M&A Analysis and Research on Electric Bicycle Industry of P.R.C 2007

Abstract:

1. The status quo and background for M&A in China’s electric bicycle industry

China has become the biggest producer of bicycle and electric bicycle, and export base on world stage from 1998. According to statistics from China Bicycle Association, there have been 620 manufacturers for bicycle and electric bicycle combined, the number being 426 in bicycle production alone by 2005 increasing 39.7% by 2005 and 418 in electric bicycle up 46.2%.
By looking at production bases, manufacturers in Tianjin has reached to 204, 128 in Guangdong Province with Yangtse River Delta in 2005. Zhejiang Province enjoys majority of bicycle manufacturers, which is 139 and 120 in Tianjin as second place.

Output of bicycle and electric bicycle in 2005 Unit: Ten Thousand

Source: China Bicycle Association
Nearly half of the output of electric bicycle comes from Eastern region and there is a trend for production base shifting to this area. We found that fast development of electric bicycle production in Shanghai and Suzhou with high price for per unit thanks to up-stream and down-stream part manufacturers concentrated in Yangtse River Delta .

Change of output of China's electric bicycle from 1998 to 2005 Unit: 10thousand

Forecast on China 's electric bicycle market from 2004 to 2010 Unit: 10thousand

2. Motives of M&A in China's electric bicycle industry

At present, manufacturer of electric bicycle, storage battery and other related products has been at 120 reaching out 15 Provinces and Municipalities. PowreSmart has taken lead in staking out market. For the threshold to market is low, the pandemonium has been showed up. Number as followed:
A. There is vast territory offered to electric bicycle market and charmed number of multi-nationals especially staying at motor vehicle and home appliance. They have galvanized human and financial resources into R&D of electric bicycle and been capable of dabbling at this market to engage on M&A in timely manner.
B. The brand competition faced both manufacturer and dealer is fierce though electric bicycle market has been expanding. As value of brand have been highlighted, big companies with their capacity will take over less prestigious brands that has been in dire strait.

3. M&A trend in China’s electric bicycle industry

The production of light electric vehicles has been growing at 80% in recent years. The household of light electric vehicles exceeded 20 million. Fast growth, ferocious competition and policy0oriented market in this sector can be seen years to come.
More than several hundreds of brands and thousands of models in electric bicycle on the market due to low threshold. However, lack of innovation has pushed market into price war earlier than anticipated and many companies went bankruptcy. So far, the companies endowed with capacity of R&D and have laudable production scale are less than 100. Therefore, it's high time to have M&A sweeping through this market.
A. Joint efforts by big companies. Consolidation among strong firms can mobilize advantage in R&D, talents and capital cross the same sector so as to integrate resources, combine Complementary strengths and move to scale economy in terms of marketing, designing, R&D and sales. Moreover, it will help recalibrate marketing techniques and policies and sharpen the edge to compete for more shares since cost has been dramatically trimmed with merger. With market home and broad became pinch, M&A in central air conditioning industry is rebound.
B. Joint-venture. The advantage in capital, technology, brand and management brought by foreign companies is valuable to Chinese counterparts that are willing to boost their competitiveness and emerge as international brand.
C. M&A among companies will move into the next stage while trans-industrial and up-stream towards down-stream integration can not be ruled out.
With years of competition, the gap between big companies and small ones will be closed as what has been described in Matthew Effect. As to forerun over its rivalries, electric bicycle company should identify the right direction of development while stir up over all capacity, highlighting corporate know-how and core competitiveness.