Wednesday, November 16, 2011

How Schwinn gave birth to a Giant

I asked about the company's decision to stay in Italy while the world decamped to Asia, Campagnolo offered a frank answer. "It was a forced decision," he told me. When he took over the company in 1983, he said, "I didn't have any special strategy. I didn't have any special management skills in how to handle the company outside of Italy."

There's deep history behind this cryptic answer—and some insight into Campagnolo's willingness to trade high Italian labor costs for the knowledge. Valentino inherited the company two years after the opening of the massive new Vicenza factory, which was old man Tullio's way of doubling down on Italy. In the early 1980s, Tullio and Valentino watched as Schwinn, then the world's leading bicycle manufacturer, closed its Chicago factories and moved production to Taiwan. An industry exodus ensued. "The bicycle industry has a history of chasing cheap labor," said the former Specialized executive Gary Coffrin. "The industry migrated to Taiwan in the 1980s, and then to China in the 1990s."

Everything was fine at first. Schwinn's profit margin thrived on low-cost Asian labor. But in 1985, Schwinn ended its arrangement with its Taiwanese production partner, a company called Giant Manufacturing. What happened next is a lesson that Valentino Campagnolo has never forgotten. Giant turned around and used its newfound manufacturing expertise to produce bikes under its own brand that were better and cheaper than Schwinn's. Though Schwinn bounced back several times, ultimately it never recovered and, by 1992, was bankrupt.

"We do everything inside the company," Valentino Campagnolo told me. "This is something in which I strongly believe. If I know how to produce it, I can always improve my performance. If somebody else is doing it, my improvements are out of my control. This is a very strategic decision for us."


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