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Demand for New Materials Shifts Bicycle Manufacturing Overseas

Source: giant-bicycles.com

Call it re-inventing the frame — if not the wheel.

U.S. bicycle makers took a decidedly modern tact in moving to frames made of carbon fiber — the same super-lightweight material used in the manufacturing of Boeing’sDreamliner — but that also required a dramatic adjustment in sourcing and production.

Because the U.S. lacks major facilities for carbon fiber, production of high-end bike frames was moved overseas.

“Except for niche brands, which account for only a few hundred bicycles a year, virtually all composite bikes are made in Asia,” says Andrew Juskaitis, global product marketing manager for Giant Bicycles. He cites labor costs, “which in America are simply too high,” as the reason for this change.

Carbon fiber is a process that requires a lot of work to be done by hand,” explains Juskaitis. “Not only is the raw material very expensive, but there is an immense amount of labor that goes into these frames.”

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“The shift really occurred around 2000,” Jay Townley, partner of the Gluskin Townley Group, a research firm that tracks the bicycle industry, tells CNBC.com. Townley says imports now account for more than 95 percent of all high-end bicycles.

According to marketing research firm NPD Group, cycling remains the biggest sporting goods market, accounting for 15 percent of all revenue. The global bicycle market is worth $61 billion, with 130 million bicycles sold last year. Less than one percent of all bikes, including the high-end, were produced in America.

“Putting together a 100 percent American-built built bike is virtually impossible today,” says Caley Fretz, tech editor for Velo magazine. He notes that many other bike components, such as inner tubes, have no American manufacturers.

Frames are just the latest part — as well as the largest part — of bicycles to be manufactured offshore. But American innovation is still very much a part of any bike stamped with the name of a U.S. company. “They still design everything here, just outsource the actual production,” says Fretz.

While Tennessee-based Litespeed still manufactures lower-tech frames at its Ooltewah, Tenn., facility, it has followed the industry trend to import its carbon fiber bike frames from Asia.

“All the major bike makers have added carbon fiber to their lines,” says Mac McEneaney, director of North American sales at American Bicycle Group, which owns the Litespeed and Quintana Roo brands.

“Litespeed [is] taking what [it knows] about design to carbon fiber. The conversation is now about the tube shapes, not the material.”

Trek Bicycle, the largest bicycle company in the United States, has also increased the amount of high-end bicycles it imports. Much of this is simply because of the demands by consumers.

Quick Change for Business - A CNBC Special Report
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“Waterloo [Wisconsin, home of Trek’s manufacturing facility] has had trouble keeping up with demand for our higher-end models,” says Eric Bjorling, a marketing executive for Trek Bicycle. In addition, he says, “Asian manufacturing has matured; it has become more and more possible to produce a quality frame abroad.”

Giant Manufacturing of Taiwan now holds the distinction of being the world’s largest bicycle manufacturer, supplying frames for many companies, as well as producing its own Giant Bicycle brand.

But Taiwan may not be the holder of that title for long, as Chinese manufacturers become adept at producing high-quality frames. With the signing of last year’s EconomicCooperation Framework Agreement, Taiwan is bringing its expertise to China to meet the ever-increasing demand for carbon fiber frames, while cutting costs to produce the bicycles. Bicycles of similar quality are coming from China, where the reduced costs could put more consumers on high-end bicycles.

That demand also shows no sign of slowing either, in part says Townley, because of the growing international middle class. And the acceptance of carbon fiber in bike racing circles has made it popular with bicycle enthusiasts.

“For years it was a struggle to get carbon fiber accepted,” says Townley, adding that it wasn’t even allowed in professional races until the mid-1990s. “The Dreamliner and [carbon fiber’s] use in other sporting goods changed everything. Now everyone in racing rides carbon fiber, and that in turn drives sales.”