BicycleIndustry Forces

Threat of new entrants

NEW ENTRANTS

SUPPLIERS BUYERS

SUBSTITUTES

Threat of Substitutes

Bargaining power of buyersBargaining power of suppliers COMPETITIVE RIVALRY

ENTRY BARRIERS RIVALRY DETERMINANTS

DETERMINANTS OF SUBSTITUTION THREAT

DETERMINANTS OF SUPPLIER POWER DETERMINANTS OF BUYER POWER

Barriers to new bike sellers are reasonably low as capital costs are not very high, to generate significant sales, a network of global outlets would be required.

Brand identity and awareness would make it more difficult for new entrants to the market. However an established brand name in another arena with a significant marketing budget could extend their brand to bikes. It could be argued however that unless they were to produce their own bike from scratch themselves, existing players in the market might benefit.

+ High-end bike manufacturers are reliant on a number of suppliers e.g. mechanical components, other industry parts, non-moving industry parts.Component manufacturers can control manufacturing times/outputs.

+ Brand names such as Shimano are important as consumers ask for them by name and this gives them a level of leverage. Shimano also produces the best quality component which also adds to their power.

- It would not cost the buyer much to switch from one supplier to another. As there is standardisation of parts, buyers can to some degree pick & choose suppliers of parts. In addition, frame manufacturers already produce their own components.

There are quite a few competitors in an industry that is not growing very quickly. This means that competition could become more intense with frame manufacturers possible bringing everything in house. The high fixed costs involved in producing bikes and their parts will also add to rivalry intensity.

The industry is not totally commoditised and so differentiation depending on the parts used. Branding could be utilised more in influencing customer decisions.

The high cost of exiting the market adds to the rivalry – most of the brands in this industry are global therefore exiting the industry would be expensive.

The threat of alternatives is high. There are a number of different modes of transport or recreational activities that customers can choose. Many of which are cheap or even free. However with specialist high-end racing bikes, there are no real threats of substitution – these are the bikes that required for the role of professional racing.

+ The bike industry is very , very consumer demand driven and consumers therefore have a lot of power even though each individual does not buy a significant number of bikes.

+ The retailer has become more powerful . Orders to manufacturers are beginning to be based on more favourable margins.

- Denotes reduces power + Denotes adds to power Appendix 1Porter 1980

ComponentIndustry Forces

Threat of new entrants

NEW ENTRANTS

SUPPLIERS BUYERS

SUBSTITUTES

Threat of Substitutes

Bargaining power of buyersBargaining power of suppliersCOMPETITIVE

RIVALRY

ENTRY BARRIERS RIVALRY DETERMINANTS

DETERMINANTS OF SUBSTITUTION THREAT

DETERMINANTS OF SUPPLIER POWER DETERMINANTS OF BUYER POWER

Barriers to new high-end components makers are reasonably high as capital costs would be significant. In addition to bike component manufacturers, frame manufacturers are also able to produce bike components albeit not as good as the specialists.

Brand identity and recognition makes it more difficult for new entries.

The cost of entering the components market would not be significant for a company already producing similar products.

Unknown.

The industry as a whole is not growing rapidly. This means that competition between components makers could become more intense. As retailers push for lower prices from manufacturers, manufacturers in turn are likely to pressure their suppliers (component makers) for lower prices – perhaps forcing component makers to compete more heavily on price.

Components-to-manufacturer is an issue. Competing on speed will become a major supply factor and in turn an area of increased competition. In addition, the high cost of exiting the market and high fixed costs of a component maker will add to rivalry.

The threat of alternatives is fairly high. Frame manufacturers could invest in their own components. Cannondale now owned by a private equity firm could decide to produce its own components. There is also no reason why other big name players in the market such as Other Industries’ Parts and Non-moving Components manufacturers could not diversify and begin to produce high-end components.

- Buyers of Shimano products could be considered to be in a fairly weak position as Shimano is requested by name and they are unable to match Shimano quality when they produce their own components.

- Component manufacturers provide a critical part of the bicycle.

+ More manufacturers could integrate backwards.

- The entire bike industry is very consumer demand driven, the end user therefore has a lot of indirect power over the components industry.

- Denotes reduces power + Denotes adds to power Appendix 2Porter 1980

Societal

•The bike industry is subject to changes in consumer shifts and trends e.g. the interest in the Tour de France and triathlons. Both initiating and spotting trends early is key to Shimano.

•Green issues are on the increase within society. This covers a vast number of areas including recycling, regeneration, reducing the carbon footprint and using renewable energy sources. This may naturally lead to an increase in those wishing to purchase bikes. There may also be a trend that sees consumers call for ‘greener’ produced bikes possibly made from recycled or renewable sources and bikes that can also be recycled. Shimano produces bike components that are made from aluminium and titanium, both of which are far easier to recycle and more durable than carbon-fibre. Promoting these recyclable features should be a key part of the Shimano’s communications plan. This eco-trend may also drive an increase in bike sales.

•With fewer people having children compared to the earlier decades of the last century, there is an ageing population. As subsequent generations get older they may also like a more comfortable bike and this is perhaps a market that Shimano should develop products for.

•A growing number of consumers appear to prefer hybrid bikes (road and mountain bike characteristics), probably for both work and recreational use. However the “material of choice” is carbon-fibre whereas Shimano produces components that are aluminium or titanium. Creating lighter components with aluminium and titanium with better shock absorbing abilities could make these consumers bikes more durable and better for the environment.

•Obesity is a serious problem and a growing concern. Cycling is seen as a good form of aerobic exercise – less harsh on the body than running and more convenient than swimming. With obesity growing, Shimano could continue to capitalise on and push the health aspect of cycling. In addition, creating components that can withstand heavier riders is something else to consider.

•Growing levels of traffic are an issue. In London, commuters are often encouraged to cycle. This again could result in an increase in the bike market particularly in Europe, Shimano’s biggest customers.

Legal & Regulatory

•There have been and there is likely to be a number of legislative changes regarding the effects of carbon emissions on the environment. This will affect the use of cars which may in turn increase greener methods of travel such as cycling. Naturally this would be of significant benefit to Shimano as this implication has the potential to grow the market.

•Group pricing policies have ceased. It is uncertain whether this is for legal or regulatory reasons. Whichever it is, Shimano will not be able to use an exclusive pricing policy as a method to increase sales of their grouped components. Offering bulk sales discounts is an option for Shimano to offer instead.

Shimano SLEPT Analysis

Appendix 3a

Economic•The industry is subject to price fluctuations of raw materials and metals such as carbon, alloy, aluminium, rubber, titanium and steel. Obtaining these metals from recycled sources would be good for the environment, may help with forward planning as recycled metal prices are more reliable that raw metals this would also be good for Shimano’s corporate social responsibility agenda and in line with their mission.

•The bike industry is heavily affected by changes in other commodities such as oil/gasoline prices. Gasoline price increases pushed bike sales as demonstrated in the 1980s. Following gas prices will help Shimano with their financial forward planning and should be considered when producing their communications plans i.e. advertising or promotional campaigns when gas prices are about to go up. This will grow the market as a whole which as Porter notes: protecting the market is a typical act of the market leader.

•Recessions and downturns could also have an impact on sales. When times are hard people cut down on the use of their cars. Shimano needs to observe financial trends in order to spot times when manufacturers are likely to need components more readily or the opposite: when cash flow is tight and they may need volume discounts.

•Factories in China are a major threat to Shimano. The quality of Chinese products is increasing. China is also a BRIC, an emerging, fast developing economy. Chinese factories could become a serious threat to Shimano eroding its market share.

•The volatility of the US dollar in Asian markets where Shimano has factories is something to watch as well.

Political•Lots of quality production is taking place in China. China is an emerging economy and will be one of the most populated and powerful countries in the world. Competing with China will be fierce. Shimano will need to maintain high levels of quality and increase production levels to reduce lead times.

•Meetings such as the G8 Summit on climate change may result in worldwide agreements and laws on reducing harmful emissions. Again, this may also increase greener modes of transport such as cycling.

Technological

•The bike industry technologically driven. An emerging submarket is electric bikes. This may require changes to assembly and production lines of players in the bike industry.

• Retailer IT issues.

Shimano SLEPT Analysis Contd.

Appendix 3b

Bicycle Life Cycles

Time

Mature road bike industry and the majority of Shimano’s revenue streams.

Sale

s

Introduction Growth Maturity Decline

Electric bike market which Shimano currently has no involvement with.

Hybrid bike market which prefers carbon fibre components which Shimano does not currently manufacture. A small percentage of Shimano’s income is from the mid-market where hybrid bikes are found.

Appendix 4

Shimano Boston Consulting Group Matrix Analysis

Stars Question Marks

Cash Cows Dogs

Unknown. Shimano fishing tackle components accounts for 25% of their sales and is rising.

Unknown.Shimano bike components accounts for over 70% of their income.

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Appendix 5

Relative Position

Gro

wth

Rat

e

High Low

Hig

hLo

w

Shimano Value Chain Analysis

SUPPLYE.g. of raw materials such as plastics, aluminium, titanium, nuts, bolts, screws

Questions/Suggestions

Could the materials purchase function be done externally by a larger metal purchasing company? Are there cheaper suppliers? Can other materials be used such as carbon-based for lighter components. Where are these materials being stored? Is a just in time ordering system being implemented with suppliers? This may reduce costs related to process refinement assuming the process refinement department is linked to the supply of raw materials such as titanium.

DESIGNE.g. the designing of components and tackle.

A core part of Shimano is the design of its products and how they work with other parts of the bike and fishing equipment. The Shimano product range is extensive. In order to increase efficiencies, it may be beneficial for the design team to simplify the design of the components so that there are fewer products in the Shimano range. In addition, adapting the designs of current components for other different markets.

Questions/ Suggestions

RESEARCH AND DEVELOPMENT

E.g. the development of new products and innovations, consumer insight and research

Shimano is well-known for its innovation however it has been more than 10 years since its last major development. How can their R&D be more efficient and effective – a quarter of their staff are focused on this. Collaborating more with frame makers could give Shimano insight resulting in more innovations. How can Shimano make better use of info gathered by their staff from retailers and cyclists in order to produce better components before their competitors? How can they involve customers more in NPD? What are customer trends looking like? How can Shimano influence consumer trends rather than follow them?

Questions/Suggestions

PRODUCTIONE.g. the production of the various components.

Shimano’s cold forging of metal appears to be an essential part of their manufacturing process and a key strength. Expanded overseas production was a good move as this should help with delivery speeds. Can carbon components be produced? What other small precision components in line with Shimano’s culture can cost effectively be made?

Questions/Suggestions

Appendix 6a

Shimano Value Chain Analysis Contd

DISTRIBUTIONE.g. the distribution of components to various markets

The biggest issue for manufacturers dealing with components suppliers is the speed of delivery. Shimano should create a just in time ordering system with its customers. In addition, components distribution could be outsourced to a company that is able to store components cost effectively and distribute quickly. Efficient distribution could potentially grow Shimano’s customer base and add value to the customer offering.

Questions/ Suggestions

AFTER SALES CAREE.g. the making of the various components.

What efforts are being made to ensure that customers are happy with Shimano’s products? Shimano needs to create points of difference. Having after sales care could elevate Shimano. Core customers such as frame manufacturers should have dedicated account managers looking after them so that Shimano can build a stronger relationship . This function could be kept with the sales and marketing team.

Questions/ Suggestions

SALES & MARKETING

E.g. the selling and marketing of Shimano’s products and gathering of market research

Shimano appears to lack any real relationship with its customers with no loyalty scheme in place with manufacturers or communication to the end-user. Can Shimano offer its customers volume discounts to increase loyalty? Can Shimano invest more in brand building marketing, making use of celebrities to engage the end user? Negotiate merchandising deals with retailers for better presence in stores? There appears to be no overall global strategy. Sales of Shimano products could be outsourced or given to sales houses for a commission on units sold. Sales are not core to Shimano’s offering and does not add value and so can be outsourced or deemphasized. Linking the marketing team more with the after sales care and the design teams could provide customers with a more rounded service.

Questions/ Suggestions

Value Chain Summary: Shimano currently adds value in its design of products and engineering. Ancillary tasks not crucial to the Shimano offering such as process refinement and distribution can be outsourced. The sales and after sales care function needs to be increased so that a better relationship can be gained with customers. A tailored approach to customer care could add to Shimano’s bottom line.

Appendix 6b

Shimano SWOT Analysis

STRENGTHS WEAKNESSES•Financially well-resourced, market leader with 80% of high end market

•Exceptional cold forging abilities suitable for mass production of small parts

•Strong design team helping Shimano to be given the tag "Intel of the bike business” ; technical lock-in and seen as the industry’s components standardiser and brand leader

•Innovator and first mover mentality, seen as having “product quality and technological superiority” and breakthrough products

•‘Independent’ in that – no single manufacturer accounted for more than 10% of Shimano’s sales

•Staff resources: strong internal communications particularly between the production and marketing teams

•A company focus on R&D with one quarter of its workforce in research and development.

• A significant percentage of Shimano’s revenue is from one area: the high-end bicycle market

•Long lead times to Europe and the US

•Resentment from some industry players due to Shimano’s technical lock-in and pricing policy (lack of sales discounts)

•Too many products (more than double its competitors) possibly hampering production lead times and no recent innovations.

•There is no customer/end-user focus and commitment, no real marketing strategy in place.

•Not a new brand and therefore could lose out to a fresher, younger brand, no new products planned.

•Significant overheads including its 5,400 staff

Appendix 7

OPPORTUNITIES THREATS

• Making carbon-based components for mid-class and hybrid bikes

•Working with manufacturers to produce electric bikes

•Producing recycled components or recycled concept bike

• Creating special bike components that help the overweight to exercise more easily

• Easier bike component gears for aging cyclists

• Competitors delivering the same quality product faster than Shimano

• Vulnerable to competitor action from market challenger SRAM

•Retailers chasing savings and lower costs of goods could impact on Shimano’s pricing strategy

• Lance Armstrong switching to another drivetrain is a threat.

• Manufacturers could produce own-label bikes with good components suitable for mid-class bike consumers eroding Shimano’s income from the market

• Bike market going into decline

Shimano Product-Market Growth Analysis

EXISTING PRODUCTS

NEW

MA

RK

ETS

EXIS

TIN

G M

AR

KET

S

NEW PRODUCTS

MARKET PENETRATION PRODUCT DEVELOPMENT

MARKET DEVELOPMENT RELATED DIVERSIFICATION

- Shimano cannot gain much more of the high-end bike market however they can grow their mid-market component market by selling more components to existing customers. This is the safest method of growth. Their focus should be on increasing sales in their weaker markets such as Asia through extensive marketing, volume discounts, and/or loyalty schemes.

- In addition, penetrating the fishing tackle market further is another strategic option.

- Produce new components for electric bikes. This market may take off.

-Produce carbon fibre components for existing markets . These could be produced for all bike markets e.g. high-end, mid-class and hybrid bikes.

- Produce non-moving components and merchandise. Shimano is a well-known brand name. Applying the brand name to non-moving components could provide an additional revenue stream.

- As Shimano has excellent cold forging capabilities , creating different components for different markets is a high risk but worthy strategy. It is similar to their move into the fishing tackle market. A specific focus on popular consumer sports that have a ‘man against the elements’ theme where trust in equipment is essential could be taken. Sample sports equipment include rock climbing ratchets, skis and yachting reels. This would also fit with their mission statement.

- Shimano could supply its existing components (where suitable) for the electric bike market. For new components for the electric bike see Product Development.

- As bike components are quite specific, it is unknown whether there are other uses for it. However usage could be increased if the components were able to be adapted easily.

UNRELATED DIVERSIFICATION- A range of high performance cycling clothes: Shimano Gear - a strategic option similar to that taken by Caterpillar, makers of quality construction equipment and boots could add to Shimano’s revenues.

Appendix 8