From OEM Supplier To A Global

ABSTRACT
Firms in developing countries generally have lower technological and marketing capabilities
compared to firms in developed countries. Joining OEM alliances can help firms with fewer
capabilities to learn from their partners and then upgrade their technological capabilities. In this
kind of scenario, learning firms in OEM alliances are usually from developing countries, and they
play the role of suppliers; on the other hand, teaching firms are usually from developed countries
and play the role of buyers. Although OEM alliances provide a platform for acquiring,
transferring and creating knowledge, few suppliers can sufficiently upgrade their technological
capabilities to reach a higher level and develop marketing capabilities in order to complete in the
global market. Therefore, it is an important issue to know how an OEM supplier from developing
countries can become a leading firm in the global market. In this study, we choose Giant Bicycles
to explore this issue. We conduct a case study to explore the growth of Giant Bicycles from an
OEM supplier to a leading company in the bicycle industry.
Keywords: OEM; Giant Bicycles; Global Strategy
INTRODUCTION
n the economic system of globalization, in order to focus resources on value chain activities with high
additional value (such as R&D and marketing), multi-national enterprises of developed countries tend to
outsource production to developing countries that have a lower labor cost. This practice is called original
equipment manufacturer (OEM). Generally speaking, OEM buyers are usually from multi-national enterprises in
developed countries, and OEM suppliers are from developing countries. The cooperative model of OEM has
different strategic meanings to buyers and sellers. For the buyers of OEM, reduction of the product cost is the main
factor. When the suppliers lose the advantage of labor cost due to economic development in their countries, these
buyers will search for OEM in other countries that have a cheap labor cost.
For the suppliers in developing countries, OEM plays a totally different role. We classify OEM suppliers
into three types. First, for most of suppliers, the acquisition of foreign OEM orders usually means they will have
excellent financial performance in the short term. However, if these suppliers only rely on cost advantage, they will
easily lose orders from the buyers when developing countries with a better cost advantage enter the labor market.
Hence, suppliers will have to either move their plants to countries with lower labor costs or stop their operations.
Secondly, for a small number of suppliers, OEM forms an excellent learning platform. In order to meet basic quality
requirement, in the OEM process, buyers in developed countries will conduct technological transfer related to
product knowledge to the suppliers, which then have the opportunity to learn the basic manufacturing techniques of
the industry. Subsequently, according to the product knowledge obtained from the OEM process, suppliers invest in
R&D and enhance the core technology of the product. Sometimes their technique and capacity can be superior to
that of the OEM buyers that taught them the basic product knowledge. Thirdly, for a very few number of suppliers,
they can cultivate their core capacity of product manufacturing through the OEM process, and also develop their
own brands instead of simply producing products for the buyers.
Generally speaking, for suppliers, having brands in the global market should be a critical factor of
sustainable operations. However, numerous challenges can be encountered during the process. For instance, the
I
Journal of Business Case Studies – Third Quarter 2014 Volume 10, Number 3
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suppliers must invest in more funds in uncertain R&D, and they will encounter the threats of losing the buyers’
orders and unfamiliar marketing. Thus, OEM suppliers in developing countries tend to fail when developing their
own brands. In this study, we will analyze Giant Bicycles, which has created a successful brand. Giant is a family
enterprise founded in Taiwan in 1972. In early times, it mainly relied on manufacturing. However, through the use
of prominent global strategies, Giant has become one of the leading bicycle suppliers in the world. We will find how
Giant enhanced its core capacity through the use of precise global strategies and arrangements at different stages,
which could serve as a reference for the OEM suppliers in developing countries.
GIANT
In 1972, Giant was founded in a small town in central Taiwan. In early times, it was a small-scale family
enterprise and was not familiar with bicycle manufacturing techniques. However, forty years later, Giant has
become one of leading bicycle suppliers in the world, with a global business volume reaching 54 billion dollars. It
has more than 12,000 retail partners around the world and has received numerous product design awards. Giant is
the best example of an OEM supplier in a developing country transforming into a brand name company. In the
beginning, it learned manufacturing techniques through OEM cooperation, while at later stages it developed its
prominent core capacity and competitive advantages. At different stages, Giant gradually constructed its core
capacity through strategic alliances and global arrangements. This study suggests that Giant developed its core
capacities by integrating internal and external resources, and enhanced this capacity through global arrangements.
CASE ANALYSIS
Using interviews, corporate annual reports, and secondary reports (Lin, 2008; Giant Bicycles website,
2014), this study will analyze the core capacity development of Giant. Table 1 shows the important events since the
foundation of Giant and the strategies of growth. We will divide the growth of Giant into four stages: the foundation
stage, the technical development stage, the growth stage, and the brand growth stage. The content is shown below.
Foundation Stage
At the beginning, Giant was unfamiliar with bicycle manufacturing techniques, and it could only imitate
and learn from Japan. Through entering an OEM agreement with Schwinn, the leading bicycle enterprise in the U.S.
at the time, it obtained knowledge transfer and enhanced its bicycle manufacturing techniques.
Technical Development Stage
With the technological base from the foundation stage, Giant combined the R&D capacity of external
academic institutes (the Industrial Technology Research Institute of Taiwan), developed a carbon fiber bicycle, and
applied new techniques using composite materials to bicycle manufacturing. Giant was aware that China had opened
the labor market, and that Schwinn could withdraw its orders at any time; therefore, Giant started promoting its own
brand and selling the brand in Europe and America.
Growth Stage
At this stage Giant possessed the differential R&D and manufacturing capacities needed to support
development of its brand. During this time Giant expanded to China, taking into consideration of the dual role of
China as the world market and the world factory. In Taiwan, Giant opened life experience stores under direct
management, thus reaching out to its customers, enhancing its service, and listening to customers.
Brand Growth Stage
In regards to the price competition in newly industrialized countries, Giant formed industrial alliances with
its main rivals and component suppliers in Taiwan, thereby upgrading the bicycle industry in Taiwan and avoiding
price competitions with other countries. In addition, it sponsored important bicycle competitions to increase its
brand reputation and product quality. Finally, it created a bicycle-friendly environment in Taiwan.
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Table 1: Giant Bicycle’s Global Strategy
Year Events Strategies of Growth
Foundation
stage
1972-1984
1972
Founded in Taichung County, Taiwan,
with a capitalization of 4 million dollars
and more than 30 employees.
It learned basic bicycle manufacturing techniques
from Japan.
Based on industrial standards and Japanese
specifications, it convinced its partners and
component suppliers to upgrade the product quality.
1978
Schwinn, the leading bicycle company in
the U.S., started procurements from
Giant.
It enhanced its bicycle manufacturing techniques
through the manufacturing process for Schwinn.
It started marketing the Giant brand in Taiwan.
Technical
development
stage
1985-1991
1985
Signed contracts with the Industrial
Technology Research Institute to develop
carbon fiber bicycles.
By cooperation with external national R&D institutes,
it constructed its core technical capacity.
1986
China opened its low-cost labor market
and buyers began turning to China.
It started constructing marketing networks for its
brand.
Founded branches in Europe and the U.S.
1991
Terminated the OEM relationship with its
main buyer, Schwinn.
Development turned from OEM manufacturing to
brand development.
Growth stage
1992-2001
1992
Successful development of one-piece
carbon fiber bicycles and aluminum alloy
bicycles.
It supported brand construction through technical
development.
1992 Started investments in China.
It expanded in potential markets and lowered its
production costs.
1998 Invested in Hodaka of Japan.
2000
Founded the first life experience store
under direct management.
By operating a direct sales store, it demonstrated a
consumer-oriented culture and reproduced this
experience in the operation of following stores.
2001
Awarded by Forbes as a global top 20
small-scale enterprise.
Brand growth
stage
2002-present
2002
To combat low-price competition from
China and countries in Southeast Asia,
Giant recruited bicycle suppliers in
Taiwan to found an industrial alliance
called the A-team, to create bicycles with
high additional value.
It avoided cost competition with new markets,
developed industrial alliances, upgraded the overall
bicycle industry in Taiwan, and created the market for
high-value bicycles.
2002
Sponsored professional bicycle teams in
Europe.
By implementing sports marketing, and through the
feedback from professional bicycle riders, it enhanced
its techniques.
2004
German T-Mobile won the grand
championship of the Tour de France
riding a carbon fiber bicycle produced by
Giant.
2006
Formed a brand reconstruction team and
invited Interbrand to be the consultant.
By cooperating with the consulting companies of
foreign brands, it reconstructed the brand thinking of
international market.
2007
King Liu, the founder and president of
Giant, toured Taiwan by bicycle at the
age of 73.
It created the biking culture.
2008
Founded the first female bicycle store in
the world.
It enhanced the segmentation of different markets.
2009 Expanded to bicycle travel. Diversified operations
2011
Held “Taiwan rolling forward,” an
activity marking the one hundredth
anniversary of Taiwan. More than
110,000 people across Taiwan rode
bicycles at the same time, breaking the
Guinness World Record.
In the Taiwan market, it enhanced biking culture. By
constructing bicycle-friendly environments and life
attitudes in Taiwan, it established a market with
national competitive advantages.
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LESSONS LEARNED FROM GIANT
1) For suppliers in newly industrialized countries, learning from international OEM alliances is an important
channel of corporate growth. However, the key for sustainable operations is the business owners’
continuous investment in R&D to enhance the core capacity. In the beginning, Giant was an OEM supplier
for Schwinn, and through this it learned the basic techniques to manufacture bicycles and obtained
important business revenues. However, OEM has both advantages and disadvantages. It helps the growth of
suppliers in newly industrialized countries. However, when foreign clients acquire other low-cost labor
sources and immediately withdraw their orders, OEMs will encounter significant operational crises. Giant
serves a great example. After it learned the basic knowledge of bicycles during the OEM process, it started
cooperating with external academic institutes and the Industrial Technology Research Institute to develop
carbon fiber bicycles, develop differentiated manufacturing techniques, and promote products with its own
brand. Because of its brand, Giant survived when Schwinn, which represented 75% of Giant’s business
revenue, changed its orders to China.
2) Small and medium enterprises should be actively internationalized to find the needs of consumers in
different areas, as the feedback of consumers in different markets can be used to enhance their techniques.
According to the author’s interview with Giant, sponsorship of international bicycle teams can not only
expose the brand but also be helpful to upgrade the company’s core technical capacity. In addition,
consumers in developed countries have different needs for bicycles, in comparison to Taiwanese
consumers. As regards to Giant, the riders’ continuous practicing and demands for functions were new
challenges for its R&D personnel. By satisfying the riders’ needs, Giant was able to upgrade its technical
capacity.
3) Since competitive advantage based on low cost usually does not last for long, industrial upgrading is the
solution for sustainability. Although Taiwan has been an important exporter of bicycles, at the end of the
1990’s it gradually lost its competitiveness due to low-price advantages in China and Southeast Asia.
Hence, Giant recruited component suppliers and its main rival Merida to form a bicycle industry alliance,
called the A-team. Through this alliance, the members of the alliance disclosed the important product
manufacturing techniques and upgraded the quality of MIT (made in Taiwan) bicycles. Therefore, MIT
bicycles can be segmented from bicycle markets in low-cost countries.
4) Many enterprises starting as OEMs tend to have manufacturing and cost-oriented thoughts. However, only
marketing and consumer oriented thoughts can lead to successful transformation of enterprises. Through
sports marketing, Giant considerably enhanced its brand reputation. For instance, it sponsored the German
T-Mobile teams which had several excellent performances in the Tour de France. When the riders won the
championship, their Giant bicycles became the company’s best marketing tool. Giant effectively changed
the bicycle environment in the market of its home country (Taiwan) and consumers’ concepts about
bicycle. After the founder accomplished a bicycle tour around Taiwan at the age of 73, consumers in
Taiwan not only treated bicycles as transportation and recreational tools, but also regarded them as the tool
to explore Taiwan and fulfill self-realization. The brand value of Giant was thus enhanced. In addition,
Giant developed the first bicycle store exclusively for female consumers. This business was expanded to
include bicycle travel. Giant also constructed planning and sponsorship for bicycle-friendly environments
in the cities of Taiwan. The marketing points were based on not only the functional appeal of the products,
but also the biking culture.
DISCUSSION QUESTIONS
Overall, Giant presents a successful business story.
1. Can Giant’s growth strategies apply to the bicycle industry of your country?
2. Can its growth strategies apply to other industries?
3. What do you think that how Giant can be stronger in the future?
Journal of Business Case Studies – Third Quarter 2014 Volume 10, Number 3
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AUTHOR INFORMATION
Wei-Li Wu is an Assistant Professor at the Department of International Business at Chien Hsin University of
Science and Technology. He received his PhD in International Business from the College of Management at
National Chi Nan University in Nantou, Taiwan. His research interests include knowledge management,
international business management, and organizational behavior. E-mail: wuweili0709@yahoo.com.tw
Yi-Chih Lee received her PhD in Business Administration from the Fu Jen Catholic University of Taipei, Taiwan.
Currently, she is an Assistant Professor at the Department of International Business in Chien Hsin University of
Science and Technology, Zhongli, Taiwan. Her research interests include health industry management, data mining,
and customer relationship management. E-mail: lyc6115@ms61.hinet.net (Corresponding author)
REFERENCES
1. Lin, C. Y. (2008). Legend of Giant: Global brand management of Giant. Taipei: Commonwealth
Publishing.
2. Giant bicycles website. Retrieved 12 January 2014 from http://www.giant-bicycles.com/en-us/
3. 2012 Giant Manufacturing annual report.
Journal of Business Case Studies – Third Quarter 2014 Volume 10, Number 3
Copyright by author(s); CC-BY 230 The Clute Institute
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