About 1.5 month ago, the 2023 Eurobike show came to a close and it was a show that saw attendance return to normal, or even more than earlier, following the pandemic.
Combined with the 2023 TPE show, the 2 events bring to the center stage a few key indications of where our industry is headed - there are possible interpretations, and below is how I see the current situation and what comes next.
Several factors are affecting our industry, and it makes sense to split the scenarios into short-term, mid-term, and long-term consequences.
Short term — Nothing new, with oversupply and excess stock being front and center of everyone’s mind, causing serious cash flow issues, profit loss and several brands looking to sell or ultimately fold. Asian suppliers that only 18 months ago saw no end to orders are suffering and have to stop production lines and send workers for vacation.
However painful, most Asian parts makers will be able to survive, in part due to the fact that Asia still maintains relatively lower interest rate compare to North America — maximum 1.75%-2.5% vs 6.5~8,9%
Also during the pandemic, a lot of Asian suppliers increased their prices and saw significant gross margin gains. Even as many suppliers over-invested during the pandemic, they are still able to get bank support.
However, for a lot of distributors, the situation might be a little bit difficult. Not only are they sitting on a lot of inventory that is not getting any newer, but at the same time they have to deal with a huge grey market and significant discounts from multiple brands. This will lead to a significant profit margin erosion that may last not only 1 year, but likely 2~3 years.
For the brand side — the impact hits in many different ways. The situation for the big, famous brands might not be the best, because during the pandemic, they got strong support from parts makers, which also means that they are sitting on even more inventory compared to smaller brands. The inventory numbers I have seen from some of the biggest brands are incredibly large, often exceeding 1.5 years of normal sales.
Of course, the most important thing for all the companies are cash flow and supply chain management. Supply chain management is still important, even more important than during the pandemic.
Mid-Term — The drive to accelerate supply chain changes to increase flexibility
Most people in the industry have for a long time experienced that “the world is flat” - A single “gigantic factory in the east” supplying the entire industry.
However, along with new geopolitical changes, the pandemic sped up the dangers of this philosophy .To have a single supply chain in the far east went from being an asset to a big liability that you had to think about risk management for. In addition, the labor cost in the “World’s factory” has been steadily increasing, making it increasingly difficult to support the market needs for ever lower prices.
Traditional supply chain management only needed to compare FOB cost, however, total cost of ownership becomes even more important with factors such as : 1. Transportation cost; 2. Time to market cost, time to delivery (well, didn’t we always say time is money ? ) 3. Capital cost ; 4: increasingly, the carbon footprint cost. 5. Risk management
At both the TPE and Eurobike shows this year, suppliers could feel the pressure to rethink their manufacturing footprint. In the past, being in China was always the most preferable choice for Asian (TW) suppliers. However, the situation has changed; People realize that China is changing, quickly. My friends working at CTBC , one of the biggest Taiwanese bank, told me, their main business in China now is “ to help Taiwanese companies move the money out from China and help to sell their factories”
But, where is the new “China”? A lot of suppliers choose Vietnam : You could see more and more big name suppliers are moving there, following the original first-movers such as, Strongman, Asama, A&J, Astro, Apro, Sunrise, to now more and more assemblers are going there, such as Giant, FJ, FSD, and now there is rumor that FOX and
Shimano will also go there.
Will Vietnam become the new “China” for the bicycle industry? I think the answer is still open, and we might not know until several years from now.
I have first-hand experience setting up a factory in Vietnam, and I think for any new business who is going to Vietnam now, the cost is getting higher and higher. A lot of people are aiming at Vietnam’s FTA, but I don’t think Vietnam will replace being actually present in Europe for manufacturing products going into the EU market.
Very soon, all the cost calculations must add carbon credit as one additional charge. And unfortunately, freight is a key factor in this.
I am sure we will see more and more reshoring happening in the near future
An additional change that I have seen, is in the relationship between customers and suppliers.
In the past, especially for Taiwan suppliers, the business heavily relied on relationships. Suppliers could easily become close personal friends with customers for more than decades.
And while managers working at Brand side didn’t really change much, suppliers were easily building up relationships, forming a very solid network within customers’ company . I remember many years ago when I visited a part maker in Tainan, Taiwan, a very big company. When we went out for lunch, their Sales VP would like to drink with me. I told her no, I don’t drink. She was very surprised and said :”but how do you then build up the relationship with foreign customers if you don’t drink? “ I said :” well, chatting? By talking to them??＂ She said, she never knew what to say to them so drinking was much, much easier.
However, as you could see more and more professional managers coming into the bike business these days and they have no history with suppliers; they see business and bikes purely as a commodity, and they don’t even have similar backgrounds. The relationship has transformed from close
Relationship to purely
Transactional .
For Asian Suppliers, they will have to develop different values and interaction patterns to build up the relationship within short-time (and to deal with professional managers that change a lot and very frequently)
All those three elements I saw these years in the bike industry would gradually change the face of our industry. For sure these are significant challenges to suppliers.
Luckily, we saw a lot of young talent and also companies that are aware of the changes, and they are evolving themself – from pure OEM manufacture, to more branding awareness, heavily investing in engineering, and being more global-minded .
The younger generation are in general more willing to open overseas service centers to be close to the market and promote their own parts brands, adding their own value.
Will we see a totally different bike industry in 10 years? Or will the old strong players still remain strong?
I don’t have the answer, but for sure it looks like the time is ready for a change.
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