"Outsourcing emerges when products developed and consumed in the United States can be more cheaply made abroad. In a typical sourcing arrangement – called original-equipment manufacturing – U.S. firms transfer all design and production know-how to subcontractors, then buy back the output for sale at home," writes Chen in The Providence Journal.
Uncontroversial so far.
But, echoing claims made against Giant by a failed US recumbent maker (see links below), Chen then writes that outsourcing has "hidden dangers."
The biggest of these dangers is "free and complete flows of technology to subcontractors." He believes this to be "technology bleeding".
Chen said: "Technology transfer in outsourcing is thorough. For subcontracting to work, U.S. firms must disclose all technical information to their foreign manufacturers, as incomplete knowledge transfer will harm the quality of the bought-back product."
Outsourcing, according to Chen, "provides an excellent platform for foreign manufacturers to absorb advanced technologies."
And this is where he brings in Giant.
"After closing its Chicago plant, in 1981, Schwinn sent equipment and engineers to Taiwan, and thereafter outsourced millions of bicycles from its supplier, Giant. Only six years into this alliance, Giant was able to introduce the world’s first mass-produced carbon-fiber bicycle frame. In 2001, its non-resonance suspension system won the Bike of the Year award from Mountain Biking magazine. Giant now sells such innovative products under its own brand – in more than 50 countries – charging a higher price than its former mentor did."
Giant’s NRS suspension system had nothing to do with Schwinn. It was designed in Europe with the help of Renault Sports Formula One racing suspension team.
Chen told BikeBiz.com that he believes some of Giant’s technological advancements were based on Schwinn’s know-how.
"My article simply says that Schwinn sent equipment and engineers to Giant in 1981 after closing its Chicago plant, a fact that no one can deny. It does not say anything about what happened thereafter. Obviously, Schwinn might withdraw its engineers later, or Giant could grow by itself, based on the know-how learned from Schwinn, which indeed is implied in my article."
In his original article, Chen said:
"Without attempting to regain technological leadership, U.S. firms further farm out product development to subcontractors, making a bad situation worse. Through a new sourcing mechanism – called original-design manufacturing (ODM) – Giant develops and assembles bicycles for its Western clients without receiving any technical assistance from them."
Giant is not best pleased with this academic attack but Chen told BikeBiz.com it’s praise, not condemnation:
"I don’t see why this is an academic attack against Giant. Many OEM suppliers in Taiwan now has become ODM suppliers. This means that they have become technologically independent and self-sufficient. In the article, I also say that Giant now sells such innovataive products under its own brand, in more than 50 nations, charging a premium over its technology mentor. I think this is a big compliment rather than an attack."
Giant UK director John Kawecki told BikeBiz.com:
"We have a substantial number of product and technical designers in Europe and America who develop innovative and high tech bikes from a local market perspective. A good example of this is the new Maestro system which was developed in the USA and the compact road design (TCR) from Mike Burrows in the UK.
"We manufacture a large number of cycles for other brands where no technical assistance is offered by them.
"It is true that brands who end up in difficulty can often be swallowed up by the manufacturer but this is the only way for the manufacturer to have any chance of recovering the debt.
"The concern is that Asia will one day control the West, we are all running out of ‘developing’ countries in which to find cheap labour to manufacture our products. Taiwan is a classic example. Once it was perceived as the bottom of the heap for quality products but now it is amongst the best in the world – all of Giant’s high end carbon and innovative products are coming out of Taiwan."
And this is where he and Giant agree, Chen told BikeBiz.com:
"Isn’t this the point that I try to make in the article? Starting as an OEM supplier, now Giant has its own technology innovations, thanks to the help provided by Schwinn many years ago."