I regularly make use of YouBike here in Taipei.
It is a simple, easy-to-use bike share that makes biking around Taipei
as convenient as the MRT. I use it regularly to get to places while enjoying the outdoors.
YouBike would not work half as well as it does if the bikes sucked.
And luckily they do not. These bikes were provided by Giant, Taiwan's biggest bicycle brand.
I do not know much about the bicycle industry, so Giant's success and name recognition came as
a surprise to me. It is pretty cool that in the midst of a bunch of semiconductor
and electronics companies, one of Taiwan's most well-known brands makes bicycles of all things.
In this video, I want to profile Taichung-based Giant Bicycle.
Their beginnings, rise to prominence, and how they managed to make it from
being a white label manufacturer to a global brand of their own.
The idea for Giant Bicycle came in 1972.
A number of friends and family (not sure how many, it seems like 8 or 10) at a reunion party pooled
together $100,000 USD to form a company so to explore entering the American bicycle market.
In the 1950s, the Taiwanese government closed its bicycle market to foreigners in order to nurture
its local manufacturing industry. A small group of companies sprouted to serve the domestic market.
Taiwan’s market was also small, about 40,000 bicycles a year.
The government's foreign import ban gave this tiny market to domestic firms.
This encouraged local employment, which in of itself is not a bad thing to shoot for.
Politicians want to create good jobs for their citizens.
But production and innovation stagnated throughout the 60s. The domestic Taiwanese
market was too small. All it can do is support a bunch of small bicycle makers just scraping by.
The average bicycle industry company in Taiwan in 1966 had 15.7 employees.
Making it a small business.
The value added for each of those employees was around 25,000 NTD a year. Very low value, which is
in line with the tasks those workers do. Things like basic maintenance and maybe some sales.
Furthermore, I have to say that the product was pretty terrible. One bicycle company CEO
remembered a sign on a US bike shop reading: "No sales or service for bicycles made in Taiwan."
Canada would ban Taiwanese imports entirely for dumping practices.
That would soon change. By 1981, 15 years later, that value add number climbed to 464,000
NTD per employee. A massive jump that reflects the change in Taiwan’s bicycle industry.
Giant and its 30 employees struggled to make money throughout these early years.
Co-founder King Liu was in charge of bending the metal,
while partner Tony Lo handled business and international communications as the CEO.
To differentiate themselves, Giant learned its production techniques from the Japanese.
Liu pushed the small company to constantly upgrade the quality of their products,
persuading their suppliers to adopt Japanese industry standards.
This focus on quality would pay huge dividends in the coming years.
The 1973 Oil Crisis would cause gas shortages around the country and trigger a huge surge
in demand for bicycles. The sudden rise in demand caught many domestic suppliers unawares
(not unlike what went on in 2020) and they looked to East Asia to help meet demand. American
imports of the two-wheelers would increase by over three million units from 1970 to 1973.
Taiwan was in a good position to capture a large portion of those orders.
The industry made bicycles superior to those made in South Korea.
But, with the Japanese Yen appreciating 20% against the US Dollar
as a result of the Plaza Accords, at a price more affordable than Japanese bikes.
Taiwanese bicycle exports in 1969 were basically nothing - 85,000 bicycle sets.
By 1973, Taiwan exported 1.3 million sets. 1,300% growth.
The number of Taiwanese firms making bicycles exploded. There
were 279 Taiwanese bicycle makers in 1971.
By 1976, that same number was 446. I guess you can say that bicycles were the crypto of 1970s Taiwan.
Giant grew well during this boom. But as companies rushed to meet demand, an oversupply situation
began to emerge within the market. And when the oil crisis receded somewhat in 1974,
there was a big pullback. Exports fell from 1.3 million in 1973 to 814,000 in 1975.
The industry consolidated and companies merged. Giant survived this shake-out by continuing to
focus on high quality and craftsmanship. But even by this point, the company was just one of many.
It needed its big break to lift it above the rest of the crowd.
In the famous American movie "Rocky",
a small time fighter named Rocky Balboa gets a once-in-a-lifetime
shot at the big time when he is picked to fight Apollo Creed, the world heavyweight champion.
In this movie, Giant is Rocky Balboa. And Apollo Creed is American bicycle maker Schwinn.
From 1945 to 1970 Schwinn was the leading bicycle brand in the United States.
Arnold, Schwinn & Company was founded by engineer Ignaz Schwinn and businessman
Adolph Arnold in 1895. Schwinn had come to Chicago from Germany in 1891 and had been a
manager for a bicycle factory. He struck out on his own and his bikes became successful.
Ignaz's son Frank would take the company to new heights. A talented engineer, Frank
pioneered balloon tire bicycles, far superior to the single tube tires prevalent at the time.
He also knew how to do business and introduced the Schwinn Lifetime Guarantee,
which distinguished them from the competition.
Post-World War II, Schwinn was a pioneer in the bicycle industry, carving new ground in both the
marketing and product sides. They invested an immense amount on marketing their brand
directly to consumers. They were one of the first companies to use celebrities and television to
market their products. And they continued to make high quality bikes that appealed to its customers.
Schwinn was the unquestioned leader of the American market. But by the 1970s,
the company was not aging all that well. The company had missed the BMX and sport bike booms
that started in 1971 - partly due to a prior anti-trust suit in the late 50s.
They faced stiff competition from Europe (Peugeot) and Japan (Bridgestone and
Panasonic). And now they were lagging during this demand surge in the 70s.
The company needed a jolt to get back on track.
CEO Tony Lo gained the first order from Schwinn in 1976.
The American company had not intended to order bicycles from Giant, but Frank Schwinn changed his
mind after noticing how well the company's steel tubes had been painted. It was a fateful decision.
Through the 1980s, Schwinn became Giant's biggest customer by a huge margin - taking some 75% of
total production. These white-label sales would crowned Giant as Taiwan's biggest bicycle company.
Big fish in a small pond, but still very nice.
But there were strategic long-term concerns. Schwinn dictated all of Giant's product and R&D
decisions. Furthermore, they controlled access to
the customer and owned the brand name those customers recognized.
In other words, they had Giant by the balls. Schwinn would stay with Giant for only as long
as they can provide the lowest costs. Such a low cost strategy can only last for so long.
King Liu decided that Giant needed an escape valve to alleviate the stress of being so reliant
on another company. In 1981, they launched the Taiwan Giant Sales Company in the central city
of Taichung. The goal was to establish and learn how to sell the Giant brand directly to consumers.
Customer and manufacturer hurdled towards a divorce. The people at Schwinn were not stupid.
They knew that their money was nurturing a future competitor. Despite the Giant brand
at first being Taiwan-only, it would not take much to take the playbook worldwide.
Giant knowing that Schwinn knew this caused them to push harder to
learn how to build a brand before it is too late.
Then in 1985 it happened. Schwinn severed its relationship with Giant
and transferred its production to a China-based joint-venture company. Having lost those orders,
Giant found itself cycling against the clock to open a flurry of overseas branches:
The Netherlands first in 1986, then the US in 1987, Japan 1989, Australia/Canada in 1991.
To catch up on the R&D side, Giant enlisted the help of the government.
They teamed up with the Material Research Laboratories in Taiwan's Industrial Technology
Research Institute (famous for spinning out TSMC) to commercialize new materials like carbon fiber,
aluminum and steel alloys for use in bicycle frames.
Giant was one of the first companies to commercialize the use of chrome moly
in bicycle frames. This steel alloy is very strong and resistant to corrosion,
superior to the steel tube bicycles available at the time.
In 1988, Giant would also be one of the first companies to commercialize a carbon fiber frame
bicycle - selling a million units annually. Fueled by these public-private partnerships,
Giant could confidently say that they made good products.
Getting other people to buy the product though,
turned out to be much more challenging than actually making it.
Going out there with their own brand, Giant quickly faced substantial challenges in marketing
their products. It is something that a lot of companies of their type and background face.
Like Asus Computer (profiled in another video of mine), Giant started off as an
original equipment manufacturer. They made products for other brands to sell.
It allowed them to focus on manufacturing the best thing that they possibly can.
But now suddenly they have to make people of cultures they’re unfamiliar with
buy those products.
It took time for Giant to make that adjustment, especially in the competitive American market.
The American subsidiary lost money for 13 years as King Liu struggled to adapt
to customers' expectations and the nuances of sports marketing in the United States.
Things started to turn around after the company began hiring executives
like former Schwinn exec Skip Hess - who led Giant USA from $30 million to $100 million in revenue.
The Japanese subsidiary went nowhere for 9 years until Giant purchased 30%
of Japanese firm Hodaka in 1998.
Transitioning from a "manufacturing-first" mindset to a "manufacturing+brand" mindset
is challenging and it is no surprise that few companies have managed to do it.
Nike first started off with the brand - selling Japanese-made shoes - and
then moved into manufacturing. They held the customer relationship first,
before expanding. That has its own challenges, but my opinion is that it is easier.
Asus made the transition too, but had to jettison its manufacturing operations in the process.
Giant is fortunate that it was able to make its transition without needing to do the same.
I want to take some time to share something about
this channel. Don't worry - it is relevant to this topic.
When I started this channel, I kind of thought the same thing as Giant
did when they began marketing their own brand overseas. I thought that if I made the best,
most knowledgable video that I could then the viewers would come on their own.
After all, Apple and other Silicon Valley companies like it are always obsessing over the
product. Product. Product. Product. So make the best product and the rest handles itself.
But over time, I learned that I had to think about the brand and marketing too.
Often times from the very start of the "product development" process. Why people should care?
If I am not clear on that throughout my video, I risk making the work I put into it be for naught.
Giant went through the same process I am going through today.
Though they've done it with far more success than I have. They are still doing well today
and are one of the larger manufacturers in the space. The story is still not finished with them.
The pandemic has created new opportunities for the biking
industry. Biking is more accessible to more people than ever before.
There are more biking enthusiasts now than have been in a very long time.
Normally this should be good. But Giant is constantly challenged by up and comers from China,
Southeast Asia and beyond. They've gone pretty far, but the journey continues.