Timbuk2 is a San Francisco-based corporation that has been creating messenger bags for over 20 years. Timbuck2 was founded by Rob Honeycutt in 1989. Originally named Scumbags, this corporation started out as a simple messenger bag for work and has now become a full-fledged business of various customized bags. The popularized and successful corporation has recently began making laptop bags in China. There are many factors that may affect the corporation’s decision to begin its expansion in China. San Francisco and China have different competitive dimensions provided in their plants.
Their volume and rate of production also varies. Because the biggest cost difference in production in China and in San Francisco is shipping, costs beyond manufacturing should be considered in the decision to expand. Literature Review There are various critics of Timbuk2’s decision to make new products in China. Professors Gerard Cachon (The Wharton School, University of Pennsylvania), Kyle Cattani (Kelley School of Business, Indiana University), and Serguei Netessine (The Wharton School, University of Pennsylvania) wrote a case reviewevaluating the decision.
They expressed that “going to China was not a simple decision”. Although manufacturing in China would not offer any advantages in terms of materials – as all the materials already came from a different location—it would offer advantages in various other areas. Then there was the issue of what to do with operations in San Francisco. According to John Balzar’s The Bag Dad, By the Bay, “the economics of paying San Francisco skilled wages for the sake of domestic production …are maintained, in part, by U. S. duties on imported bags and by the simplified construction of the messenger bag itself.
That would mean the plants in China are more valuable to the corporation’s financial needs to continue production. In Facing Economic Reality, Pia Sarkar states that “China’s fast-developing infrastructure, particularly in Shenzhen, has access to a rich supply of materials and the latest techniques in manufacturing because of the number of companies and factories there. ” Penske Logistics’ Asia-Pacific also suggests that the corporation should only plan a full expansion after carefully evaluating all the potential risks and benefits.
Analysis The decision to expand Timbuk2 to China seems to be a very complex one. China is the fastest growing emerging market. Although it offers massive projections for expanding businesses, success may be difficult without proper knowledge and proficiency. China’s size— with a market cap of approximately 1. 5 billion people—, quite frankly, can either be its biggest asset or its biggest shortcoming. The Chinese market has many challenges and advantages that could either benefit or prove detrimental to Timbuk2 if the corporation does not handle this situation carefully and in a certain manner.
Synthesis Expanding to China is only the first step; being successful is a different factor in and of itself. If Timbuk2 wants to be successful in China, the corporation must keep certain aspects in mind. Embrace Cultural Differences Like various other foreign countries, the Chinese market embraces the country’s diverse culture. Successful expansions depend heavily on a corporation’s ability to integrate and accept different cultures. The Chinese work culture is more personal than in the U. S. The Chinese work environment embodies this personal nature when doing business with carriers, customers, vendors.
In order to successfully expand, the corporation must know how to adapt to this nature and work without hesitation. The corporation has to be able to keep its patience and work around the cultural differences. Navigating Customs Working appropriately and in agreement with Chinese customs is critical and demands good planning and data management skills. Proper documentation is critical, as is complying with the HS Code (Harmonized System Code, for China, is a 10-digit code of which the first six digits are international nomenclature).
As Timbuk2 is importing and exporting in China, accurate quantity counts are part of the corporation’s reputation. Working with Chinese officials also provides Timbuk2 with challenges in that they could be short-term driven and can discontinue services abruptly and with little warning. Therefore, the corporation must keep regular communication and review with these carriers to successfully work alongside them.
Logistics Costs Logistics costs are a higher amount of Chinas gross domestic product than in the U. S. The corporation needs to make sure that it is doing a sufficient job at examining the supply chain as a whole. Add Products and Labels The key to successful expansion is knowing what the local markets like. As it is starting out fresh in China, it should think about adding new products or labels that would appeal to the local Chinese markets. Conclusion Timbuk2 has been very successful branding its name for quality and style and has stayed true to their original messenger bag design. The company is quite successful in the San Francisco area.
The popularity of these custom bags helped the company to grow and inevitably outsource. New products created overseas had a new competitive dimension and price. The plant in San Francisco is centered more around making a good working environment for their skilled workers to increase production. China’s plant focuses more on automation and cutting costs. Productivity in China is higher than in San Francisco. Together, these two manufacturing plants ensure Timbuk2’s affordable costs to the customer without losing quality.
