Bicycle Industry

Vertical limit | blissful detachment: export utopia

1991. Shimano STI was introduced, Miguel Indurain’s five-year Tour de France dominance began, teens moshed to ‘Nevermind’, and the World Wide Web officially launched to the public. Bicycles were purchased in bike shops and carbon fiber frames were often of dubious quality. But thanks to a surge in exports from the US and Europe, at least we could finally get some good stuff – at a price.

Researching bicycles and their technologies took time in 1991. It was possible to thumb the pages of (imported) magazines to develop an idea of trends, prices, technologies and emerging brands. Sourcing was a far greater challenge. If a particular bicycle or part wasn’t available in the country you lived, it often couldn’t be accessed without, economically speaking, disproportionate effort. Cycling enthusiasts, lured by advertising in ‘Bicycling’ magazine, sent faxes and placed expensive international phone calls to suppliers, or their appointed agents, to secure a piece of US-made hardware. Distant relatives, traveling friends or, even better, a fellow amateur cyclist racing in Belgium, Italy or the UK, could be persuaded to send back cycling exotica from Europe. Patience was key.

The alternative was to wait for months until a brand’s appointed local distributor (if there was one) determined enough market demand existed to justify throwing said bicycle/part into a container or carton. When it arrived months later, the sticker price would be bottom-up – with generous margins for everyone involved in the transaction.

It was ten years after Specialized released their history-making ‘Stumpjumper’ mountain bike (1981) to the US market that a new era in Australia’s bicycle industry began. GST would not exist for another decade – rather a Wholesale Sales Tax was levied on importers of foreign-sourced goods – and a new, young, generation of budding cyclists-cum-entrepreneurs grew fledgling import/distribution enterprises from garages and laundry-rooms.

On a larger scale, Giant Bicycles, the Taiwan-based bicycle manufacturer, established an Australian business unit in 1991. Giant subsequently partnered with the Australian Institute of Sport (AIS) to form the Giant-AIS cycling squad. Matt Bazzano, long-time Managing Director of Shimano’s Australian HQ (formed in 1992), was one of the original 12 squad members. Avanti Bicycles, today a major market player, had launched an Australian office a year earlier in 1990. [The significance of this paragraph will become clear later in the series]

1991 was the inaugural year of ‘Eurobike’, the Continent’s answer to Interbike. Aspiring importers from across Asia-Pacific traveled to these annual bicycle trade shows to secure exclusive brand distribution rights in their home territories – often through creatively overstating their size and importance. As the cost:benefit of traveling to research these claims was considered too high, many pitches would be taken at face value. Once an overseas brand had established a trading partnership with a foreign agent or distributor, there was little or no point in a consumer trying to independently source that brand’s product – such was the iron-clad agreements and closed-system supply network.

This was a pivotal time, particularly for consumers in a country as isolated in Australia. Finally, steel racing frames from Italy and CNC’d aluminium parts from the US began slowly appearing in local magazines and bicycle retailers. Retail prices for these products were exorbitant, which actually added to the appeal of owning them. The exporting brand could build generous margins into its ex-works (EXW) pricing and, with no competition from abroad, importers were also price-makers. 200% price mark-ups were not uncommon, especially for accessories. The long supply chain – manufacturer (often not the “brand” itself) > supplier/exporter (brand) > importer/distributor > retailer > consumer – may have been slow and inefficient, but it was highly profitable.

This was the era of “export utopia”, where suppliers and importers – detached and protected from the competitive pressure of an internet-fueled global marketplace – capitalized on pent-up consumer demand and lack of multi-national price benchmarking. Basically, no frameset, crankset or handlebar was perceived as overpriced if a consumer had no cues about its true value. It was like shooting fish in a barrel.

In the next part of our ‘Vertical limit’ series, we’ll take a detailed look at the Australian bicycle industry’s supply chain during the 1990’s; before flying over (figuratively-speaking) to Taiwan to check out the trio of factory business models that feed the industry.

Discussion

5 thoughts on “Vertical limit | blissful detachment: export utopia

  1. Great article, thanks! Free access to vast quantities of information has really freed the consumer since those days: not long ago, either. In 1991, if I wanted information I had to get on a bike, ride 7 km to the small local library and thumb through indexes and contents pages, hoping the book was in stock and not 25 years out of date. Then, I could only borrow four books at a time. Reviews of products were unheard of unless a magazine that you happened to get contained one. Online peer-reviews were unimaginied. This is why people protesting about ‘globalization’ often amuse me because a side effect of it has been smashing a lot of corporate greed. Shops are realizing that charging $69 for a pump that is $34 in the UK is looking absurd now.

    Posted by Kingerz | November 18, 2011, 16:27
  2. As a cyclist, triathlete, and a motorbiker, I’m simply appauled at the prices of our bicycles in Australia. Everybody knows motorbikes cost more to design; you have to design an entire engine box, valve system, piston system, and aerodynamic fairing, gearbox, and steering system. Plus, getting it approved for carbon and noise emissions is far more time consuming and expensive, and most motorbikes are made in Thailand (more expensive than Taiwan).

    On my elite level time trial bike (which cost THE SAME as my motorbike), all they did was take aerospace carbon fibre technology (I’m yet to see a single cycling company come up with their OWN personal carbon fibre design), turn it into a frame, maybe do a few single sided wind tunnel tests (although enough literature is available that it is possible to make a bike without ever testing it), stick shimano everything on it, and sell it. Single individuals make frames for buyers, like Peter Bundy and Baum. They’re very, very easy to make, and the materials are very cheap. The design is perhaps expensive, but not all that much. Definitely not enough to justify selling it for the same price as a motorbike. The simple fact of the matter though, is this; we love cycling too much to say no to the prices, and thankfully internet sales will force changes on a local level, to make it cheaper for all of us.

    Posted by David Ura | November 22, 2011, 19:52

Trackbacks/Pingbacks

  1. Pingback: Vertical limit | what just happened? « Cycling iQ - November 16, 2011

  2. Pingback: Vertical limit | bicycle business under pressure « - May 16, 2012

  3. Pingback: This is how the bike industry works | Bicycles Network Australia - June 13, 2014

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