Trek’s External and Internal Environments

Today in the United States, inflation, cost of materials, and unemployment are
fairly low and are not increasing. Emerging economies are growing more rapidly
than the U.S. economy in general. Foreign trade is relatively open, so
manufacturers face intense international and local competition, with pressure to
keep prices low and opportunities to utilize low-cost labor and raw materials from
around the world. New manufacturing technologies, futuristic materials, and e-
commerce are becoming more prevalent and affordable. The political–legal climate
is favorable to business in the United States and most developing nations, whereas
regulation is higher in the European Union. The standard of living is stable, the
population is aging, and ethnic diversity is increasing.

Today in the bicycle-manufacturing industry, manufacturers must invest heavily in

research and development (R&D) to compete effectively on a global scale.
Domestically, the bicycle-manufacturing industry is fragmented, with the largest
firm, Trek, controlling just 24 percent of sales. The industry’s customers are
primarily local, independent bike retailers, a very fragmented group. The Internet,
and eBay in particular, provide alternate channels for new and used bike sales.
Bike riders, the ultimate purchasers, are interested in style, comfort, and high-tech
features, as well as environmental and health issues. Suppliers of many bike
components are small, local manufacturers located in developing countries.
However, a few suppliers are more powerful, such as Shimano, an internationally
known maker of bicycle components and cycling gear. Regulators are not a
significant force for bicycle manufacturers, but Trek and others have numerous
joint ventures. In one example, Trek teamed with AMD, Nike, and other
companies to produce the high-performance cycle used by Lance Armstrong in the
Tour de France and other races.

Trek has excellent R&D capability and effectively utilizes low-cost manufacturers
in producing the more affordable products in its broad line of bikes. However, its
Wisconsin factory produces its high-end lines and can customize a bike to a
customer’s exact specifications. Trek is beginning to push to improve the customer
bike-buying experience. The company will limit the number of retailers it uses and
require retailers to stock a higher percentage of Trek products. In return, it will
provide training and funds to improve in-store marketing and increase customer
loyalty.