1.Which best describes Detroit Bike’s sourcing of components from other countries for assembly in the United States?

a. globalization

b. factors of production

c. globalization of markets

d. integrated markets

e. globalization of production

2.Which best describes what takes place when a Chinese supplier of bicycle parts exports bike seats to Detroit Bikes?

a. foreign direct investment

b. international trade

c. moore’s Law

d. the General Agreement on Trade and Tariffs

e. globalization

3.Detroit Bike’s strategy has been impacted by tariffs imposed by Donald Trump on parts imported from China. Which institution is responsible for ensuring countries adhere to their trade treaties?

a. The General Agreement on Trade and Tariffs

b. The International Monetary Fund

c. The World Bank

d. The World Trade Organization

e. The United Nations

4.Detroit Bike is located in the United States, assembles its product in the United States, but imports components from China and other countries. Which best describes Detroit Bikes?

a. an exporter

b. an international business

c. a foreign investor

d. a transnational company

e. a multinational company

Transcribed Image Text:You are about to read a short case exploring the strategy of Detroit Bikes, a company that set out to buck the prevailing model of manufacturing bikes in China and exporting them to the United States. Unlike most competitors, Detroit Bikes imports components from China, but assembles the finished product in Michigan and in doing so, provides jobs to the local economy. You will be asked to answer questions linking your knowledge from the chapter to the situation detailed in the case. The goal of this activity is to demonstrate your understanding of globalization and the arguments for and against it. This activity is important because as a manager, you must be able to understand the impact of globalization: what is driving it; the opportunities and challenges it creates for international businesses; and the debate about the benefits of the process. Read the case and answer the questions that follow. Back in 1970, companies in the United States assembled more than 15 million bikes a year. Then globalization took hold. As cross-border tariffs tumbled, U.S. bike companies increasingly outsourced the manufacture of component parts and final assembly to other countries where production costs were significantly lower. By far the biggest beneficiary of this trend was China. In 2018, about 95 percent of the 17 million bikes sold in the United States were assembled in China. China also produced more than 300 million components for bikes such as tires, tubes, seats, and handlebars-or about 65 percent of U.S. bike component imports. Most American bike companies that remained in business focused on the design and marketing of products that were made elsewhere. American consumers benefited from lower prices for bikes. One exception to the outsourcing trend was Detroit Bikes, a company started in 2013 by Zakary Pashak in Detroit, Michigan. Pashak was partly motivated by a desire to bring some manufacturing back to Detroit, a city that had suffered from the decline of automobile manufacturing in Michigan. He reasoned that there would be lots of manufacturing expertise in Detroit that would help him to get started. While that was true, ramping up production was difficult. Pashak noted that "when you send a whole industry overseas, it's hard to bring it back." One problem: Even the most basic production equipment was hard to find, and much of it wasn't made in the United States. Another problem: While the company figured out how to assemble bikes in the United States, a lot of the components could not be sourced locally. There simply were no local suppliers, so components had to be imported from China. Despite these headwinds, by 2019 Pashak had grown his business to about 40 people and was gaining traction. Things started to get complicated in 2018 when President Donald Trump slapped 25 percent tariffs on many imports from China, including bikes and component parts. Trump's actions upended a decades-long worldwide trend toward lower tariffs on cross-border trade in manufactured goods and started a trade war between the United States and China. For Detroit Bikes, this was a mixed blessing. On the one hand, since assembly was done in Detroit, the tariffs on imported finished bikes gave Pashak's company a cost advantage. On the other hand, the cost of imported components jumped by 25 percent, raising the production costs of his bikes and canceling out much of that advantage.
$Things started to get complicated in 2018 when President Donald Trump slapped 25 percent tariffs on many imports from China, including bikes and component parts. Trump's actions upended a decades-long worldwide trend toward lower tariffs on cross-border trade in manufactured goods and started a trade war between the United States and China. For Detroit Bikes, this was a mixed blessing. On the one hand, since assembly was done in Detroit, the tariffs on imported finished bikes gave Pashak's company a cost advantage. On the other hand, the cost of imported components jumped by 25 percent, raising the production costs of his bikes and canceling out much of that advantage. In response, Pashak started to look around to see if parts made in China could be produced elsewhere. He looked at parts made in Taiwan, which aren't subject to tariffs, and Cambodia, which benefits from low labor costs. It turns out, however, that switching to another source is not that easy. It takes time for foreign factories to ramp up production, and there may not be enough capacity outside of China to supply demand. There is also considerable uncertainty over how long the tariffs will remain in place. Many foreign suppliers are hesitant to invest in additional capacity for fear that if the tariffs are removed down the road, they will lose their business to China. For example, while Taiwan's U.S. bike exports jumped almost 40 percent to over 700,000 units in 2019, Taiwan's manufacturers were holding back from expanding capacity further since they feared that orders might dwindle if the trade war between the United States and China ended. Instead, they have raised their prices, thereby canceling much of the rationale for shifting production out of China in the first place. Due to issues like this, a survey by Cowen & Co at the end of 2019 found that only 28 percent of American companies had switched their supply chains away from China, despite the higher tariffs. Of those, just a fraction had managed to switch 75 percent or more of their supply chain to a different country. Faced with such realities, Pashak has contemplated other strategies for dealing with the disruption to his supply chain. One option he has considered is bringing in Chinese parts to Canada where they do not face a tariff, shipping his American-made frames up to Canada, putting the parts on them, and then importing them back into the United States. While this would reduce his tariff burden, it would be costly to implement, and any advantages would be nullified if the Chinese tariffs are removed. Faced with this kind of complexity and uncertainty, the easiest solution for many companies, in the short run, is to raise prices. Pashak is unsure if he will do this, but many other companies say that have no choice.$
Transcribed Image Text:Things started to get complicated in 2018 when President Donald Trump slapped 25 percent tariffs on many imports from China, including bikes and component parts. Trump's actions upended a decades-long worldwide trend toward lower tariffs on cross-border trade in manufactured goods and started a trade war between the United States and China. For Detroit Bikes, this was a mixed blessing. On the one hand, since assembly was done in Detroit, the tariffs on imported finished bikes gave Pashak's company a cost advantage. On the other hand, the cost of imported components jumped by 25 percent, raising the production costs of his bikes and canceling out much of that advantage. In response, Pashak started to look around to see if parts made in China could be produced elsewhere. He looked at parts made in Taiwan, which aren't subject to tariffs, and Cambodia, which benefits from low labor costs. It turns out, however, that switching to another source is not that easy. It takes time for foreign factories to ramp up production, and there may not be enough capacity outside of China to supply demand. There is also considerable uncertainty over how long the tariffs will remain in place. Many foreign suppliers are hesitant to invest in additional capacity for fear that if the tariffs are removed down the road, they will lose their business to China. For example, while Taiwan's U.S. bike exports jumped almost 40 percent to over 700,000 units in 2019, Taiwan's manufacturers were holding back from expanding capacity further since they feared that orders might dwindle if the trade war between the United States and China ended. Instead, they have raised their prices, thereby canceling much of the rationale for shifting production out of China in the first place. Due to issues like this, a survey by Cowen & Co at the end of 2019 found that only 28 percent of American companies had switched their supply chains away from China, despite the higher tariffs. Of those, just a fraction had managed to switch 75 percent or more of their supply chain to a different country. Faced with such realities, Pashak has contemplated other strategies for dealing with the disruption to his supply chain. One option he has considered is bringing in Chinese parts to Canada where they do not face a tariff, shipping his American-made frames up to Canada, putting the parts on them, and then importing them back into the United States. While this would reduce his tariff burden, it would be costly to implement, and any advantages would be nullified if the Chinese tariffs are removed. Faced with this kind of complexity and uncertainty, the easiest solution for many companies, in the short run, is to raise prices. Pashak is unsure if he will do this, but many other companies say that have no choice.

Question

1.Which best describes Detroit Bike’s sourcing of components from other countries for assembly in the United States?

a. globalization

b. factors of production

c. globalization of markets

d. integrated markets

e. globalization of production

2.Which best describes what takes place when a Chinese supplier of bicycle parts exports bike seats to Detroit Bikes?

a. foreign direct investment

b. international trade

c. moore’s Law

d. the General Agreement on Trade and Tariffs

e. globalization

3.Detroit Bike’s strategy has been impacted by tariffs imposed by Donald Trump on parts imported from China. Which institution is responsible for ensuring countries adhere to their trade treaties?

a. The General Agreement on Trade and Tariffs

b. The International Monetary Fund

c. The World Bank

d. The World Trade Organization

e. The United Nations

4.Detroit Bike is located in the United States, assembles its product in the United States, but imports components from China and other countries. Which best describes Detroit Bikes?

a. an exporter

b. an international business

c. a foreign investor

d. a transnational company

e. a multinational company