With King George’s agreement, the British East India company sent an emissary, Lord Macartney, to meet with the Qianlong Emperor of China in 1793. The problem was the trade imbalance — silver flowing into China; tea flowing out. Textile producers having grown fevered at the thought of selling just one pair of socks to every Chinese citizen wished to see this vision realized.
Lord M. was politely told, however, that there was nothing China needed from the outside world, and no need for the trading agreement that he was after. Who needs socks when you’ve got all the tea in China? All this was reversed once Opium took a hold of course. But China’s isolationism remained, arguably, until Deng Xiao-ping’s reforms in the late 1970s.
Taking a snapshot as the world slipped into recession late 2007 thru 2009, China had become the world’s manufacturing outsourcing solution. This was a situation which had come about as rapidly as the centuries long resistance to anything more than superficial commercial relations with the outside world had, on the contrary, endured. Add to this foreign exchange reserves of US$2.45 trillion as at the end of June–a bit like going back to having all the tea in China fed by the opiate of US domestic consumption!
Economic development targeted several coastal zones, Shenzhen being one of the most well-known, for example, with the interior provinces lagging behind. Rapid development — China will have reached “take0ff” by 2020 — has seen upward pressure on wages which is partly behind development initiatives recently targeting the interior provinces.
Foreign manufacturers setting up in China have been willing to allow a degree of technology transfer in exchange for access to what has been seen as the holy grail of world trade for several hundred years: access to the purchasing power of the Chinese consumer, whose power is in sheer number (in the 100s of millions for the expanding middle class). Interestingly, right in the middle of drafting this post came the news that foreign companies in China are upset at what they see as resistance by China to, in their eyes, reasonable access to the Chinese consumer.
I have gone into this background at length in order to situate a recent post on De Rosa’s 2011 R848, manufactured by Xpace Industrial Co. in Xiamen, right in the heart of the coastal development zone. Clearly an OEM manufacturer, I would suspect a Taiwanese connection here, although I know little about this company. I did come across their booth at this year’s Taipei International Cycle Show and took the following shot of a concept design:
The “concept bike” aside, this can be seen as growing consolidation in the development of high-end products and probably in the near future, the emergence of home-grown China brands.
A recent example of a move to develop a China brand is Jack Yang’s development of a GPS car dashboard mounting device under the brand “Züuma”. Whilst continuing to produce devices on an OEM basis, his goal is to gradually phase this out and go to market on an OBM basis. In pursuit of this he has US partners who provide branding and distribution services, a strategy that many Chinese companies have resisted.
If this is indeed a trend gathering momentum, then the appearance of quality, local Chinese brands may be just around the corner, given the pace of development. It’s projected that local car brands, for example, such as the Chery and Geely will make significant inroads in world motor vehicle markets.
As China’s economy rapidly transforms in the OBM direction, Taiwan’s bicycle industry leaders are concerned to further enhance production of high-end models, although this is a muddled picture since Giant will soon have a new carbon frame factory next to their current one in Kunshan (Jiangsu Provice, PRC) with a projected output of 100,000 frames per annum. In addition, high-grade aluminium process lines have been added to the existing complex.
The response of Taiwan’s bicycle industry leaders (to what can also be seen as their own strategic positioning in relation to the China market) represented by the A-Team is the move away from a traditional, cost-focused, modular, symbiotic supplier network approach to organizing production towards an integrated, co-innovative supplier network approach, or in other words, cooperative competition.
In the shadow of these developments is the clear lack of other recognized Taiwanese brands which have gained any real purchase as brands per se. A key function of many of the “brands” that are in the market in the present, is to attract the attention of OEM customers; there is not necessarily any real commitment to developing the brand.
Or, in the case of one well-known brand, it is supplying SRAM components cheaply to bike shops as they focus on servicing their customer base with components upgrades as a survival strategy in the face of a severe slowdown: a survival strategy for both customers and supplier.
There is also the criticism of the A-Team as engaging in too much talk and theorizing — in relation to the A-Team’s 3 pronged program to 1. strengthen the foundation itself 2.develop a marketing strategy 3.vision of a Taiwan as a Cycling Island — and too little action, a situation that current Chairman, Merida’s Michael Tseng has promised to move beyond. In the end, the emphasis would appear to be here on the consolidation of existing big brands and their OEM/ODM activities.
Anyhow, I think the upshot of this is that there are two related processes we need to be aware of that will have far-reaching effects: the rise of the Chinese consumer and the rise of China home-grown brands, in which we can possibly see echoes of China’s sentiments during the second half of the Ch’ing period (and the inevitable showdown with western powers).
Whilst the first is a clear opportunity (although the time is not yet nigh), the second is not necessarily to be feared, but can also be viewed positively, as a driver unleashing Taiwan’s yet to be fully realized OBM potential. I sometimes feel like an army of one when it comes to this.