Taiwan's bicycle industry: switching gears for a changing world

*** Taiwan's bicycle industry: switching gears for a changing world ***

Taiwan (AP) -- 03/17/2003 The Taiwan bicycle industry is an export-oriented industry. Only some 10
percent of production is sold on the local market. As an exporter, the market for bicycles is
strongly influenced by global economic cycles.

Throughout these challenging times, Taiwan makers have achieved much progress in many areas. In
1998, for example, Taiwan-made bikes made extraordinary growth in response to several up-market high
priced bicycles, but over recent years, Taiwan bicycles output has declined, as many bicycles makers
have moved offshore.

Taiwan's leading bicycle manufacturers are aggressively establishing overseas production lines to
better meet local demands. This strategy is not only in line with global trends, but also helps
Taiwan overcome local trade barriers and allows direct access to protect the market. Meanwhile,
Taiwan's bicycle manufacturers are seeking to develop international partnerships to develop export
markets. According to industry observers, in the future, Taiwan's bicycle industry might achieve
even more promising developments if manufacturers strive for technical cooperation and strategic
alliances between industries.

Most Taiwan bicycle manufacturers will tell you that when it comes to their industry, the winds of
change are blowing ever stronger. Bicycle production in Taiwan does not exist in a vacuum and is
affected by larger currents at the national and international level. Lackluster foreign markets,
dragged down by a global recession, political changes in Taiwan and mainland China, Taiwan's
inevitable transformation to a high-wage economy were some of the most prominent factors. Some of
these factors were like the Doldrums, where movement is scarce and the winds are still, and some
were like whirlwinds. The industry knows that if it is to grow and prosper, it must change course,
and it has become evident that manufacturers are looking for ways to reinvent themselves in the face
of the new and ever changing dilemmas facing them. In all, these four major strategies - aggressive
expansion, adding value, diversifying into new products and moving offshore, have been identified.

Export market trends

According to Republic of China Customs statistics, output of complete bicycles reached a peak in
volume of 9.38 million in 1998, valued at NT$29.92 billion, with an average unit price of NT$3,188.
This declined to 7.78 million units in 1999, valued at NT$24.52 billion at an average unit value of
NT$3,151. Volumes declined further in 2000 to 7.53 million units, but an increase in unit value by
7.6% to NT$3,390 saw export income actually rise to NT$25.54 billion. In 2001, exports amounted to
4.79 million valued at NT$17.97 billion, with a unit value of NT$3,749, an increase of
10.6% in unit value over 2000.

The best news for Taiwan manufacturers from these trends is that the per unit price has been
climbing steadily, increasing margins and making the business manageable, with a trend to adding
value rather than relying on pure volume. With prices per unit climbing above the crucial US$100 per
unit, seen by many as a watermark of profitability, 2000 was something of as turning point for the
Taiwan bicycle manufacturing industry, after several years of fierce competition, and a sluggish
global market.

Accompanying the increase in average price per unit is the continuing swing towards higher price
markets, namely Europe and Japan. Exports to the United States in 2000 amounted to NT$7.9 billion,
or 31.2% of total exports. In 2001, this figure slumped to NT$5.08 billion, or 28.3% of total
exports. Japan in 2000 was the destination of exports valued at NT$3.76 billion, climbing to 16.2%
of total exports in 2001, though valued at only NT$2.92 billion. Germany was the third biggest
export destination in 2000, valued at NT$2.28 billion and garnering 8.9% of total exports. By 2001,
Germany had slipped too: export values fell to NT$1.28 billion, or 7.2% of total exports. The United
Kingdom, which saw exports at NT$1.86 billion in 2000, with 7.3 percent of total exports, had by
2001 climbed to 8.6% exports valued at NT$1.54 billion. The Netherlands has skipped in the ranking
from the fourth largest designation export to fifth place in 2001. In all cases, actual export
values fell over the two-year period, but unit prices increased.

The export value of Taiwan-made complete bicycles and parts totaled NT$23.17 billion (US$622
million) between January and October 2002, a decrease of 8 percent compared with the same period in
the previous year.

The main feature of the period under review was the relative decline of the lower priced U.S.
market. While the U.S. remains Taiwan's largest export destination, the number of units shipped has
dropped. Taiwan's bicycle industry attributed this
- at least partially ¡X to the migration of cheap production to mainland China.

New challenges are facing the Taiwan industry, not least a sluggish global market. Premium markets,
especially the U.S. and Europe, have simply failed to exhibit growth. Many feel that the major
culprit for the negative trend is a lack of innovation, and specifically, noting

has come along to replace the mountain bike. Even the efforts of the industry leader, Shimano of
Japan, into comfort bikes and city bikes have been unable to spur demand. Also, comfort bikes and
city bike have been seen as little more than modified mountain bikes.

With the U.S. and European markets slumping, alternative markets like South and Central America and
Southeast Asia have not developed the buying power to purchase the medium to high-end bicycles that
are produced in Taiwan. Increases in living standards in Taiwan, and the concurrent growth in wages,
are making anything but value-added bicycles unprofitable in Taiwan. Thus, low end products continue
their inevitable migration overseas, mostly to mainland China.

Adding value

When it comes to upgrading products and adding value, a number of potential saviors await the Taiwan
industry. Many of Taiwan's e-bike producers, including industry giants Merida and Giant, along with
Fairly and Elebike, believe that electric bicycles provide a future for Taiwan's bicycle industry.
The price has the kind of margins and value adding that fit with the industry's ambition, and is a
natural fit with the existing industry. However, as yet, the electric bikes have not been the
saviors the industry hoped for, even though sales, especially to the U.S., have been promising.

While many electric bikes are produced locally in Europe and Japan, major U.S. brands, including
Ford's "Think" brand, EVG, Currie Technologies and ZAP!, have all turned to Taiwan for production.

Magnesium is another promising innovation that manufacturers hope will catch on. Magnesium was
introduced into frame designs by Merida in 1999, but sales of racing and mountain bikes with
aluminum frames have yet to meet expectations, although outlets for magnesium alloys to the
electronics industry have shown promise.

The main trend is that low value-added production is shifting offshore, mainly to mainland China.
Although China offers lower-priced bicycles, Taiwan still retains its market share for higher-end
bicycles in Europe,

but has seen slight declines in the United States and Japanese markets.

The Associated Press

CC - to alt.mountain-bike

Geneb...Wenatchee,Washington-USA All Things Northwest in BMX! ***** Gene`s BMX *****
http://www.genesbmx.com