Tokyo/Osaka-Shimano’s showroom in the Osaka headquarters is the mecca of this technology, which has made the company a household name in cycling worldwide.
A bicycle weighing only 7 kg and equipped with high-spec components can be easily lifted with one hand. Shimano staff pointed to products such as the Dura-Ace series, which was developed for competitive road racing in 1973 and was re-displayed in this year’s Tour de France, which ended in Paris this weekend.
Just as Shimano’s components are designed as a kit, the showroom is connected to the frantic activity of the company’s factory not far away. There, hundreds of employees are working hard to make parts to meet the global demand in the unprecedented popularity of cycling.
Shimano has similar situations in 15 factories around the world. “There is currently no factory that is not fully operational,” said Taizo Shimano, the company’s president.
For Taizo Shimano, who was appointed as the sixth member of the family to lead the company this year, which coincides with the company’s 100th anniversary, this is a beneficial but stressful period.
Since the beginning of the coronavirus pandemic, Shimano’s sales and profits have been soaring because newcomers need two wheels-some people are looking for a simple way to exercise during the lockdown, others prefer to ride to work by bicycle , Instead of bravely riding crowded public transportation.
Shimano’s 2020 net income is 63 billion yen (574 million U.S. dollars), an increase of 22.5% over the previous year. For the 2021 fiscal year, the company expects net income to jump to 79 billion yen again. Last year, its market value surpassed the Japanese automaker Nissan. It is now 2.5 trillion yen.
But the bicycle boom posed a challenge for Shimano: keeping up with the seemingly insatiable demand for its parts.
“We deeply apologize for [the lack of supply]… We are condemned by [the bicycle manufacturer],” Shimano Taizo said in a recent interview with Nikkei Asia. He said that demand is “explosive,” adding that he expects this trend to continue until at least next year.
The company is producing components at the fastest speed. Shimano said that this year’s production will increase by 50% over 2019.
It is investing 13 billion yen in domestic factories in Osaka and Yamaguchi prefectures to increase production capacity and improve efficiency. It is also expanding in Singapore, which is the company’s first overseas production base established nearly five years ago. The city-state invested 20 billion yen in a new plant that will produce bicycle transmissions and other parts. After construction was postponed due to COVID-19 restrictions, the plant was scheduled to start production at the end of 2022 and was originally scheduled to be completed in 2020.
Taizo Shimano said that he is not sure whether the demand caused by the pandemic will continue to rise beyond 2023. But in the medium and long term, he believes that due to the growing health awareness of the Asian middle class and the growing awareness of global environmental protection, the bicycle industry will occupy a place. “More and more people are concerned about [their] health,” he said.
It also seems certain that Shimano will not face the challenge of challenging its title as the world’s top bicycle parts supplier in the short term, although it must now prove that it can capture the next booming market segment: lightweight-powered electric Bicycle battery.
Shimano was founded in 1921 by Shimano Masaburo in Sakai City (known as the “Iron City”) near Osaka as an iron factory. One year after its establishment, Shimano began to manufacture bicycle flywheels-the ratchet mechanism in the rear hub that made sliding possible.
One of the keys to the company’s success is its cold forging technology, which involves pressing and forming metal at room temperature. It is complex and requires high technology, but it can also be precision processed.
Shimano quickly became Japan’s leading manufacturer, and from the 1960s, under the leadership of its fourth president, Yoshizo Shimano, began to win overseas customers. Yoshizo, who passed away last year, served as the head of the company’s US and European operations, helping the Japanese company enter the market previously dominated by European manufacturers. Europe is now Shimano’s largest market, accounting for about 40% of its sales. Overall, 88% of Shimano’s sales last year came from regions outside of Japan.
Shimano invented the concept of “system components”, which is a set of bicycle parts such as gear levers and brakes. This strengthened Shimano’s global brand influence, earning it the nickname “Intel of Bicycle Parts”. Shimano currently has approximately 80% of the global market share in bicycle transmission systems: in this year’s Tour de France, 17 of the 23 participating teams used Shimano parts.
Under the leadership of Yozo Shimano, who took over as president in 2001 and is now the company’s chairman, the company expanded globally and opened branches in Asia. The appointment of Taizo Shimano, Yoshizo’s nephew and Yozo’s cousin, marks the next stage of the company’s development.
As the company’s recent sales and profit data indicate, in some ways, now is the ideal time for Taizo to lead Shimano. Before joining the family business, he was educated in the United States and worked in a bicycle shop in Germany.
But the company’s recent outstanding performance has set high standards. Meeting rising investor expectations will be a challenge. “There are risk factors because the demand for bicycles after the pandemic is uncertain,” said Satoshi Sakae, an analyst at Daiwa Securities. Another analyst, who asked not to be named, said that Shimano “attributes most of the stock price increase in 2020 to his former president Yozo.”
In an interview with Nikkei Shimbun, Shimano Taizo proposed two major growth areas. “Asia has two huge markets, China and India,” he said. He added that the company will continue to focus on the Southeast Asian market, where cycling is beginning to be seen as a leisure activity, not just a means of transportation.
According to data from Euromonitor International, China’s bicycle market is expected to reach US$16 billion by 2025, an increase of 51.4% over 2020, while the Indian bicycle market is expected to grow by 48% over the same period to reach US$1.42 billion.
Justinas Liuima, a senior consultant at Euromonitor International, said: “Urbanization, increased health awareness, investment in bicycle infrastructure and changes in commuting patterns after the pandemic are expected to boost demand for bicycles in [Asia].” FY 2020, Asia Contributed about 34% of Shimano’s total revenue.
In China, the earlier sports bike boom helped boost Shimano’s sales there, but it peaked in 2014. “Although it is still far from the peak, domestic consumption has risen again,” Taizo said. He predicts that the demand for high-end bicycles will return.
In India, Shimano established a sales and distribution subsidiary in Bangalore in 2016. Taizo said: “It still takes some time” to expand the market, which is small but has huge potential. “I often wonder whether India’s demand for bicycles will grow, but it is difficult,” he said. But he added that some people in the middle class in India ride bicycles early in the morning to avoid the heat.
Shimano’s new factory in Singapore will not only become a production center for the Asian market, but also a center for training employees and developing manufacturing technologies for China and Southeast Asia.
Expanding its influence in the field of electric bicycles is another important part of Shimano’s growth plan. Daiwa analyst Sakae said that electric bicycles account for about 10% of Shimano’s revenue, but the company lags behind competitors such as Bosch, a German company known for its auto parts, which has a strong performance in Europe.
Electric bicycles pose a challenge to traditional bicycle component manufacturers like Shimano because it must overcome new technical obstacles, such as switching from a mechanical transmission system to an electronic transmission system. These parts must also mesh well with the battery and motor.
Shimano also faces fierce competition from new players. Having worked in the industry for more than 30 years, Shimano is well aware of the difficulties. “When it comes to electric bicycles, there are many players in the automotive industry,” he said. “[The automotive industry] thinks about scale and other concepts in a completely different way from ours.”
Bosch launched its electric bicycle system in 2009 and now provides parts for more than 70 bicycle brands around the world. In 2017, the German manufacturer even entered Shimano’s home field and entered the Japanese market.
Euromonitor’s consultant Liuima said: “Companies such as Bosch have experience in manufacturing electric motors and have a global supply chain that can successfully compete with mature bicycle component suppliers in the electric bicycle market.”
“I think electric bicycles will become part of [social] infrastructure,” Taizang said. The company believes that with the increasing global attention to the environment, electric pedal power will become a common means of transportation. It predicts that once the market gains momentum, it will spread quickly and steadily.