Harley Davidson Overseas Production

HOG When choosing a strategy for international expansion, there are a number of alternatives that a company can follow, including building new production facilities overseas, compared with maintaining domestic production. Even though Harley Davidson has expanded its footprint into European markets, it has maintained its manufacturing in the United States and maintained an export model for international expansion. There are a few good reasons for this. The first reason is that revenue at the company is relatively slow-growing. Its core demographic through the high growth years was middle-aged baby boomers.

This demographic is starting to become too old to ride Harleys, and that has affected sales because Gen X is a much smaller generation and Gen Y is not in the target market yet. This has meant that domestic sales are flatlined at best. More likely, there is excess production capacity at the existing manufacturing facilities. Building new capacity in Europe would only increase the amount of excess capacity that the company has in its system.

Another good reason not to build factories in Europe is that Harley Davidson markets as being American, and this is a specific element of the brand identity. The company could not get away with producing in Canada or Mexico, much less in France or Luxembourg. A Harley that isn't made by a thick-necked union member in Rust Belt, USA is a Harley you cannot sell. If the company ever announced that its motorcycles would now be produced by beret-wearing, brie-eating Parisians, it would surely be April Fool's Day.

The brand is so quintessentially American that production in Europe would absolutely ruin the brand. Lastly, economics are not a factor in the decision. In some cases, firms produce overseas to save shipping costs. They have the materials needed to make Harleys in Europe, so economically a Europe-made Harley could probably be sold for less than an American-made one. But Harley has a premium positioning in the market, and therefore its customers have low price sensitivity.

They have money, and there are few realistic substitutes for a Harley Davidson, which is the dominant player in heavyweight and superheavyweight bikes. There might not be too many circumstances where the company would rethink its strategy, perhaps if the above conditions reversed themselves. I do not believe that the cost issue would cause Harley to change its mind -- it would simply seek another market, maybe selling to sheiks or something. The company is already quite well aware of the economics of producing in Europe.

Its target market is not price sensitive by definition -- it would buy a more fuel-efficient bike if it was -- but if it did become price sensitive Harley is more likely to accept the lower sales than set up a factory over there. The other two factors are the driving interests here. Arguably, if domestic demand exploded (like when the millennials enter the HOG target market), and capacity was entirely used up, the company would probably build another plant in the U.S. rather than build one in Europe.

Even if demand over.