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Taiwan manufacturers face pressure heading into Taipei show

Published March 21, 2017
Complete bikes make their way down the assembly line at Giant's factory in Taichung.

TAIPEI, Taiwan (BRAIN) — The numbers are sobering. Last year, Taiwan’s bicycle exports to the U.S. market plunged 27.6 percent, and the overall dollar value dropped 27 percent.

Europe, Taiwan’s No. 1 export market, also reported a similar slide in demand with exports off some 26 percent through August of last year. These are tough times for Taiwan’s bicycle manufacturers.

As this year’s Taipei Cycle Show opens its doors to thousands of visitors on Wednesday, worries about the future of Taiwan’s overseas markets will likely dominate discussions during the four-day show.

Weak demand throughout the more affluent West, where Taiwan-made bicycles sell best, is spotlighted in Shimano’s 2016 fiscal year report — bicycle-related sales slumped 17.4 percent and operating income fell 27.5 percent. A significant portion of those missing sales would have been spec’d on bicycles made in Taiwan.

A variety of interviews with industry executives offers a glimpse of what may be in store for the remainder of 2017 as Taiwan works its way through the current global downturn.

Here’s a snapshot:

  • Bicycle production in Taiwan in the first quarter was off as suppliers pushed orders for bicycles into the second-quarter months of April, May and June. And future orders appear soft at the moment.
  • Taiwan manufacturers have seen revenue declines ranging from 20 to 50 percent, and some small, undercapitalized OEs in Taiwan and China have either shut down or sought out markets outside the bicycle industry.
  • Giant, Merida and Ideal, three publicly traded bellwether manufacturers, are dealing with sharp downturns in revenue and slumping share prices.
  • Political uncertainty — largely driven by the Trump administration and continuing tension between Taiwan and China — has executives pursuing risk-averse strategies that could impact future capital investments and research and development.
  • Taiwanese manufacturers also face growing competition from Southeast Asian countries like Cambodia and Vietnam and what could be an emerging India. But some Taiwanese are making investments in these countries as global suppliers seek lower costs as well as favorable trade status with the European Union.

Weak manufacturing demand in the first quarter can be traced in part to a flood of early imports into the U.S. market last year. That move led to early discounting and a stockpile of bikes that some dealers are still trying to sell. Still, dealers have slammed shut their order books.

“What we see is momentum slowing,” said Bob Margevicius, a vice president at Specialized. “We’ve had bad weather virtually everywhere, but current inventory levels are good. Last year we had too much inventory and we pushed product into the first quarter, so we’re not seeing an aggressive first-quarter drive this year,” he said.

Still, Margevicius and others point out that some Taiwan OEs are shrinking their business to adapt to what they see as the current market reality. Other Taiwanese companies, however, are aggressively setting up operations in Europe and are looking hard at India.

For the time being, Taiwan has a clear edge with its manufacturing cluster in the Taichung region. But that advantage, too, is slowly changing.

One Taiwan executive put it this way: “Some companies like Giant, Fritz Jou and A-Pro are taking the offensive, while others are more defensive about the future.”

A Taiwan executive voiced similar sentiments. “The Taiwan bicycle industry is really suffering a lot from very slow business globally, including China,” he said, asking to remain anonymous. “We do hope it will turn better, but we’re worried about your new president creating new policies. A trade war with China would definitely hurt Taiwanese companies who invest a lot in China,” he added.

Michael Forte, Felt USA’s general manager and chairman of the Bicycle Products Supplier Association’s statistics committee, offers a more concrete example of what’s ailing Taiwan’s manufacturing sector. Taiwan’s troubles start with dealers, and not just U.S. dealers. “It’s a flow-up situation,” he said.

“Suppliers haven’t opened the floodgates for production because dealers are absolutely not taking any inventory risks. They’re just not buying. It all flows uphill. What dealers do affects suppliers; that affects manufacturers, and that affects companies like Shimano,” Forte said, referring to Shimano’s 2016 financial filing.

“Right now dealers are having a tough time. Supplier sales are down, and getting payments from dealers has been tough. All that is flowing up to manufacturers,” he said.

Look for more Taipei Cycle Show coverage online this week and in the April 15 print issue of Bicycle Retailer.
 

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