Euro and US bike suppliers will go to the wall if they don't go upscale, warns The Economist - BikeBiz

Euro and US bike suppliers will go to the wall if they don't go upscale, warns The Economist

So far, the only Far Eastern companies to have created powerful brands, recognisable in Europe and the US, are Giant and Shimano, argues The Economist. But, in an article entitled 'Another new model from Asia', the British news-magazine argues that European and American cycle manufacturing companies will only survive by continual innovation
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This article has been in the pipeline for some time. The chairman of Raleigh told BikeBiz a fortnight ago that a reporter from The Economist was preparing a story.

The article is hazy in parts, but then again so is the global bike trade. Some of the facts are also wonky. As are some Far Eastern bikes. Enough frippery, here's the article (some of it mirrors what Giant's Tony Lo said in the BikeBiz interview in the features section):

"The bicycle-making business is changing beyond recognition. In the past couple of years, a flood of Asian imports has overwhelmed bike manufacturing in America: 95% of the 'budget' bikes now sold there are made in China. Of the 110m bikes built worldwide in 2000, over 40 percent were made in China, India or Taiwan.

"Many famous names in America have gone bust, including Schwinn/GT, the largest manufacturer. Annual American bike production has tumbled from 9.9m units in 1994 to just 500,000 today. The same has happened in Europe, with the parent company of Britain's Raleigh declaring bankruptcy last year and other manufacturers surviving only thanks to protection.

"Import tariffs and anti-dumping duties against Asian products make European bikes cost-competitive, but...experience suggests that they do not stop the flood completely. The real problem faced by western manufacturers is that Asian firms are forcing the pace of quality and technology, as well as price. As with motorcycles 30 years ago, Asian bicycles are making American and European offerings look not only expensive but old-fashioned as well.

"Some of the reasons for Asia's dominance are obvious: cheap labour feeds into low prices, and huge local markets allow economies of scale. Less obviously, these large markets have fostered a big research base in such countries as Taiwan, which are switching production to cheaper places (China in particular) but developing fancy components at home...

"Now Taiwan is forcing the pace in other areas too. Its 400-odd bicycle makers are busily developing new types of aluminium alloy to make stronger, lighter models. Such fancy materials filter down to cheaper bikes very quickly. Mass retailers—such as Wal-Mart in America and the Wal-Mart-owned Asda in Britain—now offer aluminium bikes for under $150; a few years ago aluminium was reserved for the priciest racing models.

"Confident Taiwanese firms are now trying to revive western markets, which have been flat since the mountain-bike boom ended a couple of years ago, by shifting the emphasis from leisure cycling to commuting...

"What most Asian manufacturers lack, however, is a brand name to sell in western markets. The two exceptions, Giant and Shimano, suggest that the best Asian manufacturers could develop brand awareness, given time. The quickest way, though, is for them to buy western firms for their names and distribution networks.

"This is already starting to happen. Merida, the second-largest Taiwanese bike maker, has bought a stake in one of its fancier American rivals, Specialized. Meanwhile, SunRace has bought Sturmey Archer, a well-known British component maker. The betting is that other big names will follow.

"So is it the end for American and European bike makers? Not necessarily...Trek and Cannondale, have both thrived by developing innovative racing products; Trek has won the Tour de France for the past three years.

"Their trick could be repeated by European firms such as Sweden's Cycleurope, which owns the Bianchi and Peugeot bicycle brands. Some of these manufacturers quietly get their cheaper models made in Asia, but they recognise that they will have to better Asian quality if they are to succeed. The days when they could rely on a grand old name are gone."

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