‘People who make the Industry’ – a conversation with Jayu Yang

Part three of our ‘People who make the Industry’ series marks a step change for the feature – the first to appear online, as part of a steadily expanding digital-first content approach.

In this edition, we hear from someone with more than two decades of experience working in the Taiwan and China-based OEM manufacturing side of the industry.

Exiting the industry means Jayu Yang – who ran a global OEM business – is now able to share genuinely unique insight into how the industry behind the industry actually works: Something which naturally isn’t possible when you are in the thick of it and your clients are household names.

How did you get started in the cycling industry?

Well, okay, it’s very easy. You could say I was born into the business, into manufacturing and factories and exporting.

My grandad founded Kenda, and my dad worked with him. So that’s how my dad entered the bicycle industry. In the early 50s and 60s, there weren’t so many Taiwanese people who spoke English fluently.

Now, my father could speak English and Japanese fluently, so of course, he was key to Kenda since the beginning.

Since the start, Kenda has made a lot of bicycle tyres and inner tubes. My dad’s thinking was, ‘Okay, I would like to have my own trading company, and this can bring business to Kenda.’ From the trading company, he decided to jump into the bike assembly business – Kenstone – which he founded.

We are entrepreneurial by nature. My dad liked to open a lot of companies.

So, I actually have no choice (said jokingly, in a warm, positive way). After I graduated and completed my master’s, he asked me to go back to Kenstone.

That’s it. Nothing dramatic. It’s just like a family business. My dad and my mom asked me into the family business. I say okay, and that’s it.

At the time you join the business, what does the landscape look like?

When I entered the business in 2001, that was a time when a lot of Taiwanese companies were moving to China, and that was a time when China was rising to become “The Factory of the World”.

What is really interesting in these years’ experience – as my father is managing the China factory, I was managing the Taiwan factory. My task at the time was not to manage the company. My task was to close down the Taiwan factory.

What’s the most pronounced change you’ve seen in that time?

Let me open by saying that, historically, we, the OEM manufacturers, don’t talk openly – it’s the nature of the business – as we are our customers’ partners in manufacturing. Theirs is the name you know. We are trusted partners. Add to this the character of Taiwanese – that we always keep our mouths shut – and it’s clear this has been the way.

Today, what we are seeing is a shift in the cycling industry, and with it comes a different approach – Asian expertise speaking in public to a Western audience. Asian brands are also now making headlines in Western media.

A few examples for quick context here:

• Depending on your YouTube viewing, you’ll have seen Joe Whittingham, AKA China Cycling, introducing Chinese brands to a Western audience over the past 5 or 6 years.
• Outside of the online world, we’ve seen a change of ownership at Scott Sports, with Korean manufacturing business Youngone Corporation taking the reins.
• WheelTop – a Chinese OEM – becomes the new owner of Rotor
• In the past 12 months, a Chinese manufacturer – XDS Carbon Tech – has become a bike supplier and title sponsor of a World Tour team.

On the supplier side, OEM manufacturers, in some instances, are becoming a place where hard-earned expertise now sees brands being launched from.

How does this reshaping come about? What drove the OEM businesses into the spotlight?

Ok, well, we all experienced COVID, and I was working from both the brand side and the supply chain side – I definitely have seen things go wrong in our supply chains.

With the whole supply chain issue, even before COVID, there was Trump 1.0, and you can see the traditional geopolitical landscape was changing. COVID just sped everything up, and of course, now Trump 2.0 and trade tariffs just speed everything up even faster.

Now I feel like the supply chain topic can seem very boring, but it’s so, so important.

I wrote in the past that the cheap money time is over, and I do see the lack of supply chain efficiency partly from deeply ingrained legacy thinking and behaviour, including the ‘superstition’ from traditional product managers (PM), possibly the biggest threshold in our industry.

We also can’t talk about this without mentioning that the bike is probably not the best investment target, because the cash flow in this is very slow, because the inventory turnover rate was/is so low.

This picks up on a little bit of what the founder of Rivian, RJ Scaringe, talked about – costs being high and that being symptomatic of a very inefficient supply chain.

Exactly, and as the industry is currently structured, there is no quick or easy fix here.

Can you give us some idea of the customers you worked with?

My experience is actually pretty broad. I have experience working with mass market companies like Walmart, Pacific Cycle, Brunswick, and over time we gradually worked with higher-end brands like Norco, Colnago and Cervelo, YT Industry, Santa Cruz, BH, Bianchi … you know, the list goes on.

I think I’ve been pretty fortunate. I can see what is happening in the mass market side and also what is happening in the high-end bike market. The supply chains are totally different, despite the product still being ‘a bike’.

What can you tell us about the differences in the supply chain? How are the trade relationships behind the brands different, whether that’s manufacturing locations, or that’s processes for manufacturing?

There are a few different aspects we can discuss.

So let me just compare quickly the IBD, specialist brands, and the mass market brands.

First thing – in the bike industry, the parts brand name is very important. It almost leads the whole bicycle marketing and sales conversation, but that is not how things work in the mass market.

Your mass market brands are aimed at people, not cyclists – consumers who don’t typically care about
tech specs and branded parts. In the mass market, of course, you still need to maintain some measure of quality, however, they care more about pricing.

Here, the bike assembly factory has more freedom in choosing the supplier partners to work with when choosing the parts maker. We, the OEM factory, add major value for our partners in this way. Our industry relationships have substantial value.

Now, when you turn to IBD brands, this freedom is lost.

With IBD brands, we OEM are extremely limited. Bike brands will tell us what components, what specs. When you work on the higher-end brands, then you’re actually being held captive by the parts makers – as an assembler, you don’t really have a choice.

Unlike the auto industry, where car brands tell their key suppliers what, when, and for how much, the cycling industry bike brands are told what, when and how much by parts supplying brands.

Yes, exactly. I think that is also the biggest bottleneck for the outsiders who come into our industry. I
think they don’t get it.

As you know, I sold my company to an electronics company in 2019, and very quickly, we saw the
difference, even though it’s still Taiwanese-owned.

The business sectors have a very big difference in approach and attitude to managing the company and its supplier relationships. For them, an electronics company, like you say, is a brand telling the supplier what to do. They don’t understand that in the bike industry, it works the other way around, and there’s currently no way around that.

They tried treating bike industry suppliers the way they treated electronics industry suppliers – and quickly
realised the joke was on them.

Strong-arm approaches saw payment terms changed, and suppliers simply chuckle at the idea they’d be replaced, which makes sense when you know our industry has a small pool of essentials: SRAM and Shimano, for example. They were so frustrated because in the electronics business, nobody dared to speak this way to, or treat an electronics brand that way, but hey, this is the bike industry.

Do we think motor gearbox unit and belt drive – potentially the next evolution – will be driven by outsiders? If you’re a DJI or a ZF or someone like that, from outside of our space, they have every incentive to innovate, to disrupt.

Taking DJI as an example, they represent something very interesting. Their unicorn element isn’t being a globally dominant drone maker, although that certainly helps. It’s something that’s baked into the business. It’s Brand.

Actually, this would be my advice: If you want to come to the bike industry, learn from DJI, Bosch and Garmin. Start from the parts, not the complete bike.

Now that’s an interesting talking point. Could you expand on it?

Sure. I’m going to show my age here, but I’ll explain this by referencing another market and product, and the transformational impact a brand had on the entire sector.

Earlier, we talked about the auto industry and its supply chain. Now, let’s look at the consumer electronics industry – home PC in the mid to late 90s – and consider how brand value impacts the supply chain.

If you remember when desktop PC were going mainstream, and the internet was dial-up, so the mid/late 90’s, that time saw a supply chain very much like the bike industry.

Knowledgeable users would usually do their research. They’d look at what CPU – Intel inside, naturally enough – and at what the hard disk was best for them, who made the best tin box and what fan to fit, then what software.

We looked at specs, looked into the parts. It’s exactly like the bike industry. The interesting thing, when you look at the past 20 years; Who changed that?

Apple.

So Apple came out with their Mac, and that changed the whole supply chain direction. Nobody asked Apple what CPU they use. Nobody asked Apple what hard disk. Customers just looked at the Apple Mac and bought the brand, the look, the idea.

That’s how the whole supply chain changes. I don’t believe something will change so dramatically in the
bicycle industry.

What stops a component brand from radically altering the cycling supply chain?

One word: Scale.

I remember when the e-bikes came out. A very, very, big company CEO told me she was very excited about it because it was now time for a complete bike brand to change direction, and it’s time for them to tell the supplier what to do.

The company tried to having its own e-bike system… and now they are top 10 Bosch customers.

They give up.

They decide to follow the market trend.

Take the examples of VanMoof and RadPower – neither has customers who are focused on brand-name parts.

Their challenge: Post-sales service support. Who services these bikes? Where do spare parts come from? Still sourcing from the established supply chain. Still limited by it, just as everyone else is.

Going back to my home PC Vs Apple example, we in the bicycle industry don’t have the scale or size of the market. So, what is the incentive for people to invest?

VanMoof, RadPower, Cowboy: All businesses that built brands. Not one of them could tell suppliers what to do.

No, they couldn’t.

Also, we know that after-sales service is a very, very big part of the business.

I remember I worked with many other different brands, and the Purchasing Manager (PM) eventually ended up sticking with just Shimano and SRAM. This way, they don’t have to worry about the after-service, they don’t have to worry about the marketing, and the consumer and the dealer will automatically buy into that because they know they get the support from Shimano and SRAM, and they don’t have to explain. So that’s what I say when I mentioned that the PM’s become lazy.

Picking up on this – lazy – point: Is it a Western cliche that Chinese and Taiwanese businesses don’t know how to do brand building? Is that fair? Is it what you see in home markets, or is it just an outdated Western viewpoint?

I’m Taiwanese, and I would say it’s the Taiwanese who don’t know how to do the brand. It’s not Chinese.

The Chinese definitely know how to do the brand.

I always look at the pattern of how businesses become successful. With Chinese brands, first of all, there is huge online marketing. Then you can see that Chinese businesses are very good at e-commerce.

And the size of the domestic Chinese market – population 1.4 billion people – makes scale an immediate opportunity, which shapes how businesses are funded, supply chains built, and manufacturing is done.

Automation, mechatronics engineering, robot-powered production lines – all possible when you have
scale.

It has a massive impact on price.

You can make products for a variety of complementary sectors – all electric motors use copper and a magnet. If you make motors for new eMobility businesses and other applications, spanning a variety of sectors, not just cycling, you have a massive advantage.

As an example, right now, the biggest controller manufacturer in China, not just for bikes, they also do for
scooters or motorcycles, is capable of, and has manufactured, more than 15 million units per year. Specialist e-bike system manufacturers can’t match that.

Scale means motor ‘A’ costs $30 at trade from a China-based business, whilst motor ‘B’ from a European
business costs $100. Both products meet EU and USA certification standards. If you are a business selling mobility solutions, that’s not a decision. No thought is given when you sell to people who want a mobility solution – with pedals or without – not a brand statement.

I mentioned that selling products at a lower price is also made possible when you can build scale through the diversity of B2B clients. Here, eMobility is massive. Scooters or mopeds (think Vespa but with an electric motor) are massive across Southeast Asia and China. Nobody, or rather very, very few, in comparison, are pedalling.

Now factor in that your supplier relationships are (relatively) local. Supply chain management is very strong. When we talk about complex products, the manufacturing is done using market-leading technology.

Government subsidies also have an impact here. Just as they do for business outside of China, where governments choose to invest in domestic businesses.

The China advantage, again, is simple: Scale.

Talking about capital, we always say that China is more willing to do acquisitions and investments than Taiwan is.

It’s not that easy in Taiwan to get investors or capital. Usually, people tend to use their own money so they’ll have full control, but at the same time, if you’re just using your own money, it’s very difficult to scale up on the branding.

Scale means businesses are evolving – no longer just a factory, not just a wholesaler: The manufacturers will also become owners of brands. I can immediately think of another Western brand that’ll likely see similar in the near future.

This mirrors what we’ve seen in the auto space. The early stage approach to the Western market was the buying of Western brands: Rover. MG. Volvo, and with it, Polestar. Lotus.

Now we’re at the point where Chinese brands are carrying out highly visible marketing to a Western audience – think BYD and the Champions League, or Xiaomi and the Nürburgring lap record – creating a ground swell of interest around market-leading Chinese EV.

This kind of brand marketing opens doors for products from other industries.

Yeah. I do see that Chinese brands are coming very strong and also in a very smart, strategic, organised way.

In cycling, what are the barriers to OEM launching their own brands? Do we see tariffs and reduced orders to factories as a motivator for own brand launches?

I think a lot of people have a dream of becoming a brand. But, for example, let me take the third biggest assembly factory in Taiwan – I knew that they always want to have their own brand, but at the same time, the OEM business is so big, how can they give up the OEM business? They can’t. The fear of losing current business is strong.

What we have seen is OEM businesses investing in brands. I can think of a P&A example. Stella Yu is well-known, and her business is well-respected. Stella was still cautious. The concern was still there.

Even businesses that are big in OEM don’t want to unveil themselves, but right now, when the customer
is reducing orders, these businesses start diversifying. I know of a business moving into eMobility and scooters.

As we mentioned, Chinese businesses can do the branding. In addition to this, there is capital available. All things are possible when you have scale.