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CNBC Transcript: Joshua Hon, Team Captain, Tern Bicycles

Below is the transcript of a CNBC interview with Joshua Hon, Team Captain, Tern Bicycles. The interview played out in CNBC's latest episode of Managing Asia on 12 June 2020, 5.30PM SG/HK (in APAC).  If you choose to use anything, please attribute to CNBC and Christine Tan.

Christine Tan (CT): Josh, as countries undergo lockdowns, how does it feel to you as a bike manufacturer? Are people cycling more than before?

Joshua Hon (JH): We feel incredibly lucky and fortunate to be in mobility, transportation and bicycles. What's happening out there in cities across the world, whether it's Paris, it's New York, it's Berlin, one of the thoughts is that, hey, wow, traffic has gone down, it's a lot easier to move around the cities. The air quality is better. So, there's this thought out there - we should rebuild better, coming out of coronavirus. Wouldn't it be great to have more livable cities? So, what we see in cities around the world is that people are turning to bicycles for transportation.

CT: As the founder of your own bike company in Taiwan, Tern, are you experiencing a boom in sales as a result?

JH: Kind of, yes. We definitely have customers coming back to us and saying, okay, those bikes that we told you to delay a month ago, now I need to move forward. We have quite a few customers, Singapore included, that are saying, hey, you have extra bikes, we need extra bikes. So, we are seeing a boom in many, many countries.

CT: Where is the demand coming from for your bikes?

JH: It's pretty broad based. Whether it's the U.S., Germany, the U.K., France, Korea, Taiwan, Singapore, all of these markets are doing well. It's exciting to see. We do lots of different types of bicycles. We focus on urban. We do folding. We do electric. We do cargo. So, we're seeing a demand for all of these types of bikes, which is exciting to see.

CT: We've seen the pandemic and seen its disruption on supply chains in general across the world. As a bike manufacturer, are you able to get the components, the parts that you need to assemble your bikes?

JH: Supply chain has been an issue. We have all sorts of disruptions. So, you have Trump duties which has caused a very large shift in manufacturing from China to other Southeast Asian countries. You have the coronavirus. Most of the parts that we use - and there are many - are coming out of China. If you're missing one part out of 30, you can't make your bike. So, it has been challenging. We happen to be very fortunate in that we work with four different factories located in different countries and they're all very good at what they do. So, we have been impacted, but we've been lucky. There are other companies facing much larger issues because maybe all of their sourcing is at one factory, and one key component can't be produced. So, we're a bit slower, but not too bad.

CT: So, you have enough supply to meet the growing demand? You have the inventory?

JH: We're making as we go, right. So, so bike companies don't typically hold a lot of inventory. You have a plan for the next six to 12 months, and then you build bikes according to that plan. When coronavirus hit, everybody said, hey, delay shipments for a little bit. Don't ship them right now. Now, most of the customers are saying, no, move them up, we need them faster. We do what we can. It's challenging. If we could ship faster, our customers want them. But the bike industry has a pretty long supply chain, so you can't make sudden shifts too quickly.

CT: As a bike manufacturer in Taiwan, you jumped at the opportunity to design a product that actually helped healthcare workers in the front line. Tell us more about this aerosol box that you've developed. How did the idea come about?

JH: The aerosol box was invented by a Taiwan doctor and he was hearing about shortages of PPE, especially in the United States. So, he invented this acrylic box, which basically encases the patient's head. There are two holes so that you can put your arms in as you intubate the patient. If they cough or sneeze, you're shielded. I thought that just was a great representation of Taiwan's ingenuity. It's not complicated. It's very simple, but it does a very specific job and it does it pretty well. This doctor open-sourced the design, So, this was something that we thought, hey, if we just jump in, get a few friends, most of the money is coming from Tern, we can make a small difference.

CT: Despite not having a total lockdown, Taiwan has reported one of the lowest COVID-19 cases in the world, with only about seven deaths. From where you sit in Taipei, what do you think the government is doing right?

JH: That's a loaded question. I think it starts with having a government that believes in science. The Vice President is an epidemiologist who took charge of the SARS response years ago. So, having a government that says, hey, this is something serious and also having a population that understands the risk. So, Taiwan went through SARS. So, the Asian countries went through SARS. So, that's why I think the response of the populace has been better. When people say, hey, you should wear masks. People in Asia tend to say, okay, that makes sense. We understand, it's for our own safety. It's for our own good. It's not, hey, you're infringing on my personal freedom. So, wearing a mask has become this huge political issue, whereas in Asia, people just understand that, hey, look, isn't it better to live in a society? So, it's a slight inconvenience to have a mask, but there's no lockdown. I want to point out that Taiwan has 400,000 people working in China. So, Chinese New Year, early February, most of these 400,000 people came back to the country. I thought we were going to get hit a lot harder than any other country with all these people coming back. But, hey, there was temperature screening at the airport and there was tracking. So, the Taiwan government in terms of what they've done with technology and the cooperation from the populace, this is the result that you get.

CT: As a bike company in Taiwan with a global business, what's your sense of when a recovery could take place?

JH: All of us in this industry are positioned pretty well. I think there is a cultural shift in how people think about bicycles as transportation. In terms of global economics, wow, you know, as an investor, I see, unfortunately, a fair bit of pain ahead. I don't see a quick bounce back. For some reason, the U.S. stock market seems disconnected from what's happening in real life. So, every day I look at the market and I think, do investors not understand how many companies are going to go out of business and how many jobs will be lost and how much consumer spending will be affected? It doesn't seem connected right now. The U.S. economy runs on consumer spending. So, if 20-25 percent of the people are out of work, that will be affected. If I were to put money, I would say that it's a bit more… slow.

CT: As the founder of your own bike brand, Tern in Taiwan, you spent the last 10 years really building up the company, your foldable bikes, your e-bikes are now being sold in 65 countries. What are your plans to ride out the pandemic? No pun intended there. Are you watching your cash flow carefully?

JH: We fortunately don't need to ride it out because, in fact, we expect to be coming out of this stronger. I'll give an example. London - I think they have something like eight million riders per day on the tube. Now with social distancing, they are saying, hey, we can only service two million people, that means there will be six million people per day that need to find other ways to get to work. Maybe out of those six, three million are working from home. But you still have three million left. So, the U.K. has announced they're investing £2 billion into promoting or incentivizing cycling and walking. So, what does that mean? It means they just announced £50 for every person bringing their bike into a bike shop to get it repaired. So, any person who wants to get their bike fixed, £50. They are putting money into building new cycleways. So, there are all these different ways that they can put £2 billion to use, but they're doing it. This is happening in countries around the world, in New York as well. They're putting in more cycle paths. So, we're very encouraged that we're in one of the few industries where we expect to come out quite a bit stronger than when we went in.

CT: So, do you see it as a big opportunity to expand and grow your business further then?

JH: Yes. I'm a Stanford guy. So, there have been many friends and classmates who do the Silicon Valley route which is, you know, you grow big and you grow fast. We've always taken the contrarian approach, which is grow slow, grow steady, try not to lose money, try to make money. So, that's what we will continue to try and do. But we want to be steady and have enough cash around that when bad times hit, you can ride it out. Coming out of the pandemic, we'll be a much stronger industry than going in.

CT: Finally, what sort of leadership, Josh, will you provide to Tern and your employees, to steer the business during this crisis?

JH: Our philosophy at Tern for management is let everybody be a leader. So, everything that we do including our incentive systems, bonuses, profit sharing, is designed so that everybody is a "lao ban". "Lao ban" means boss. That's a Chinese word for boss. Because when everybody is a "lao ban", they are watching costs. They are watching each other. They are watching themselves because in the end, when the company makes money, they get a share of that. That's why my title is Team Captain. As a team captain of a team, you're not the only player. You have to lead by example. You have to say, hey, this is our goal. But you have to empower everybody to help you reach the goal.

CT: Finally, before I let you go, Josh, I see there's a bike wheel behind you. Is that a new model you're working on that you're not telling us about just yet?

JH: Uh… maybe. (Laughs)

CT: When are you going to launch it?

JH: Soon, soon. Something soon.

CT: Thank you, Josh, for talking to me. Please stay safe and well.

JH: Thank you, Christine.

END

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