Bicycling Australia
It’s only been during the past couple of years that Merida has become a force to be reckoned within the road bike market, yet they just celebrated their 25th year producing bikes under their own name.
Back in the early 70’s there was a huge shift of direction within the bike manufacturing industry, namely the arrival of Taiwan as a major and emerging force within the bike-building world.
Production costs in the established US and European factories had risen considerably, and the Japanese bike building plants were rapidly starting to price themselves out of the game too. Taiwan was already heavily involved in OEM (Original equipment manufacturing) production for numerous Japanese motorcycle, electronics and other industries, so stepping into the bike market was an easy, and natural step.
In 1971 Giant first went into the bike business, and the rest as they say, is history. Giant went from manufacturing OEM for numerous major bike brands around the world to eventually braving the market in their own right and becoming one of the biggest bike brands in the world, and also helped to put Taiwan at the forefront of the bike building world.
Running almost parallel to Giant in many ways was their near geographical neighbour Merida. Whilst visiting the USA Ike Tseng came across a small bike shop with a sign which stated a refusal to service any bikes made in Taiwan.
The sign somewhat irritated Tseng, who was involved in OEM manufacturing of aluminium parts for the motorcycle industry, so he decided to do something about this perceived lack of Taiwanese quality and went into business in 1972 making bikes for the US OEM market under the Merida Industry Co brand name.
In 1988 Tseng took the bold decision to produce and market bikes under his own Merida brand. Testing the water with Scandinavia and mountain bikes the company then spread slowly throughout Europe and China and is now expanding even more into Australia and many other areas of the world (but not in North America due to historical OEM client courtesy).
Merida has also acquired healthy stakes in other bike brands around the world – with Specialized being the most notable.
Moving into the rapidly expanding high-end road bike market is something they are heavily committed to. We dropped in to their Yuanlin HQ in Taiwan and spoke to VP William Jeng about all things Merida.
BA; What does the name Merida actually mean?
WJ; Merida is a combination of three Chinese characters; Me means beauty, Ri has two meanings – convenience or profit, and Da means arrival. So, Merida means that we are a company that can help you reach where you are going, or reach the profit that you are aiming at.
The pronunciation also made it easier to place the brand in the international market – as it worked in many languages and didn’t sound Chinese.
It was also a kind of statement and wish from the founder of the company to his stakeholders.
BA; Why did the company go into the bike business?
WJ; Customers (OEM) always seemed to be coming back for lower and lower prices, often months after agreements were made – and there just wasn’t room to make quality products any cheaper. The founder (Mr Tseng) saw that there was no real future in this and that the only way to be profitable was to go into the market directly (eventually). His business was in aluminium and welding technology so it wasn’t big deal to move into bicycles. There was also a lot of opportunity at that time because the Japanese Yen was very strong and it was becoming expensive to produce bicycles there, which is why the industry moved to Taiwan in the early 1970’s – so he took the opportunity.
BA; Who were your first major OEM clients?
WJ; Initially we focussed very much on Raleigh (who were a very strong brand at that time), making complete bikes for their global market, while Giant focussed on Schwinn.
It was the first time that Raleigh had outsourced manufacturing to another country, so we started with a few models, but we also sold Raleigh in Taiwan so actually imported high-end bikes from them too. Step by step we started producing higher end bikes for them, which is the nature of OEM.
BA; In the early days of Taiwanese bike manufacturing where did the expertise come from?
WJ; For us, most of that came from Japan, as manufacturing shifted here people came with their expertise. We also had to buy a lot of Japanese technology – for welding and painting etc, so they had to come to teach us.
We also had people from Raleigh, but that was more for technical checking.
BA; How did you set about producing and marketing your own brand bikes without upsetting the OEM apple cart?
WJ; We started making Merida brand bikes for export in 1988. Since starting out in 1972 we’d learned about technology and design of bikes, but we didn’t really know about what the consumer demanded, as we were a long way from the marketplace, and we had no way to reach the end user – we’d been building bikes inside our own ivory tower.
For long-term growth we knew that we needed to sell direct and find this link, so we decided to have our own adventure.
We set about things in a very conservative way, in Scandinavia. These are small countries and far from everything, and most American manufacturers don’t really care too much about them, so we started there and step by step came down to Germany and so on, it took a long time.
Two things we made sure of; first to use our own technology in development, and not to copy from them (OEM clients), and second not to encroach on their sales territory – we stayed low-key. In some areas we did regional advertising, but not internationally, so they realised that we were not threatening them.
BA; Did you lose a lot of OEM business by this?
WJ; Not really, not by going direct. We actually lost one of our big buyers in the early 90’s, but we were already a long way down the line with our own brand by then. That loss came about because of an historical conflict between 2 major bike brands in the US, one of which had just been taken over by a rival company, they thought there would be a conflict of interests as we were making bikes for both, plus the new owners of the brand.
BA; Your own brand adventure started around the same time as Giant’s did – how did you get over the perceived lack of Taiwanese quality in the west?
WJ; The company founder was well aware of this image from the start, and very clearly positioned Merida as a mid-high end producer. We were also not a huge manufacturer like Giant, who have around twice our capacity, our facility is restricted and mostly our customers are quality branded names, so we had the quality set up all along.
It was a wish and statement of the founder that we were to be a quality brand. But he knew that it would be a long and hard task, but we stuck to that philosophy – even though it meant turning away some brands. We knew that if we went lower end that the same would happen as it did with Japan, and by the early 90’s the factory would already have closed and production shifted to China.
BA; With Merida being a major and growing force in it’s own right, have tensions developed with your OEM clients?
WJ; It seems to be alright; as I think we are very different. For people who want to buy a Porsche they would not want to look so much at a Toyota, and Merida happens to be that Toyota; we are about cost-efficiency – reliable and affordable.
Some of our partner brands are out there like BMW and Porsche, where as we are Toyota. They are competing with others, but we are competing with less exclusive, less niche brands. I think with careful brand positioning that we all do better and compliment each other – I’m not saying that there has not been conflict, especially in the early days, but that has to be managed.
By working together we can all get more, which we are learning year by year. It’s very important to keep our manufacturing technologies separate too.
BA; How many bikes do you sell and produce per year?
WJ; We sell roughly 1.1 million Merida brand bikes in China and .5 million in the global market, around 1.6 million worldwide. About 30-40,000 of those are sold in Australia.
In this factory (Taiwan) we make around 900,000. In Shenzhen (China) we produce around 700,000 (50% for export), and 700,000 in a factory in the north of China – these are mostly for the domestic Chinese market. We have a new factory under construction near to Shanghai, which will produce around 300,000 bikes – mostly for the domestic market.
BA; You also have a facility in Germany, what is that for?
WJ; It’s a storage facility for our German company (Merida Europe) and also an assembly line for Merida and Centurion brand electric bikes.
Many of our concepts and designs also come from Germany, as they are closer to the marketplace, although we have 10 designers here in Taiwan, they meet together to plan the next season’s range. Prototypes are usually made in Taiwan, and then sent to the German team for testing before going to production.
BA; Steel, aluminium and now carbon – how has Merida managed this progression and trend in frame building?
WJ; Merida was one of the pioneers of aluminium welding, some 20 years ago.
When steel and chromo shifted to aluminium there were very few factories that knew how weld aluminium tubes into a bicycle, so at that time we had a patent called MATTS, now around 70% of our production is in aluminium.
We were also one of the first to produce in carbon fibre; we had a bonded process, not a monocoque process, and we also bonded carbon fibre with aluminium lugs. This was back in the mid 90’s, but we were too early with the technology and the project failed. We were also not sure if carbon was just a trend, and so we focussed on quality aluminium. We also experimented with magnesium aluminium, titanium, thermo plastic and other technologies.
BA; What do you see as the material of the future for bike frames?
WJ; Some small numbers of customers are still waiting for chromo and titanium frames, but titanium and its non-oxygen production environment is not easy for us, so we’ve focussed on aluminium.
Carbon fibre is very popular right now, and I don’t see anything to replace it in the near future, mainly because it’s easier to work with and be stylish with when compared to steel and aluminium. We are always researching new materials, but I don’t think that carbon fibre will be replaced within the next decade.
BA; Mountain biking was where Merida made its first own brand impressions; the road came a lot later. Where is the balance between road and MTB now?
WJ; Until 5 years ago 80% of our production was aluminium mountain bikes. Road bikes were only about 10% of our production then, so we put our resources where we were strongest, in mountain biking.
The Merida MTB team has been around since 1998, but in 2003 we had a lot of exposure with bigger name riders, and in 2004 we won the Athens Olympic XC, which boosted the brand.
But, the road market has grown dramatically, while the MTB market has slowed down. Guys like Lance Armstrong heated up the demand, so we realised we had to be there – we decided in around 2008-9 to produce our first team range bikes, and about 3-years on we realised that were ready, and the market was hungry for road bikes.
BA; Tell us about the Lampre team sponsorship?
WJ; We saw that we only had a small road bike market share, and there was huge opportunity there, and that we needed to sponsor a team.
But, there are not many World Tour teams available; just 18, and then Specialized have 3, Giant are also there and then they have to trust us, a new brand in this marketplace. We started looking seriously to sponsor a team in 2011/12. I don’t think there are too many manufacturers in the world that can satisfy the needs of a big team.
We supply 4 models of bike to Lampre, most of which we already had developed by 2009. The only one we were missing was something for Paris-Roubaix, but developing that was not so difficult, the most technically demanding to develop was the time trial bike.
In development terms we were ready when we went into sponsorship, and in marketing terms we had to be ready. We had a very good name in the mountain bike market; we just had to make it in the road market. It’s interesting that many of the bikes in the World Tour actually come from Taiwanese and Asian factories.
The riders and the team mechanics don’t know much about the bike industry, and nothing about Merida. They just want the bike to be strong, reliable, light, and to perform well and to be ok in the race. We had to get them to trust us; it was not about the money.
Back in 2009/10 we had the bikes ready, but it would have been tough to convince the riders and mechanics to use Merida when they can get bikes from other brands. But, they often don’t know that many of the brands come from Asia, and that only a few manufacturers can satisfy their demands.
We have around US$800 million annual turnover as a company. The materials for the bikes come from our own kitchen, and from our financial statement you can see that the cost of sponsoring the team is less than 5% of our annual marketing cost, so it’s really quite affordable for us.
BA; Your sponsorship of Lampre is still fairly fresh, what noticeable returns have you seen so far?
WJ; The immediate direct impact is that is has become a lot easier for us to push the high end bikes – not just road bikes, MTB too. For example our Italian distributor told us a year ago that before our Lampre sponsorship that they found it very hard to open the door to specialist dealers as they said that they had not seen the brand anywhere, and would not work with us. Now many of them come and knocked our door asking to carry Merida bikes.
In Asia our sales mix had also changed a lot due to this. In Taiwan alone our road bike sales percentage has gone from 10-40% +, and it’s been the same in Japan and Korea. It has also made the jerseys and accessories much easier to sell, so overall it’s quite a good investment.
But for the first year the dealers were not really ready with our high-end models, so it will be next year that we (hopefully) really see a major increase in sales. Although worldwide bike sales are down, we have increased our market share, and are doing ok.
At the moment we have a 3-year commitment to Lampre with another 2-year option. I think that we will be here for the long term.
BA; Lampre have signed Chinese rider Xu Gang for 2014, and have always had an interest in the Asian market. Is there a co-interest between you in developing Asian riders?
WJ; One of our hopes is that it will be an open platform for Asian rider to step up. Ultimately it’s the team’s decision on which riders they sign, but they know it is our wish to help Asian riders, and we are encouraging Japanese and other riders in this direction.
The team sponsors are also very aware that Asia is a major emerging market and are targeting accordingly. We also feel it is part of our corporate and social responsibility to help local and Asian riders develop, not from a commercial angle, it’s part of our duty.
