If it wasn’t for the curvature of the Earth, we could have seen China. We were sitting at the end of a long table in a sixth floor conference room in Giant’s headquarters in Tachia, Taiwan. In attendance were myself, Tony Lo, president of Giant, Inc., and his PR man, Jeffrey Sheu.
Hazy sunshine poured in from a window overlooking low-lying land dotted with classic Chinese farm buildings. In the distance were silhouettes of industrial buildings blocking our view of the Taiwan Strait. China lay another eighty miles in that direction.
“There is a misperception that Taiwan’s bicycle industry is finished,” said Lo.
The confusion stems from the numbers, which lead many to an understandable but erroneous conclusion, he said.
Lo recites them off the top of his head. Last year, Taiwan exported 4.8 million bicycles, only half of the 10 million units shipped in 1991. Meanwhile, China exported 35 million, compared to 7 million units ten years earlier.
Then there are those ‘alarming’ attendance figures for recent Far Eastern bicycle trade shows – dropping sharply for Taipei but growing leaps and bounds for the Chinese bike trade show in Shanghai.
Lo believes this is no blip, the Shanghai show will be even bigger next year, and that it is a good thing.
“In my opinion, [Taipei] was a great show. For the past few years, the talk at the [Taipei] shows has been about China…who is building a factory there…who is purchasing there. This year no one talked about China. The people who need to be there are already there. Everything has been moving so quickly. It’s been a confusing time. But for me, the situation is clear. Taiwan and China are two different production centres. China is the supply centre for the mass market bike. Taiwan’s role in the industry is innovation.”
The shifting geography of Asian manufacturing might be bad for Taiwan factory workers and for mom-and-pop factories with limited resources, but it hasn’t hurt Giant.
Giant is one of the best examples of a Taiwan company that has gone global. True, Giant’s export of 600 000 bicycles from Taiwan last year was a mere third of the 1.5 million units shipped in 1990. Yet Giant also shipped 3.6 million bicycles from its two factories in China, and 300 000 from its assembly plant in Holland in 2002. In other words, Giant tripled its output in the past decade, but not from within Taiwan.
There’s nothing new here. What Giant is doing is in step with a national trend. Taiwan’s industries began moving production offshore in the mid-1980s when the US coerced the government into appreciating the NT dollar from NT$40:US$1 to a high of NT$24:US$1 [Note: The exchange rate has since dropped to NT$34.1:US$1]. The issue was Taiwan’s staggering trade surpluses. Back then, Taiwan’s government prohibited companies from building factories in China. Technically, Taiwan’s Nationalists were still at war with the Communists in charge of the People’s Republic of China, and even today they have plenty of missiles pointed at each other.
The two have yet to forge diplomatic relations but over the past ten years Taiwan companies began entering China through the back door, and now it has been flung wide open with Taiwan and China’s entry into the World Trade Organization.
Taiwan’s bicycle makers have been fortunate. Other industries – for example, high technology and petrochemicals – still face restrictions on investing in China. But early on, a blind eye was turned to bicycle makers. To the government, bicycle manufacturing was small change.
Today, as a result, there are two ‘Taiwan’ bicycle industries – one in Taiwan and one in China.
“Eighty percent of China’s bicycle export is controlled by Taiwan companies,” said Lo.
“In China, Giant is surrounded by 300 other Taiwan companies.”
These two ‘Taiwan’ industries are autonomous of each other. There is no shipping of parts back and forth across the Taiwan Strait. Each ‘industry’ has a complete supply chain.
“For Giant, they complement each other,” said Lo.
“There is still the ‘Made in Taiwan’ bicycle, and now there is also the ‘Made by Taiwan in China’ bicycle. Both are components in our overall global strategy.”
Every country has its strengths, and contradicting predictions of the island’s demise as a centre of bicycle production, Lo said, “Bicycles are one thing definitely suited for manufacture in Taiwan.”
He is talking about the high end of the market, and Giant will continue to export about 600 000 such machines from Taiwan annually.
“Americans look at bikes as a commodity, and in their model [the manufacturing] flows like water to the country with the lowest costs. But if you look around the world, Germany is still making and exporting cars, and Italy is famed for high priced shoes and suits. The French have food and wines, and the Japanese have their cameras and electronics. If manufacturing costs were the only consideration, none of these countries would have these industries.”
The notion of the bicycle industry leapfrogging around the world to take momentary advantage of cheap labour and favourable exchange rates is wishful thinking. For dozens of economic reasons – some plain obvious and others more arcane – Taiwan and China will remain the centre of bicycle production through this decade and beyond, believes Lo.
“China’s job is to take the old bikes and make them cheaper,” said Lo.
“Taiwan’s job is take high quality bikes and make them more affordable.”
This year, Giant and 11 other Taiwan bicycle and parts makers linked hands to create the ‘A Team.’
“Others will be joining us,” said Lo.
“It’s about sharing the same vision for the industry’s future and working together to face the challenges.”
Innovation in bicycle design is Giant’s brief for Taiwan, but it’s only a part of its overall plan.
“We also have three other manufacturing centres and sales offices scattered around the world,” said Lo.
“Our mission is to offer a total cycling solution, and to do that we need to be better at being a global company.”
Lo has the UK and Europe in his cross-hairs: “Mass merchandising swept through Europe in the past five years, as it had twenty years ago in the US,” he said.
‘Bike-in-a-box’ merchandisers have siphoned off sales from the ‘guy-with-a-spanner’ shops.
And formerly dominant bicycle manufacturing companies have struggled to keep up with the pace of change. Europe’s old guard – Raleigh and others – have taken it on the chin.
Lo seemed to see this as a fall from grace.
He sounded almost wistful as he spoke about the ‘good old days’ and Raleigh’s once all-powerful dealer network.
“[Raleigh] had its five star dealers,” said Lo, his voice trailing off, surprised that such a strong network of brand-focussed IBDs was allowed to fall from Raleigh’s grasp.
Then Lo described Giant’s next big move.
“We want to create a very strong dealer network in the UK and Europe. Independent dealers are very important to us. They provide the human touch, helping with final assembly, advising the buyer beforehand, and provide other services for the cycling lifestyle. This will be our next big challenge. We will reinvent the wheel, but with new tools such as e-solutions and CRM.”
Tony Lo was interviewed by GLENN SMITH, a US journalist based in Taipei. Smith is a freelance contributor to more than 50 publications, including The New York Times, Asia Magazine, Asian Business,and Electronic Business Asia. Fluent in Chinese, he’s also a copywriter and translator for J. Walter Thompson, Leo Burnett and other agencies. He’s lived in Taiwan for 20 years and will be interviewing more Taiwanese industry execs for BikeBiz in the coming months. There will also be profiles and interviews with US and UK-based industry movers and shakers conducted by the editor/publisher of BikeBiz.co.uk
QUESTIONS FROM THE FLOOR
Contibutors to the BikeBiz bulletin board were asked for questions they would like put to Tony Lo. Here are ten of the best…
1.What do you think of the prospects of growth for the global bike market?
“No growth is what I see for the next three years. The only exceptions will be a few of the undeveloped markets, say China, India and countries in Eastern Europe. But in the major markets – the US and Europe – there will be almost no growth at all.”
2. Which macro-driver makes you most optimistic about the future of bicycles — increasing traffic congestion, increasing cost of motoring, anti-legislation, changing population profile, lifestyle shifts etc?
“Lifestyle is important. But the only way for lifestyle shifts to bring about growth in the bicycle industry is to get the government behind it. The government is the key to creating a cycling environment with suitable roads and cycling paths. Taiwan in the next five years, for example, will have bicycle paths all the way around the island. In countries around the world, bicycle companies need to give their governments a push.”
3. How can the major players grow overall demand for cycling? What changes do you see in the global supply chain for bikes in next five years?
“Again, I’d say the bicycle companies need to lobby their governments to improve the environment for cycling. Bicycle companies need to produce creative products and think of new ways to market them.”
4. What is the next big innovation that cycling can look forward to?
“There won’t be one big innovation. Instead there will be lots of small ones. The two most important will be sport-utility bicycles and electric bicycles. Mountain bikes and city bikes will always be with us, but the SUBs and electric bicycles are a new dimension.”
5. There seems to be a growing belief that Taiwan is best at R&D and all production will move to China and Vietnam etc. Is there money to be made in Taiwan developing sexy new products?
“Taiwan will remain strong in R&D, while the production of the mass market bike is moving to China. Vietnam is something in between. Right now the EU levies a 30.6 percent duty on bikes from China, but there’s no duty on bikes from Vietnam. That makes Vietnam look very competitive but when the duty on Chinese bikes is removed, no one will be interested in Vietnam anymore.”
6. Besides Giant, which bicycle company do you most admire and why?
“I’ll name a few. There’s Gazelle in Holland. It has been around a long time and has done a lot for the bicycling industry. It produces some unique Dutch bikes. Trek in the US is strong in marketing and service. In Japan, Bridgestone has a solid retailing chain – brand, product and dealer network – and it keeps coming out with new products. In Italy, Colnago is a niche player that turns out a small number of top quality racing bikes.”
7. What is Giant’s view of Shimano vs SRAM. There’s no love lost between the two component manufacturers. Is this fierce competition a good thing? How big a player will SRAM become?
“Both are important component suppliers. Healthy competition is a good thing. Shimano is the undisputed number one. It’s been in the business for 80 years. SRAM has been around 15 years, but it is growing fast. Their legal problems? That’s not my business so I don’t feel right talking about it.”
8. Why hasn’t Giant used its position to influence Shimano to stop releasing "year models" that create early redundancy and a lack of profitability throughout the industry?
“Every year, Shimano puts out a new line. So does Giant. We renew our product line and put out a new catalogue, and even older models get new components. There is an old belief that it is more profitable to keep a line in the market longer. But the real issue is creating better products. The year model accelerates innovation and forces bicycle makers to come up with new ideas. The better companies are finding ways to manage inventory and prevent problems related to it. Now, though, that the market is no longer growing, I don’t think makers will insist on model years for every product in their catalogue. New ones will have them, but older models might be revamped every three years.”
9. It took ten years for Dahon to get intellectual property rights recompenses from Neobike. Does this not make it seem as though Taiwan still has companies that copy ideas rather than innovate themselves?
“This really isn’t representative of Taiwan. The Dahon-Neobike dispute is between former partners, and it’s better viewed as a family feud. Taiwan bicycle companies have transformed themselves. They have made improvements across the board – in design, manufacturing technique, management, branding and marketing. This is why I think that Taiwan will be number one in the manufacturing of top end bicycles.”
10. When will manufacturers start putting their bikes out at RRPs that allow everyone to make a decent margin?
“Giant has always believed that everyone should make a decent margin. That’s one of our basic principles. This is an issue for weaker brands that compete on price.”