Technology and Business is Not Either/Or – Magnesium Rising?

by Sabinna on April 24, 2010

At the big trade shows, it’s always a good idea to have a plan of attack. Having people to see and appointments in the book is essential. Just as essential, however, is the meandering strategy. Besides from being great fun, you will come across things that you might not notice when you’re following the entries in the diary.

So that’s what I did at this year’s Taipei International Cycle Show. I have already posted on some exhibits that I visited directly. In today’s post, I will talk about a few issues that have come from what I noticed in one of my aimless meanderings.

On the upper floor of the exhibition, what came to my attention was Top Image’s new line of bikes with magnesium alloy frames, which they are preparing to mass-produce following certification under EU EN standards.

Magnesium has been around for a while, appearing before the carbon fiber phase in frame innovation. At around the time that Kirk Precision were abandoning their experiment with magnesium, it was beginning to be heralded as the metal of the future, almost 20 yrs ago.

It has been used in components for a while and maybe now the time really has come for mass production of frames. In Taiwan, Merida, A-Pro Tech and Taiwan Hodaka have been producing magnesium frames for some time, but not on a particularly large scale.

The disadvantages of using magnesium are the result of misconceptions as much as valid technical problems according to  Josh Deetz in an article published a few years ago. The technical issues would appear solved, or at least solvable, given correct technical know-how. What I would like to do here is focus on some business aspects of this.

Speaking generally, in the bicycle industry you can elect to mass produce bicycles or components to as wide a market as possible–high volume at a lower unit price. Or target (a) market niche (s) with, increasingly, higher added value products.

Taiwan’s bicycle industry overall is  moving in this latter direction. (I guess at the extreme end of this movement you find the custom bicycle craftsmen). In 1998 the unit price dipped to a low of $US 95 whilst coinciding with a record high of 9,546,303 units exported.

By 2009 export volume had more than halved to 4,318,639 units whereas the unit price had increased more than 300% to a record high of $US 289  (TBEA figures). Utilizing magnesium in frame design would qualify to fit nicely into this progression towards adding value.

Talking more specifically, a crucial element in business planning for a new production of carbon frames, for example, is the frame jig or mold. Each frame size requires its own jig. These are expensive to make and each projected production must include cost recovery for the outlay of each jig. You then build a profit margin on top of that.

The more efficient you can make the production  process, technically and logistically (marketing etc.), the more quickly you can recover costs, and the more quickly you can look to developing the next model and production. If you can rapidly innovate and bring the innovation to market, you will enjoy the benefits of a lower opportunity cost in relation to competitors who may not be able to match you on these parameters. OEM, ODM, or OBM, you will do very well.

A similar opportunity cost exists in producing magnesium frames. In his article, Josh points out that this, however, need not be a problem for wrought magnesium frames.

For the present, frame styles are typically viable for only one season, so tools must be paid off in as few as 5,000 pieces per size. Welded pipe frames allow tooling repayment in as few as 25 units in the case of geometric changes while form changes with special tube shapes might require 150 units to recover tool costs. Additionally, wrought alloys generally offer improved elongation and superior forms. Simply put, wrought tubes formed and bent into frame tubes represent a highly flexible and economical approach.

The trade show this year has, once again, has given me food for thought. Prior to the show, there were several factors which discouraged me from seriously considering magnesium. The first is the volatility of the material. The second is the high percentage of defects in each production run. At the moment, over the course of a year’s quota of aluminum alloy (this is a very mature material) frame production,  less than 1% of frames are defective. From what I understand about magnesium, the defect rate is much, much higher.

Magnesium also has what could be quite a significant aesthetic disadvantage. A fundamental principle behind successful OBM is differentiation. You see this at work in relation to Carbon, Aluminum alloy, and Titanium for example.

Each of these materials has its own “cool” coeficient, which resonates with a particular range of consumers: each of these materials is visibly different to the other. For example these days having a bit of carbon on your helmet (new Limar 104 Ultralight), your shoes or wherever really appeals to a lot of cyclists.

I think the issue here for Magnesium is that it just looks like aluminum alloy. Although its technical specifications put it ahead of alloy when placed side-by-side, this aesthetic is not in its favor. Anyhow, while my views on this material from a technical point of view may be changing, any decision in magnesium’s favor depends on making use of it within a overall sound marketing and business model.

Innovation, as George Lin–at a seminar in Taipei last year in conjunction with Fausto Pinarello which I was fortunate in being able to attend–so strongly advocates and actively practices, is central. It’s certainly a key element in adding value in high-end products. Important questions raised are what form should that innovation take, and how, very importantly, should it, or does it, intersect with business strategy (more broad than  ”marketing strategy” which it encompasses)?

Lessons to be learned here include that it is developing and applying the most appropriate business strategy to suit particular market conditions at a particular time which forms a large part of making an “innovation” innovative–is an innovation not accepted by the market actually “innovative“? And strategy must be flexible to accommodate increasingly fast paced changes in market moods and sentiments, which reflects innovation. Or at least, each reflects, or connects into, the other.

If magnesium’s day has come, then successfully going to (mass) market with it and delighting the cycling public with bicycles and bicycling experiences which at least meet, and hopefully exceed, their expectations, will certainly be built on technical prowess with the metal. Delivering this to the market at a cost that the market is happy to bear, will probably only come with the application of the right business model adapted to the conditions that prevail at that moment.

Josh Deetz’s analysis is positive in this respect. But the material will also have to resonate with consumers in terms of the value derived from its differentiation power or “cool” coeficient, and be tuned into market sentiments, or more, be able to influence market sentiments and perceptions of what is “cool”.

Magnesium has been around for a while, and will be for some time yet. Whether or not it comes to take a place as a material category on the level with aluminum, carbon, and steel is something to be watched with interest.

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