COMMENT: The price is right…?

Is Taiwan’s A-Team a cartel, keeping prices high? It was a question I posed at Eurobike to any bike execs I could nab. And I nabbed lots. From UK suppliers through to Taiwanese company owners and right up to the top of very large American bike brands who rely on A-Team member companies.

In reality, I don’t suppose the high-ups in the A-Team gather in smoke-filled rooms, poring over pricing spreadsheets, working out which products should be more expensive than the free market ought to decide. But that the organisation wants to keep prices high is no secret. It states it wants to do this, and will do so by making innovative products and employing savvy marketing. What it can’t do is keep prices artificially high by dictation or by restricting supply.

So, what is the A-Team? It was founded in 2003 by Giant and Merida, with 11 smaller Taiwanese companies such as Alex, Cheng Shin, Jagwire and Joy-Tech. Members now include Topeak, SRAM, SR Suntour, Tektro, Wellgo, and many others. Sponsors include Specialized, Trek, Colnago and Dahon. The original aim of the organisation was to help Taiwanese bike companies raise their game, to compete against low-end bikes made in China.

In 2008, a book on the A-Team by Jonathan Brookfield said the organisation was an example of “co-operative competition” and was a case-study on how “established producers may counter-attack when faced with the challenges of low-cost competitors”.

A-Team members prosper not by cost-cutting, but by “value creation through co-innovation,” he wrote.

The Taiwanese government sure likes the A-Team, promoting it as good practice at every opportunity. TAITRA –the Taiwan External Trade Development Council – has helped other industries set up their own A-Team style organisations.

A publication from TAITRA said the A-Team had “significantly raised the export volume and average sales price (ASP) of Taiwan’s bicycles.”

According to the Taiwan Bicycle Exporters’ Association, for the first five months of 2009, Taiwan exported a total of two million complete bikes, a 17 per cent drop from the 2008 total. But export value reached $570m, a rise of nearly four per cent, due to a 25.7 per cent rise in unit prices. 25.7 per cent? That whopper of a rise has been put down to higher materials prices, but a slab of aluminium is peanuts in the final price of a bike so there must be lots of other costs being tagged on. Value creation, and then some? Many industry figures – including some sponsors of the A-Team – think a lot of prices are currently inflated.

It could all end in tears, believes one UK supplier, an IBD specialist: “I’ve heard from two non A-Team factories that parts makers have been told not to reduce parts prices in line with falling commodity prices. High prices are costing the IBD – and me – business.”

How so? “Mass market suppliers don’t use A-Team parts makers so soon there will be a big gap between IBD and mass bikes as the A-Team continues its obsession with price increases,” said the supplier.

Nobody wants a race to the bottom of the barrel pricewise but, in a down economy, high prices have a detrimental effect on unit sales. Need they be so high? That’s a question many more industry folks will be asking in the months ahead.