Is BICYCLES a good market in which to set up a new business?

1.    Introduction

The global bicycle industry is a large one expected to reach $65 billion by 2019 (Lucintel, 2015). The exponential growth and potential of this market is explained by the rising fuel prices, ever growing traffic congestion, and preference of cycling as a source of fitness and recreational activity (Research & Markets, 2014). People in developing countries are continuously looking for efficient and cheaper means of transport. However, there are various segments of the bicycle industry (i.e. E-bicycles, mountain bicycles, and road-bicycles etc), and not all of them account for the substantial growth of this industry. The e-bike segment seems to be the fastest growing and most preferred for reasons such as; their efficiency in climbing hills, and remove many challenges associated with pedal-powered cycles (Lucintel, 2015). Hence, despite various challenges, the bicycle market will continue to grow but new investors should focus on the most promising e-bicycle segment. Using recent market data, this report explores the competitiveness of the global bicycle market, its advantages and disadvantages, growth areas, and other challenges that determine the attractiveness of this market.

2.    Bicycle Market: Advantages and Positive Aspects of Setting Up a Business

There is no doubt that the global bicycle market is an interesting one to venture into. With a growth potential of up to $65billion by 2019 (Lucintel, 2015), there is a great potential of growth. One of the benefits of this industry is that bicycles are becoming an important tool in various life aspects. In developing countries such as China, India and Vietnam, bikes have become important means of transport due to massive traffic jams (INSG Insight, 2014). In developing countries (i.e. North America and Europe), bikes are being used for various activities; from transportation, sports to health and fitness. This means that there is a potential continued growth of the bicycle industry in the world (Trend Report, 2015). Despite the fact that most business research has studied the bicycle market per segment (Lucintel, 2015), there is evidence that a huge potential exists in this market.  Various statistics show that the global demand for e-bicycles will reach almost 10 million by 2016 (Pike Research, 2015). Cumulatively, it is expected that global sales of e-bicycles and motorcycles will be over 400 million (Pike Research, 2015). This represents an average of 10% annual growth. It is estimated that the sales of e-bicycles is will double or even quadruple in all regions of the world (Pike Research, 2015). On average, Europe recorded 20,234 million bike sales in 2014, an increase of 2.3% from 2013.  There is a documentation of some of the most successful bicycle companies in the world. Giant manufacturing (Taiwanese), GT bicycles (Californian), Santa Cruz Bikes (Californian), and Cannondale Bicycles (Canadian) are some of the leading and most successful brands in the world. Most of these companies specialize in the production and global retail of bikes in the world. There is evidence of success in the global bicycle industry, judging from existing brands, and so even new comers can succeed so long as they play by the market game.  Also, different markets have different levels of success based on market research. Not all countries have shown same level of success.  Market research shows that China consumes over 25 million bikes a year and exports over 15 million (Pike Research, 2015). USA and Japan also consume over 20 million and 7 million bikes a year respectively (Pike Research, 2015).  India and Taiwan are also amongst the largest consumers of the bike industry.  Reports also show that across Europe, about 20 million bikes are sold creating about 70 thousand jobs annually (CONEBI, 2014). A new market entrant must therefore understand the key trends for each region or country and most promising segments. However, it should be noted that this market is quite broad, diverse and not straight forward (Oschabnig, 2015). One dimension of this business is selling bikes and spare parts, while the other is the delivery of bicycle-specific service (Lucintel, 2015).  Retailers might decide to venture into one of these or both. Nevertheless, there is a huge potential in the global bicycle market and new comers can gain from it as well.

3.    Disadvantages and Problem Areas

One of the challenges facing new market entrants into this market are the ability to clearly understand the trends and deal with them effectively. There are various reasons that explain the growing potential of the bicycle market such as; the need for energy efficient and sustainable means of mobility, the need for cheaper transportation means, healthier means of mobility, most accessible means of mobility and concerns for congestion in most urban centres (Clements, 2015). These factors could influence the potential of the bicycle industry differently in various regions. For instance, in developing countries such as China, India and most of Asia, the biggest motivation for using bikes could be;  the need for cheaper means of transport, or faster mode of mobility that will help users escape the ever congested urban towns (Mintel, 2015). Examples of companies that have failed due to poor competitiveness include the Schwinn Bicycle Company.  This means that road bicycles that are cheaper might sell more in developing economies. In developed economies, consumers are more concerned with energy efficient or sustainable modes of transport, using bikes for sports, recreation and fitness (Lucintel, 2015). This means that the market segment might vary from one country to another.  Staying globally competitive for new comers into this market is likely to be a challenge. As noted, there are already well established bicycle manufactures in the world, who can take advantage of economies of scale to remain competitive (Isaia, 2015). New comers from developing countries might face competitiveness challenge emerging from issues to do with raw materials, productivity, and technology gaps (Olmsted, 2014). Exports to markets such as Europe and North America must be of high quality and perhaps meeting some environmental or quality standards. Some components required for high-end bicycles might have to be imported from Europe and North America. Therefore, depending on the taxation policies of a certain country, important components might be expensive hence making the bicycle export market from such as country less competitive. On the other hand, the cost of setting up bicycle manufacturing plants in developed economies where spare parts and technology are readily available could be high (IBISWorld, 2015). The cost of labour, cost or environmental compliance and regulations, and taxes could also be high in developed than in emerging economies. All these factors make the competitiveness of the bicycle industry for new entrants quite expensive. Also, research has shown that the growth potential for this industry may vary with segment. Research has shown that the biggest drivers of the bicycle industry are increased fuel prices, traffic congestion and emergence of cycling as a source of recreation and fitness (Lucintel, 2015). These various market drivers have led to the emergence of various market segments in the bicycle industry (i.e. road bicycle, mountain bicycle and e-bicycles).  In North America and Europe, the e-bicycle seems to be a viable transit option and any new market entrant must consider this trend. In most developing countries, market value could be in road and mountain bicycles. The bicycle industry is largely depended on economic growth and new market entrants must be aware of this as well. Hence, understanding the market suitability of each segment in this industry is likely to be a challenge for new market entrants.

The target customers for this market should be based on transportation habits, behaviours, and people undergoing ‘life change’ moments. The target customers for this industry could be diverse. The characteristics would include; the early 20s, 30s, above 30 parents buying their kids bicycles, employees cycling to work or, those cycling for leisure. The early 20s and 30s will gravitate towards high end-race cars especially why if they are triathletes. Parents may want to buy inexpensive starter bikes for kids, or mountain bikes and sporty touring for teenagers. The elderly segment who wants to cycle for health purposes may require the hybrid or e-bikes.

4.    Evaluation

Based on the discussion above, it would be a good idea to set up a manufacturing and retail business in the bicycle industry. There are risks, but also potential benefits associated with setting up a business in the bicycle industry. There are different opportunities and challenges both developing and developed markets. China has become one of the largest manufactures of bicycles.  Trying this kind of business in a developing country such as Taiwan or India could be ideal because of the various benefits such as cheaper labour cost, and growing demand for bicycles as a cheap mode of transport. In developing countries, a start-up could start with the mountain bile market segment with plans of developing e-bikes as demand grows slowly. If a business in this industry is to be set up in the developed economies, then the e-bike segment would do well, but will require some huge capital and a higher level of differentiation to actually hit the market.

5.    Conclusion

Based on the main body of arguments, the bicycle industry is viable and will continue to grow due to continued increase in fuel prices, increased use of bicycles for recreation and fitness, and the continued demand for faster and cleaner mode of transport. The bicycles market is indeed a better and promising market and new entrants can actually try it.  However, there are various issues that new market entrants might have to consider before setting up a new business in this industry. These include; undertaking a thorough analysis of the competitive intensity of this industry, and understanding the viability of each market segment (i.e. e-bicycles, road bicycles, mountain bicycles, parts and accessories) in different countries.  Also, before setting up any business venture, it is useful to determine market size, market trends, and forecasts, industry breakdowns in key regional markets, industry drivers, growth opportunities, unmet needs, emerging trends, and competitive landscape.  Information from this analysis will help business start-ups make informed decisions.

References

Clements, F. (2015), Six trends for bike retailers to watch, Bicycle Retailer, Cabot Road, Suite 204 Laguna Hills, CA

CONEBI (2014), European Bicycle Market: Industry & Market Profile, Confederation of the European Bicycle Industry: CONEBI
IBISWorld (2015), Bicycle Retailing and Repair in Australia: Market Research Report,