Harley-Davidson is a legend both as a brand and as the high-quality motorcycles. Harley-Davidson marketers state that its motorcycles are more than the sum of its parts. Each of the strategic challenges that the company faces will be met applying the fundamental principles of 109 years of heritage, innovative technologies and craftsmanship. No compromise and no cages, only the spirit of freedom are the milestones that Harley-Davidson possesses as the distinctive features that differentiate it from the competitors (Harley-Davidson Official Website, 2013).

This paper focuses on the external analysis of the business environment where the Harley-Davidson operates based on the Porter’s 5 forces analysis and PEST analysis and determines the potential opportunities and threats that the company faces.

Porter’s 5 forces analysis including assessment of the competitive rivalry, supplier power, buyer power, threat of substitution and the threat of entry (Henry, 2008) should be applied to comprehend what threats and opportunities Harley-Davidson faces. In the first place, it should be stated that the competition in the motorcycle industry has grown during the recent years significantly. The major competitors include “Indian” and “Victory” companies that introduced and reintroduced their products again claiming to the status “American Made.” Moreover, the representatives of the foreign competition intensified their activities in the heavyweight motorcycle market. Concerning the threats, it is necessary to notice that there may be a potential gap between the world economy decline and the solvency of customers consequently, and the traditional high prices for the Harley-Davidson products (Industry Profile, 2012).

Regarding the threat of a new entry to the market, it should be stated that Harley does not only sell the vehicles, it sells the legend, the right to be a part of the specific subculture, the possibility to touch the spirit of freedom. In addition to this exclusiveness, Harley already enjoys the economies of scale; it has a large-scale production with well established distribution channels. Harley-Davidson is a company that invests huge amounts of money in technologies rather than production management or logistics. However, there are plenty of potential substitutes that can be chosen as an alternative to a motorcycle.

It is essential to point out that Harley-Davidson should use the opportunities to develop its product lines in the niche markets such as three-wheel motorcycles and enlarge its product lines by adding new stylish vehicles for younger buyers and women. It is also necessary to underline that Harley should use its strong brand and status of highly innovative in the technological field manufacturer to capture international markets such as Europe, Latin America, India and China (Miller, 2012).

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It should be mentioned that Harley owners have a strong sense of Harley-Davidson brand identification that determines the extraordinary brand loyalty. However, the growing competition from the Japanese motorcycle manufactures makes it apparent that Harley’s supply chain should be restructured with the aim to be more competitive. With such a restructuration, the Harley should make an effort to review its pricing strategy. This is a crucial step to take, especially considering the general economic situation in the world and possibility to increase sales due to balancing the price and the quality of the vehicles.

The PEST analysis of the business environment in particular political, economic, social and technological factors (Henry, 2008) is provided below. Harley was and is always associated with the “Made in America” label. According to McBee (2011), the majority of the Harley-Davidson’s customers are the representatives of baby boomers generation (up to 54 years old), who are expected to decrease the purchase of Harley-Davidson motorcycles and switch their attention to the recreational vehicles. Therefore, the biggest challenge for the Harley will be entering the markets of India and China.

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If the political circumstances for entering the overseas markets change, and Harley-Davidson overcomes political burdens, such as high import taxes and other trade restrictions, China and India will be the main contributors towards Harley’s Asia-Pacific expansion. The Harley relies on the fact that Asia-Pacific region has a great economic potential, “the company believes it has great opportunities to introduce its brand and riding experience to the increasing number of riders in the region” (Miller, 2012).

Analysing the external competitive environment, it is needed to point out that Harley is not the leader in the US motorcycle market. Honda Motor Company leads with the 40 percent, and Harley is the second with the 24 percent share (Looney & Ryerson, 2011). In the heavy weight segment, the competition is very high and it is based on such parameters as price, brand, styling and customer preference. Harley has the opportunity to win in all three categories (Looney & Ryerson, 2011). It has a very strong brand name with more than 100-years history and mystique that is sold together with the motorcycle. The company invests in the technology significantly and has a big number of loyal customers. It is obvious that the Harley motorcycles are the “luxury” goods and customers are ready to pay extra for the legendary brand. At the same time, potential competitors, Japanese Honda and Suzuki in particular, are winning back market share due to the quality improvements and quality-price ratio.

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The Harley can and should risk and explore new niches in the motorcycle industry. The alliance between HD and Lehman Trikes can bring numerous opportunities for Harley-Davidson. Having the niche market company as a provider of the conversion services and exclusive manufacturer of Tri Glide product line, Harley expects to capture this niche market of three-wheel motorcycles. Without changing the main value that Harley proposes to its target customers, i.e. freedom spirit, the company will seize the opportunity to appeal to those customers who have some reservations about riding on the traditional Harley motorcycle. After the evaluation of the sales trend and consumers analysis, the top managers of a company, made a conclusion that this niche market could be profitable, as it represents the huge number of potential buyers, such as aging baby boomers who would still prefer to feel the freedom of road, but with additional safety (Looney & Ryerson, 2011).

At the same time, Lehman could also benefit from this cooperation. It is necessary to recognize that such a supplier agreement did not have a precedent in the three-wheel industry before. The executives of the Lehman Trikes understand that being an exclusive producer of the trikes that were designed by Harley and backed by Harley warranty, will boost the sales of a Tri Glide line. Moreover, its reputation as the small but highly professional and ambitious company will be improved. It is obvious for the motorcycle industry that a leader Harley-Davidson will not cooperate with the company with a questionable status. In addition, with the aim to meet a growing demand for the three-wheel Tri Glide, Lehman Trikes will enlarge its current scale of operations through the additional hiring of the specialists.

It is obvious that this alliance is the agreement between a motorcycle giant and a very ambitious small enterprise. However, this alliance can benefit both members: Harley will expand its operations in the niche market and Lehman Trikes will cooperate with one of the most prominent brands in the American history. Despite the fact Harley-Davidson faces a serious competition, the company should use the existing opportunities in the most efficient way based on the results of the thorough and in-depth analysis of its external business environment.

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