Merida Seeks Continued Growth in Mainland China

Taiwanese bicycle marker places equal emphasis on capacity expansion and marketing

Taiwan's bicycle makers are expected to win a growing share of the global market by continuously weeding out rivals in Japan and South Korea, but they will have to invest constantly in their core business and further consolidate the local bicycle industry supply chain, says Michael Tseng, president of the Merida Industry Co., Ltd.

Tseng made those observations during a recent interview with Taiwan's Chinese-language Economic Daily News (EDN). He added that the high-potential bicycle market in China has been growing rapidly in recent year and is expected to see even-stronger demand for high-end bicycles over next 10 years. Currently, he said, Merida has three bicycle factories in China, including one under construction in Nantong, Jiangsu Province, and the company will boost its efforts to find more business opportunities across the Taiwan Strait.

Optimism

Citing statistics compiled by the Taiwan Bicycle Exporters' Association (TBEA), Tseng said that Taiwan's bicycle exports are expected to decline in 2013 in terms of volume, with no decline in export value. In the first nine months of the year, he said, Taiwan exported 10.4% fewer bicycles than the same period a year earlier but the value dropped only 3.6%, thanks to a 7.7% rise in the export average selling price (ASP).

Tseng attributed the export decline to a clear drop in sales to Europe, which plunged by 20.5% year-on-year (YoY) due to the cool economy and weak consumer confidence in the region, as well as the 14% tariff that the European Union (EU) levies on bicycles from Taiwan, compared to a zero tariff for bicycles from the Association of Southeast Asian Nations (ASEAN). This tariff difference has an impact on Taiwan's exports of medium-end bicycles to Europe, he explained.

While the volume of Taiwan's medium-range bicycle exports has been falling in the face of price-slashing competition from China and Southeast Asia, Tseng said, local bicycle and parts makers have been striving to boost their competitiveness by strengthening the functionality and quality of their products and burnishing their brand and corporate images. This enables them to boost their average export prices.

In the global division-of-labor scheme, Tseng explained, Taiwan is situated in the middle level of a pyramid, with top international brands above. If local suppliers don't work hard enough, rivals in the lower levels will climb up to take over the share controlled by Taiwanese companies. "The bicycle industry has undergone a very long development period, but it still has a very big potential for future development," Tseng said. "Taiwanese bicycle products have been successful in Europe and the U.S. for dozens of years,” he continued, “but there is expected to be even greater potential in the Chinese market, if we continue working harder to maintain our leading position."

Merida's Tactics

Thanks to the strong growth in Merida's Chinese operations as well as stable sales in Europe and the U.S., Tseng said, the company has been enjoying high revenue growth in recent years. It saw a 10% YoY increase in revenue in the first half of 2013; but its earnings soared 64% from a year earlier, reflecting the success of its operating tactics.

Merida has been developing the European market for 30 to 40 years, and has set up operating bases throughout the continent. Markets like the U.S. are growing at an average annual rate of 1% to 3%, Tseng said, stressing that Merida's most urgent task is not to increase the number of sales outlets but to further strengthen after-sales services and services to end users.

Compared with Europe and the U.S., Tseng said, China is a high-potential market where consumption power is increasing and bicycles are gaining increasing popularity due to concerns about such things as traffic jams and environmental protection.

Sports Marketing

"The Chinese market is on its way to even-more-rapid development, and Merida has been endeavoring to develop our business deployment, from manufacturing sites to distribution channels, throughout that big country," Tseng said. "We have been there a couple of years, and we think that in such a huge market, 2,000 sales points are still not enough!"

Merida's three bicycle factories in China, including the one under construction in Nantong, are far from enough to meet the strong demand for high-end bicycles in the market there. "In addition to expanding our production capacity,” Tseng commented, “even more important for our Chinese operation is continued investment in marketing. After years of evaluation and consideration, Merida has decided to pour a huge amount of money into sports marketing to further polish the 'Merida' brand."

According to Tseng, Merida plans to pour intensive resources into forming Asia's first bicycle-brand race team in Le Tour de France, a three-year agreement which is scheduled for signing. In the past, the president said, in its sports marketing Merida focused more on sponsoring mountain-bike race teams, which afforded less exposure and effectiveness.

Dual-track Future

Though already an internationally famous bicycle brand in its own right, Merida still maintains contract production for the American brand Specialized—in which the Taiwanese company is a major shareholder.

Industry sources say that through the worldwide marketing channels of international brands, more and more high-end bicycles from Taiwan are being recognized by people around the world. This, the sources stress, is a very positive motivating force for the local bicycle industry.

The sources say that Taiwan's bicycle industry has to further deepen its roots on the island; otherwise, it will be sure to gradually lose its core competitiveness, just as the Japanese brands did years ago. So, the so-called "center plants"--i.e. major assembled-bicycle makers like Giant and Merida--have to keep investing in the island while assuring market share by continuing to produce on a contract basis for top international brands.