-reviewed hundreds of potential suppliers and locked the best ones into long~term I
contracts. Schwinn then reconfigured its operations to perform final assembly ‘I
and Quality inspection in the United States. Still, the changes forced Schwinn to i make some painful choiCesflnearly 30 per-Cent of the workforce was laid off. I However, such moves allowed Schwinn to produce bikes at half the previous I cost, maintain a significant position in the midrange bicycle market, and leverage 1
its product design capabilities to build a strong position for its brand in the high- I end market. As a result, Schwinn is extremely competitive in the US. market and is a major exporter of premium bikes to China and Europe. Because of this i 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 naming 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 US. workers would lose their jobs. But Schwinn kept expanding its China operations and seen started selling bicycles in the Chinese market-not only at the low end but also to Harold L. Sit-kin, “Don’t Be a Schwinn,“ BCG/Pmpem’srr, 77:: Boston Carmdting Group, inc. January 2005. accessed at httpflwwbcgmum 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 and now has more employees in the United States than it did before deciding to expand into international markets.

Discussion Question
1. By facing fierce competition from 1ow-cost rivals, many business-to-business
firms in the United States and Europe face a situation today similar to Schwinn ’3.
What lessons can they draw From the Schwinn story? How can they strengthen
their competitive position?