Think Taiwanese brand names with an international resonance, and the temptation is to think high tech. But what about bicycles? One brand is headed for world dominance.
If in life some of the best things happen by accident, Giant Inc. is proof that the same can be true of business. In 1986, Giant was little more than another bicycle company in central Taiwan. And then a stroke of bad luck changed history.
In 1986, the world's biggest bicycle exporter, Schwinn--which accounted for around three-quarters of Giant's orders- -suddenly opted to use a cheaper Chinese manufacturer. Giant CEO King Liu responded by going international with his own brand, saying that the experience taught him it was important for the company to be the "master of its own destiny."
The resulting collapse of the Schwinn empire is documented in the book No Hands by Judith Crown and Glenn Coleman. Having given the bicycle industry a new lease of life in the automobile age by turning it into a recreational choice, Schwinn eventually fell before the onslaught of a monster it had created by its own demand for cheaper components.
"We decided to enter a new world, completely different from the one in which we could do nothing if our clients switched orders," Liu says.
It was a decision that made Giant almost unique among the island's traditional industries, eventually extending its name recognition far beyond Taiwan's shores. According to a government-sponsored survey conducted by London-based global branding consultancy Interbrand in 2003, Taiwan's "Top 10 Global Brands" included the high-tech names one would expect, such as antivirus-service-provider Trend Micro, Acer, and BenQ, but also an odd man out: bicycle-maker Giant.
Like other Taiwanese bicycle manufacturers, Giant started out producing components under the original equipment manufacturing (OEM) model--in which one company produces hardware to be used under another company's brand name. Foreign trade was stimulating a local manufacturing boom, and bicycle manufacturers--Giant among them--in the central Taiwan area of Taichung were exporting up to 10 million bicycles a year by the mid-1980s.
Those were the glory days; but they were not to last. Across the Taiwan Strait, China was slowly opening its doors to foreign investment during the 1970s, and by the 1980s it was shrugging off its long sleep and shaping up to be the next magnet for cheap manufacturing. The true enormity of just what that meant for OEM bicycle producers like Giant and others in the industry became apparent in 1986, when Schwinn made its fateful decision to switch to "made in China" from "made in Taiwan." The result: Taiwan bicycle exports, according to the Taiwan Bicycle Exporters' Association, were down to 3.85 million last year and annual production will further decrease to an estimated capacity of 3 million within the next five years.
On the face of things, this would appear to be bad news. But Giant has turned the crisis into an opportunity, emerging not only as a global brand, but itself exploiting China's cheaper production costs, and all the while maintaining its base in Taichung, even though its local rivals decamped to China. By 1993, Giant had two of its own production plants in China--in Shanghai and in neighboring Jiangsu.
Not that Giant's journey to business success story has been all easy sailing. Giant USA, for example, did not turn profitable until 2000. But persistence has paid off. Giant is now the No. 3 brand in the US, as it is in Europe, as well as the No. 1 bike exporter to Australia, Canada, Japan, and the Netherlands. About 10,000 Giant retail stores are operating in more than 50 countries. And last year, the Giant group's business revenue and net profit--about NT$18.5 billion (US$560 million) and NT$1.1 billion (US$33 million) respectively--reached new all-time highs in its history.
Liu puts that success down to one word: "branding."
"If you don't have a well-recognized brand name, you cannot market even the best quality product," he says, adding that a successful brand maintains its market share by setting the fashions that inspire consumers to spend money. And doing that successfully, he says, requires research and development. Giant employs about 150 people and spends more than 2 percent of its annual revenue--one of the highest percentages in the traditional manufacturing sector--on R&D worldwide.
"We have to develop new products year in, year out, and show consumers that we're ahead of the latest trends in order to prevent our product lines from being perceived as dull," says Liu.
That R&D, says Liu, has to be catered to individual markets: out of every 10 bicycles Giant develops, seven are for international markets and three for local. In China, for example, bicycles tend to be utilitarian rather than recreational, and are also designed for riders who tend to be smaller in build than Americans or Europeans.
Taking a divergent path from manufacturers that have moved to China to focus on OEM production for export via Hong Kong, Giant targeted the domestic market from the very beginning. Its plants in China produce nearly 80 percent of the business group's bicycles, estimated at about 5 million this year, but 40 percent go to the Chinese market.
Like another local branding guru, Acer's Stan Shih, Liu wants to bring the fruits of Giant's success home. One of the company's projects is working in conjunction with other local bicycle manufacturers as a so-called "A-Team" rather than as rivals, undercutting each others' prices and producing ever cheaper products.
"When you abandon traditional price cutting," says Liu, "you realize that your mind is freer and your thinking more creative."
And that, Liu hopes, has the potential to change Taiwan's entire business landscape based on a knowledge economy. When that happens, he says, there is no longer the need to move anything other than the production lines to China--the brains can stay in Taiwan.
Meanwhile, Liu also hopes that Taiwanese consumers can rediscover the joys of the product that has made his company a worldwide success. Nostalgia might be one way forward.
"Even those who no longer ride bicycles are always potential riders due to nostalgia," he says, adding that Giant is working on ways to rekindle that nostalgia. Its Revive series, for example, is based on a luxury design, and aimed at recreational riders.
For Liu, it is more than about bikes. The Giant CEO claims it is essential that Taiwanese manufacturers continue to make themselves relevant to local needs--not only for their own sakes, but also for the island's financial and service sectors.
In the meantime, Liu continues to devote himself to more than simply overseeing the production of bicycles. He is president of the Cycling Lifestyle Foundation, which was formed in 2000 from a Giant foundation established to assist the training of domestic contestants in the Tour de Taiwan, an activity he first became involved in 1988.
He calls bicycles "an indicator of civilization," noting that people rediscover their charms as it becomes clear how other forms of transport harm the environment.
"How can a country encourage its people to use motorcycles when it's clear how they clog up the traffic and harm the environment?" says Liu.
The situation is improving, though. Regional networks of bike trails in the northern, central, southern, and eastern parts of Taiwan are taking shape. In Taipei City and County, for example, about 200 kilometers of bike paths have been completed.
"The two governments belong to different parties, and their political stances conflict with each other," Liu says. "But they have consensus on integrating their bike paths."
That is good news for Giant--whose bicycle rental stores on the trails have seen 1.5 million tourist hits in the past two years--and it is also good news for Taiwan, if you listen to Liu.
"We hope that in the near future, bicycles will become more than just recreational pursuit, and become a way of getting around," the Giant CEO says. "It will make our country healthier and younger."