<b>Taiwan 2006:</b> Targeting China for Further Sales Growth

Sales & Trends

TAIPEI, Taiwan – If the Iraq War was supposed to send oil prices soaring and bicycle sales with it, Taiwan’s producers are still waiting for that effect. The world bicycle market was mostly flat in 2006, and the performance of Taiwan’s bicycle industry could have hardly been different. Taiwan’s big makers saw slight growth when […]

<b>Taiwan 2006:</b> Targeting China for Further Sales Growth

TAIPEI, Taiwan – If the Iraq War was supposed to send oil prices soaring and bicycle sales with it, Taiwan’s producers are still waiting for that effect. The world bicycle market was mostly flat in 2006, and the performance of Taiwan’s bicycle industry could have hardly been different.

Taiwan’s big makers saw slight growth when they counted their China factories, with the Giant Group leading the way with over TWD 27 billion(€ 630 mn) in global revenues (up almost 4%) and nailing down 10% of the global market. But of Taiwan’s major producers, only Merida saw sales grow in Taiwan last year. As a whole, the island saw its exports shrink in both units and value, with only 3.43 million units shipped in the first ten months (down 11.8%) generating US$ 672 million (€ 517mn) in revenues (down 10%).

Success Story

Reasons for a sluggish 2006 included higher material costs and excess inventory by big global retailers, but in the end, no one was completely sure what will make things will turn around. So the Taiwanese spent last year coming to grips with certain realities: any bicycles still produced in Taiwan basically have to be for Europe, which now accounts for 70% of Taiwan-made exports; but even the European market (not to mention the global market) for high-end bikes is still limited; so if they’re going to keep growing, it’s going to be in China, where they are not just running factories these days, they’re also chalking up some serious sales.

Merida still offered something of a success story in 2006, and the tale was based on a higher high end. The average selling price of a Merida bike from its Taiwan factory was US$ 412 (€ 317) last year, beating out Giant’s average of US$ 345 (€ 265). That’s why Merida officials say they were able to boost revenue by 13%, while the other two members of Taiwan’s big three, Giant and Ideal Bike Corp., both saw revenues slide by 16% and 30% respectively.

Merida Invests TWD 200 million

Merida says it laid groundwork for the upswing with TWD 200 million worth of upgrades to its Taiwan production lines and also the investment in the Specialized brand a few years ago, which finally bore fruit last year and generated very strong sales in the US.

Both Giant and Merida are aware of the need for new trends that stimulate demand. Both are developing new mountain bikes that appeal to women riders – this is something to definitely look out for at Taipei Cycle 2007. Giant will also probably show its new City Storm, a smartly designed citybike it unveiled in Japan in November.

The model was designed in cooperation with a top local design firm and moves away from the masculine, gear-head style associated with many high-end models, instead aiming for a ‘boutique’ (or maybe even ‘metrosexual’) appeal. The City Storm has a retail sticker price of JPY 15,000 (€ 96).

Ideal may also have something new to offer, namely magnesium frames, though it’s not sure they’ll be ready. In June 2006, Ideal bought a 10% stake in Go-Cycle of the UK, which is experienced in magnesium alloy injection molding and will work with the Taiwanese company to make bicycle frames.

European export market

The EU has been the major export of Taiwan-made bicycles since 2001, when it passed the US. In the first ten months of last year, the EU absorbed 2.37 million bicycles from Taiwan, for about US$ 350 million (€ 270 mn) and an average price of US$ 147 (€ 113).

Both volume and revenues were down about 8% from the same period in 2005. The top five European importers of Taiwan bikes for Jan.-Oct. 2006 were the UK (705,000), Germany (353,000), Belgium (268,000), the Netherlands (234,000) and Sweden (232,000).

With Europe somewhat limited, China is proving an increasingly attractive avenue for growth. Generally, China has already become Taiwan’s largest single export outlet, absorbing about 40% of Taiwan’s exports over the last two years, according the Taiwan External Trade Development Council. As a result, the council is trying to encourage Taiwanese companies to attend more trade shows in China, especially those directed towards local buyers.

Growing E-bike markets

Giant already has extensive sales channels in China, and Merida estimated it sold at least 150,000 bicycles in China last year. But in 2006, the trend was even more obvious when it came to electric bicycles. Giant chairman King Liu, himself an e-bike enthusiast, called to increase Giant’s production of e-bikes to 1 million units by 2010. This will chiefly target China, where the government actively promotes the use of e-bikes and where Giant unloaded 180,000 of the 230,000 e-bikes it sold globally last year.

Merida and Ideal have also tried to get in on the action. Ideal unveiled its first e-bike in March 2006, and has entered into a three-way partnership with a Japanese bike design company and a Taiwanese battery maker to create e-bikes for the Japanese market. Merida sold 14,000 e-bikes on the year, up from 10,000 in 2005. Not only was China the chief market for this production, it was also where they were made – in 2006, only 1,790 e-bikes were produced in Taiwanese factories.

Aside from e-bikes, other mid- and high-end technologies are also migrating to China, including carbon fibre and aluminium alloy frames. Merida announced in December 2006 that it would invest US$ 10 million (€ 7.7mn) on its second China factory, which will open with a capacity of 500,000 units annually in 2008.

The plant will be located in Shandong Province and target the northern China domestic market. Ideal has also announced expansion plans in China, including the manufacture of carbon fibre frames. Giant continues to operate three factories in China.

Giant to link more tightly with IDBs

After pioneering the A-Team alliance of manufacturers in Taiwan a few years ago, in 2006 Giant launched a new plan to integrate more closely with its retailers. Giant’s president Tony Lo has said repeatedly that he considers Giant’s future – especially its 3-million-a-year own brand sales – to be closely bound to the fate of individual bicycle dealers (IBDs). So Giant has cast its lot with them, not the rat race of the mass-market retailers.

Giant’s new plan is the Giant Retailing Partner (GRP) scheme. This aims to convert most IDBs sellling Giant into single brand dealerships – pretty much like car dealerships – and that single brand will be Giant. This will affect almost all of Giant’s 10,000 selling points worldwide, but not right away. Giant has said it may take up to ten years to fully implement.

The partnership system will effectively bring IDBs into Giant’s global sales web, integrating what happens in stores with what happens in its factories through various computerized inventory and delivery management systems. It will also help Giant put a fuller range of its products in more showrooms.

Because many of the IDBs that sell Giant also sell other brands, a second option in the partnership scheme will use a ‘store-in-store’ model. This means shops will not have to sell Giant exclusively, but can set aside a certain amount of floor space for Giant products and promotions.

Government Plans to Elevate Taiwan’s PTW Industry

Taiwan’s new national goal for its motorcycle industry is to elevate one of its own companies into the ranks of the world’s top four PTW (powered two-wheeler) makers. In other words, it wants to – or at least dreams of what it would be like to – contend with Honda, Yamaha, Suzuki and Kawasaki.

There are no shortage of government plans to achieve this. One proposal is to integrate assemblers and parts makers in a scheme modelled after the highly successful A-Team strategy in Taiwan’s bicycle industry. Another lays out a three-year blueprint for R&D of fuel-efficient power trains and over-250cc engines. When and how these plans will go into effect still remains to be seen.

For 2006, the industry was basically flat, with total sales of around 1.42 million vehicles, compared to 1.44 million in 2005 and total production value down about 3.6% to NTD 61.8 billion (€ 1.4 bn). Exports were meanwhile slightly up at 676,000 vehicles, compared to 653,000 a year earlier.

ATV debacle

If there was a big wake-up call for manufacturers in 2006, it was the near sudden death of the ATV (all-terrain vehicle) fad. About three years ago, Taiwan’s PTW makers thought they had found the pot of gold at the end of the rainbow with ATVs, small-displacement engines that could be made on PTW assembly lines, but with higher margins and in a less competitive market. Last year, China figured out the exact same thing, undercut Taiwan makers by one-half to one-third, and Taiwan saw ATV exports fall by 50% in the first six months.

In the wake of this ATV debacle, several different approaches for Taiwan’s PTW makers remain. One strategy is to grind out the development of better and more advanced motorcycles and motor scooters, and also try to market them better in premier markets. This will be supported by government R&D labs, which will help makers to achieve greater fuel efficiency and some of the world’s most stringent exhaust standards, which Taiwan law will put into effect in 2008.

Another path is to slug it out in the price competitive markets of developing Asia, namely China, Indonesia, Vietnam and now even India. A third, more experimental option is to further diversify and move into other types of power sports machinery, like go-karts, snowmobiles, outboard engines and agricultural machinery. As with ATVs, such sidelines could generate a few quick bucks or – who knows? – one day even turn into something.

The candidates for expansion

The island’s two big home-grown names, KYMCO and SYM, have enough resources to advance on multiple fronts, but KYMCO tends to be more successful in select markets like Europe while SYM does well in developing Southeast Asia.

KYMCO, made by Kwang Yang Motor Co., sold 481,000 PTWs in 2006, beating out Taiwan Yamaha’s 398,000 and SYM’s 375,000 in a competitive year that ended with a battle of price slashing. KYMCO also led the way in exports, with 210,000 vehicles, including more than 51,000 with engines larger than 250cc, a segment it pioneered for Taiwan.

KMYCO’s relatively new 500cc models, first released in 2005, continued to see solid sales, with over 9,000. The company also makes electric wheelchairs and gas-powered generators and sold around 60,000 ATVs last year. Overseas however, its two China factories, where it manufactures vehicles for domestic sale and export to Latin America and Eastern Europe, continued to run at a loss due to brand-name piracy and intense price competition.

Or Sanyang?

Sanyang Industrial Co., maker of the SYM brand, continued its run of success in Southeast Asia, especially Vietnam where its VMEP subsidiary now ranks as the nation’s second largest PTW maker. From Taiwan, the company’s exports hit 175,000 for 2006, most of them in the 90cc to 180cc range, though it did sell more than 9,000 250cc vehicles. Due to the complexity of Sanyang’s operations – the company is also one of Taiwan’s leading auto makers in cooperation with Honda – it took a big move to refinance its operations last July, obtaining a syndicated loan worth TWD 3.6 billion (€ 84mn).

Taiwan’s two Japanese-invested companies, Yamaha and Tailing (Taiwan Suzuki), continue to grow their operations as strategic regional production bases for under-150cc PTWs, especially for export back to Japan. But regional competition in under-150cc is so fierce Yamaha also maintains plants in China and other parts of Southeast Asia.

First Motorcycle Tradeshow

One indisputably positive development for Taiwan’s PTW makers was the island’s first trade show devoted solely to PTWs, Motorcycle Taiwan 2006, held in October. The event drew 150 exhibitors and some premium buyers, including representatives of BMW Motorrad, Berhn Motorradtechnik, Polaris, Buell, Embo International, Malaguti, Verlicchi Nono and Rodi T.R. SL, according to show organizers.

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