The globalization of the bicycle industry started more than two decades ago, and with the exception of periodic regional protectionist initiatives, it has been evolving and steadily progressing ever since. It is therefore essential for all companies in the bicycle business, whether global, international, regional or local in scope, to study and consider the globalization of the industry in developing business and strategic plans.

Global Regions - Manufacturing and Markets

We are going to look at bicycle manufacturing and consumer markets from a regional perspective, including the Pacific Rim, Europe, and North America. Before we begin detailing the specifics of each region, we need to take a few minutes to consider the strategic significance of the most recent changes in global competitiveness.

Global Competitiveness is one of the few certainties in uncertain times.In his 31^st book, Management Challenges for the 21^st Century, Peter F. Drucker points out that there are very few "certainties" that we can count on "in a period of rapid change and total uncertainty, like the one the world is facing at the turn of the 21^st Century." He goes on to state that Global Competitiveness is one of the very few "certainties."

According to Drucker, "No institution can hope to survive, let alone succeed, unless it measures up to the standards set by the leaders in its field, anyplace in the world."

No longer possible to base a business on only cheap labor.One of the implications: "It is no longer possible to base a business on cheap labor. However low its wages, a business ˇV except for the smallest, like a neighborhood restaurant ˇV is unlikely to survive, let alone prosper, unless its workforce rapidly attains the same level of productivity as the employees of the industry's leaders, wherever they are located."

This is true "particularly in manufacturing," Drucker states. "In most manufacturing industries in the developed world, the cost of manual labor is rapidly becoming a smaller and smaller factor ˇV it's now down to one-eighth or less of the total cost of making a product. That means that the economic-development model of the 20^th century ˇV the model first developed by Japan after 1955 ˇV no longer works. Low labor costs no longer give enough of an advantage to offset low labor productivity."  With the certainty of global competitiveness as a background, let's take a look at a strategic situation analysis report on each of the world's major bicycle manufacturing and market regions.

The Pacific Rim

Taiwan has been called "the Flexible Tiger" by Cycle Press (No. 155, April 2000).This is because of the Taiwan bicycle industry's ability to adapt rapidly to the changes in global demand.

In 1999 Taiwan exported 7.8 million bicycles at a total value of US$760.3 million. While this is down from previous years, and in fact is the lowest quantity and value this decade, it still represents a very viable, and in fact robust, global supply source!Taiwan is the largest net exporter of bicycles in the global market, based on export as a percentage of total production.

Just over 40%, or 3.1 million of the bicycle exports originating in Taiwan were shipped to customers in Europe, 38%, or 3 million were shipped to the U.S., and 16%, or 1.3 million were shipped to Japan. And this is only the beginning. Taiwan also shipped frames and components to a large variety of original equipment bicycle manufacturers and assemblers throughout the world.

The Taiwan bicycle industry has also followed a strategy of globalization for over two decades that has resulted in major investments in both export and in-country bicycle, frame and component manufacturing in mainland China. This strategy, along with customer demand and the inconsistency between economic logic and regional and local protectionist politics, has driven the development of Taiwan investment and ownership in manufacturing and assembly operations in Europe. Japan is also a tough market to penetrate and the Taiwan bicycle industry has invested in operations in Japan along with forming distribution and sales alliances.

People's Republic of China.  It has also been pointed out that the world bicycle industry "would be paralyzed without bicycles from Taiwan and China."  (Source: Cycle Press, No. 155, April 2000). Mainland China has become an important source for complete bicycles and components, with Taiwan and Japanese companies leading the way with investment and management of manufacturing operations and joint ventures. 

However, the current local political situation has created tough times for Taiwan manufacturers in mainland China. While we think this situation will ease over time, it has made many companies in the Taiwan bicycle industry begin to look for alternative countries in which to locate primary and secondary manufacturing sites.

VietnamThis country has popped to the surface like a balloon submerged in water!  A large ethnic Chinese population combined with a willing work force, good port facilities and a government that is encouraging investment has already attracted a considerable number of companies from the Taiwan bicycle industry to invest or commit to invest in manufacturing facilities. This is still a communist government, but one that doesn't exhibit the same political problems for Taiwan that are currently being experienced with mainland China. While Vietnam is an alternative to mainland China, it also is a country with a government and bureaucracy that has little or no experience in international trade and all the issues of global competitiveness. Whether it can reliably produce a quality product and ship it on time remains to be determined. 

Japan.oming back and consumer spending is increasing, but the bicycle market has remained relatively flat at between 8.0 and 8.5 million units.  However, the mix of products is of definite strategic interest. In 1999, for the first time in recorded history, Japan imported half of its market consumption of bicycles, or 4.2 million units. Japan has also been the premiere market for electric bicycles, or EPACs. In 1999 EPAC sales were down 25 to 30%, to 156,500 units. However, on the plus side, the market for folding bikes has increased, and has also shown an up-market tick with magnesium frames and new unique folding designs.

European Union (EU-15)

EU-15.  The market consumption in Europe was up to 15.8 million units in 1999.  This represents an increase of 4.2% over 1998 and 5.6% over 1997. Imports were 33.6% of 1999 market consumption, or 5.3 million units.

Germany.  The EU-15's largest single bicycle market was up 4% in 1999.

Holland.  The Dutch bicycle market was up 7% in 1999.

Eastern Europe.  The old Eastern Bloc countries are lining up for membership in the European Union. Poland and Hungary head the list, along with half a dozen more that will be admitted within the next 12 to 18 months. Global strategies need to consider what impact will derive from having access to these new "hard-currency" EU members as potential bicycle markets and possible source countries for bicycles.

Dumping Duties.  The European Union has determined to keep most of the dumping duties in place against bicycles imported from Taiwan and mainland China. In so doing, Europe has confirmed, at least for the next several years, its protectionist stance relative to its bicycle industry.

Prediction: a protectionist wave.  In Management Challenges for the 21^st Century, Drucker predicts that "In all likelihood, we face a protectionist wave throughout the world in the next few decades." We have already seen the leading edge of this wave in Europe, Canada and Mexico. "For the first reaction to a period of turbulence is to try to build a wall that shields one's own garden from the cold winds outside. But such walls no longer protect institutions ˇV and especially businesses ˇV that do not perform up to world standards. It will only make them more vulnerable."

The end result of anti-dumping and protectionism in Europe has been to create more competition inside "fortress" Europe from American, Taiwan and Chinese bicycle and component manufacturers who have invested in facilities and joint ventures with European partners. As Drucker says, such walls no longer protect the inefficient, they "only make them more vulnerable."

North America

U.S.  The first point of interest is the fact that the robust U.S. economy doesn't seem to have lifted the bike market to new heights. On the positive side: bicycle market consumption was up 10% in 1999 over 1998, with a total of 17.5 million units sold.  Domestic production dropped to an all time low of 7% of total market consumption, or 1.2 million units. Imports rose to an all time high, with 93% of total market consumption, or 16.3 million units. Clearly the U.S. has become the largest net importer of bicycles in the global market, based on import as a percentage of total market consumption.

Kids' Bikes.  For the first time in a decade kids' bikes, with wheels 19 inches in diameter or smaller, occupied 33% of the U.S. market ˇV the direct result of the next baby boom moving through the population. 

On the negative side, the number of active cyclists in the U.S. declined for the 4th straight year, to a total of 42.4 million Americans who are considered frequent bicyclists. This is down from 56.3 million in 1995. Bicycling has declined from the third largest sporting activity in the U.S. to number six. For the first time during this decline in cycling, the number of Off-Road Mountain Bikers also declined, down 21.2% in one year. It isn't likely that this trend will be reversed unless the bicycle industry gets behind and supports national and local public relations and media out-reach programs. 

There is still room for selling more bicycles, but without promotion and national and local media coverage to encourage more people to bicycle, the trend of a growing percentage of sales going to low-priced kids' bikes will continue. The 33% share of the U.S. market held by kids' bikes with wheels 19 inches in diameter or smaller has already helped to depress average retail prices for bicycles. 

Bicycle Dealers are alive and well!  Reports of the decline and even the demise of the bicycle dealer or specialty bicycle retail channel of trade in the U.S. have been greatly exaggerated. In fact, the bicycle dealer channel is in the best shape of the three largest bicycle channels of trade in the U.S. Following are the average retail prices by channel and the percentage change from the previous year:

Mass Merchant                  US$ 75       per unit            -23%

Chain Sporting Goods          US$ 165     per unit            -35%

Specialty Bicycle Retail        US$ 360     per unit            +3%

                             Source: NSGA Sportstrac data and NBDA Retail Data Capture data

Globalization creates anxiety in the U.S.  We have recently witnessed an acting-out of the anxiety over the progress globalization has made. According to the April 24, 2000 Business Week cover story, many Americans "fear that free trade harms wages, jobs and the environment." The anxiety and fear erupted late last year at the World Trade Organization (WTO) meeting in Seattle and again this spring in Washington, DC during meetings of the World Bank and the International Monetary Fund.

Divided views on globalization and free trade.  America's divided views on globalization and free trade have broad implications for U.S. policies and for companies, including those in the bicycle industry. Free trade policies and legislation are not a "lock" or guaranteed, and the bicycle industry will have to plan business strategies accordingly.  Being proactive in support of globalization and free trade policies needs to be carefully considered and some companies may have to become more vigorous in their support going forward.

Canada.  Overall Canada is the largest trading partner of the U.S. and a party, with Mexico and the U.S., in the North American Free Trade Agreement (NAFTA). The bicycle market remains flat at 1.3 to 1.5 million units annually. The dumping duty on bicycles imported from Taiwan and China remains in effect.

The Canadian protectionism is attempting to shield three domestic producers - Procycle, Raleigh Canada and VP Sports (formerly Victoria Precision). The new owners of Victoria Precision are the former owners of Roadmaster in the U.S., and are the folks that sold Roadmaster to Brunswick. We assume their strategic planning interest goes beyond just selling bicycles in Canada, and may extend to selling across borders in the U.S. and Mexico under NAFTA.

Mexico. This is the third member of NAFTA, and its economy has been improving and growing, in large measure because of this free trade agreement. The bicycle market has remained flat at between 1.8 and 2 million, but the manufacturing and sourcing picture has been changing rapidly over the past three years. 

Huffy and Brunswick.  Starting in 1997/1998 Huffy Bicycles and Brunswick Bicycles both invested in bicycle manufacturing facilities in Maquiladoras along the U.S./Mexican border. Their combined capacity had reached 3 million bicycles by 2000, when both companies announced their intention to withdraw completely from all North American bicycle production and move to out-source all bicycles in the Pacific Rim. In three short years Mexico went from 3 million units per year produced in three Maquiladora plants owned by two U.S. companies, all for export ˇV to 0!

NAFTA.  The Mexican and U.S. Governments are working hard to preserve most of the tax and other financial advantages of manufacturing in a Mexican Maquiladora plant for export to the U.S. The bottom line: It will continue to be strategically attractive and advantageous to manufacture in a Mexican Maquiladora plant on and after January 2001.

Mexican/EU Trade Agreement.  This free trade agreement could have the very real strategic advantage of allowing manufacturing of bicycles and/or bicycle components in Mexico for export to Europe at low or no import duty! There is also the possibility not only of manufacturing in Maquiladoras under NAFTA and its local content rules for export to the U.S. and Canada, but also of exporting to the European Union under the Mexican/EU Trade Agreement. This would require a strategic migration by the global bicycle and bicycle parts manufacturing industry to Mexico ˇV but once started could prove to be very beneficial for all concerned.

Mexico could rule!  Taking a page from the New Economies information technology industry, Guadalajara, Mexico has already become an important global center for contract manufacturing for such companies as Compaq Computers, IBM, Cisco Systems and Swedish phone maker, Ericsson. According to the June 7, 2000 issue of Trend Letter, reporting on the story about contract manufacturing for the computer and telecommunications industry: "Guadalajara Gets it Right. In an era when speed matters more than cost, Mexico will rule!" According to this report, it is highly possible that the billions of U.S. dollars now being spent on contract manufacturing and outsourcing in the high-tech computer and telecommunications industries in the Pacific Rim will actually migrate to Mexico. What does this foretell about what could happen in the global bicycle industry? Another key point for your strategic business analysis going forward. The only concern is watching to see what policy changes the new President and Administration bring to globalization and free trade in Mexico over the next five to six years.

Inconsistency between economic globalization and regional and local politics is another "certainty" in uncertain times!  This leads to another of the "certainties" in uncertain times spelled out by Peter Drucker in Management Challenges for the 21^st Century: "The growing incongruence between economic globalization and political splintering." According to Drucker, "Businesses can no longer define their scope in terms of national economies and boundaries. They have to define their scope in terms of industries and services worldwide. National boundaries are impediments and cost centers."

Three-overlapping spheres.  The certainty that we are faced with, and have to develop strategic plans to deal with, is in reality three overlapping spheres.

1. The true global economy of money and information.

2. Regional economies in which goods circulate freely and impediments to services and people are being cut back. Examples are the North American Free Trade Agreement and the European Union.

3.National and local realities that are economic but answer to political forces and consideration. Examples are dumping duties in place against bicycles imported from Taiwan and mainland China in Canada and Mexico in North America and the EU-15 in Europe.

The strategic challenge recognize and use the certainties in today's uncertain times, including the inconsistency between economic globalization and regional and local politics.

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