Exploiting opportunities for bicycle export

Bicycles represent the single-largest export product in the country's engineering sector. It has a share of 7.5 per cent in the export of our engineering products. Bangladesh began export of bicycles in the mid-nineties. The volume has been growing gradually since then.
The bicycle exports from the country are concentrated in three key markets: the United Kingdom (64 per cent), Germany (14 per cent), and Belgium (9.0 per cent). A bustling industry manufacturing bicycles and their parts has emerged relatively recently in the country.
Ample investment opportunities have been created aiming to capture shares in the European Union (EU) market with the imposition of anti-dumping duties (AD) on Chinese exporters. The AD steps were imposed first in 1993: after continuous lobbying made by the European Bicycle Manufacturers Association, the EU imposed anti-dumping duties at 30.8 per cent on bicycles manufactured in China. This duty provided an opportunity for Bangladesh bicycle makers and new investors in other countries to enter the lucrative bicycle market of the EU (estimated at US$ 7 billion in 2011). Potential linkages with the economy are a remarkable factor in this sector, given the nature of the product as an assembly of a large number of components.
The bicycle manufacturing sector in Bangladesh is split into two distinct supply chains: (i) modern export-oriented manufacturers; and (ii) the small-scale cottage bicycle and bicycle parts industry catering exclusively to the local market. These two supply points operate independently with extremely limited interactions and linkages between the two owing to differences in market demands. There are no suppliers in Bangladesh that occupy the middle segment in the supply chain and consist of the manufacturers of 'specialised' parts and components. Local suppliers cannot produce parts and components of the quality required by export-oriented original equipment manufacturers (OEMs). Suppliers of bicycle parts and components in the country have traditionally been exclusively oriented towards the local market, where the scale of quality requirements and standards has been low. Local producers of parts and components have few incentives to make significant quality improvements in their products geared solely to export market demands.
There are incentives for small firms to enable them to become exclusively oriented towards the local market. Bangladesh has a cottage industry of small-scale bicycle assemblers, parts manufacturers, and retailers, dating from the 1970s. This cottage industry remains understudied, and statistical information is extremely limited. Nevertheless, the general picture shows that an estimated 1,500-2,000 people work in the Bangshal bicycle market in Dhaka and businesses directly related to the product's assembly, component manufacturing, and retailing. Firms are small (typically, up to 10 employees), have extremely old machinery (in many cases over 30 years old), and have limited capacity to graduate out of the low-quality segment of the market. Many small firms combine parts manufacturing with bicycle assembly and retailing of "complete knocked down" (CKD) and/or "semi knocked down" (SKD) kits imported from China and India. The incentives for the firms to focus on the domestic market comes from low tariffs on inputs and high tariffs on output (56 per cent), creating effective protection rates that come to average 219 per cent for the domestic market.
The share of labour costs in the production of a bicycle is quite low across all manufacturing stages in Bangladesh. The labour cost is about 10 per cent at the frame assembly stage, 13 per cent at wheel assembly stage, and 2.0 per cent at the final bicycle assembly stage. When all stages of production are included, direct labour costs associated with producing a bicycle in Bangladesh range from US$ 3.0-US$ 5.0 per bicycle, depending on capacity utilisation at any given time and on production location.
Bicycle manufacturing is a lucrative business in many countries even with relatively higher labour costs compared to Bangladesh. In China, for example, the average monthly payroll per employee in the transport equipment industry (including bicycles) is US$ 500. In Taiwan, the average monthly payroll in the industry is US$ 1,300. Notwithstanding these comparatively high labour costs, producers in these countries are market leaders in the global bicycle industry: China is the world leader in bicycle exports in general, and Taiwan is among the leaders in medium-to-high-end bicycles.
PROSPECTS FOR BICYCLE EXPORT: The lack of a local base of suppliers of quality parts and components has significant implications for bicycle manufacturing in the country. First, OEMs that do not have deep-enough pockets for investing in additional parts and components manufacturing must source the parts in foreign markets. Currently, two of the three Bangladeshi OEMs import parts worth 60-75 per cent of their 'ex-work' bicycles' export value. Interviews suggest that these producers will likely increase foreign content of parts and components in the future to the maximum allowed by EU rules of origin (RoO).
Second, OEMs that are strong financially, like Meghna, have made significant investments in parts and components manufacturing. For bicycles sold locally, Meghna's share of its own parts and components is estimated at 80 per cent, and for exported bicycles, up to 45 per cent. This probably limits the opportunities for independent suppliers of export-quality parts and component to come up. In modern bicycle production, scale economies and precision engineering are clearly important, and this has allowed China and even higher wage countries to remain competitive in different segments of the bicycle market. In Bangladesh, the modern export firms have been integrated vertically to partially cope with the absence of a modern parts supplying industry; but they rely on imports for the bulk of their parts' needs. This approach has meant that their export prices are 10-20 per cent higher than China's.
The third implication stemming from foreign sourcing of export-quality parts comes in the form of a negative impact on lead times. For example, Bangladesh exporters' lead times to the UK market are estimated to be 30-50 per cent longer compared to Chinese exporters'. It is estimated that the bulk of the lead time gap arises from the Bangladesh firms' need to source a large volume of parts and components from abroad, which can take up to a month after all the required paperwork and shipping. Chinese exporters can rely on a vast local supplier base that enables them to source parts and components within a few days.
Finally, Bangladesh OEMs' competitiveness across all stages of bicycle production often suffers from unnecessary bureaucratic formalities. Given the glimmer of prospects, we should seize the opportunity for bicycle export. If we can demonstrate impressive performance in the sector, it will surely add to our export earnings significantly.
The writer is Assistant Deputy Secretary, BKMEA.  rajon.itcitaly@gmail.com