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WHiCH TyPE oF ARRAngEMEnT? 181

frame builder and checked them for quality control, including sending samples to Cooper for
approval. Once the frame builder (Maxway) was approved, ATI contracted an assembly com-
pany (Sanfa) that would receive the frame from Maxway and build the complete bike ready for
shipping to Cooper’s distribution centre (DC). Again, completed samples were sent to Cooper
for approval. These samples, once approved, were used to attain orders from retailers. Based
on retailer orders, Cooper ordered about 2,000 bikes a year from ATI. ATI manage the procure-
ment and ordering of the parts that are delivered to Sanfa. ‘Reynolds 520’ tubing is made under
licence in Taiwan, but other, more advanced Reynolds tubing is sourced from the UK. Sturmey-
Archer was originally a UK brand, but the parts are now made in Taiwan. ATI arranges for the
assembled bikes to be delivered to the distribution centre that is based in Munich and is run by
Cooper Distribution GmBH – a firm that Cooper Bikes co-own with a German partner. At this
point the bikes do not have saddles and the brake levers and bar tape are not fitted, nor are the
cable clamps that clip the rear-brake cable to the top tube.
The Brooks Saddles are sent to the Munich DC for fitting (if fitted in Taiwan, they would
attract an import tax). In addition to the postponed fitting of the saddles, the DC also fits the
brake levers (because different markets have the brake levers on different sides), and since the
cables for the levers run under the bar-tape this, too, has to be fitted at the DC once the final
destination of the bike is known. The rear-brake cable clips are fitted at the retailer when the bike
is put on display. This gives the paint on the frame the maximum drying time and so reduces
the potential for damage to the paint. This is particularly important for these steel frames as
they would be liable to rust were the paint damaged.

Which type of arrangement?
There is no simple formula for choosing what form of arrangement to develop, but one
can identify some of the more important factors that can sway the decision. Before
doing so, however, it is worthwhile reminding ourselves that firms do not make an over-
all policy decision to adopt one of the three forms of arrangement we have described
here. Most have a portfolio of widely differing arrangements, where a whole set of fac-
tors have been influential.
From a market perspective, the most obvious issue will be how the firm intends to
differentiate itself through its market positioning. If a firm is competing primarily on
price then the arrangement could be dictated by minimising transaction costs. If it is
competing primarily on product or service innovation, then it may well wish to form
a collaborative alliance with a partner with whom it can work closely. Unless, that
is, the market from which innovations derive is turbulent and fast growing (as with
many software and internet-based industries), in which case it might wish to retain
the freedom to change partners quickly through the market mechanism. However,
in such turbulent markets a firm might wish to develop arrangements that reduce
its risks. One way to do this is to form relationships with many different potential
long-term customers and suppliers, until the nature of the market stabilises. Oppor-
tunities to develop arrangements, however, may be limited by the structure of the
market itself. If the number of potential suppliers, or customers, is small, then it may
be sensible to attempt to develop a close relationship with at least one customer or
supplier. Opportunities to play off customers and suppliers against each other may
be limited. Firms will also be influenced by likely competitor behaviour. For example,
close partnership, or even vertical integration, may be seen as a defensive move against

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