International Management Governance and Sustainability

Seminar 1

Application and Experiential Exercises

1. Do some further research on the technological environment. What are the recent
developments affecting businesses and propelling globalisation? What problems have arisen
regarding use of the internet for global business transactions, and how are they being
resolved?

2. Consider recent events and the prevailing political and economic conditions in the Russian
Federation. As a manager who has been considering investment there, how do you assess the
political and economic risks currently? What should be your company’s response to this
environment?

3. In groups of three, represent a consulting firm. You have been hired by a diversified
multinational corporation to advise it regarding the political and economic environment in
different countries. The company wants to open two or more manufacturing facilities in Asia.
Choose a specific type of company and two specific countries in Asia and present them to the
class, including the type of risks that would be involved and what steps the firm could take to
manage those risks.

WEEK 1 CASE STUDIES

CASE STUDY 1: “Harley-Davidson Sees $120m Hit from Tariffs This Year”1
New tariffs around the world helped wipe out profits at Harley-Davidson in the final quarter of last
year and are expected to cost it up to $120m this year, as the US motorcycle maker becomes one of
the highest-profile victims of escalating trade disputes.

Harley set out the costs of new tariffs in Europe, China, and the US on Tuesday as it reported disappointing
fourth-quarter earnings and forecast lower than expected shipments for 2019, sending its shares down 7 per cent
by midday in New York.

It said it planned to minimise the impact of those tariffs by using its plant in Thailand to serve the European and
Chinese markets.

As an iconic American brand, Harley-Davidson was made a target for tariffs by China and the EU in retaliation
for levies introduced by President Donald Trump. It has also been hit by some of the tariffs imposed by the US,
which have increased the costs of components and materials that it imports.

The company faces tariffs of 25 per cent in the EU and China, and 10–25 per cent on some of the components it
imports into the US.

Those tariffs around the world cost it about $13m in the fourth quarter, Harley said. Along with restructuring
costs of about $23m, that meant the company reported net income of just $495,000 for the quarter.

John Olin, chief financial officer, told analysts on a call that the company expected additional tariff costs on its
exports and imports to be approximately $100m–$120m this year, equivalent to about a fifth of the $531m net
income it reported for 2018.

That impact is on top of the effect of the Trump administration’s new tariffs on steel and aluminum imports.
Harley’s raw materials costs were up $17m last year, and Mr Olin said “the primary driver of that was the
tariffs.”

He added that Harley intended to “mitigate” the impact of the European and Chinese tariffs
by the end of the year.
The company’s new plant in Thailand, heavily criticised by Mr Trump, opened in the third quarter of last year.
Mr Olin said that the group intended to “utilise it to make more of our product”, targeting international markets
including China, following a plan set out in 2017, before the latest round of tariffs had hit.

He said: “We expect to be producing the majority of our motorcycles for the EU, China and Asian markets [in
Thailand] by the end of this year.” As a result, he added, the cost of tariffs should be much lower in 2020.

In 2018 the group sold 228,051 bikes worldwide, a 6.1 per cent drop from 2017. Harley projected that it would
ship 217,000–222,000 motorbikes this year, representing a further fall of up to 5 per cent. That forecast was
below the 228,190 shipments expected by analysts polled by Consensus Metrix, according to Reuters.

“Our initial impression of Harley-Davidson fourth-quarter results was disappointing, underwhelming outlook
for ’19 motorcycle shipments,” said analysts at Stifel.

Matt Levatich, Harley’s chief executive, said: “The challenges we experienced during the year reinforced the
commitment we have for our More Roads to Harley-Davidson accelerated plan for growth . . . New and
different people, riders and non-riders, are taking notice of Harley-Davidson and the thrill of riding.”

Source: ˝ The Financial Times Limited 2019.

1. Crooks, E. and Provan, S. (2019). “Harley-Davidson Sees $120m Hit from Tariffs This year”. Financial Times January
29, 2019. https://www.ft.com/content/cde6b214-23c6-11e9-b329-c7e6ceb5ffdf (accessed September 26, 2022).

Case questions for class discussion

1. What options does the company have to guard against being caught in a tariff trade
war, as was the case in 2019?
2. Analyse the tariff trade war with China and its effects on Harley-Davidson.
3. What obligations does a company like Harley-Davidson have and to whom?