Chapter 4 Comparison Of Bicycle Industry in China and Taiwan
4.2 SWOT Analysis of Bicycle Industry in China and Taiwan
4.2.2 External factors: Opportunities and Threats
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In terms of technology of manufacturing transmission parts, Japan exceeds Taiwan more than three years; Germany exceeds Taiwan more than one year; The US is equivalent to Taiwan. With respect to the technology of manufacturing frame, Taiwan has dominant position over the world, exceeding Germany for one year, and Japan. In terms of steering system, Japan exceeds Taiwan for one year, and Taiwan, Germany, and the US are equivalent in the technology. Regarding to the technology of wheels, all three of the countries, Germany, Japan and the US exceed Taiwan.
China exceeds in production volume, but stays behind the above countries.
Taiwan has depended on the supplier of key components (derailleur and shift levers), Shimano for a long time. On the fourth season of 2003 there was a big shortage of Shimano’s derailleur and caused the big delay for Taiwan’s exporting orders. Shimano’s delivery has been viewed as “long term” delivery so Taiwanese and Chinese bicycles manufactures should adopt alliance strategy with other derailleur enterprises to avoid been dominated by the oligopoly enterprises.
Weakness 3: Labor shortage and rising salaries
Taiwanese bicycle companies has moved the production base to China or South Eastern countries due to high cost of labour and land. Recently the companies in China are suffering from labor shortage. The increasing labor shortage problem which has led to high turnovers, rising salaries, and shrinking margins, has gradually forced labor-intensive clusters move inland or other South Eastern countries. Since 2004, news of labour shortages in Guangdong began to appear on the internet and in newspapers. Shortly after that, a number of academic studies emerged, claiming that China is either close to, or has already reached, a turning point in economic development in which rural surplus labour has been exhausted, resulting in labour shortages and rising wages in the urban sector (Du and Wang, 2010). Labor shortage and rising cost provide further evidence that industrial upgrading is necessary and desirable to sustain regional growth and prosperity.
4.2.2 External Factors: Opportunities and Threats Opportunity 1: Economic Cooperation Framework Agreement
On June 28, 2010 Taiwan signed the Economic Cooperation Framework Agreement with the governments of the People's Republic of China. Before the implementation of ECFA, import tax for bicycles to Taiwan is 6% while China is 13%. Import tax of bicycle related tyres is 5%
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and China is 20%. The import tax on other bicycle parts in Taiwan is 5%, and China is 12%
(Table 4-3). From the gap of import tax between China and Taiwan, it is believed that Taiwan is going to benefit more than China.
Taiwanese enterprises may profit by exporting high end bicycles and parts and meanwhile Taiwanese enterprises who don’t have production line in China may suffer competition from Chinese cheap and low bicycles and parts. However it is known that the production line of low end bicycle and parts were almost diminished or moved into China, so it is estimated that the cheap Chinese bicycles and parts will not occur damage in Taiwan’s market.
According to the latest statistics of Taiwan Bicycle Exporters’ Association (TBEA) Taiwan in 2011 exported 38,162 bicycles to China, up 145% from the previous year, together with euro 41.6 million in bicycle parts, up 98.7%. The pack for both countries is a win-win agreement. Ideal Bikes indicated that it will be expanding channels for Fuji Bikes in the mainland to 100 stores by the end of 2011. The third big Taiwanese bicycle manufacture, Ideal Bikes expected to expanding channels for branded bikes, Fuji Bikes, in mainland to 100 stores in the end of 2011.9
Favored by ECFA, Taiwan and China can benefit from zero customs. This agreement also played an important factor to attract foreign bicycle manufactures to set the company in Taiwan and export oversea the bicycles and parts which are originally made in China to avoid dumping tax.
Opportunity2: Assistant from buyers of foreign branded enterprises
The pace of rapid technological change means that firms now need to keep up with changing consumer tastes and be in a position to shape future markets. The strategies adopted by the firms were developed in two ways: first by firms setting up knowledge units overseas, exporting Research and Development (R & D) processes to labor intensive countries, and second, by forming joint ventures and mergers, acquisitions and alliances (Mody, 1989).
The typical economic logic of large-small subcontracting lies in the fact that large firms can do some things better than small ones but other things less well. Complementarities between
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9 Ideal Bikes plans to spend 10 million euro on expanding sales channels for the Fuji Bike brand in the mainland, http://www.bike-eu.com/Home/General/2011/9/Taiwan-Bicycle-Industry-Turning-to-China-BIK005258W/.
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SME and large enterprises (LE) create the possibility of useful vertical linkages. It has been also acknowledged well that many Chinese SMEs have formerly acted or are currently acting as outsourcing partners themselves, mainly for multinational corporations (MNCs) from Europe or the USA, which represents a form of external partnering for the SME.
Table 4-3 Import Tax Rate on Bicycle and Parts in Taiwan and China
Taiwan China 40115000 New pneumatic tyres, of rubber,
of a kind used on bicycles 5 40115000 New pneumatic tyres, of rubber of a kind used on bicycles 20
87120010 Bicycles 6 87120020 Racing bicycles 13
87120030 Mountain bicycles 13
87120090 Other cycles 5 87120090 Non-motorized cycles 23
87149120 Other frames and forks, and parts
thereof 5 87149100 Bicycle frames & forks, & parts
thereof 12
87149200 Bicycle wheel rims & spokes 5 87149200 Bicycle wheel rims & spokes 12
87149310 Hubs, for bicycle 5 87149310 Hubs of bicycle 12
87149320 Free wheel, for bicycle 5 87149320 free wheel 12
87149390 'Free-wheel, sprocket wheel of
bicycle 12
87149410 Caliper brake and parts thereof 5 87149400 Bicycle brakes, including coaster braking hubs, & parts 12 87149420 Coaster braking hub and parts
thereof 5 87149400 Bicycle brakes, including coaster
braking hubs, & parts 12 87149490 Other brakes and parts thereof 5 87149400 Bicycle brakes, including coaster
braking hubs, & parts 12
87149500 Saddles of cycles 5 87149500 Bicycle saddles 12
87149610 Pedals and parts thereof 5 87149610 Bicycle padals and parts thereof 12 87149620 Crank-gear and parts thereof 5 87149620 Bicycle crank-gears and parts
thereof 12
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Source: Customs Administration Ministry of Finance.
Shenzhen China Bicycle Company (CBC) founded in 1985 and obtained the investment from Schewinn and Hong Kong Da Huan Bicycle company and aimed at American market. In 2002 Merida, inflicted by the lost OEM orders when US company Schwinn claimed bankruptcy, Merida turned to acquire a 35% stake of American brand, “Specialized,” the second largest US bicycle company. In 2010 Merida acquired 30% stakes of Japanese Miyata Cycle Company, which held the exclusive distribution rights in Japan for Merida bicycles.
By buying out or stake of foreign companies OEM companies can gain more information of overseas market and receive adequate technological instruction to improve the quality of the product. Schwinn was the biggest customer of Giant’s OEM orders. In order to earn more orders from Schwinn, Giant improved the processing and shortened the lead time which is the timing from receiving orders to delivery of orders to the customers.
Giant entered Chinese market by founding Shanghai Giant & Phoenix Bicycle Co., Ltd with China’s distinguished brand, Phoenix to expand the market channels in China. Giant may intend to use the sales channels of Phoenix to expand the sales. Phoenix is national brand and such cooperation can achieve the strategy of eye-catching commercialism. Phoenix may benefit from the know-how of innovating bicycles or business managerial information from Giant.
Phoenix may also obtain the close connection with overseas buyers through Giant. G&P and Gianix are the two brands of Shanghai Giant & Phoenix bicycle Co., Ltd. In 2013 Giant informed to drop out all the stake of Shanghai Giant & Phoenix and now is a 100% Taiwanese-funded company.
Threat 1: Anti-dumping charge
The biggest threat for both China and Taiwan is anti-dumping charge from developed or developing countries. Table 4-4 displays the timetable of anti-dumping and anti-circumvention measures against China. Pursuing profit is the final goal for every firm. However the quantity is not the only to make profit. Quality is also important. In 1988 China, India also entered the bicycle exporting business in the global market, and also faced dumping charge by the European Bicycle Manufacturers Association (EBMA) until 2004. China has been charged dumping duty from 1993 till now. In 2012 EBMA was investigating subsidized bicycle imports from China and not willing to lift the anti-dumping duty which is also extended to imports of bicycles originating in China consigned from Indonesia, Malaysia, Sri Lanka and Tunisia (Oortwijn, 2012).
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The Canadian International Trade Tribunal issued its decision to continue to impose anti-dumping duties on complete bicycles with an FOB value of USD225 or less at their origin points in Taiwan and China (Crenshaw, 2007). Before issuing the final decision, formally Canadian International Trade Tribunal (CITT) will issue an industry questionnaire. The exporters have to reply the questionnaire correctly or will face the highest anti-dumping duties 64%. The questionnaire targets to investigate if the prices of the exported items were undervalued by exporters or importers. The involved 26 Taiwanese and Chinese companies included are as follows (Fu, 2010).
1. Acetrikes Bicycles（Taicang）Co.,Ltd.
2. Alliance Cycle Industry Corporation. Limited.
3. Ching Tong Shan Enterprises（Shenzhen）Co., Ltd.
4. Chitech Industries II Ltd.
5. Giant BicycleCo., Ltd.
6. Hang Zhou Wan Lun Bicycle Limited.
7. Hua Chin Bicycle(S.Z.)Co., Ltd.
8. Hui Huang Da (Shenzhen)Co., Ltd.
9. Ideal Bicycle（Dong Guan）Corporation.
10. Joysun Bicycle Manufacturing Co., Ltd.
11. Kenstone Metal（Kunshan）Co., Ltd.
12. Kunshan General Sports Co., Ltd.
13. Merida Bicycle（China）Co., Ltd.
14. Merida Industry（Hong Kong）Co., Ltd.
15. Ningbo Everich Bicycle Company, Ltd.
16. Overlord Industries（Shenzhen）Co., Ltd.
17. Oyama Bicycles（Taicang）Co., Ltd.
18. Shanghai General Sports Co., Ltd.
19. Shanghai Giant and Phoenix Bicycle Co., Ltd.
20. Shenzhen Boan Bike Co., Ltd.
21. Shenzhen Sinbao Bicycle Co., Ltd.
22. Shine Wheel Bicycle（Guangzhou） Co., Ltd.
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24. Tianjin Golden WheelBicycle（Group）Co., Ltd.
25. Universal Cycle （Guangzhou））Co., Ltd.
26. Yong Qi（Changzhou）Bicycle Industrial Co., Ltd.）
Table 4-4 Timetable Anti-Dumping and Anti-Circumvention Measures
Product CN Code Country Type of Measure Min.-Max. Duty level
China Anti-dumping 48.5% 15-07-10
Bicycle
In respect of export-driven industry, China bicycle industry was domestic market oriented before 1990, few of China bicycle manufactures exported state-owned branded bicycles or parts.
Because the production of state-owned companies can’t catch up growing needs of Chinese branded bicycles, exporting wasn’t an option for bicycle manufactures. In terms of Chinese home market, to satisfy the appetite of Chinese local market has been the biggest factor attracting more and more branded or unbranded bicycle manufactures.
While China imported millions of cars and multiple automobile production lines from the west. In 2004, China became the world’s fourth largest producer and third largest consumer of automobiles. The number of car ownership is growing at 19 percent annually (Wen, 2009).
Given China's large population and resource constraints, private automobiles would be an unaffordable luxury for the majority of the people. According to Zhang (1992), the bicycle