When companies talk about going global, they often justify their business decisions by expressing what amounts to a regret about the success of the American economic system: American workers have become so well paid that they can't compete with low-wage workers in developing countries, who can do the job, if not as well, close enough as not to matter.
The sentiment would be easier to accept if the recent history of corporate capitalism weren't replete with examples of obtuseness. Think of the big American auto makers in the early 1970's, who blamed their troubles on labor costs, trade policy and deluded consumers, on anything, that is, except their own miscalculations and resistance to innovation.
That sort of overweening arrogance is always riveting and so, therefore, is No Hands: The Rise and Fall of the Schwinn Bicycle Company, An American Institution. For nearly a century — between 1895, when Ignaz Schwinn and his partner, Adolph Arnold, incorporated Arnold, Schwinn & Company to make, buy and sell bicycles and other vehicles, and 1993, when Ignaz's great-grandson, faced with bankruptcy, presided over the company's humiliating dismemberment-by-corporate-raider — the name Schwinn came to represent the totemic American story.
Ignaz, an immigrant from Germany, turned his technical know-how and talents into a long-running family franchise. He resisted efforts to undermine his independence, rode out the vagaries of the public's interest in cycling and diversified into motorcycles. Year after year, Schwinn ruled the market in bicycles.
But in the manner of many immigrant families, later Schwinn generations were less lean and hungry than Ignaz. Only his son, Frank, known as F.W., seemed to have the patriarch's appetite for business. Ignaz retained the presidency until the late 40's, when he was in his 80's, but F.W. captained Schwinn through the rough seas of the Depression as well as through the more placid, extremely profitable, postwar period of the 50's.
Unfortunately, because the talented heir, Edward, died relatively young, F.W. turned the family business over to another of his sons, Frank, a colorless introvert, at the moment it most needed a visionary to lead it into a changing world. The company survived more on its reputation and the loyalty of distributors and the public. But not to worry. The final Schwinn, Edward Jr., not only had Frank's lack of business sense, but managed in a few years to alienate his employees, distributors, suppliers and bankers, not to mention supposedly trusted colleagues and family members.
When the Huns appeared at his door, in the form of gleeful bottom fishers Sam Zell and David Schulte, Edward Jr. faced them alone, apparently still holding out hope for a white knight. None appeared, and Edward Jr. became the Schwinn who killed Schwinn.
As the two authors, who are financial journalists, point out, Edward Jr. did not kill Schwinn singlehandedly. Not even he could have sunk the venerable company in the few years he ran it. It says a lot about the solidity of Schwinn that its demise took some 30 agonizing years, beginning with the failure of Frank, F.W.'s son, to update his plants and equipment at a critical juncture in the late 1950's. Schwinn slouched into the bicycle revolution of the last 25 years or so — with its rapid changes in technology and materials — with plants and plans left over from the 30's.
Ironically, that revolution germinated with Schwinn's own bikes. Schwinn managed to hold onto a share of the market in the late 60's and early 70's by bringing out a 10-speed model to compete with the increasingly popular European racing bikes. But in California's Marin County, a group of proto-Extreme Games bikers were combing garages and used-bike shops for clunkers, the heavy, balloon-tire Schwinn bikes of the late 30's — good for screaming suicidally down the local peak, Mt. Tamalpais, in relative safety.
Thus was born the mountain bike, just one of several trends in cycling that Schwinn considered irrelevant. Foremost, company executives had trouble imagining that any adult would spend money on what they thought of as a toy. Mountain bikes, which sell for anywhere from $500 on up through the stratosphere, now dominate the industry, and were instrumental in pushing up the prices of all bikes, not just at the high end.
The need for stronger but lighter-weight material hugely accelerated the technology of bike-making, but Schwinn's aging Chicago facility could not accommodate the new processes. Gradually, the company began importing bikes from Japan, Taiwan and China, eventually becoming more a marketer than a maker of bikes.
When Edward Jr. finally built a new plant in 1981, to restore the "American-made" label to some of Schwinn's bikes, he situated it not on the West Coast, where his Asian materials suppliers would have easy access, but in Greenville, Miss., two bad connections away from Chicago by air and far from the Western ports by rail. The nearest railroad station was 60 miles from the plant. Schwinn apparently decided to locate in a "right-to-work" state after a brush with unionization at the Chicago plant. Greenville also had a shortage of the skilled workers the bicycle company needed. Greenville lost money until Edward Jr. finally shut it down in an attempt to stave off liquidation.
The final days of Schwinn would be almost laughable if they weren't so tragic. Strong companies are resources that should be nurtured, not bungled to death. Schwinn was done in not just by intergenerational incompetence — the blood thins audibly from Ignaz and F.W. to Frank and then Edward Jr. — but by the family's insularity as well. No one but a Schwinn would ever run Schwinn, and few not named Schwinn ever came close to real power in the company. F.W. started a tradition of keeping daughters out of the business, which narrowed the potential leadership pool. Dulled by dividend checks and a sense of entitlement, several Schwinns minor and tertiary wandered aimlessly through their youths, failing to finish college or accomplish much other than taking up their sinecures at headquarters.
In the end, Edward Jr. tried to blame the company's woes on overseas competition, but the real problem was in his own backyard.
Barbara Presley Noble, the former At Work and Business Book Review columnist for The New York Times, has an M.S. in journalism from Columbia University and was a Knight-Bagehot fellow in business and economic journalism at Columbia.