He is not your average garage inventor who tinkers his way to discovery. Engineer David Hon (韓德瑋) is an avid cyclist who used a classical research route to end the daily nuisance of dismantling his bike for storage. The obsession swallowed up his leisure time for seven years. He combed the literature and scrutinized the folding bikes on the market. He developed and refined his own prototypes. “Many scientists and engineers still have a lot of energy left after work,” Hon says. “This is how I used mine.” At the time, he was a manager at Hughes Aircraft’s Research Laboratories in California.
When Hon finally created the bike he wanted in 1979, his invention was a novelty—a sleek, strong, lightweight bike that could be folded flat enough to fit in any car trunk, then snapped into place within seconds for riding. No screws, nuts, or bolts necessary. The combination of this ingenious creation and its novel inventor soon caught the attention of the media. And investors.
At the time, Hon had no intention of leaving his job to start manufacturing his invention-his hope was to market the design. But investors soon lined up with US$3.5 million and began pressing him to manage production as well as marketing. Eventually, Hon and his investors began scouting for an overseas production base.
On the way back from a scientific presentation to the Chinese Academy of Sciences in Mainland China, Hon made a curiosity visit to Taiwan. Although born in Mainland China and raised in the United States, he was intrigued by the growth of the island. “When I first arrived, I knew it was right,” he says. “It was the industrious ness of the workers and the resourcefulness of the subcontractors that impressed me.”
In 1982 Dahon Inc. started production in Taipei. Since then, the company has developed a line of foldable bikes ranging in size from those with wheels measuring sixteen inches in diameter to 28-inchers. “Basically, we have the ability to fold any two-wheeler without compromising its function,” Hon says.
It is a success story. Dahon now markets more than 100,000 foldable bicycles each year. Annual sales top US$14 million, and Dahon has captured 60 percent of the world’s foldable bicycle market. Establishing the Dahon brand has been such a success that major cycle manufacturers want to contract the company to design and produce a foldable bike to add to their lines. “Our name is so prominent in the field that some of the major companies want to use our name, not theirs, in advertising,” Hon says. Such recognition is great but it also brings great risks. Hon will not allow the Dahon name to be used on a line that is controlled by others.
Dahon has developed brand loyalty through strictly observing several principles. Consistent quality demands constant factory supervision. All bikes are shipped from the factory fully assembled to avoid the risk of improper assembly. Full-color sales materials are published by the head office to ensure worldwide consistency in message and image; agents pay only a translation fee. Because Dahon foldable bikes are generally priced 50 to 100 per cent higher than comparable non-foldable bikes, salespeople must be well informed and must take the time to promote the added value of portability. Dahon uses mainly specialty shops positioned to market its premium-priced product.
Hon believes brand loyalty must be established with sales and distribution channels as well. When his Belgian agent started invading the territory of his Dutch agent, Dahon cancelled the Belgian’s distribution rights. “Loyalty goes both ways,” he says. Hon also publishes a minimum price list in each country to pre vent destructive price wars.
Effective promotion is also a key to cultivating a strong product image. Dahon’s annual promotion budget is US$300,000 to US$400,000. The company opted out of television advertising, getting better value from a combination of print ads and product giveaways on popular TV shows, including the U.S. favorite “The Price is Right.” One nook in Dahon’s offices displays more than twenty awards, signaling another company strategy: gaining publicity by participating in competitions. Each time Dahon wins an award, whether it be for bicycle speed or excellence in marketing, the media coverage at tracts customers and motivates production and distribution personnel.
Dahon has also benefited from the “It’s very well made in Taiwan” campaign promoted by the China External Trade Development Council (CETRA). Last year, the company’s 16- and 28-inch bikes won one of Taiwan’s twenty coveted Outstanding Product Awards, bringing a rush of local publicity. Dahon products also use the “symbol of excellence” that the company was recently awarded by the government. “The symbol is a benefit, although I think it means more to the new guy,” Hon says. “Dahon already has an established reputation for high quality.” He adds that bringing American technology to Taiwan for production probably protects Dahon from some of the lingering perception that Taiwan-made products are cheap.
Hon feels his bikes are one of a rap idly expanding number of Taiwan-made products gaining world-class recognition overseas. “A lot of educated people around the world may look down on Taiwan for its copying, its environmental problems, and even think poorly of it be cause of the rhino horn issue,” Hon says. “But as an economy and as a people, Taiwan is respected for the ability to create great things out of very little.”
Although local businesses grumble about suffering a liability when they use made-in-Taiwan labels, Hon dismisses these complaints as “unintentional scapegoating.” He suspects that error-filled brochures and service manuals, poor pack aging, or inconsistent quality are greater barriers to international acceptance than a prejudice against Taiwan products. But in Taiwan, the prejudice against local products is real. Hon credits CETRA’s Image Enhancement Plan for awakening local as much as international buyers to the high quality of many Taiwan products.
Having successfully established an international brand through control of design, manufacturing, marketing, and distribution, Dahon is executing a sharp about face. This past summer, the company opted out of production. It sold its factory and now subcontracts. “We were spending too much time controlling the factory,” Hon explains. “We are now leaving that to the experts, and the Taiwanese are experts in managing factories.” He is confident of his Taiwan associates’ ability to tap best-price labor markets, including Mainland China when the time is right.
The move allows Dahon to concentrate on R&D and marketing. The company is also narrowing its product focus. Why such a cutback? Dahon is currently spreading its R&D resources over 40 percent of the 120 component parts of a foldable bike. That’s not only spreading R&D too thin, but company efforts are overlapping with research being done better elsewhere. “We are the leaders in developing bike frames and folding mechanisms. So, that’s where we will specialize,” Hon says.
There is another impetus for the change. In spite of being number one in its market niche, Dahon fears it is nearing the top of its growth curve. Research in the United States and Europe shows that 8 percent of all bike riders would buy a foldable bike if priced a maximum of 25 percent over the cost of a bike identical in all other respects. But Dahon cannot produce at the economy of scale needed to reduce costs this far. So, the company was faced with a choice: stay small and fight to hold onto the elite niche of buyers who will pay a substantial premium, or tie up with major bike manufacturers. The benefit of linking with the giants is their ability to fund large-scale production at retail prices that would broaden the markets. Foldable bikes could then catch on in a big way.
Under the new scenario, bicycle production would work this way: Dahon would focus on perfecting folding technology and lightweight bike frames, then have subcontractors build them. Next, Dahon would market these specialized frames to major international bike manufacturers, mainly in the U.S., Asia, and Europe. The manufacturing giants would then promote and distribute the finished bike.
Ideally, the arrangement will allow Dahon to take advantage of large-scale production runs and major marketing channels while protecting its folding bike technology. The company has spent the last two years preparing to share its technology in a way that will safeguard its profits and its integrity. Dahon has registered its brand names and trademarks in twenty-six countries, and has registered patents for a range of bike models and folding mechanisms. It is now searching for the right partners.
“It’s a different twist,” Hon says. “Most Taiwan manufacturers are going out of OEM to produce their own brands. They want to control their own market and their own profitability. We already have both, but we don’t have the financial power to expand production.” Hon is confident as his company heads into this transition. “On an industry scale, our production is minuscule,” he says. “If we cooperate with major manufacturers now, we can expand the market. It will be to our benefit in the long run.”