Bike maker Giant to ride out trade war without US production

Taiwan’s Giant Manufacturing, the world’s largest bicycle maker, is rebalancing production to reduce risks but has no plans to head to the U.S. or Southeast Asia to weather the Beijing-Washington trade war.

Giant Manufacturing Chairperson Bonnie Tu, left, stands with CEO Young Liu. Tu took over the bicycle empire from founder King Liu, her uncle, at the end of 2016. (Courtesy of Giant Manufacturing)

“We are like a big brother in the bike industry,” Chair Bonnie Tu told the Nikkei Asian Review on the sidelines of a technology forum in Taipei. “If we are heading somewhere else, our suppliers need to come with us too. Any move from us would have a very big impact on the whole supply chain, so we will be very careful about it.”

Currently, Giant’s production facilities are concentrated in China and Taiwan. Tu said it would not make sense to set up production in a new location simply because of tax breaks or lower labor costs.

“Tax breaks could disappear anytime once political dynamics change,” she said. “We would not do things like Napoleon III to launch battles here and there. That will be very risky and could end up in failure.”

Tu stressed that Giant has started building a complete production ecosystem in Europe, encouraging all parts suppliers to join in, on an experimental basis since the company can no longer supply the whole world from “Taiwan and China only.”

In early July, the company set about expanding its European footprint to reduce its reliance on China. The $72 million drive includes building a 13.5 million euro ($15.7 million) distribution center in the Netherlands along with a 48 million euro investment in a plant in Gyongyos, about 80km from Budapest in northern Hungary.

The first phase of the Hungarian plant is scheduled to open in 2019 with a capacity of about 300,000 bikes, though the plant could eventually turn out one million a year. Tu said the plant will be positioned to supply the European market as well as ship products to the U.S.

The bicycle maker has faced mounting challenges in Western markets, with the U.S. and Europe either imposing or considering tariffs on bikes imported from China.

Bicycles were not included in the levies the U.S. imposed on $34 billion worth of Chinese goods on July 6, but electric bikes are targeted in a second $16 billion wave expected in August.

Additional 10% tariffs on $200 billion worth of products, announced by U.S. President Donald Trump’s administration earlier this month, would hit bicycles and parts among roughly 6,000 items.

On July 19, the European Commission also began charging dumping tariffs on China-made electric bicycles.

Giant projects shipments of 380,000 electric bikes in 2018, compared with 240,000 last year, making the models a key source of growth.

All told, Giant made around 4.4 million bikes in 2017, primarily in China. About 1.2 million high-end models, with average sale prices of over $1,000, were produced in Taiwan and the Netherlands.

The company owns three in-house brands — Giant, Liv and Momentum — and helps others such as Trek, Scott and Colnago build their bikes.

Tu said she sees good growth in Eastern Europe, the South Korean market, and the electric bike segment for 2018. On the other hand, she expects a further slowdown in China, as pollution and bike-sharing services take a toll. “We expect revenue from China will continue to drop this year,” she said.

Last year, more than 55% of Giant’s revenue of 55.2 billion New Taiwan dollars ($1.8 billion) came from Europe and the Americas, while China accounted for less than 20%.

The company is at a critical stage after two consecutive revenue drops in 2016 and 2017. Its annual net profit has declined for three straight years. But for the first half of 2018, it generated 8% more revenue — NT$29.1 billion — than it did a year earlier.

“We are very conservative about the China market and we don’t expect it to improve until 2019, and the rebound could be limited too,” said Liang Yi-Fong, a bike industry analyst at the Taiwan Institute of Economic Research. “Most growth will come from Europe and the U.S. and in the high-end and niche segments.”

Liang said there is a trend of bicycle makers moving to produce their products closer to their target markets, including in Europe, “to counter tariffs and reduce their presence in China.”

Ideal Bike, a smaller Taiwanese peer, has said it will expand the capacity of its plant in Poland. Rival Merida intends to ship products from Taiwan, where it makes high-end models, as an alternative.

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