Merida Industry Co., Ltd. Recently announced that it expects to ship about 1.3 million bicycles from its plants in Taiwan and mainland China this year, and challenge its record for annual revenue of NT$6 billion (US$172 million at US$1:NT$34.9). The stellar performance is to come on the back of the Taiwanese firm's strategy to simultaneously push both own-brand and original equipment manufacturing (OEM) sales.

Michael Tseng, the second-generation general manager of family-owned Merida, recently announced the sales forecast in a get-together with local reporters, stating that with intensive investments and strenuous efforts in new-product development Merida expects to become the "Mercedes-Benz" of the global bicycle industry.


Going Global


Tseng says that after engaging in a series of acquisitions and strategic alliances with big foreign firms, Merida has developed a global presence in recent years. This expanding market base along with its new operating strategy is expected to generate increased profits for Merida over the next few years, he says.



Last year, Merida acquired the financially troubled bike brand Specialized of the U.S., paving its way into the high-end market there. It also set up a bike-sales venture with Centurion of Germany and formed a strategic alliance with Bridgestone Cycle Co. of Japan. Merida also markets bikes under its own well-known Merida brand in Taiwan, mainland China, Japan and Europe.

Tseng predicts that sales to North America will improve over the next few years as the bike there consolidates. He notes that the legendary high-price-model maker Conondale declared bankruptcy early this year and announced its withdrawal from bike production and sales. With smaller competitors falling by the wayside, Tseng says, Specialized has become one of the top three high-end bike brands in the American market along with Giant (Merida's major rival in Taiwan) and Trek of the U.S.

Merida is also moving ahead with plans to acquire some European bike brands, and is aggressively looking for acquisition targets in the U.S. and mainland China.


Taiwan's Advantages


The advantages of Taiwan's bicycle makers lie mainly in their well-established and closely-knit supply chains, which allows for the joint development of new bike products. Mainland China also offers Taiwanese bike makers a low-cost production base and a vast market.

In fact, without the support of mainland China as a production base and market, Taiwan will lose its global competitiveness in the bike business, Tseng says. He notes that Japan's position as the globe's top exporter of high-end bikes was lost to Taiwan over the past 10 years as production costs in that country soared and makers there neglected to set up plants overseas.

Tseng thinks that Taiwan will retain its seat on the throne in the global bike market for at least another 20 to 30 years. While he admits that mainland competitors are rapidly catching up, he notes that their gains have been largely concentrated in the market's lower end.



Tseng says that his company has no short-term plans to change its policy of expanding globally from its base in Taiwan. Merida has moved the production of all low-price bike models to mainland China and produces most of its mid-range and high-end models in Taiwan. Though the mainland Chinese facilities account for over two-thirds of Merida's total production volume, Tseng says, they contribute only one-third of the company's revenue.

In addition to producing in the mainland, Merida has also been aggressively tapping the huge domestic market there. In the past, the company has sold high-end bicycles priced at RMB500 to 1,500 (US$60~180 at US$1:RMB8.27) in the mainland, but faced with the limited purchasing power of most mainland consumers it has since rolled out the "Panda" sub-brand, with models priced at RMB300 to 500.

Panda bikes have been selling well in mainland China thanks to an advertising strategy that stresses the use of Taiwan-made components and a guarantee that the bikes' tires don't need to be re-inflated every three or so days, as most mainland-made bikes generally require, costing owners RMB1 per fill-up.

Rather than chase its major rival Giant Manufacturing Co., Ltd. On sales volume (Giant aims to sell five million bikes this year), Tseng says that his company will concentrate on high-quality product innovation and global marketing. The company's goal, he says, is to become an industry leader, such that when consumer "think bike, they think Merida."

Tseng says that since Merida currently lacks the human resources in international trade and financial management to further boost its own brand sales, the company will maintain continue for a while at least to sell 60% of its bikes on OEM/ODM terms.


Constant Development and Innovation


"Taiwan's bike industry has evolved from an operation that pursues only production volume into one in which only makers with new thinking can survive," says Tseng. "New thinking," he adds, "is a company's flexibility to evolve to meet the changing global market and the ability to ever create new value with innovative products."

Established in 1972, Merida started as a maker mainly of contract-produced bikes for export. In mid-1980, the company launched its Merida brand in Taiwan to prepare its expansion into the own-brand market overseas. By expanding its production capacity in both Taiwan and mainland China, Merida grew to become a major global player in the bike industry about 10 years ago.

Since new bike models generally lose their market appeal after about a year, product development is the key to surviving in this market, Tseng says. "R&D has to be constant and systematic," Tseng claims. "A successful bike maker has to engage all of its employees in the R&D process and every detail of the company's operations, including resource integration, production processes, technology, and even customer relationships. Management has to encourage innovation by employees and tolerate mistakes and failures in the trial process."

Driven by this spirit, Merida has pioneered many advancements in the local and global bike industry, including the use of robots for welding aluminum alloy bike frames (which greatly cuts the labor costs) and the development of the zero-pollution electric bikes. It is also the world's No. 1 maker of magnesium alloy bike frames, which weigh 30% less than aluminum frames.