Existed Phenomena of Taiwan’s Bicycle Industry

In the following place, some specific topics are going to discuss whether the industrial development has opportunities and capabilities of pushing and diffusing the concepts of learning and innovation in whole bicycle industry.

3.2.1 The influence of America and Japan

In the past, technology transfer of developing countries originates from

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foreigners: learning by exporting (Chu, 1997). American buyers, in addition to providing technology transfer, even actively benefit the local bicycle firms in management, such as monitoring process of production, offering financing through issuing letters of credit, and marketing the products in developed countries (Chu &

Amsden, 2003). For example, Schwinn represents an important episode for Giant to jump into the international production chain. Moreover, in 1979, as facing a major strike of production in Chicago, Schwinn made up its mind to close factories in the USA and shifted nearly its production to Giant (Chu, 1997). At that time, Schwinn transfers technicians and efficient productive process to Giant to copy with related production problems, which upgrades Giant’s productivity and raises its total sales volume toward American market (Wei, 2005). That is, the largest market and customers’ demand in USA offer Taiwan manufacturers opportunities to accumulate wealth and learning capabilities of improving modern management techniques.

In addition to the incapability of manufacturing components in 1930s-50s, the demands of assembling high-end bicycles burgeon nowadays. It is the reason that causes the visible value of Shimano’s derailleur going upward. Furthermore, Taiwan’s components firms, KMC, Merida and Kenda, also indirectly obtain the advanced production technologies through strategic alliance with Japanese components firms, such as Shimano and Bridgestone…etc (Yan & Hu, 2008).

3.2.2 Effect of international standards

In the past, the industry doesn’t have concerted standards, therefore, facing two times unheard-of crisis in 1950s and 1970s. Thanks to Mr. Hsu, the former director of

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the Taiwan Bicycle Industry Association, and King Liu, Giant’s leader, in different periods visit Japan’s bicycle manufacturers and bring back some valuable data regarding Japan’s parts specifications (Hsu, 2007). Then, Mr. Hsu zealously persuades Taiwan’s component firms to unify their specifications and helps set up the fundamental standards for Taiwan’s bicycle industry to improve the integral quality and to firmly grab export market. What has to be noted that the bicycle industry at present is highly fragmented on the basis of specialized capabilities associated with the manufacture of the various components. It mainly originates from the characteristics of bicycle that can be deconstructed into a series of components and assemble in some specific way. That is, every component connects and interacts with surrounding components in a limited number of ways, making the bicycle a modular product (Galvin & Morkel, 2001). The flexibility of standardizing component interfaces across product architecture will lead to reduced barriers to entry within the industry and more regular incremental and modular innovation on the basis of enhanced learning opportunities at the component level (Galvin & Morkel, 2001), but less architectural and radical innovations (Galvin, 1999).

3.2.3 Local cluster and parallel business network

Bicycle industry intends to be typically labor-intensive business among traditional industries and the specialized capabilities lead to compact links between components and bicycle firms. On account of short life circle and various types of components, standardizing component interfaces across the product architecture need higher opportunities of exchange. Business network displays in the industry cluster are concentrated in the central part of Taiwan (Yan & Hu, 2008). In other words,

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Taiwan’s bicycle industry has developed complete components suppliers within a close network which are composed of many components suppliers and assemblers.

The concentration on a limited number of components can be observed in the fact that over 90% of bicycle assemblers produce no parts themselves and beyond 90% of part manufacturers produce only one type of bicycle part (Chu, 1997). Moreover, the advantages of geographical concentration not only reduce the transportation cost, but also benefit to the manufacturers, including the flexibility, convenience, and the diffusion of new knowledge. Under the circumstances, components suppliers and assemblers constitute competitive and cooperative relationships in the central part of Taiwan.

In 1970s, the scale of components and bicycle firms is small; however, they significantly grow and obtain economies of scale with the gradual increase of exporting capabilities. Due to the uncertainty of demand from OEM buyers, both of them try to disperse their own local and foreign customers. The degree of dependence on a particular supplier or buyer is not particular high (Chu & Amsden, 2003).

Moreover, in order to interact with foreign OEM buyers simultaneously, it forms a unique bicycle cooperation system in such a way that assemblers and components suppliers set up parallel-connected relationships (Chu & Amsden, 2003). No matter what firms run business, they aren’t willing to build exclusionary relationships which hinder the opportunities of collaborative design and mutual benefit. Local suppliers and assembles separately concentrates on specialized technologies in their specific area on the purpose of lowering the defect rate and minimizing production cost.

Instead of closed network, the open network will be beneficial for local manufacturers to promote their capabilities of incremental innovation among foreign OEM buyers.

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3.2.4 Related institution and policy

With the emergence of Taiwan bicycle industry, related government units and private groups spring up step by step. Despite of unlike the active support in IT industry, government intervention has been passive yet somewhat helpful in the industry (Chu, 1997). Since 1972, the main policy and institution have been focused on technical level. First of all, in 1984, the more direct contribution is to form the institution, Corporate Synergy Development Center (CSD). Formerly, Industrial Development Bureau Ministry of Economic Affairs (IDB) establishes the center, anticipating pushing Taiwan industry to be more cooperative. The design conception of the institution is to include numerous small suppliers and a big enterprise on pursuing higher productivity of whole economics and the more efficient industry level.

In 1995, IDB even asks CSD to provide different components and bicycle firms with more services of develop horizontal cooperation, such as sharing marketing distribution or global market information. However, the significant help is about total quality management (TQM), rationalizing overall cost.

To improve the phenomenon that the key components, transmission system and brake system, are greatly depended on the export products from Japan. In 1992, IBD and components and bicycle firms collectively build the institution, the Taiwan Bicycle Industry R&D Center (TBIRDC), which is dedicated to focus on bicycle design, develop the technology of the key components, such as gearshifts, and mechanical innovation and the standardizing testing. Among those functions, the most successful event is to transfer the critical technology to specific components firms, Falcon and Sun race, which is beneficial for promoting foreign bicycle markets.

Therefore, the export volume of derailleur successfully jumps to the number two

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around the world. Table 3-2 indicates that both growth rates of imports of transmission and brake systems are declining in 2004-2005.

Table 3-2 Components imports of Taiwan bicycle industry Unit: NT $ one million dollar

Year 2001 2002 2003 2004 2005 Growth rate (%)

Bicycle 5 66 188 468 672 43.6

Frame 2,118 2,504 2,813 3,720 4,747 27.6

Transmission 1,892 2,341 2,954 3,785 3,332 -12.0

Wheel 738 1,072 1,308 1,845 2,020 9.5

Steering 351 457 465 575 678 17.9

Brake 817 1,147 1,613 2,238 2,000 -10.6

Accessories 25 38 58 61 60 -1.6

Total 5941 7,559 9,211 12,225 12,837 5.0

Source: the export statistic database of Taiwan customs

In 2003, Giant invited its domestic opponent, Merida, with Taiwan’s 11 bicycle parts companies to form the A-Team, with the anticipating of increasing the general competitiveness of Taiwan’s bicycle industry and enlarging the difference of producing level from China and other countries of Southeast Asia. A-TEAM, a learning organization, hopes 22 members within the association to share each valuable manufacturing process to others. Moreover, the A-TEAM was realized to take advantage of the collective resources to jointly develop new and high-quality bicycle

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parts and bike-model-upgrading plans, and to shorten the design and delivery time (Ling, 2006). Finally, with the consistent distribution and cooperative selling, to build brand will boost more opportunities to connect with foreign OEM buyers.