Question: How do you think the weakening of the British pound in 2020 affected Brompton's production costs and revenues? What profit maximizing strategies would you recommend if sterling continues to weaken?

Background:

The firm's hero product is the Bromptonlight and durable bicycle that can be folded conveniently and neatly into the size of a briefcase for easy storage and transportation.

The firm even experienced strong growth during and following the late 2000s "credit crunch" and recession: average annual growth in the period since 2008 has been a remarkable 20 per cent. The company sold around 45,000 folding bikes in 2015, generating revenues of some 21 million and a profit of 3.4 million.

In 2021, the aim is to produce and sell 100,000 bikes representing more than a doubling of output in just over five years (Rankin 2015). In spite of these remarkable figures, the company is still relatively small, employing just 500 members of staff.

A Design Classic in an Expanding Market The bicycle market is a mature one with a global presence, and of course, bicycles are popular everywhere and among a wide demographic.

The global market for bicycles was estimated to be worth US$29.2 billion in the year 2020, and is projected to grow by 2.4% CAGR to 2027.

Growth projections differ depending on geographic region, with China forecast to grow by 4.7% CAGR to 2027, and lower forecasts expected in Germany (1.1% CAGR), Japan (0.5% CAGR) and Canada (1.8% CAGR) (Global Industry Analysts 2020).

Hybrid bicycles are expected to grow by 3.1% CAGR over the same period, and around 130 million electric bicycles are expected to be sold between 2020 and 2023 (Wagner 2020).

Even taking into account the economic impact of the COVID-19 crisis, sales of road bikes are expected to grow by 1.7% annually (Global Industry Analysts 2020). In spite of the pandemic, demand for folding bicycles is increasing due to the growth in the number of people that are opting to use cycling for commuting, including those that use public transportation for part of the journey, looking to solve the Last Mile Problem.

1 Folding bikes are enjoying a surge in demand from younger people in some of the worlds largest urban areas.

Brompton's Chief Executive Officer (CEO) Will Butler Adams remarks, "We've seen this explosion of younger users who care about the environment, who care about their health, want to have fun, want to personalize...there's been a tremendous surge in a great range of peoplearchitects, designerswho sort of get what we want to achieve. So there's been a real shift." (Stolarz 2009).

Over the past decade, the average age of the rider of a folding bike has dropped from over 50 to under 40 (Technavio 2019).

The growth in the younger population in many of the world's regions, especially in the developing world, coupled with considerable traffic congestion in such areas, is thus a source of globalization of the market. The Brompton bike folds up to a third of its size, and weighs on average just 11kg (around 24 lbs). Brompton bikes are not just foldablethey are also customizable, and customers can choose to personalize elements such as the riding position, height, and inclusion of 1 The Last Mile Problem is a common problem in cities and means that public transport rarely takes users exactly where they want to go, leaving them to find alternative ways to travel the last mile.

There are three core products: the popular Brompton, the Brompton Electric, and the Brompton SuperLight, which is made with titanium and built for speed. Each bike shares the same fundamental modular design, which has been virtually unchanged since it was first developed by Andrew Ritchie in the late 1970s. The core of the bike is a curved frame, which comprises a hinged handlebar stem, a hinged tube and pivoting fork and rear triangle. The stem and the main tube are made of steel, while in the SuperLight, the fork and the rear triangle are made of titanium. The handlebars and auxiliary elements are made of aluminium. An innovative method, known as brazing, is used to conjoin the key elements. In total, it takes 18 months for a Brompton brazer to become sufficiently skilled to build the bike, and as a symbol of their pride, they stamp their initials onto each completed bike. Brompton is so proud of their production process that their regular factory tours are usually sold out.

In a personal communication, Will Butler Adams stated that the U.K. bicycle sector is virtually a perfectly competitive market in which all manufacturers are price takers. This results in retailers making a loss on every bike sold. The folding bike market is a relatively small subset of that industry, and market forces are different. Key competitors include Montague, Citizen Bike, Compass, and Viking which manufacture folding bikes to different specifications but also offer standard versions.

Of these, the Brompton bike is probably priced the least competitively. The starting price for a custom Brompton bike is currently 770; an off-the-peg equivalent from Viking is less than 200. However, the cult appeal of the Brompton bike has enabled it to attract loyal customers and to stave off the competition.

Owners of a Brompton bicycle don't consider themselves as merely owning a bike, but as having bought into a British design that's both innovative and classic.

As a profile in Bloomberg Businessweek noted, "It's the Brompton-as-religion that distinguishes the bike from its competitors.

There are Brompton clubs in at least 10 cities. [For instance], in New York, a group of Brompton-owning foodies has organized a bimonthly event called Brommie Yummie: Ride, fold, eat, unfold, ride." (Greeley 2014). "UK engineering and design is respected all over the world.

Like Dyson, Mclaren, Dualit and Rolls RoyceBrompton is a global exemplar of design excellence.

But we are not finished yet, we have a large in-house team who are constantly improving the bike, accessories and the production processes. Using a range of leading technologies from rapid prototyping using 3D printers to ensuring precision using automotive industry CAM machines." - Will Butler Adams, Brompton Bicycles Going Global The country-of-origin is an integral aspect of the company's marketing and branding activities, and is a key driver of the company's success both in its domestic market and overseas.

As an article in Deutsche Welle (Stolarz 2009) notes, "The Brompton bicycle is admired the world round as a feat of British engineering." According to the company's marketing materials, "London is a city of icons and a Brompton bike is one of them.

Its unique profile sets it apart from other bikes. A Brompton is as London as a double decker bus, the London Underground Big Ben and The LondonEyeall innovative, excellent and enduring." For this reason, it is seen as vital to the company's culture and the reputation of its products that the bicycle is made in London.

This stands in stark contrast to the strategies employed by many of it European competitors in both the small wheel segment and the broader market, who import finished products from manufacturers in China and elsewhere in Asia.

The standard Brompton bike contains 1200 different components, and while 75% of those are designed and made in the Greenford facility, some of the primary inputs (such as rubber, steel and titanium) required to build the folding bike must be imported from overseas markets. Despite this, the CEO has long been clear that production will always take place in London: "At the moment, people can buy our product, they can try and copy it but they don't understand the processes, the methodology, the jigs and fixes that we use to make it...if we would outsource it, we would be giving away our precious knowledge and suddenly the copies that exist, which are currently terrible, would become rather better " (Stolarz 2009). 2 "In order to reach our output targets we have had to modernise the whole production process. Over the next few years the plan is that we will double our output, meaning that we have had to go through a complete change in our manufacturing." - Greg Smith, Technical Support Manager, Brompton Bicycles Despite the CEO's assertions, the company has not always taken this strategic approach. In 1992, Brompton established Neobike International, a joint venture enterprise with the Taiwanese company Euro Tai SA (Norman 2010). The company's remit was to manufacture licensed copies of the Brompton bike exclusively for sale in the Japanese and Far East Asian markets. Brompton provided Neobike with specialist tooling and design plans to facilitate production in exchange for royalties on sales (Norman 2010). However, after the expiry of the agreement, Neobike refused to return the specialist tools to Brompton and began to sell unlicensed copies of the bike in a number of European markets. A resulting litigation case brought by Brompton resulted in the decision by the courts that Neobike had indeed infringed copyright. The consequence of the firm's British-centric attitudes and its negative experience with the joint venture agreement is that only around 25% of Brompton Bicycles' componentry is sourced from overseas. At the other end of the value chain, the vast majority of Brompton's sales are outside of the U.K., prompting the Queen to award the company an Award for International Trade in 2 In fact, the patent for the folding bike expired in 1999. In 2020, The Tribunal de l'entreprise de Lige (Belgium) heard a dispute between Brompton and one of its competitors, the Korean firm Chedech/Get2Get, which introduced to the Belgian market a very similar bike.

Although the company operates 14 overseas retail stores ("Brompton Junction") in 3 commuter cities such as Milan, Melbourne, Singapore, Tokyo, and New York, it relies on its vast network of licensed dealers to help reach its target sales. 1450 dealers are supplied with a demonstration bike, and licensed to place customized orders on behalf of customers through an online tool. Dealers also help customers with maintenance, servicing and upgrades, giving them the opportunity to access the London-based company in their own towns. Today, Brompton bicycles are sold in 47 markets across the world. Pedaling Towards the Future On January 1st 2021, the United Kingdom officially left membership of the 27-nation bloc of the European Union ("Brexit"). In June 2016, when the U.K. first voted to leave the European Union, the pound plunged against the euro and the dollar, and it has been volatile ever since (Figure 3). Bleak prospects for the country's economic future have been compounded by the COVID-19 pandemic as well as uncertainty surrounding Brexit. Nevertheless, Brompton has weathered many previous recessions, and is planning to hire 200 additional members of staff in the coming months, and to push sales in bicycle-loving Germany (Lawless 2020). Nevertheless, Butler-Adams expressed concern that one of the U.K. governments first post-Brexit policies will involve the abolishment of an E.U. anti-dumping tariff of 48.5% imposed on Chinese imported bicycles. Brompton believes that the removal of the tax will lead to the U.K. market being flooded with cheap bikes subsidized by the Chinese government. "We can't compete. That is not a level playing field," Butler-Adams told ABC News. For their part, the British government said it had consulted with bike-makers like Brompton, but believe removing the tariff is important to keep prices low for consumers. "We recognize the challenges that the industry faces, however British consumers will bear the brunt of higher prices if anti-dumping measures were retained or carried across from the E.U.," it said in a statement in December. Ultimately, in January 2021, the UK's Department for International Trade confirmed that it would keep EU anti-dumping regulation on bicycles from China and elsewhere, but that at some point in the future, the measures would be reviewed, and potentially dropped (MacMichael 2021). 3 Brompton is also the recipient of the Queen's Awards for Innovation, the Prince Philip Designers Award and the BikeBiz Brand of the Year award.