What's Wrong With The Bicycles?

 

  “Our future lies in China and one of our goals is to develop this rapidly expanding market”--Giant CEO, Anthony Lo (2011)


Despite all the glad handing and praise the bicycle industry is facing some serious challenges in the short to medium term. There are increasing signs that things are not all well in paradise despite the passage of the Economic Cooperation Framework Agreement (ECFA), which was rapidly pushed through Taiwan's legislature and signed by Taiwanese and Chinese representatives in 2010.

“The markets are changing so fast that the rules have been reset, and if we don’t catch up, it is going to be harder for us to hold our own in the global market,”--Giant CEO, Anthony Lo (2013)

Aside from the chemical and mechanical doping scandals that have plagued the professional peloton--bicycling's advertising juggernaut--and possibly squelched interest in the sport, brands have been looking toward new technologies to buoy the industry and churn profits in a sluggish year. Shimano had been a major proponent of disc brakes in the pro ranks for some time and had been expecting reap the benefits. Now with both the UCI and the French Cycling Federation banning the components, a major source of market stimulation has been destabilized. 

Shimano profits are down 20% in the first quarter of 2016, and SRAM is tightening its belt with layoffs due to flagging sales. SRAM's plan to layoff 40 employees deemed "redundant" by the company will be spread over the company's global business, including the United States, Europe and Asia. 

“No one ever wants to be in position to request that people leave an organization, but sometimes it has to happen. I am confident that this restructuring positions us where we need to be and puts us on a firm foundation to drive forward into an evolving bike market.”--SRAM President, Stan Day

Wholesalers carry too much inventory into the first quarter, with the new product year looming (what is it now, May?). 

The lack of sales growth over last year is worrying in light of better weather conditions in much of the country this year. The Upper Midwest and Northeast were slammed with heavy snows in early 2015 but saw better conditions this year. However, the BPSA figures show that sales to retailers in January and February still lagged, though March wholesale sales showed a 6 percent improvement over 2015. 

Suppliers are seeing slow road and cruiser shipments at the start of the year, with road bike sales falling 9 percent overall. But mountain bike shipments are up 13 percent, and hybrid and commuter are up 16 percent.

The trouble coming from the two largest suppliers of drivetrain components is especially ominous, especially as Shimano does not simply supply the high-end, but supplies drivetrain components for everything from Walmart children's bikes to the Tour de France. A sizeable dip says a lot about demand in all sectors and that may have some serious repercussions in Taiwan. But hey, China is where its at, anyway. It is the world's largest emerging market and Taiwan has a free pass, right. 

Now, as a little reminder, ECFA was supposed to stimulate trade between Taiwan and China, opening up China to imports from Taiwan, with the bicycle leading the way on Early Harvest list set for an immediate and lasting impact. In a report from 2010:

Giant Global Group plans to increase its investment to build a bicycle plant in Kunshan, which has gained great support from the mayor of Kunshan Guan Aiguo. The 40-hectare new plant will consist of plants for bicycles, frames, carbon fiber and electrical vehicles. Besides, the cycle track & bicycle theme park plan will also be pushed forward. The investment in the initial stage amounts to USD 36 million (NTD 1.16 billion). 

Sources revealed Giant Global Group currently possesses a bicycle plant in Kunshan with an annual output of 2.5 million. As the Group's largest manufacturing base in the mainland, the plant boasts about 50% of the products meeting the domestic market demands. After being put into operation, the new plant will meet the market demands for both GIANT and MOMENTUM and the plant will trade with Taiwan bicycle plants after the signing of ECFA.

So, how are things looking in the post-ECFA world? 

Taiwan’s economy contracted on a yearly basis for a second straight quarter as China’s economic slowdown dragged on the island’s exports. 

Gross domestic product fell 0.28 percent in the three months through December from a year earlier, according to preliminary data released by the statistics bureau Friday. That compares with a 0.6 percent drop projected by the median estimate in a Bloomberg survey of economists and the 0.63 percent decline in the third quarter. The economy grew 0.85 percent in 2015. 

Taiwan’s exports shrank last year as local manufacturers grappled with the double whammy of slower economic growth in their top market China and tougher competition from mainland rivals. It wasn’t all bad news though: The economy grew 3.22 percent at a seasonally adjusted annualized rate, the most since the third quarter of 2014, as lower crude prices helped consumers.

That rosy?! But what about a greater parity in trade? 

Exports totalled USD 22.2 billion in January, which represented a notable 13.0% contraction in year-on-year terms. January’s result represents a slight improvement over December’s 13.7% drop. Imports tallied a total of USD 18.7 billion in January, which was a sharp 11.7% fall over the same month of last year. The figure came in above to December’s 14.8% decline. 

FocusEconomics Consensus Forecast panelists expect exports to fall 0.6% in 2016 and to rise 3.9% in 2017.

But at least we have the growing demand for E-Bikes in China to make up for the dip in high-end/high-margin leisure bicycle consumption, right? The E-Bike is the fastest growing market segment for bicycle manufacturers and China is leading the way. 

China bans E-Bikes in largest cities. 

Following legislation in Beijing, Shanghai and Guangzhou, it has been reported that Shenzhen may also start to limit the use of electric bikes. Chinese people are getting wealthier and buying more and more cars, which as we know has caused many problems, such as heavy traffic, serious air pollution and poor physical health in big cities. In fact a highly viable alternative to fossil fuel powered vehicles is already available; bicycles and e-bicycles together with public transit form a good system and a true solution to the problem.

So, how is that China thing working out? 

The Chinese market for Taiwanese bicycles declined by 33% to 79,000 units. Though not yet that large, the Chinese market was seen as a main growth market for several years. This development has now stopped due to the economic decline in China.

Giant's Plans for World Domination

A Giant Branded Bike

Taiwan Today is featuring a lengthy article on Taiwan's Giant Manufacturing Co. Ltd., which has positioned itself to become the dominant bicycle brand in East Asia.

The article provides a lengthy history of Giant, from OEM to worldwide brand. The most interesting details come at the latter half of the article, which provides some fantastic mid-management speak that sounds like it comes right out of a cheap MBA program.

My favorite comes from Giant spokesman, Jeffery Shiou:

Asked to comment on what makes Giant so unique, Sheu mentioned the company’s complete dedication, since the very beginning, to bicycles. Its goal has been to become a “total cycling solution provider,” Sheu noted.

Despite the management speak, the article provides several points for discussion regarding Giant, branding and positioning itself as a world leader.

Giant also adopted sports marketing techniques to make its quality products better known. “We started to sponsor cyclists in all kinds of international competitions,” said Sheu.

If these cyclists performed well, their cycling equipment and devices would receive widespread media coverage. “That was how foreign customers became familiar with Giant,” he said.

Giant also invited many professional cyclists to test its vehicles and offer tips for improvement. For instance, opinions from these experts helped Giant build its world-renowned carbon fiber bicycles.

So much of sports marketing has to do with selling a fantasy. People care about what the pros are using and hope they too can purchase some magic to become a better cyclist, which beats traditional training any day.

Putting a bike in the pro ranks instantly increases its value. Put one on the podium and the value skyrockets. The rush to carbon fiber bikes is not driven by the pros, but it is driven by the manufacturers who will see increased profit margins with carbon fiber and use the pros to sell bikes. Let's face it... professional racing is about selling products.

Moreover, the company was among the first bicycle brands to produce a line of models especially for females. “Women make up half of the population and their needs should not be ignored,” said Bonnie Tu, Giant’s chief financial officer.

In April 2008, the world’s first female bicycle retail store, which sells Giant bicycles made under its subsidiary brand name Liv, opened in Taipei.

But Giant is not only about selling bikes. More importantly, the leading bicycle brand is devoted to promoting cycling culture.

Giant's View Of Female Cyclists

I think I have made my view of the Liv/Giant campaign abundantly clear. Something I might like to add is that Giant's marketing strategy seems to be focusing on transforming the image of Giant domestically from the proletarian, affordable bike for the masses, to a prestige nameplate that seeks to convey the messages of status, which, in a society with a strong Confucian cultural influence, locates people on a grade-scale that defines social relationships in terms of superiority and inferiority. I think networks of guanxi clearly demonstrate the social function of status within Taiwanese society and how Taiwanese use prestige symbolism to traverse the cleavage between these relationships.

With Giant defining and articulating "cycling culture", backed by its overwhelming presence and close relations with the central government, Giant may have more influence over how cycling culture develops in Taiwan than any other social force. Giant plays a large role in determining which products will be available to the consumer through its ubiquitous Giant retail stores.

“But we are not doing all this to ask people to buy Giant products,” said Sheu. “We just want them to be aware of the benefits of cycling, experience the fun of it all and make it part of their life.”

The foundation may have had a little bit of luck on its side. Many more people in Taiwan have become aware in recent years of the importance of reducing carbon emissions, and bicycles provide a natural solution. Indeed, starting in 2007, more and more people have taken to using bicycles as a daily means of transportation.

The first sentence above should be taken with a grain of salt. They are a business, and businesses want to make money and sell their product. Giant wants to sell a product... they are out to expand the market and gain market share. In the positive side, a company with a presence like Giant provides the opportunity for other component manufacturers to build partnerships with Giant and build brand awareness.

In spite of its many accomplishments, Giant has no intention of resting on its laurels. The quest to become the best bicycle company in the world drives it ever forward.

My final thought on Giant is the fact that Giant, as both a manufacturer and retailer, has the ability to exploit its vast supply networks and political relationships to squeeze out the alternatives. I know several small and dedicated bike shops that are under increasing pressure from the lower price points available from Giant.

These small, independent stores have been the centers of local cycling culture on Taiwan for decades where cyclists could gather and build community. These little shops are poised to suffer from the "Walmartization" of Taiwan's cycling retailers. If Giant does succeed in driving out the local independent retailer, Taiwan's unique cycling culture will suffer an important loss and the choices will be greatly limited.

We need a strong system of locally based independent retailers in our communities and I would encourage everyone to support their local bike shop over the Giant retailer where our money goes back into the community.