Shenandoah+Bicycles+Case+Overview

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Unformatted text preview: UGBA
178:
Introduction
to
International
Business
 Shenandoah
Bicycles
 
 Section,
11/6/2009
 Shenandoah
Bicycles

 
 Shenandoah
Bicycles
is
a
publicly
owned
bicycle
manufacturing
company
based
in
 Lexington,
VA
with
annual
revenues
of
$40
million.

Shenandoah
specializes
in
mid
to
high‐ level
bicycle
production
using
aluminum
and
carbon
fiber
for
its
frames.

Within
the
bicycle
 industry,
Shenandoah
is
regarded
as
a
premium
brand;
while
it
offers
mid‐level
bicycle
 models,
it’s
most
well
known
for
its
high
end
racing
bikes.

Shenadoah
sells
through
its
own
 sales
force
direct
to
bicycle
retailers
using
a
fairly
standard
pricing
strategy.

Refer
to
 Shenandoah’s
abbreviated
Income
Statement
for
recent
financial
performance
(Exhibit
1).
 
 Shenandoah
Bicycles’
production
is
classified
for
accounting
purposes
into
two
general
 categories:
mid‐level
and
high‐level.

Please
refer
to
Exhibit
2
for
an
analysis
of
the
different
 production
costs,
captured
in
cost
of
goods
sold
(COGS),1
for
the
two
product
categories.
 
 Shenandoah
Bicycles
has
typically
provided
its
shareholders
with
above
average
returns
 (industry
average
of
8%).

However,
management
has
become
worried
about
the
effect
 costs
are
having
on
its
net
income
and
return
on
sales
(net
income/sales).

From
2007
to
 2008
Shenandoah’s
return
on
sales
fell
from
12%
to
10%.

Management
suspects
costs
may
 be
at
the
heart
of
this,
as
sale
prices
to
wholesalers
have
remained
constant
and
have
little
 room
to
change.

Similarly,
the
mix
of
products
sold
has
held
constant.


 
 Management
has
experienced
increasing
pressure
from
the
board
of
directors
and
major
 shareholders
to
continue
achieving
above
average
returns
relative
to
Shenandoah’s
 competitors.

One
idea
that’s
been
floated
around
is
off­shoring
production
to
a
Chinese
 subcontractor
of
the
mid­level
product
line
as
a
way
to
reduce
costs.
 
 Game
Instructions:

 Each
group
has
received
a
role
to
play
(CEO,
CFO,
etc).

These
six
roles
each
have
different
 information
and
will
approach
decisions
differently.

Please
take
5‐10
minutes
to
break
into
 your
groups,
read
through
your
role
and
determine
your
approach
to
addressing
 Shenandoah’s
profitability
decline.

Do
not
share
information
with
other
groups.

 Remember,
you
will
be
arguing
to
win
your
character’s
point
of
view
during
the
discussion.
 
 Once
you
have
discussed
your
role,
your
approach
and
answered
any
relevant
prompts,
we
 will
come
together
as
a
group
and
begin
deliberations.

The
objective
is
for
the
group
to
 come
to
a
consensus
on
the
off‐shoring
decision
and
outline
the
main
arguments
for
or
 against
a
production
change.

Remember
to
stay
in
your
roles.

Your
ultimate
deliverable
is
 an
outline
of
your
ideas
to
present
to
the
Board
of
Directors.

 
 Key
Point:
 Everyone
is
expected
to
speak
and
contribute.

Please
do
not
monopolize
the
conversation
 and
be
respectful
of
your
classmates.

Expect
to
be
called
on
if
you
are
not
contributing.
 
 
 























































 1
Cost
of
goods
sold
(COGS)
refers
to
the
cost
of
producing
a
product.

It
does
not
include
any
costs
for
sales,
 general
overhead
and
other
non‐manufacturing
expenses.
 This
fictitious
case
was
written
by
Erik
Kiewiet
de
Jonge
as
a
basis
for
classroom
discussion
only.

It
does
not
 replace
content
contained
within
the
textbook.

Please
do
not
reuse
without
permission.
 UGBA
178:
Introduction
to
International
Business
 Shenandoah
Bicycles
 Section,
11/6/2009
 Exhibit
1:
Shenandoah
Bicycles’
Abbreviated
Income
Statements
 
 Exhibit
2:
Assessment
of
Shenandoah
Bicycles’
Production
Costs
 
 
 This
fictitious
case
was
written
by
Erik
Kiewiet
de
Jonge
as
a
basis
for
classroom
discussion
only.

It
does
not
 replace
content
contained
within
the
textbook.

Please
do
not
reuse
without
permission.
 ...
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