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Friday, July 2, 2010

Is Cheaper Better?

With ECFA signed, the boat loads of money should be arriving at the docks any minute. An article in Bicycle Retailer paints a pretty rosy picture of the situation.

"The agreement appears to have little if any impact on pricing for bicycles made for overseas consumption in the U.S., Europe or other nations—at least for now. Currently, Taiwan-made parts shipped to China for assembly on exports arrive through a duty free zone.

Pat Cunnane, president and CEO of Advanced Sports Inc, said the company and its manufacturing partner, Ideal Bike Corporation with facilities in Taiwan and China, could benefit from the sweeping trade agreement. “It will bring down costs of bikes in China that are made in Taiwan and it makes it easier for Taiwanese companies to sell in China,” he said.

Bonnie Tu, Giant Manufacturing’s chief financial officer, told the Financial Times the agreement could help the company better manage its production. Giant has factories in Taiwan and China. Giant builds its high-end bikes, particularly carbon fiber, in Taiwan. Lesser value models are made in China.

“If there is no tax issue, we can really integrate our factories and shuffle production as we like,” Tu said. “China’s economy of scale for high-end bicycles could be really big,” she added.

Cunnane said the future impact of the trade agreement doesn’t appear to offer either nation a major competitive advantage in the bicycle market. But the continued thaw in relations between the island nation of 23 million and its much larger rival is significant."

On a news report tonight, bicycle retailers were interviewed and mentioned they would now be free to sell more bicycles that are made in China. The average price is estimated to drop by at least NT3000 for the Chinese models. This is excellent for the large manufacturers like Giant, but it puts greater pressure on the smaller shops to provide value. No wonder King Liu has gotten so cozy with Ma.

The news report estimated ECFA costing 150,000 jobs.

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