Sebastian Barth Esteban Colombo Luis Costa Alessandro Lonardo Adriano Pedroti Peter Ross
Shimano Ins ide
In the last 20 years the bicycle industry underwent dramatic changes. These changes were triggered by a radical shift in customer preferences. The stagnant and mature business of the late 70’s was revolutionized by the introduction of sophisticated high performance bikes capable of rolling down mountains and the need for high quality components, which suited this extreme usage.
This revolution led to a change in the bicycle supply chain: the vertically integrated manufacturers, which dominated the market before the consumers changed their preferences, lost their dominance due to a slow adoption rate of the new trends and the lack of the technology required to manufacture components for these high performance bicycles. The parts manufacturers showed intense R&D capabilities and a superior adaptability to the new trends. They reduced the prior industry leaders to scaled down assemblers, with the latter capturing only the remaining low end of the value chain. It was the time for the parts manufacturers, who began capturing the most significant portion of the willingness to pay of the emerging high-end customers.
In this dynamic era for the bicycle industry, one of these part manufacturers stood out among the crowd. Shimano, a former bicycle manufacturer of Japan, was gaining recognition for the quality and the innovative design of its products. Shimano’s success can, in essence be attributed to the following factors: First, its strong focus on R&D; second, a sophisticated marketing strategy, based on bundling products; third, integration of systems incompatible with competitor products; fourth, continuously changing product specifications and finally a superior management of the dealer network and a high profile. During its long history Shimano had acquired capabilities,
which allowed the company to successfully implement the above strategy.
This report will examine the sources of Shimano’s competitive advantage in detail and evaluate the response of competitors to the company’s quasi monopoly in the component business.
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Shimano Ins ide
Table of Contents
TABLE OF CONTENTS
1 - HISTORY OF THE B ICYCLE INDUSTRY
S HIMANO ’S MONOPOLY S ITUATION IN THE BICYCLE INDUSTRY
2 - THE BICYCLE VALUE CHAIN AND INDUSTRY DYNAMICS
MARKET TRENDS AND CUS TOMER NEEDS AFTER WWII
THE BICYCLE INDUSTRY IN THE LATE 60 AND 70’S
CHANGING CONSUMER NEEDS
DISINTEGRATION OF THE BICYCLE VALUE CHAIN
THE BICYCLE VALUE CHAIN AFTER THE MOUNTAIN BIKE
3 - SHIMANO
FROM CORE COMPETENCES TO COMPETITIVE ADVANTAGE
A BILITY TO SPOT TRENDS
A CULTURE OF INNOVATION THROUGH STRONG FOCUS ON RESEARCH
A TRADITION OF EXCELLENCE WITH A COST ADVANTAGE
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Shimano Ins ide
4 .SUSTAINABILITY OF ADVANTAGE
5 – THE OVERALL REACTION OF THE COMPETITION
KEY SUCCESS FACTORS
REASONS FOR FAILURE / SUCCESS OF THE ATTEMPTS
SCHWINN ’S REACTION
SUMMARY OF THE OVERALL REACTION OF COMPETITION
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Shimano Ins ide
6 – INDUSTRY OUTLOOK
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At first.during the end of the nineteenth century. if someone would prefer to have more comfort.
For about half a century the industry was characterized by continuous technological improvement. So. representing the affordable alternative to the other equally young vehicle: the automobile. pedals and a steering.Shimano Ins ide
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. taking advantage of metallurgical developments and new mechanical
manufacturing processes. All these led to increasingly lighter and more robust products. she would go for ultra-light titanium components. the bicycle eventually
established itself in its present configuration -two wheels. bicycles were an everyday means of transportation. specially made for the off-road use. customers could now choose to stress the aspects that were most important for them. whereas if someone else would rather forgo ride comfort to keep weight at a minimum.
In the late 1960s a new type of more sturdy bicycles. and where mostly made up of custom-built parts.
Thanks to the possibility of picking the single components of the bicycle. then he would choose a sophisticated suspension system. the industry realized the market potential for interchangeable parts and accessories.
As the children grew up and kept the interest in these bikes. to be assembled onto larger frames and wheels. became popular.History of the Bicycle Industry
The first attempts to create a two-wheeled man propelled machine can be traced as far back as the 15
century. Growing through various shapes and technical phases. just limiting herself to the bare essentials. The modern bicycle industry was born at the same time. These motocross bicycles were designed for children.
2 . materials used for the aerospace industry like dura-aluminum were increasingly used to achieve weight reduction. as children represented the majority of users in industrialized countries. The innovative field in the industry was race bicycles in Europe.Shimano Ins ide
Shimano’s Monopoly in the Bicycle Industry
In 2001. Children paid little attention to quality and design of components.
Consumers in the post-war period were little concerned with performance of bicycles. specialized parts were less important. Racers started using . like racing bicycles needed more specialization but these represented only a small part of the market. There was virtually no customization of bicycles. Integrated companies like Schwinn benefited from this consumer behavior as they offered reliable.
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As a result. Only some specialized segments. The company supplies parts to bicycle makers worldwide. which could be produced at a low cost.The bicycle value chain and industry dynamics
Market trends and customer needs after WWII
In the aftermath of World War II. standardized bicycles. bicycle manufacturers did not invest much into the development of bicycles with the exception of racing bicycles. making Shimano the world's best-known brand for bike parts. Shimano currently holds a 70% share of the domestic and nearly 80% of the global market for bicycle components. The firm focuses on driving and braking parts. transmissions and brake systems. the five gear derailleur and later the 10 speed to climb mountains. for example. Shimano celebrated its 80th anniversary as the world's largest producer of bicycle parts. In the late 50’s and 60’s. In developing countries kids used bicycles as toys and in developing countries some people relied on them as a means of transportation.
The bicycle industry in the late 60 and 70’s
Threats of entry Medium Capital intensive. Internal rivalry was low. A summary of the five forces in the post-war bicycle industry is given in the exhibit below. Vertical integration does not allow part manufacturers to capture key part of value chain
Supplier Bargaining Power Low Industry is vertically integrated Suppliers not specialized
Industry Rivalry Low Few players in the biggest markets
Consumer Bargaining Power Low Atomized consumer base
Substitutes and complements Medium Cars and motorbikes as other means of transportation
Changing consumer needs
Consumer trends changed dramatically in the 1970s. Kids were the number one users of bicycles so there was no real threat from cars and motor bicycles. these companies had little rivalry in the industry and. which made it difficult for potential entrants to obtain recognition. but R&D and innovation not key. Even the threat of substitution was minor. were able to capture hefty margins. with the integrated players such as Schwinn boasting a market share of 25% in the Sixties (Forbes. when young Californians discovered that it was actually fun to go up and down hills with bicycles. The big companies had built a brand equity. because entrants needed high capital investments in machinery and distribution channels.Shimano Ins ide
The bicycle industry in the post-war era was an attractive industry for the incumbents. however. As a consequence. For this pursuit. Schwinn’s
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. consumers identified the names of large integrated players such as Schwinn or Peugeot with quality bicycles. thanks to significant economies of scale. 12/21/1992). Barriers to entry were relatively high. Due to the integration of the bicycle value chain.
some riders began to assemble and sell some of their bicycles. most producers of bicycle components did not take the mountain bike seriously in its early days. After 1976. Interestingly enough. “Designing clunkers: demand side innovation and the early history of the mountain bike. and in particular sturdy frames. At the beginning of the mountain bike craze. hubs and drum brakes from tandems. A crucial step in the development of a mountain bike industry was the manufacturing of frames and parts specifically designed for off-road use. February 2001).Shimano Ins ide
traditional balloon tire bicycles were inadequate. users and producers of mountain bikes were identical. the first off-road mountain bikes were highly customized vehicles consisting of pre-war frames taken from junk-yards. launched the mountain bike industry in 1979 building his bikes on the frame of a 1937 Schwinn model. and the heavy toll taken by the manhandling in downhill races’. balloon tires and brake levers from motorcycles (Buensdorf. dispatched from Schwinn to assess the innovation potential.
The consumer value diagrams before and after can be represented as follows:
Late 60’s Comfort Late 70’s
Performance Innovation Response to customer needs
Disintegration of the bicycle value chain
The change in consumer demand gave rise to the disintegration of the bicycle value chain.
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. dismissed it as a fad. According to Buensdorf (2001) this trend ‘…was motivated by a diminishing supply of used parts. Similarly. a California entrepreneur. which was due to the increasing number of clunker riders. a team of engineers.
Gary Fisher. In fact.
The value chain disintegrated with different companies providing different components and services. motor sports Exercise: skates. Mountain bikes. They are able to build brand equity and capture an important part of the consumer WTP. exercise bikes Transportation: scooters. Before the mountain bike. A summary is provided below. the integrated incumbents had enjoyed high barriers to entry and little rivalry in the industry. however. motor vehicles
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In terms of Porter’s five forces. special needs/wants Limited dealers
Substitutes and complements Medium Recreation: Skates. the bicycle industry started looking much less attractive for players. the structure of the bicycle industry started to change dramatically. Original manufacturers disintegrate and become assemblers
Supplier Bargaining Power High Suppliers become specialized (parts manufacturers). scooters. required highly specialized components and this provided smaller companies with the opportunity to come up with innovative designs and specialized parts.Shimano Ins ide
As a consequence.
The bicycle value chain after the mountain bike
Threats of entry High Driven by R&D parts manufacturers are able to ride the innovation trend in the bicycle industry. Original manufacturers capture only the low end of the value chain Few suppliers
Industry Rivalry Low Few players in the biggest markets
Consumer Bargaining Power Low/Moderate Consumer taste has changed but t i is still an atomized consumer base Industry is pulled Trendy.
The Japanese government rationed many raw materials. Shimano headquarters soon turned into a highly efficient center for results-oriented research and development. so producing complete bikes was the only way Shimano could ensure a steady stream of supplies. Shimano briefly converted to an arms manufacturer. Ltd. Shimano established itself as a bicycle maker.
Following the death of Shozaburo. Shozaburo was a perfectionist and his reputation for producing high quality products resulted in a steady-stream of business. when there was huge focus on armament manufacturing. when 26-year-old Shozaburo Shimano set up a machine repair shop in Sakai.
The company was incorporated in 1940 as Shimano Iron Works Co. a city in the Osaka area. despite the difficult economic climate of the times. in an effort to keep the company ahead in the unstable market of gearing systems. his eldest son Shozo took over the presidency. The activity focus within the company shifted from bicycle manufacturing to the development and manufacturing of high quality bicycle components. brakes and derailleurs.Shimano Ins ide
3 – Shimano
One of the companies who managed to take advantage of this trend was Shimano.
The company history began in February 1921. arguing that bicycles had a role to play in warfare. During World War II.
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. Shozaburo constantly petitioned the military and other institutions to provide raw materials to the bicycle industry. Japan. in 1958.
After the war.
In 1922 Shimano started producing bicycle freewheels. closely backed by his two brothers Keizo and Yoshizo. and in 1959 the introduction of the 3-speed internally geared rear hub signaled the emergence of a strong innovation culture.
During the 1970s and the 1980s Shimano developed and introduced a variety of new components. accepted the position when Keizo died in 1995. Within two years Shimano Europe and Shimano Singapore were established. Shimano is the world’s leading maker of bicycle parts.
In 1992. and the bulk of its business moved away from mass merchants into specialty retailers. Yozo. and by 1971.
Ability to spot trends
“We won’t compete with our customers by building complete bikes. Shimano American Corp. a culture of product and technology innovation. 67% of Shimano’s revenues (out of $75. is Shimano’s current president. Shozo's son.8 million) came from exports. who currently sits on the board of directors. Yoshizo. and factories were opened in Malaysia and Indonesia. The company became listed in the Tokyo Stock Exchange in 1973.Shimano Ins ide
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. was established in New York. and strengthened its position during the 1970s through a consistent focus on customer needs. Throughout this period. and a drive to improve manufacturing processes. and in 1982 Shimano introduced the first complete mountain bike component group: the Deore XT ®. Keizo took over the presidency from Shozo (who died as chairman emeritus in 2002). Shimano developed a strong name all over the world for producing value-added bicycle components of exceptional quality.
In 2001 Shimano’s revenues were almost $960 million. But we must keep in mind how our components are going to be used and have a vision of the product that is safe as well as being fun” – Yoshizo Shimano.
From Core Competences to Competitive Advantage
Shimano established itself as a bicycle parts manufacturer throughout the 1960s. enjoying 80% of the market for parts for high-end bicycles.
sales of the classical 10-speed bike had flattened. The cycling was fun but the bikes were crude. Shimano quickly followed this innovation with a computer-designed. was living in southern California and told his brothers back in Osaka to see if their researchers could come up with something more refined than what was available at the time on the market. which increased pedaling efficiency and reduced biker fatigue.
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. Other improvements followed. hubs and bottom brackets. Just as important. gearshifts. elliptically shaped chain wheel. the brothers developed a new way to shift the gears without the cyclist's having to let go of the handlebars. As riders trashed their clunkers one day and overhauled them the next. today the mainstay of mountain bikes. was at the origin of Shimano’s success in outperforming component makers such as Campagnolo. The company’s early establishment of service shops. The models that seemed to last the longest were the heavy Schwinn’s (from the major US bicycle manufacturer) from the 1930’s. and the strong presence at trade exhibitions and fairs help the company to spot the latest consumer preferences before everyone else. the network of sales representatives. Shimano introduced in 1982 a complete group of components specially designed for off-road use in mountain bikes consisting of crank sets. Shimano.
In the late 1970s.
At the time when Gary Fisher was experimenting with the first mountain bikes Yoshizo. is often referred to as the company “with the Big Ear” (Reinmoeller. as was necessary with the ten-speed derailleur gears.
A culture of innovation through strong focus on research
Building on culture of innovation that goes back to the 1960s. wheels and components. the youngest of the Shimano brothers. The original 15-speed version was later followed by a 21-speed version. they scoured junkyards and bike shops for stronger frames. At the time some fanatical California cyclists were racing specially geared.Shimano Ins ide
The ability to spot early market trends and a history of responding to customers’ emerging needs trough the development and launch of new products. custom-made mountain bikes up and down hillsides.
In Japan. 1997).
The unique combination of Shimano’s competences mentioned above and an early mover advantage quickly translated into a competitive advantage that allowed Shimano to be perfectly positioned for the mountain-bike craze of the 1990s. A second key element of Shimano’s cost management is the focus on process improvement. ‘Which grade of Shimano components was used?’ when attempting to determine a bicycle’s capabilities” – Morgan Stanley
Shimano had developed highly innovative components designed for off-road use in mountain bikes. Faster production at lower costs has been a regular preoccupation since the 1950s. Campagnolo had less than 50. this set of high quality products increased customers’ willingness to pay for bicycles.Sustainability of advantage
“People tend not to ask. Shimano always invested massively in R&D: while Shimano technology had been protected by almost 500 US patents since 1976. provided a perfect fit to a new and demanding mountain bike segment. As mentioned above. thus achieving labor cost advantages.Shimano Ins ide
In pursuing fast innovation rates. emphasized throughout the 1970s. But how did Shimano capitalize on the mountain-bike business boom to develop and sustain a dominant position as a major component supplier in the bike market?
A tradition of excellence with a cost advantage
Shimano focus on high quality. The company managed to sustain this WTP advantage through a sophisticated strategy:
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. ‘Who’s the maker (assembler)?’ but. Shimano manufactured its parts in Southeast Asia. Besides.
which was introduced in 1982.Shimano Ins ide
Bundling of products. Since Shimano quickly made a name for itself through superior product quality. shifting and braking. For example. Shimano kept its competitors from developing components compatible with its own ones.
Continuous change of specs. this marketing policy helped Shimano to sustain its cross-selling and lock-in capabilities. Shimano further increased its market power by offering 10% exclusivity discounts to bicycle companies. mountain bike manufacturers had the choice between an entire set of systems from Shimano or not buy from Shimano at all. In other words. Shimano products quickly replaced traditional freewheels and became the standard of the high-end mountain bikes. it was hard for assembly companies to use parts other than Shimano’s. An example of their early bundling of components is the Deore XT ®. Bundling the products allowed Shimano to offer its buyers lower prices due to economies of scale and lower logistics costs.
Advertising campaign. As a consequence of the bundling. Shimano built an integrated system that combined all of the bicycles major control functions such as steering. Most of the components of other manufacturers were not compatible with these systems. Shimano managed to capture more of the consumers’ surplus by offering its products in bundles. Replacement of a particular part with that of a competitor’s became difficult and so did customization of the bicycle. The company has built brand equity by using targeted advertising campaigns. they also bought the freewheel. Assembly companies that wanted to use Shimano’s thumb shift had to buy the freewheel at the same time as the gearshift.
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. Its bicycle advertisements feature professional racers and regularly win awards. By continuously changing the specs of its integrated systems. Shimano brakes would only work with Shimano gearshifts.
Integration of systems and components. As a consequence. Since everyone wanted Shimano’s 7-speed shift. For example. This bundle of components contained some of Shimano’s path braking innovations such as the 7-speed thumb shift as well as 7-speed freewheels. Shimano is a large sponsor of bicycle events such as regular mountain bike races.
At the same time as it lowering its cost base. These savings could be partially passed on to the bike manufacturers.
Quality and Innovation
Quality control programmes. China (1992) (Nomura. For example.
Careful cost control.Shimano Ins ide
Also. Shimano managed to sell larger quantities than its competitors and thereby benefit from economies of scale. which in turn had an incentive to buy the Shimano component packages. While Shimano recorded bicycle part revenues of $732 million in 2001. Bundling allowed Shimano to significantly reduce its transportation costs. Shimano
continuously strives for high quality of its components. 1999) and the Czech Republic (2002). Through bundling. the company has
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. both Campagnolo and SRAM had sales of less than $76 million.
Economies of scale. Malaysia (1990). There were three major sources of lower costs at Shimano:
Logistic costs. in combination with its advertising the company clearly marked every one of its components with the company name and logo.
Shimano managed to substantially reduce its cost through a combination of the marketing measures mentioned above and a set of cost reduction policies. Shimano built on these cost advantages through a set of measures designed to reduce costs even further. The company set up manufacturing subsidiaries in Singapore (1972). This was unusual in the bicycle industry and created awareness among customers as to which components they were using. Indonesia (1991). systems integration and a continuous change of products specifications.
For one.a vast amount of resources to research and development. while bicycle assemblers’ margins have been in the 4-6% range. Currently. Shimano is testing its components in real-life settings. only about 60% of the companies sales are denominated in yen (Morgan Stanley. Cooperation with these experts allows Shimano to constantly improve its technology. since 1976. Shimano is importing mud from all around the world to test the performance of its parts under any market’s conditions. and in particular to the strength of the yen. In fact. the company has filed more than 500 patents in the U.S. As a result.
Over the past five years Shimano has recorded an operating margin averaging 14%. and on soft-touch derailleurs tailored to female cyclists. Bicycles are a consumer-oriented business and thus vulnerable to exogenous factors such as fashion and weather. By outsourcing production to other countries such as China and recently the Czech Republic. one-fourth of the company’s 870 employees work in R&D. The company has committed -and continues to do it. Other companies such as SRAM (a competitor that manufactures bicycle components) are more exposed to the volatility of local demand. Professionals who are extremely selective in the components they use choose Shimano’s parts in such major world events as the Olympics and the Tour de France. Also. Shimano is able to ride more smoothly through cycles.
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Diversification through globalization.Shimano Ins ide
successfully implemented a Six-Sigma quality control process and has switched to computeraided design (CAD). 2001). These statistics provide evidence of Shimano’s advantageous positioning in the bicycle industry and of the extent of added value in its products.
In addition to these programs. the company’s earnings are less exposed to the exchange rate. The Shimano brothers make these teams work on new materials to lighten the bicycle. Through its global presence and 80% (YR2001) market share of high-end components.
There are other stories that illustrate the company’s strong commitment to innovation and quality. Shimano was traditionally vulnerable to exchange rate fluctuations.
That reputation proved invaluable when Cannondale introduced its first bicycle in 1983. In this section three different competitors – one component manufacturer and two bicycle manufacturers – are analyzed. Widely regarded as the bike industry's leading innovator. and earning a strong reputation for innovation and quality. The company offered an aluminum bicycle that was both lighter and more resistant to torsion than the steel models that dominated the industry at the time. adding cycle apparel and accessory lines along the way.
Today Cannondale is the leading manufacturer of aluminum bicycles. Japan.
Based in Connecticut.
Cannondale started in a crowded loft above a pickle factory in 1971. and four high-performance sport All-Terrain-Vehicles (ATVs). The company has subsequently diversified to encompass Cannondale's 2002 line-up of motor sports products.
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. and operates subsidiaries in Holland. selling more than 80 models in over 60 countries worldwide.
5 – The reaction of the competition
The competition reacted very differently to the mountain bike evolution and to Shimano moves. The company grew quickly during its early years. Cannondale manufactures virtually all of its products at two factories in Bedford. including four highperformance off-road motorcycles. This analysis focuses specially on their reactions to the fast changes in the competition environment and in the demand-side requirements. Pennsylvania. showing the evolution of the competition from the beginning of the mountain bike revolution to the present time. Cannondale and its bicycles have won numerous design awards.Shimano Ins ide
Learning from other businesses. The move into the fishing industry has allowed Shimano to transfer lessons from manufacturing reels to its bicycle component manufacturing. by launching the cycling industry's first bicycle trailer. and Australia.
Cannondale has reacted to reduce Shimano’s dominance in the bicycle components market in two ways:
1. thus differentiating its products more from the competition.
“Handmade in USA”: Being the only high-volume aluminum bicycle-manufacturing firm in the USA. the company also makes its own component products. which can offer a higher level of service and superior sales assistance.
Sourcing their components from SRAM.
Strong brand name: The Cannondale name is widely recognized among sports enthusiasts. the company uses proprietary manufacturing processes and systems to enhance its manufacturing flexibility.
Selective distribution: The Company sells its bicycles only through the specialty retailers’ channel.
Broad product offerings: The Company’s broad product line enables it to offer a well-known bicycle for each category. both in terms of market and innovation. not just taking a frame and putting somebody else’s parts on it.Shimano Ins ide
Key success factors
Product Innovation: Cannondale is known for being a pioneer in the high-end bicycle market and is the leader in aluminum technology. Manufacturing their own components.
The second strategy has been the most relevant. Shimano’s most relevant competitor. with brands such as Coda® and HeadShok ®. with the aim to position Cannondale as a firm that manufactures the whole bicycle.
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Proprietary products: As we will discuss later in this section. in the US and around the world.
Cannondale could never match the quality of Shimano parts with their own branded components. By equipping the bikes with their own proprietary components. And this despite the research and field feedback that Cannondale constantly receives from its sponsored athletes. these components offered the customers a superior performance than that of Shimano’s. Cannondale could benefit from a lower component cost. the firm should observe a higher willingness to pay when customers were offered Cannondale bicycles with their own Coda® and Headshok ® components. and today Shimano remains the main supplier of components for Cannondale. However. according to the company’s sources. In the next section we will see that this has not been generally the case. Therefore. According to Cannondale’s executives. despite the lower costs associated with this strategy). this would be possible only in the low-end products: the usage of Shimano components – especially gear sets – increased customers’ willingness to pay for their higher–end bicycles (according to the users.
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. better than their Shimano counterparts thanks to superior materials and design.
The main reason why this happened is that the strong brand equity built by Shimano among its final customers has prevented Cannondale from completely removing Shimano components from its line of products and replacing them with their own branded ones. These models. which helps the company improve its whole product line. that the company marketed with its own Coda® and HeadShok ® brands components were.
As a consequence of the above. the company still relies on Shimano to supply it with the biggest portion of its components. thus improving the firm’s margins. so they did not r isk using their own gear sets in their high-end models.Shimano Ins ide
The parts that Cannondale manufactures and utilizes for its own models are generally replacements of gears and brakes once bought from Shimano. Cannondale could only replace only certain Shimano parts with their own branded ones in most of their models.
Reasons for failure / success of the attempts
Although Cannondale’s experience with its Coda® and Headshok ® brands cannot be regarded as a failure. in comparison with the same parts manufactured by Shimano.
and in 2001 the reported loss was almost 5% of sales. Cannondale still relies heavily on Shimano as a source of components for their brand products (Shimano is Cannondale’s largest supplier.Shimano Ins ide
Another attempt to reduce Shimano’s dominance by Cannondale was to stress the importance in the innovations on the design and construction of the frames. faster and more comfortable. stronger. the company’s results have not been so impressive: Cannondale broke even in 2000. Cannondale was able to differentiate its products through technological innovations that made its bicycles lighter. Cannondale. during the second half of the ‘90s Cannondale reported. on average. By 1899 there were more than 300 bicycle companies in the US.
As noted before. even more than their aluminum tubing suppliers). The company attributes this loss to the motor-sports production start-up costs.
In 1997. Thus. which were not proportionately offset by revenues.
Schwinn was founded in 1895 just when the US was in a great economic boom -and so was its bicycle industry. The firm has 45 patents on its products and its manufacturing processes – one example is the Super V Raven – full suspension system. in 2000 and 2001. However. accounting for 20% of the raw material purchases. Financially speaking. most of which were only
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. was the second-largest US maker of bicycles priced at more than $700 (the company specializes in the high-end segment of the market). operating margins of 11% of sales. with a 23% market share. During that decade the bicycle population soared to over 10 million units.
12/21/92. it lost its advantage because its management did not respond quickly enough to adapt to the new trends: faster European bikes and mountain bikes. Although Schwinn had great experience in bicycles. producing low quality and low price bicycles to be sold in department stores . manufacturing parts internally and using its strong brand with distributors and retailers.52
Forbes. Schwinn's share (by units) of the US bicycle market was eroded from over 25% in the 1960s to just 5% in 1992 .
Clockspeed p. Vol.Shimano Ins ide
assemblers. Schwinn never invested massively in R&D in order to be able to dictate the innovation in mountain bikes. After the introduction of cars.
During the 1930s Schwinn invested massively in R&D – more than 40 patents granted – and managed to pull the bicycle industry out of the recession. 150 Issue 14
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. Once the innovator. These bicycles were built of lightweight materials such as aluminum and carbon fiber. only 12 of those companies survived. with sales topping 15 million units in US. With increasing power Schwinn started to back and forward integrate. With high sale volumes. Then came the mountain bike revolution…
Mountain bike is a fad: In the mid 1980s the market of mountain bikes was already 60% of the entire market. By 1973 the bicycle industry was vertical and mature. Schwinn became the market follower.51
Clockspeed p. As a result. Schwinn had controlled the suppliers and demanded better quality and low price components.
The vertical Schwinn was not prepared to compet e in price and quality with Shimano for parts and with South East Asian bike producers for assembling.
But then Schwinn committed another mistake: at that time the Japanese industry was not offering the same cost advantages as the expanding Taiwanese bike industry. these bikes had lower quality. no relevant investment in R&D was made and Schwinn kept following the leaders in the market. This time Schwinn got some equity in the venture with CBC. Schwinn tried to protect itself by forging a new alliance with China Bicycles Co.S. buying a 33% stake in 1987. It began buying CBC's bikes and selling them under the Schwinn name.S.
Today giant is the biggest bike producer in the world. the secondbiggest brand of high-end bicycles in the U. Although cheaper. and they slowly started importing a small quantity of Taiwanese–made Giant bikes. One more mistake: Schwinn transferred all the knowledge and technology without acquiring at least part of the Taiwanese company equity.
As part of its new partnership with Giant. It took Schwinn some time to realize that. Realizing the difficulties in competing with its local production Schwinn closed the plant and transferred its engineers and equipment to Giant's factory in Taiwan.. under the Schwinn name.000 Giant shops spread throughout some 50 countries. with more than 10. Schwinn imported the bikes and marketed them in the U.
Alliances: In 1981 Schwinn’s workers went on strike at Schwinn's main factory in Chicago.Shimano Ins ide
Outsourcing: Instead of investing in R&D. and the third biggest in Europe's high-end market. engineering and volume. Schwinn’s management decided to outsource part of its bicycles from Japan in order to benefit from cost advantages. In return.
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After the introduction of Giant's brand. About 70% of the roughly five million bikes it produced in 2002 were sold under its own name. Giant used the knowledge gained about specialty bike dealers to launch its own brand–name in the European market in 1986 and in the American market in 1987.
Giant levered its cost advantages and by 1984 had already become a dominant player in the bicycle industry. Besides. At that point Schwinn had no control over Giant's strategy. which is the biggest brand in Taiwan and China. Schwinn passed onto Giant its technology.
Campagnolo parts are venerated by cyclists. which became a success in the market.
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Recent developments: With Giant.Shimano Ins ide
History repeated itself: CBC used all the technology and knowledge transferred from Schwinn to help bolster its business supplying bicycles to European companies. the first indexed gear shifting system. At the same time the bicycle world was shaken by the quick evolution of mountain bike. All that is left of the mystic original company is its brand name that is still strong enough to keep the company competing in the market. CBC then launched its own brand and acquired a medium-size U. of which Campagnolo failed to immediately recognize the potential market growth.
The privately held company Campagnolo S. who. brakes and wheel hubs. bicycle importer and distributor. makes bicycle parts such as gear shifters. the current owner’s father. That provided CBC with its own US brand name and distribution channels. Shortly after Diamond Back started to compete directly with Schwinn.R. which owned the Diamond Back name. Schwinn was finally forced to file for bankruptcy in August 1992. which allowed to an easier gearshift. invented the original derailleur. China Bicycles and other competitors taking big bites out of its market share.S.
Campagnolo pioneered advancements in multi-speed shifting technologies in the late 40’s and 50’s and then grew to dominate the industry of bicycle parts for decades. titanium and even carbon fiber. Made from highly polished aluminum.
In the mid-Eighties Shimano developed SIS.
The company was founded by former racer Tullio Campagnolo. after his wheel stuck on a hard gear while racing up a hill in a snowstorm in the 1927. Since then Schwinn was acquired three times and filed again for Chapter 11 bankruptcy protection in July 2001. thus losing momentum to new competitors as Shimano.
filed for Chapter 11 twice and today
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. road-racing bicycles are a stable market. once the biggest US bicycle manufacturer.Shimano Ins ide
Introduction of mountain bike parts: The Italian company tried to catch up with Shimano and rapidly introduced mountain bike parts that lacked Shimano’s quality and reliability. Today much of Campagnolo’s business is what the industry calls after–market sales to enthusiasts. in particular.
Campagnolo seems to have found its niche. That strategy let Campagnolo eat up market share in the high–end market for top–of–the–line road racing components. and by the early 1990s Campagnolo had already lost an important part of its market share. Europeans. are crazy for road racing. Campagnolo decided to exit the mountain bike market and focus on the road bicycles market where they were the best. lost its leading position.
Summary of the overall reaction of competition
Shimano and the mountain bike success changed the bicycle industry completely. Campagnolo could not match the same quality/price ratio to supply the always growing and price–sensitive mountain bike market.000 registered road racers. and in some parts of Europe sales are even growing by about 2% per year.
Retract from mountain bikes: After spending great amounts of money and lacking the financial strength to continue competing in both mountain bike and street racing bike markets.
Campagnolo’s move was very successful because its home Italian region of Veneto is well located – it has more than 250. Schwinn.
Campagnolo’s reaction was then to focus on high–end products. Besides.
Despite its efforts.
In the US the sales of so called comfort bikes have steadily grown recently. one of the very pioneers of the mountain-bike era.
At the moment it is too early to clearly identify in which direction the market will move. Cannondale reacted to Shimano’s dominance by producing its own components and bicycles to the high–end market. the battle is shifting on price. European bike producers are increasingly closing the gap to their Japanese counterparts (notably Shimano). Campagnolo. retracted from the mountain bike industry and focused on the high-end road bicycle market.
Joe Breeze. but it is possible to detect a new tendency towards commuter bikes. Having reduced the technical supremacy of some
6 – Industry outlook
Following the waning craze of the mountain bike.6 percent of their share of the total US bike market. started the SimpliCity Cycle Company. with an increase in 2001 over the previous year of 13. the famous Italian bicycle parts manufacturer. the main innovations have only been brought by improved manufacturing processes or technical refinements of established products: a much quieter scene than that of the bustling mountain-bike years. trying to increase their competitive advantage. the bicycle industry found itself without new stimuli and new innovating trends.
Furthermore. showing in October 2002 at the International Bike Expo in Vegas his new line of commuter bikes: the Breezers.
What the industry is eagerly awaiting is a new product to revitalize this slumping market.
In the most recent trade fairs.Shimano Ins ide
is just one of many players.
The markets have reached maturity and all major manufacturers focused on their key skills.
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offering customers a finished product. All mechanical parts are hidden either within the frame or underneath special covers. where the bicycle never lost sight of its function as an everyday means of transportation.
Another trend in this sector is that of increasing practicability by simplifying not only the operation of the bike. but also its exterior aspect. like lights.
This trend would bring the US more in line with Europe.
Shimano built its competitive advantage on a combination of technical.Shimano Ins ide
Leveraging on the large number of people who had approached biking as a weekend pursuit. at the same time protecting the components and preventing the riders from staining their business outfits with grease.
These bikes provide all components needed to enhance simplicity of use and ride comfort. This eliminates the intimidating task of having to customize the bike by choosing its single components. complete with all parts needed in a city. fenders. marketing and managerial skills:
Technical • •
Continuous strive for engineering excellence and innovation
Steady process improvement
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. and on the increasing unease of commuting by car in congested cities. bell. and could represent the turn that the industry has been looking for. the commuter bike represents a return to the bike as a simple means of transportation. suspension and even locks and chains.
trade fairs). and profiting from a larger market segment
Introduction of components branding.Shimano Ins ide
Aiming at medium/high end of market. retailers. therefore not competing directly with the top niche players. from amateurs to professionals
Managerial • • •
Choice to manufacture in cheap labor countries
Strong entrepreneurial spirit
Capacity to extract inputs from any possible source (clients. achieving high awareness and recognition
Trend creation through sponsoring of bike enthusiasts organizations at all levels. allowing to keep abreast of new trends
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Asian Wall Street Journal. New York. 150 Issue 14
Asian Wall Street Journal. International Edition. 2001
The Road War – Shimano vs. New York. 10/19/92. The Secret of Life p. Feb 8. 1994
Asian Wall Street Journal. Oct 13. Vol. Jan 13.Shimano Ins ide
Reinmoeller.totalbike. David Diaz Blanco
http://www. Aug 30. London. Jul 16. 2001
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. Campagnolo. 1998
Cannondale 2001 Annual Report
Campagnolo vs. Morgan Stanley Dean Witter. Institute of Innovation and Research
Newsweek. May 21. December 16. Sept 5. UBS Warbug. 1996
The Dancing Chain: History and Development of the Derailleur Bicycle
Designing Clunkers: Demand-Side Innovation and the Early History of the Mountain Bike
Clock speed. 2001
Wall Street Journal. Shimano A Comparison. Westney and Yonekura (1997) Hitotsubashi University.50-60
Global Equity Research. Kraig Willet. Vol. 12/21/92. 120 Issue 16
Forbes. New York. 2001
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http://www.pedalinghistory.westmag.com/PHbikbio.canondale.Shimano Ins ide