Harley:
1. What are the challenges and opportunities facing Harley?
2. Describe the global context facing Harley?
3. How does foreign policy affect business in general and international expansion in particular?
4. How has competition (foreign and domestic) affected Harley?
5. What approach would you recommend Levatich take in order to grow sales and increase the stock price?
HARLEY-DAVIDSON: INTERNATIONALIZATION IN THE TRUMP ERA W18315 HARLEY-DAVIDSON: INTERNATIONALIZATION IN THE TRUMP ERA1 Bertrand Guillotin and Seok-Woo Kwon wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e)
[email protected]; www.iveycases.com. Copyright © 2018, Ivey Business School Foundation Version: 2018-08-01 “We’re proud of you! Made in America: Harley-Davidson,” President Donald J. Trump praised the motorcycle company’s executives and union leaders on February 2, 2017. When he left the meeting at the White House that day, Matthew S. Levatich, the chief executive officer (CEO) of Harley-Davidson Inc. (Harley-Davidson), was impressed by the Trump administration.2 The meeting had occurred less than two weeks after Trump had released his America First foreign policy,3 which could help or hurt the struggling but iconic company that had become a symbol of American ideals and U.S. manufacturing know-how. “The big opportunity for Harley-Davidson, growth-wise, is in Asia, and a lot of the work with the Trans- Pacific Partnership addresses some of the barriers that are in the way of our growth in Asia,” Levatich had said in a television appearance in April 2016.4 However, many things had changed since then, and in May 2017, Levatich had to ascertain whether to pursue that big Asian opportunity. AMERICA FIRST AND TWEET-BASED POLICY MAKING According to an official White House statement, the Trump administration, through the America First foreign policy, was committed to a foreign policy focused on American interests and American national security. The President understands how critical it is to put American workers and businesses first when it comes to trade. With tough and fair agreements, international trade can be used to grow our economy, return millions of jobs to America’s shores, and revitalize our nation’s suffering communities. This strategy starts by withdrawing from the Trans-Pacific Partnership and making certain that any new trade deals are in the interests of American workers. President Trump is committed to renegotiating the North American Free Trade Agreement (NAFTA).5 In the immediate aftermath of the 2016 U.S. presidential election, several multinational CEOs had fallen victim to damaging social-media posts (tweets) from the President of the United States’ @POTUS Twitter account that had cost their companies billions of dollars in lost market capitalization (i.e., the stock price multiplied by the number of outstanding shares). Other companies had needed to change their existing plans, which were seen as being inconsistent with America First. The Ford Motor Company (Ford), for example, had planned to build a new assembly plant in Mexico but cancelled this plan on Do N ot C op y or P os t This document is authorized for educator review use only by GARY GREGORY, University of New South Wales until Mar 2020. Copying or posting is an infringement of copyright.
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[email protected] Page 2 9B18M087 January 3, 2017, and redirected the investment to Michigan in response to a tweet from @POTUS.6 This setback among others contributed to Mark Fields’s departure as CEO of Ford on May 22, 2017. Some experts claimed that he had “bungled Trump.”7 Other companies had similar experiences; for example, tweets from @POTUS erased, in a matter of hours, billions of dollars in market capitalization at both Toyota Motor Corporation and General Motors Company.8 CEOs in other strategic industries, such as aerospace and defence contracting, also felt the wrath of @POTUS on Twitter. On December 6, 2016, minutes after the CEO of the Boeing Company (Boeing) had been “reported to have expressed doubt about Mr. Trump’s plans on international trade,”9 President- elect Trump wasted no time, tweeting, “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control. Cancel order.” While several factors may have led to the decline of Boeing on that day, the damaging tweet erased $1 billion10 from Boeing’s stock market value and caused a spike in the volume of shares traded.11 This pattern of “stock-price-moving tweets” was a factor for Boeing and also for Lockheed Martin Corporation (Lockheed Martin), which lost $1.2 billion in market value in the aftermath of yet another @POTUS tweet on December 22, 2016: “Based on the tremendous cost and cost overruns of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet.”12 Was this use of social media a new way for the White House to strategically influence the U.S. business community by circumventing the mainstream press and trained journalists? Was it forcing companies to align their business decisions with government policy, or even to display blind allegiance—a stance that had been optional in relation to previous administrations? In recent years, the White House had generally taken counsel from these CEOs and had taken a laissez-faire approach rather than actively interfering with business decisions. However, this laissez-faire approach was becoming far less typical in early 2017. One thing was certain: the new approach was adding to the uncertainties associated with policy making, and it was very potent. CEOs, who were often compensated based on their companies’ stock performance, and who seemed at odds with the current administration, saw their companies’ stock prices plunge in a matter of hours. The tensions between the White House and the U.S. business community were building to an unprecedented level. In this new context of highly unpredictable and volatile domestic priorities, what should the CEO of a U.S. multinational do regarding international expansion? Harley-Davidson, established in Milwaukee, Wisconsin, in 1903, had a long history. Levatich was fairly new to his role, having been elected president and CEO on May 1, 2015. He had to consider his options for reversing the trend of a year-long sales decline, generated mostly in the United States (see Exhibit 1), and a downward-trending stock price caused by the aging of the company’s main U.S. customers, who were “overwhelmingly white, male and middle-aged.”13 However, as a well-trained business executive and a Harley-Davidson veteran since 1994, he probably realized that international trade, which was often associated incorrectly with the loss of U.S. jobs to other countries, had been targeted as the enemy. In the context of the America First policy, international expansion had clearly become politically incorrect. On Inauguration Day, two weeks before Levatich’s meeting at the White House, the U.S. international trade policy environment had turned away from globalization and its main trading partners (China, Japan, Mexico, and European countries), raising concerns around the world. On January 23, 2017, making good on a campaign promise, Trump pulled the United States out of the Trans-Pacific Partnership (TPP), an Do N ot C op y or P os t This document is authorized for educator review use only by GARY GREGORY, University of New South Wales until Mar 2020. Copying or posting is an infringement of copyright.
[email protected] or 617.783.7860 https://traded.11 Page 3 9B18M087 agreement that had been aimed at boosting trade and reducing thousands of tariffs among 12 nations. U.S. participation in the TPP would have benefited Harley-Davidson and many other U.S.-based multinationals in several industries. The TPP had been signed by President Barack Obama on February 4, 2016, after five years of negotiations and the use of fast-track authority. Trump had promised to also renegotiate NAFTA, based on the assumption that these trade deals were not sufficiently beneficial to the United States. While many of his supporters were rejoicing, many CEOs and economists voiced concerns and distanced themselves from Trump. The tensions between the White House and the U.S. business community had reached a new height. THE GLOBAL CONTEXT AND HARLEY-DAVIDSON’S INTERNATIONALIZATION For Levatich and Harley-Davidson, the end of U.S. participation in the TPP negotiations was bad news. The TPP could have saved Harley-Davidson millions of dollars by reducing, if not eliminating, high tariff barriers in Malaysia, for example. According to the International Trade Centre, import tariffs on Harley- Davidson motorcycles were also high in Thailand, and they were 100 per cent (that is, they doubled the price) in India,14 where Harley-Davidson had built plants first in Gurgaon, in 2009,15 and then in Bawal,16 in an effort to avoid this type of prohibitive tax. The former chair of the asset management division of Goldman Sachs Group Inc., Jim O’Neill, had coined the term BRIC to describe the economies of Brazil, Russia, India, and China. Harley-Davidson’s major step into these promising and fast-growing emerging BRIC markets had been aimed at offsetting lacklustre U.S. sales following the 2008 global financial crisis. In fact, the company’s internationalization plans included several strategic options, ranging from direct exports to foreign direct investments such as building