Reference no: EM131051906

ELECTRA BICYCLE COMPANY

Doing business in global markets can be tricky, but the benefits that come from overseas success justify much of the risk. That's what Electra Bicycle Company's founders discovered after their business's growth suddenly halted. Throughout the early 2000s, many bicycle manufacturers concentrated on producing mountain and speed bikes while discontinuing casual models. Benno Baziger and Jeano Erforth 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 their unique "comfort bikes."

However, major competitors like Schwinn eventually took notice and began making their own sleek street bikes. Electra's explosive growth halted, and the company's two founders searched for a solution. To grow further, the pair knew they would have to enter the global marketplace. They went on a search for places where their vintage sense of style and upto-date technology would give them a comparative advantage against their bigger competitors. Electra eventually settled on Taiwan as the site for its overseas manufacturing site. From Taiwan, the California-based company can simply export bikes to neighboring Asian countries like China where bikes are most popular.

They can in turn feed their domestic demand by importing bikes into the U.S., a practice that is actually cheaper for Electra than producing bikes on their home soil. This outsourcing of production to a foreign manufacturing plant helps Electra keep its costs down. If labor costs increase or instability flares up between Taiwan and China, Electra could move its production to a less turbulent location. Such unexpected problems represent just a few of the hurdles companies can face when they go global. For example, laws against motorized bikes forced Electra to tweak the design for its Townie Go model in order to make the bike acceptable in some foreign markets. Despite these issues, global commerce puts companies on the radar of millions of new customers. This immense access can make all the additional effort needed for going global worth it.

In fact, Electra now sells more than 100,000 bikes each year. Electra's success eventually brought it to the attention of Trek, a multinational corporation with offices in Wisconsin, the UK, and Germany. The conglomerate bought Electra, which can now use Trek's established distribution network to reach new markets more quickly and effectively. Letting their parent company worry about matters like capitalization and manufacturing infrastructure allows Electra to focus on other things, such as designing stylish bikes that are easy to ride and fun to own by people all over the world.

1. What major advantages did Electra gain by using a contract manufacturer in Taiwan to produce its bikes?

2. When Electra produced its bikes in Taiwan, did the company have to follow the laws of Taiwan or the laws of the United States?

3. What major forces impact Electra (or any global producer) in trading in global markets?