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A‐1 Lanes and the Currency Crisis of the East Asian Tigers*

Article  in  Entrepreneurship: Theory and Practice · February 2008

DOI: 10.1111/j.1540-6520.2007.00231.x

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A-1
E T&P Lanes
and
the
Currency Crisis of the East
Asian Tigers*
Phil E. Stetz
Todd A. Finkle
Larry R. O’Neal

O n July 2, 1997, Rick Baker, the president and founder of A-1 Lanes (a manufac-
turer and an international supplier of wood and synthetic bowling lanes), was having his
morning coffee when he was devastated to learn that Thailand had devalued its currency,
the baht, by 11%. Baker had an uneasy feeling there would be a domino effect across all
countries in Asia because their economies were interrelated. If that happened, Baker
wondered how it would affect the future of his company.
Baker realized that the company faced several critical issues. First, 80% of A-1’s sales
were derived from countries in and around the Asian Pacific Rim. Second, the company
had over $1 million in accounts receivable from this region. Third, in 1996 the company
had taken out a loan for $500,000 on a new manufacturing facility to capitalize on the
popularity and growth of bowling centers in Korea, China, and Taiwan.
The combination of the above issues, in conjunction with the cut-throat competition
within the bowling equipment industry, placed Baker in a position to make a critical
decision about the future of his company. He narrowed his decision to three options: (1)
liquidate his company, (2) sell the company, or (3) stay in business and try to weather the
impending storm.

Company Background

In 1985, Baker and two investors founded A-1 Lanes in a chicken house and barn in
Rusk, Texas. The company’s main products were high-grade wood and technologically

Please send correspondence to: Phil E. Stetz, tel.: (936) 468-4103; e-mail: pstetz@sfasu.edu.
* This case is intended to stimulate class discussion rather than to illustrate the effective or ineffective
handling of a managerial situation. The company, names, events, and financials are all real.

March, 2008 369

advanced synthetic bowling lanes for domestic and international markets. According to
Baker, “The key to our success is the quality of the wood and the advanced synthetic
design of our bowling lanes, supported with responsive service, operational efficiencies,
and proven accomplishments at penetrating international markets.”
Although the company began with high expectations, A-1 Lanes quickly discovered
that locally owned bowling centers across the United States did not have the financial
resources to replace existing lanes. Instead, owners would simply sand the lanes. To
complicate matters, competitors within the industry developed a synthetic overlay for
existing lanes. For example, Brunswick developed a cost-effective way of refurbishing
worn and damaged wood lanes that prolonged their service life by as much as 10 years.
Rather than tearing out and replacing existing lanes, bowling centers could sand them
down and overlay the wood with a synthetic resin, thereby restoring the old lanes to
industry standards.
Because of the weakened demand for wood replacement of bowling lanes, A-1 began
to concentrate on new bowling lane sales in international markets. According to Baker,
“We pursued international markets because the margins were better, receivables were
more reliable, and the additional volume meant a healthier bottom line.” As a result, A-1
grew and moved operations into a vacant 34,000-square foot metal building in 1987.
In the same year, A-1 Lanes began to establish relationships with distributors in other
parts of the world (e.g., Mendes, a Canadian marketer of bowling lanes). In 1988, Baker
and his investors forged a partnership with a company called Dacos, an established
distributor of bowling equipment and accessories that was based in Europe and Korea.
With a source for U.S. manufactured lanes, Dacos could offer a complete turn-key
package to bowling center owners and developers all over the world. In turn, the arrange-
ment enabled A-1 to compete directly with the largest firms in the industry, Brunswick and
American Machine Foundry (AMF). It also gave A-1 an advantage over smaller competi-
tors in the United States because those firms lacked similar distribution channels and
presence in Europe and Asia.

The Bowling Industry

Archeologists discovered when they found pins in a child’s tomb that bowling dates
back to ancient Egypt. The sport expanded in Europe in the early 1900s, but its popularity
in the United States did not thrive until after World War II. In the 1950s, television
embraced bowling and the automatic pin spotter was invented. The game grew dramati-
cally in the United States and eventually peaked in the 1960s. New markets emerged in
Australia and Mexico, as well as in other Latin American countries. By the mid-1970s, the
bowling boom had spread into Japan. Russia followed suit by opening its first bowling
center in 1976. Interest in bowling also grew in China. The bowling boom spread into
Thailand and the Asia Pacific regions during the early 1990s.
By the 1990s, bowling comprised two main industries. One involved the ownership
and operation of bowling centers. The other was the manufacture of bowling equipment
used in bowling centers or by bowlers. These manufactured items included automatic pin
spotters, computerized automatic scoring systems, wood and synthetic bowling lanes, lane
maintenance systems, masking panes, ball returns, seating, bumper bowling systems,
replacement and maintenance parts and operating supplies such as spare parts, pins, lane
oils, bowling balls, bowling shoes, and other bowling accessories.
In 1996, estimates were that more than 100 million people in more than 90 countries
bowled at least one game a year and bowlers in the United States spent approximately $4

370 ENTREPRENEURSHIP THEORY and PRACTICE

Table 1

U.S. Bowling Centers, 1955–1995

Population

Year Centers Lanes Lanes per center Total (000) Per center

1955 7,062 60,648 8.6 165,275 23,403

1965 11,363 165,601 14.5 193,460 17,025
1975 8,974 144,829 16.1 215,973 24,046
1985 8,629 159,394 18.5 237,950 27,575
1995 7,331 144,187 19.7 262,755 35,841

Source: A-1 Lanes Company Literature.

billion annually on lane fees, equipment and supplies, uniforms, and food and beverage
purchased within bowling centers.1 More than 53 million Americans patronized the
country’s bowling centers every year, making tenpin bowling the number one indoor
participation sport in the United States.2

The Bowling Industry in the United States

During the peak years of bowling in the 1960s and early 1970s, bowling centers were
being constructed almost overnight across the country. During the early to mid-1970s,
white American blue-collar workers (the primary clientele of the bowling industry) moved
to the suburbs, away from the city neighborhoods, where most of the bowling centers had
been built. Bowling began to open facilities in the suburbs while maintaining their existing
centers in the cities. This strategy was not successful due to the lifestyle changes of the
blue-collar workers.3 They were simply less interested in bowling than they had been.4
As a result, the new suburban bowling centers were not as successful, while existing
bowling centers in the cities became only marginally profitable. The number of bowling
centers gradually declined, but the number of lanes increased due to the construction of
large new centers and the remodeling of surviving ones.5 Table 1 shows the historical
relationship between the number of centers, lanes, and population in the United States.6
In response to the decreasing popularity of bowling, many bowling operators started
differentiating their image by renovating their alleys into entertainment centers in the

1. Pezzano, C. (1996). The push is on for Olympic status. The Record (New Jersey), Sunday Edition, Sports,
January 7, p. S17.
2. AMF Bowling looks to equity markets. Going public. The IPO Reporter, September 1, 1997. Securities
Data Publishing.
3. Stooksbury, C. (1998). Bowling boasts lengthy history as popular pastime. Amusement Business, May,
p. 20.
4. “Bowling Centers.” Encyclopedia of American Industries, 2001, p. 2.
5. King, N. (1997). Bowling must learn by its mistakes. The Ledger (Lakeland, Florida), Sports, July 20,
p. C2.
6. A-1 Lanes Company Literature.

March, 2008 371

Table 2

Operators of U.S. Bowling Centers in 1997

Number of
Operator bowling centers Percent of total

AMF 370 6.3

Brunswick 111 1.9
Bowl America 23 0.4
Active West 16 0.3
Mark Voight 16 0.3
Bowl New England 15 0.2
Subtotal 551 9.4
Single-center and small-chain operators 5,302 90.6
Total 5,853 100.0

Source: AMF Bowling Worldwide Inc. (1997). Annual Report: 10-K, Period ending 12–31. Accession #: 0000916641-
98-000297.

early 1990s.7 Their strategy was to market to families with children and teenagers by
offering childcare, video games, laser lights, lightweight neon-glowing bowling balls, and
fog machines. They also devised bumper bowling, in which gutters are filled with plastic
tubes to keep the balls on the lane. This strategy proved to be profitable and operators were
able to restore their revenues to the levels of the 1960s.8
Many analysts thought operators had created a “double-edged sword” by pampering
one market segment and alienating another. The upgraded facilities with flashy, loud, and
modern atmospheres were the opposite of the dark, quiet, smoky lanes to which league
bowlers were accustomed. Evidence indicated that league bowlers, a steady source of
revenue for bowling centers, further dwindled due to these changes.9 A league bowler
commented, “The centers have all of these great gimmicks and are giving financial breaks
to families and people that really do not bowl that much. Meanwhile, they’re raising the
prices for league bowlers, the true loyal customers, and driving them away.”10
The U.S. bowling center industry (see Table 2) was highly fragmented. The top eight
operators, including AMF, accounted for less than 10% of U.S. bowling centers. The two
largest, AMF and Brunswick Corporation (“Brunswick”) owned approximately 340 and
111 U.S. bowling centers, respectively.11 Four medium-sized chains together accounted
for 70 bowling centers. Over 5,300 bowling centers were owned by single-center and
small-chain operators, which typically owned four or fewer centers.
By 1997, the U.S. bowling center industry was considered mature and was charac-
terized by a continual contraction in the number of bowling centers. Nevertheless, the

7. Hansell, S. (2006). Overview of the bowling industry. Available at http://www.sandyhansell.com/images/

FAX%20OVERVIEW.pdf, accessed January 7, 2008.
8. Matzer, M. (1996). Bowling for dollars. Brandweek, August, p. 18.
9. Hansell, S. (1998). A double-edged sword. International Bowling Industry, July, p. 37.
10. Murphy, I.P. (1997). Bowling industry rolls out unified marketing plan. Sports Marketing, January, p. 2.
11. AMF Bowling Worldwide Inc. (1997). Annual Report: 10-K, Period ending 12–31. Accession #:
0000916641-98-000297.

372 ENTREPRENEURSHIP THEORY and PRACTICE

Table 3

Major Competitors in the Bowling Equipment Industry in 1997

Estimated sales
Company name Product line Total employees ($million) Headquarters

Brunswick Corp. Bowling equipment† 1,000 $350.0 Lake Forest, IL

AMF Bowling equipment† 635 $250.0 Richmond, VA
Heddon Bowling Corporation Synthetic lanes 50 $40.0 Tampa, FL
Hodge Lumber Company Wood lanes 40 $30.0 New Knoxville, OH
Mendes Synthetic lanes 40 $30.0 Quebec City, Canada
Murrey International Synthetic lanes 35 $30.0 Los Angeles, CA
A-1 Lanes Wood and synthetic lanes 35 $12.5 Rusk, TX

†
Equipment include bowling lanes, automatic pinsetters, ball returns, computerized scoring equipment, business systems,
and other industrial equipment and supplies sold to bowling centers in addition to resale products, such as bowling balls,
bags, shoes, and other bowlers’ aids, sold primarily through pro shops.
Source: A-1 Lanes 1997 Company estimates.

decreasing lineage (games per lane per day) was offset by an increasing average price per
game and by revenue from ancillary sources. Bowling centers derived their revenues from
bowling (60.2%), food and beverage (25.4%),12 and other sources such as rentals, amuse-
ment games, billiards, and pro shops (14.4%).13
According to the 1997 Economic Census, 619 establishments existed with 17,109
employees in the hardwood dimension and flooring mills classification (NAICS
321912).14 However, there were few companies in the bowling lane and equipment supply
business (see Table 3).15 Some of the competitors manufactured a broad range of products;
others produced only a specific line of equipment. All competitors were active in both the
domestic and the international markets.
Foreign-based competition in the bowling lane manufacturing industry was almost
nonexistent due to the lack of key raw materials. For example, lane construction required
the use of specific types and grades of maple and pine. The necessary maple is found only
in the United States, while the preferred southern yellow pine is found only in the
southeastern region of the United States. Furthermore, Asian bowling operators showed
little interest in purchasing bowling lanes or other bowling products and accessories
manufactured outside the United States. They considered bowling an American sport and
the equipment had to be manufactured in the United States.

Bowling in Asia

In the late 1980s, because of the saturation of bowling lane markets in the United
States and Europe, Brunswick and AMF began to expand into the Asian Pacific Rim by

12. Food and Beverage includes bar sales. On average, bar sales would account for 55% of these sales.
13. Ibid. Murphy, 1997.
14. 1997 Economic census: Bridge between NAICS and SIC manufacturing. U.S. Census Bureau. Available
at http://www.census.gov/epcd/ec97brdg/E97B1321.HTM#321918, accessed August 25, 2004.
15. From A-1 Lanes 1997 Company estimates.

March, 2008 373

Table 4

Selected Markets in the International Bowling Industry in 1997

Population

Country Centers Lanes Lanes per center Total (000) Per lane

Japan 1,123 32,200 29 125,000 3,900

Korea 1,104 16,300 15 45,350 2,800
Taiwan 370 11,567 31 21,120 1,800
U.K. 210 4,400 21 58,160 12,900

The population per lane is an industry statistic that enables a bowling lane distributor to get an idea of how many customers
per lane there is per city or area. This is a better statistic than “bowling centers” because it gives an idea of literally how
many people can actually bowl and a good indication of a saturation point for bowling centers in a given area.
Source: A-1 Lanes Company Literature.

developing bowling centers throughout the region. The pivotal event that triggered Asian
interest was the inclusion of bowling as a trial event in the 1988 Olympics in Seoul, South
Korea.16 After the Olympics, a bowling boom began in East Asia.
U.S. bowling exports increased by 27% from 1988 to 1993, and sales to China
accounted for almost one-third. It was estimated that there were approximately 15,000
lanes in China and most industry analysts expected this demand to blossom into a
100,000+ lane market. With a population of 1.3 billion, 100,000 lanes would amount to
approximately one lane per 13,000 people, much lower than the U.S. rate of one lane per
1,800 people. Table 4 estimates the population per lane for selected international markets
in 1997.17

Asian Cultures
Asian cultures reflected numerous influences. Their business practices differed in
many ways from those in the United States. Conducting business in Asia required a
long-term perspective through the formulation of strong bonds and ties with potential
business partners. Patience was important and connections were crucial. Asia, particularly
China, was a gift-giving culture and the giving of gifts was a means to solidify personal
ties.18
Many social and cultural demographics helped to explain the popularity of bowling in
Asia. Half of the Asian population was younger than 25 years, an optimal age range for
introducing the sport to new bowlers. A bowling enthusiast and Asian market analyst,
Mort Luby Jr., explained the popularity of bowling:19
Bowling is popular in the Asian market because many young urban people complain
there isn’t much to do with their leisure time (and increased disposable income). Disco

16. Cooper, M. (1998). On the shining paths of tenpin. The Nation, August 10, p. 35.
17. From A-1 Lanes Company Literature.
18. Luby, M., Jr. (1998). Asia’s malaise is only temporary. Bowlers Journal International, January, p. 12.
19. Ibid. Luby, 1998.

374 ENTREPRENEURSHIP THEORY and PRACTICE

 is dead, the nightclubs are intimidating, the bars are full of AIDS, and foreign movies
are expensive and largely incomprehensible. There are very few mid-price restaurants.
Bowling has filled this recreational void with a vengeance (Luby, 1998, p. 12).

Asian Economies
Following the rapid growth in the 1980s of Taiwan, Korea, Singapore, and Hong
Kong, the so-called Four Tigers, a new wave of economic growth swept across Asia. This
wave was driven primarily by the newly industrializing economies of Malaysia, Thailand,
Indonesia, and others. Thailand’s growth was especially noticeable. The Nation,
Bangkok’s independent newspaper, predicted that Thailand would become known as the
“Fifth Tiger” during the 1990s. The Asian Development Bank predicted that Asia’s
economy would grow at a pace twice as fast as other world regions. Some suggested that
the new millennium would begin with the “Asian Century.”20
The early 1990s also marked the globalization of financial markets. With slow growth
and competitive home markets, private capital flows turned to these emerging markets,
which offered higher interest rates and robust economic growth.21 From 1990 to 1997,
capital flows to developing countries rose to more than fivefold. While world trade grew
by about 5% annually, private capital flows grew annually by 30%. The most mobile forms
of flow, commercial bank debt and portfolio investments, set the pace,22 with East Asia
absorbing nearly 60% of all short-term capital.23

Short-term debt (% of total external debt)

Thailand
50
45
40
35
30
25
20
1990 1991 1992 1993 1994 1995 1996

Source: World Bank, 200224

Thailand attempted to “become the regional financial hub” for neighboring econo-
mies. The government enacted policies in 1993 that allowed some foreign and local banks
to make loans in U.S. dollars and other currencies through what was called the Bangkok
International Banking Facilities.25 However, with the Thai government continuing to

20. Wave of growth sweeping across Asia. (1990). Jiji Press Ticjer Sercie, Jiji Press Ltd., June 7, LexisNexis
Academic, accessed 7 January 2008.
21. Baily, M.N., Farrel, D., & Lund, S. (2000). The color of hot money. Foreign Affairs, 79(2), 99–110.
22. World Bank. (1998). East Asia: The road to recovery, p. 4. Washington, DC: World Bank.
23. WEO (World Economic Outlook) cited in World Bank. (1998). East Asia: The road to recovery, p. 6.
Washington, DC: World Bank.
24. World Bank. (2002). World Development Indicators 2002 (CD-ROM): World Bank.
25. Einhorn, B. & Corben, R. (1997). One tired tiger. Business Week (Int’l Ed.), March 24, LexisNexis
Academic, accessed 7 January 2008.

March, 2008 375

maintain high interest rates on baht-denominated loans to keep inflation in check,26 the
policy was in reality a conduit by which local Thai companies could obtain special foreign
loans at far lower interest rates than could be borrowed in baht.27
For example, in the mid-1990s, an investor could borrow yen at near 0% interest and
invest in Bangkok skyscrapers, where the expected annual return was 20%.28 With access
to low-interest loans, readily available capital, and high demand, foreign capital flowed
into the region and accounted for as much as 13% of Thailand’s gross domestic product,
reaching a peak of $25.5 billion in 1995. Nearly 75% of these foreign capital inflows were
from international banks in the form of bank loans with maturities of less than 1 year. The
majority of these loans were made to Thai banks and finance companies, which in turn
made domestic loans of much longer duration.29
The dramatic influx of cheap capital spurred investment in the domestic infrastructure,
such as chemical and steel plants. Developers counted on the continuation of strong
growth. Luxury hotels and high-rises became plentiful as development companies bor-
rowed and invested at a breakneck pace.30
The year 1996 marked the beginning of an economic downturn in Thailand.31 Exports
began to stagnate and growth slowed.32 The Asian Development Bank attributed the
decline in exports to several factors, including a slump in the electronic sector, tight
monetary policies in other countries, and the appreciation of the U.S. dollar against the
Japanese yen.33
The appreciation of the U.S. dollar had a serious effect on Thailand’s economy
because the Thai baht was “pegged” to a basket of currencies with strong ties to the U.S.
dollar.34 As the dollar strengthened, so did the baht. Meanwhile, Japanese exports, priced
in yen, became more attractive to consumers in the United States.35 Another disadvantage
of letting the baht remain on par with the U.S. dollar was that Thai interest rates were far
above U.S. rates, which caused distortion of the real worth of the baht. Nevertheless, the
combination of exchange-rate stability and high interest rates continued to attract vast
capital inflows.36
In light of an economic slowdown and the accumulation of aggressive investment,
heavy borrowing, and wasteful use of resources, the International Monetary Fund (IMF),
on September 1996, warned that several Southeast Asian economies’ “current growth
rates may be above their sustainable long-term trends.” The report also suggested that a
key economic problem confronting the developing countries was how to prevent big

26. Thailand finally lets its currency float. Wall Street Journal, July 3, 1997, LexisNexis Academic.
27. Sapsford, J. (1997). Asia’s financial shock: How it began, and what comes next. Wall Street Journal,
November 26, LexisNexis Academic.
28. Ibid. World Bank, 1998.
29. Ibid. Baily et al., 2000.
30. Lebourgre, C. (1997). Thailand: Tis an ill wind that blows nobody any good. Banque Paribas Conjoncture,
May. Available at http://economic-research.bnpparibas.com/applis/www/RechEco.nsf/navigation/Frame
MainInter?OpenDocument&Lang=EN&Mode=28, accessed 7 January 2008.
31. Thailand infoplease. Available at http://www.infoplease.com/ipa/A0108034.html, accessed 7 January
2008.
32. Ibid. Lebourgre, 1997.
33. Asia-Pacific to grow at slower pace in ‘97 and ‘98. Japan Economic News Wire. Kyodo News Service,
April 17, 1997, LexisNexis Academic, accessed 7 January 2008.
34. Sender, H. (1997). Get a grip: Can Thailand’s Central Bank handle the baht crisis? Far Eastern Economic
Review, 160 (13), March 27.
35. Several European bourses float at lofty levels: Tokyo shares rise following pause for holiday. Wall Street
Journal, January 17, 1997, p. 13.
36. Ibid. Sender, 1997.

376 ENTREPRENEURSHIP THEORY and PRACTICE

foreign capital inflows from fueling inflation, blowing out their current accounts and
producing a repeat of Mexico’s financial market crunch. The report also stated that the
rapid growth of spending on real estate—a classic sign of speculative excess—in Indo-
nesia, Malaysia, and Thailand and the appearance of skilled labor bottlenecks in the region
were early signs of overheating.37 Following the IMF’s warning of impending peril, senior
Asian central bankers met on November 20, 1996 at the World Economic Forum to
discuss how to prevent a “financial crisis from hitting the region.”38
In the first and second quarters of 1997, Thailand’s banks experienced a net $6 billion
outflow of foreign investment. Short-term loans were not being renewed by foreign banks.
During this time, Baker watched the exchange rate and was confident the Thai government
would be able to maintain the value of the baht, therefore preserving the existing dollar/
baht pegged exchange rate. However, the Bank of Thailand began to run out of reserves
in its attempt to maintain the value of baht. On July 2, 1997, the Thailand government
devalued its currency.39
Because the Asian Pacific economies were interconnected,40 there was a high likeli-
hood that this event would affect the currencies of the whole Asian Pacific region.41 For
American bowling manufacturers exporting to East Asia, this was a major concern on
three accounts. First, U.S. firms feared that their Asian customers would be unable to pay
off their accounts (usually payable in U.S. dollars). Second, a significant devaluation
would make U.S. exports substantially more expensive across the entire region. Finally,
governments usually raise interest rates in conjunction with any devaluation to assist in the
stabilization of their currency. Manufacturers worried that the higher prices of capital
equipment and higher interest rates could quash Asian investment in bowling centers (and
new bowling equipment) almost overnight, especially if governments acted quickly.

A-1’s International Expansion

Following the 1988 Olympics, A-1 began shipping lanes to Taiwan. From 1990 to
1992, the company concentrated on developing contacts through Dacos’ Asian networks.
Increasing sales to Korea and Taiwan more than offset A-1’s declining sales to Europe,
where the market was saturated. Baker saw a distinctive Asian business mindset: “They
were much more aggressive than we are in the West,” he said, “They would actually build
a bowling alley next to an existing one to drive out a local competitor.”
By the end of 1992, Taiwan and South Korea were also reaching a saturation point for
new wood bowling lanes; however, China had a growing interest in bowling. AMF and
Brunswick had already developed centers in China. A-1 was able to penetrate this market
in 1993 and 1994, mainly through its partnership with Dacos. A-1 had developed a
synthetic lane called UltraLane, a growingly popular substitute for wood flooring. As
a result of this innovation, A-1 Lanes was one of only three companies in the world to

37. Kandiah, P. (1996 September 30). IMF: Southeast Asia risks overheating. Malaysia warned over possi-
bility of Mexico-style crash. The Nikkei Weekly. Available at http://web.lexis-nexis.com/universe/document,
accessed 23 April, 2003.
38. Kohli, S. (1996 November 21). Bankers fear Asian “Mexico” crisis. South China Morning Post (Hong
Kong). Business section, p. 1. Available at http://web.lexis-nexis.com/universe/document, accessed 10 April
2003.
39. Ibid. Baily et al., 2000.
40. Wong, R.Y.C. (1999). Lessons from the Asian financial crisis. Cato Journal, 18(3), 391–398.
41. Brummer, A. (1996). East Asian tigers are endangered. The Guardian (London), October 16, p. 20.
LexisNexis Academic, accessed 1 April 2003.

March, 2008 377

supply both wood and synthetic lanes. By 1995, Asia was the company’s main market. In
1996, A-1’s sales increased to $12.4 million, 33% above the previous year.
From 1995 to 1996, AMF attempted to consolidate the highly fragmented bowling
equipment industry by slashing the prices of its capital equipment, especially wood and
synthetic flooring. The aggressive move drove down prices and profitability across the
industry. A-1 matched AMF’s pricing, but its profits suffered substantially.
In spite of the region’s problems, Baker and his Asian distributors saw increasing
interest in bowling in Singapore and Malaysia. They thought these markets were very
promising and the additional volume could possibly offset the smaller profit per unit, and
thereby restore net income to its 1995 level. At this time, A-1 had 80% of its sales volume
in the Asian markets and 20% in the United States.

A-1’s Situation

As Rick Baker contemplated the changes in the international market, he could not
help but think about his own firm’s viability. A-1’s domestic sales were primarily of
synthetic overlay systems. He wondered how A-1 could survive an Asian crash and
continue to make a profit, or at the very least, generate a positive cash flow. To understand
his company’s financial health, he began to assess its activities, assets, and capabilities.
A-1 Lanes had become an important player in the international bowling industry
within 10 years of its chicken-house origin. In Baker’s view, his company strived to
provide competitively priced, premium quality bowling lanes and related equipment to the
domestic and international markets and had earned a very favorable industry reputation.
Over 30 capital equipment distributors used A-1 as a source for bowling lanes.

Manufacturing Facilities
A-1 was operating at about 60% of the capacity of its state-of-the-art plant. The
company could expand production quickly to meet the demand in Singapore and
Malaysia. More than 160 companies supplied the materials A-1 used to produce its
bowling lanes and complementary components and accessories, such as gutters, capping,
and return tracks. Rusk, Texas, was an ideal location because of its proximity to southern
yellow pine. In Baker’s mind, this gave A-1 a distinct advantage over rivals in the northern
states due to low inbound costs of lumber and easy access to the mills.

Products and Innovation

Wood lanes were constructed of the highest quality southern yellow pine and hard
maple boards, which were routed and milled to specification, and shipped either pre-
nailed or loose to be installed by the ultimate buyer. According to Baker:
The specifications for building wood lanes are very strict concerning the orientation
and grain of the wood. Some wood is not appropriate, so there are many rejected
boards. To aid in lowering the rejection rate and our costs, we have trained graders in
local sawmills to grade lumber for use in our manufacturing process.
Once purchased, the lanes were shipped from the plant and assembled on site by
highly skilled carpenters who specialized in the installation of bowling lanes.

378 ENTREPRENEURSHIP THEORY and PRACTICE

Figure 1

Breakdown of A-1’s Sales in 1996

Wood Lane Products: 1996

Maple Pin- Other

Decks 14%
17%

Pre-nailed Bed Stock

Lanes Pkgs.
35% 34%

Synthetic Lane Products: 1996

Other Pin-Deck
14% 14%

New Const.
Overlay Lanes
Systmes 36%
36%

Wood lanes and various derivatives accounted for 58% of A-1’s revenues in 1996.
Each wood lane costs $6,250 including accessories. A breakdown of revenue from the
company’s various products is shown in Figure 1.
To address some of the shortcomings associated with wood lanes, such as marring and
gouging (deep etching), synthetic lanes were introduced during the 1980s. However, A-1
did not introduce its first synthetic flooring, UltraLane, until 1992. Baker was especially
proud that this innovation was developed within the company and that the resin could be
used not only for the construction of new lanes, but also for refurbishing existing wood
lanes (overlay system). He elaborated:
The advantage of UltraLane is its improvement to the approach surface. Our com-
petitors’ synthetic flooring used the same product on the approach and the lane. The
lane material was not slick enough for the approach. Bowlers’ shoes stubbed on
the material, and some lawsuits have been filed over injuries. UltraLane’s approach
has an orange peel texture that is very slick to the bowling shoe and allows it to slide
properly.
By 1996, synthetic sales accounted for 42% of A-1 Lanes’ total revenue, up from 25%
of total sales in 1994. New synthetic lanes sold by the company were typically shipped in
sections, installed on site, and cost $7,000 per lane. Figure 1 shows the breakdown of
revenue from various synthetic lane products sold by A-1 Lanes.
In addition to UltraLane, Baker and his team continuously developed innovative
products to complement or improve their existing products. For instance, A-1 developed
a unique “snap on” ball return capping system and engineered changes in lane com-
ponents that made the system less costly to manufacture. The capping system, made of
high-impact plastic, covers (caps) the gutter dividers (A) and ball returns (B) that are
positioned alternately between lanes.

March, 2008 379

 Baker believed that continuously improving A-1’s products was crucial to being
competitive, to even its survival. Technological enhancements could alter the entire
bowling equipment industry, bringing changes that could accelerate the development of
bowling in foreign markets. Baker thought it ironic that the entire industry could be
undermined by the recent currency devaluation rather than by a radical innovation.

Marketing
“We need to do little advertising because the coverage of our company in trade
publications is very positive due to our quality of products and reputation,” Baker said.
However, to stay in continual contact with its customers, A-1 bought display space at trade
shows and at regional and international meetings of national bowling associations.
A-1’s ongoing relationship with Dacos was a “win–win situation,” he thought. It
allowed Dacos to offer a complete bowling center package that included pinsetters and
bowling lanes supplied by A-1. By 1996, 50% of A-1’s sales were channeled through this
partnership. Dacos was formulating plans for developing bowling centers in Malaysia and
Singapore, thereby enabling A-1 to be at the forefront of the continuing growth of bowling
in Asia.

Service and Sales

A-1’s sales force was smaller than those of most competitors. The company’s top
three executives were its sales force and had been with the company since its inception.
Baker thought that this was an advantage for A-1 because competitors’ sales forces were
generally not very experienced. Furthermore, because of the knowledge and experience of
its sales team, A-1 was able to provide consistent and reliable service. In Baker’s
mind, this was especially important because business in Asia was primarily based on
relationships.
Being small brought another advantage, he believed. Asians were insulted when larger
companies sent middle managers to negotiate deals. Since A-1 was so small, all encoun-
ters with the company were with executives. Baker remembered that when he gave his

380 ENTREPRENEURSHIP THEORY and PRACTICE

 Table 5

A-1 Lanes Income Statement 1994–1996

Ending December 31 1996 1995 1994

Sales $12,359,561 $9,326,649 $7,781,131

COGS $9,887,649 $6,460,768 $6,035,549
Gross Profit $2,471,912 $2,865,881 $1,745,582
Op Expenses $1,680,900 $1,325,557 $742,081
EBIT $791,012 $1,540,324 $1,003,501
Interest Expense $111,340 $45,113 $70,322
Income Tax Expense $203,902 $447,779 $317,281
Net Income $475,770 $1,047,432 $615,898

Asian customers his business card and introduced himself as the president of A-1 Lanes,
they would respond as if he were the president of AMF. When Baker traveled to Asia, he
was treated “like royalty.”

Performance Metrics
According to Baker, “It is amazing how a small firm in a rural community could sell
millions of dollars of product to customers halfway around the world.” Even so, Baker felt
helpless in the currency crisis. Feeling a sense of urgency in his company’s financial
situation, Baker thought, “I wonder what story the financial statements might tell me?”
(See Tables 5–7.)
A-1 Lanes’ net profit reached an all-time high in 1995. Baker was sure that his
decision to cut prices had hurt the bottom line, but he surmised that everyone in the
industry was experiencing the slimmer margins. The real question, he figured, was how
long AMF would pursue its price-cutting policy.
Another troublesome aspect of the financials was the increase in operating expenses
as a percent of sales. Baker knew that these expenditures were needed to modernize A-1’s
facilities and enable the firm to meet the expected increase in sales. In fact, A-1 had
increased production to bring its finished inventory to 25% of projected sales. Baker
reasoned that if A-1 were unable to meet demand, customers could easily go elsewhere.
The outlay of $554,000 to modernize the plant was financed by a 10% note payable over
10 years.

Credit and Currency Risk

Although sales contracts with foreign customers specified payment in U.S. dollars, the
fluctuations of foreign currencies against the dollar produced risk for both the customer
and A-1. A large appreciation in the U.S. dollar could affect the collectability of foreign
accounts receivable. Standard industry practice was to ship to foreign customers only after
receipt of full payment in U.S. dollars, or upon presentation of irrevocable letters of credit.
However, Baker did make exceptions for long-standing customers that were key accounts.
The exception applied to several major Asian customers, and Baker wondered if this had
been a smart business decision. He thought that hedging techniques to reduce A-1’s
transaction exposure would entail too much work; already he was too busy growing his
business and filling orders. Besides, he had irrevocable letters of credit.

March, 2008 381

Table 6

A-1 Lanes: Balance Sheet 1994–1996

As of December 31 1996 1995 1994

Cash $277,603 $95,847 $73,411

Accounts Receivable $2,101,125 $1,416,523 $950,180
Inventory $2,050,636 $2,418,940 $1,571,758
Other Current $84,622 $58,752 $25,000
Total Current Assets $4,513,986 $3,990,062 $2,620,349
Fixed Assets $1,121,783 $567,877 $462,939
Accumulated Depr ($496,993) ($301,163) ($258,981)
Net Fixed Assets $624,790 $266,714 $203,958
TOTAL ASSETS $5,138,776 $4,256,776 $2,824,307
Accounts Payable $1,382,526 $1,440,354 $1,043,776
ST Notes Payable $0 $0 $249,000
Taxes Payable $11,711 $271,529 $336,905
Other Current $38,008 $56,083 $227,957
Total Current Liab $1,432,245 $1,767,966 $1,857,638
LT Notes Payable $1,289,400 $547,449 $72,740
Common Stock $15,000 $15,000 $15,000
Excess of Par $60,000 $60,000 $60,000
Retained Earnings $2,342,131 $1,866,361 $818,929
Total Equity $2,417,131 $1,941,361 $893,929
TOTAL LIABILITIES & EQUITY $5,138,776 $4,256,776 $2,824,307

Table 7

A-1 Lanes: Cash Flow Statement 1995–1996

Cash Flow from Operating Activites 1996 1995

Cash Flow from Operating Activities

Net Income $475,770 $1,047,432
Depreciation $195,830 $42,182
(Increase) AR ($684,602) ($466,343)
Other Current ($25,870) ($33,752)
(Increase) decrease Inv $368,304 ($847,182)
Increase (decrease) AP ($57,828) $396,578
Taxes Payable ($259,818) ($65,376)
Net Cash From Operating Activites $11,786 $73,539
Purchase of Fixed Assets ($553,906) ($104,938)
Financial Proceeds
Decrease ST Notes $0 ($249,000)
Increase LT Debt $741,951 $474,709
(Decrease) Other Current Libilites ($18,075) ($171,874)
Total Fi Proceeds (payments) $723,876 $53,835
Net Change in Cash $181,756 $22,436
Cross Check To Balance Sheet $181,756 $22,436

382 ENTREPRENEURSHIP THEORY and PRACTICE

Table 8

A-1 Lanes of East Texas Comparison of Ratios

A-1 Lanes Industry†

1996‡ Sales
1996 1995 1994 1996 1995 1994 $10–25 M

1. Firm Liquidity
Current Ratio 3.15 2.26 1.41 1.80 1.70 1.70 1.8
A/R Av.collection Pd 62.05 55.44 44.57 NA NA NA NA
2. Operating profitability
Operating Income return on Investment 15.39% 36.19% 35.53% 7.20% 11.10% 9.30% 10.00%
Operating Profit Margin 6.40% 16.52% 12.90% 3.60% 4.63% 4.43% 5.56%
Total asset TO 2.41 2.19 2.76 2.00 2.40 2.10 1.8
A/R Turnover 5.88 6.58 8.19 13.00 12.50 12.20 12.9
Inventory TO 4.82 2.67 3.84 5.10 6.30 5.90 7.00
Fixed assets turnover 19.78 34.97 38.15 7.20 6.60 6.50 6.80
3. Financing Decisions
Debt ratio 25.09% 12.86% 2.58% 20.10 20.30% 20.80% 15.6%
Times interest Earned 7.10 34.14 14.27 3.10 4.50 6.00 14.6
4. Return on Equity
Return on Equity§ 32.73% 79.34% 112.26% 17.31% 25.06% 23.13% 18.28%

†
Adapted from RMA, 1996″ NAICS = 321918 Manufacturing; SIC = 2426.
‡
This information is reported for the current year (1996) of firms with sales of 10–25 million.
§
RMA (Robert Morris Associates) does not report Net Income (after taxes) nor stockholders equity. Therefore, a derivative
was used—profit before taxes/net worth as an indicant for return on equity.
NA, not applicable.

A-1’s Future

Although Baker knew he did not fully understand the story within A-1’s financials,
he was growing uncomfortable with how the crash in Asian currency markets could
affect his company. Should he have monitored the Asian economic environment more
closely? Should he have expanded manufacturing operations in 1996? Should he have
extended credit to his selected foreign customers? How could he have protected his
company?
Baker recalled that his old management professor in college once told him that there
is a story behind each set of financial statements—especially when you compare your
company with the industry averages. Now Baker visited the library and collected the ratios
pertaining to his industry. Then, he laid them on a table next to A-1’s financial statements
(see Table 8). He grabbed an ice cream bar from the freezer and sat down to ponder his
next move.

Phil E. Stetz is the Lavoy Moore Entrepreneurship Professor in the Department of Management, Marketing,
and International Business at the Stephen F. Austin State University, Nelson Rusche College of Business,
Nacogdoches, Texas.

March, 2008 383

Todd A. Finkle is the director of the Fitzgerald Institute for Entrepreneurial Studies at The University of
Akron.

Larry R. O’Neal is Associate Professor of Marketing of the Department of Management, Marketing, and
International Business at the Stephen F. Austin State University, Nelson Rusche College of Business, Nacog-
doches, Texas.

384 ENTREPRENEURSHIP THEORY and PRACTICE

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