Illustration Capsule 4.1 Concerning American Giant

1. Review the information in Illustration Capsule 4.1 concerning American Giant’s average costs of producing and selling a hoodie sweatshirt, and compare this with the representative value chain depicted in Figure 4.3. Then answer the following questions:

a. Which of the company’s costs correspond to the primary value chain activities depicted in Figure 4.3?

Fabric, Trim & Hardware, Labor, Duty, and Shipping all represent Primary Value Chain Activity costs. This results in a total cost of $38.10 for Sweatshirts produced in the U.S. and a total cost of $31.40 for Sweatshirts produced in Asia. 


Which of the company’s costs correspond to the support activities described in Figure 4.3?
production and Asian production differ in several areas. Fabric cost in Asia is higher than the U.S. while Trim and Hardware costs are lower. The driving difference is in Labor with a signi cantly lower Labor amount for Asian production. Finally, Shipping costs are higher for Asian production. Taken together, the large discount in Labor for Asian production drives the overall cost for Asian production down to $31.40 compared to U.S. production costs of $38.10. 

d. What value chain activities might be important in securing or maintaining American Giant’s competitive advantage? Explain your answer.

Since American Giant sells direct to the consumer via their website, there are no further costs associated with the sale, and the consumer takes on the cost of shipping in addition to the retail price of $80.00. The use of Asian production translates into competitive advantage by providing an additional $6.70 of operating pro t while maintaining the current retail price. The company can use this advantage to a) provide extra operating pro t, b) provide extra funding for competitive activities such as R&D or Marketing, or c) provide reduced pricing to gain market
low-cost provider strategy: striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by under pricing rivals. For example, through utilization of this type of strategy, Aravind Eye Care System’s was able to capitalize on the market segment that is comprised of the poorest residents of India with cataracts. The company has taken this well-known process and streamlined it by removing most discretionary elements in order to develop a high volume and highly e cient process. Aravind’s low cost approach allows them to provide their surgical service for close to $10.00 compared to an average of $1500.00 in the U.S. Further, the company is able to provide free eye care to 60% of its patient base out of the revenue and pro t generated from only 40% of its