How difficult is it for the production line to move out of mainland China? Look at this bicycle company

category:Finance
 How difficult is it for the production line to move out of mainland China? Look at this bicycle company


Picture from Reuters

It took Mehdi Farsi several months to find another factory in Asia willing to work with his Arizona company when he decided to move statecycles fixed gear city bike manufacturing business out of mainland China to avoid US tariffs, Reuters reported on January 14.

In 2009, Farsi started the company in partnership with others. He first turned his attention to Taiwan, but soon found that most of the factories were already busy with their competitors businesses and rejected his orders of less volume and less profit.

After months of research and several visits, a small Taiwanese factory agreed to produce bicycles for Farsi. But he had to double the order and pay 30% of the cost of the goods in advance. Unlike in mainland China, its cod.

The new terms froze his working capital of up to $1 million and set new requirements for credit lines. After a years rush, statecycle has found a way to transfer the production business of two of the five models sold in the United States.

It took me a lot of time and resources, Farsi complained

The head of the Taiwan Cycling Association admitted that local manufacturers were hesitant to expand their production lines because they were worried that orders would be reduced after the trade dispute ended, trumps volatility

In addition, for bicycle companies, the trump government has imposed tariff exemptions on some imported products since September last year, but only for one year. Ideally for the trump administration, companies would be able to move production to the United States during this period.

But the chief executive of pedego electric bikes, Calif., said the U.S. has higher labor costs and a lack of reliable supply bases, making it almost impossible to assemble bicycles in the United States.

He once examined the possibility of building a factory in the United States, but found that the cost of production would double or even exceed the tariff: even if they impose a 100% tariff on bicycles, Im not sure if this is enough for me to transfer production back to the United States.

Farsi said he had not considered moving production to the United States.

The alternatives they are looking for are often lack of infrastructure and capacity to undertake all enterprises looking for new production bases. That raises the cost of moving and finding new supply chains, so much so that some American companies say they are willing to take the toll.

In the 1970s, the United States was able to assemble more than 15 million bicycles a year. However, according to the industry data obtained by USTR in 2018, currently, less than 500000 bicycles are produced in the United States every year. According to us data, about 95% of the 17 million bicycles sold in 2018 were made in mainland China.

However, Farsi also revealed that the production cost of statecycle is higher than that of the mainland. It takes four months for the Taiwan factory to complete the order, and only two months for the mainland factory.

We have to build a supply chain [ourselves], which is probably the most frustrating part.

We have to build a supply chain [ourselves], which is probably the most frustrating part.

According to documents from the office of the U.S. trade representative, noble bikes in Washington state has suspended plans to launch new models due to a lack of different production options.

Its very difficult to leave China, says Alex logemann of people for bikes, an American Industry Association.