Fong Chan Onn

Appropriate Technology: An Empirical Study of Bicycle Manufacturing in Malaysia

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THE MALAYSIAN BICYCLE INDUSTRY

There are a number of bicycle types, of which the general roadster is the most common. The component requirement of a typical roadster is presented in Table 1. From the table it can be seen that the frame, fork, mudguard, handle-bar, chain guard, luggage carrier, and stand require raw material inputs consisting mainly of steel tubes and sheets, and require relatively simple manufacturing proccesses of cutting, grinding, thread forming, pressing and bending, and welding. These parts can be produced by most well-equipped workshops. The other parts require a higher level of technology, since they involve more sophisticated machineries vvorking on semi-finished inputs like high carbon steel. They are generally produced by specialized firms.

Al present there are only two large bicycle manufucturers in Malaysia; namely the internationally well-known Raleigh Bicycle and Far East Metal Works, an indigenous firm. There are, however, a number of ancillary firms manufacturing some parts of components of a bicycle. Though no complete listing of these establishments exist, attempts made to identify them through the directory of manufacturing establishments, the yellow pages, and the bicycle dealer associations have revealed a total of eleven of these firms. (It should be noted that the number of bicycle establishments as recorded in (8) includes manufacturers of tricycles and trishaws as well.) These firms are spread out rather evenly over the whole country.

In terms of components manufactured it can be seen from Table I that all components with the exception of crank and chain wheel, hubs, pedal, and bell are manufactured by the ancillary firms. The ancillary firms do not market their own brands of bicycles. They merely manufacture bicycle components and sell them either to the two large manufacturers (hence the name "ancillary") or to the bicycle dealers for the replacement market. The tariff levied on imported bicycle (completed set) as at 1978 is M$60 per set. On imported component parts the tariff varies according to the parts-ranging from M$20.00 on one body frame to M$I.00 on parts of brake system. The tolal tax on all the parts (Ievied separately) for a bicycle amounts to M$74. The tariff schedule offers uniformly high protection on all components, e.g., M$20 for a body frame and M$15 for luggage carrier. Though in the short-run this may benefit the local bicycle manufacturers, in the long run it is unlikely to stimulate them to be export-oriented even in components in which the local firms have strong international comparative advantages in terms of factor endowment.

TABLE I
Main Components of a typical roadster bicycle

* for details of the machineries and processes, see (20)
+ Most firms manufacture more than one item

Up to 1969 the domestic bicycle industry remained a relatively small sector - generating a value added at market prices of only aboul M$0.4 million, and an employment of less than 200 people (8, various years). However, the commencement of Raleigh (Malaysia) increased the value added to about M$1.6 million in 1969 and M$2.4 million in 1972, or about M$2.0 million per annum for the three years immediately after ist establishment. the employment also increased to about 390 in 1969 and 500 in 1972. The labor productivity in the bicycle sector hovered around M$2,600 to M$2,900 per worker up to 1967; after 1967 it increased to between M$4,000 to M$5,400 per worker. This is, however, still significantly below the 1968 average labor productivity of M$5,179 per worker in the transport and communication sector (7, p.285). This is not surprising since the Malaysian transport sector is dominated by the more investment intensive automobile assemblers.

TABLE II
Domestic Market for new bicycles

Source: Private interviews with Raleigh (Malaysia) and Malaysian Bicycle Dealers Association

Unlike motor vehicles, ownership of bicycles requires an official registration. Estimation of the domestic market for bicycles, hence, has to be on the basis of its relationship to the economic environment and past sales. The Malaysian Bicycle Dealers Association's estimate of the domestic market for bicycles is as given in Table II. The minimum economic size for a bicycle plant that manufactures the simple pressed and bent purts, and purchase the other components from ancillary firms, is about 25,000 units per annum (20, Chap. 6). From Table II, it can be seen that the domestic market is more than sufficient to cater to the two large bicycle manufacturers currently operating. In fact there appears to be room for the viable existance of about two more bicycle plants. The minimum economic size for a specialized plant producing high-techology components like crank and chain wheel, hubs and pedal is about 100,000 units per annum (20, Chap. 7). Hence it would seem from Table II that, even with a market share of about half the domestic market, ancillary firms producing these specialized components can be viably established in the country.

In terms of marketing network both Raleigh and Far East market their bicycles in "completely knocked down" packs to bicycle dealers spread throughout the country. These dealers, in turn sell the bicycles to the retailers (bicycle shops), either in assembled form or in knocked down packs, to be assembled by the retailers. In general, the Raleigh brands are retailed in the range of M$200 - M$240 per unit, the Far East brands in the range M$15 - M$180 per unit, while the local brands (assembled by bicycle retailers from purchased components) are anywhere in the range of M$100 - M$150. The bicycle ancillary firms also market their components and parts produced through the formal marketing system. They sell their components to the bicycle dealers, who in turn sell them to the retailers for both the new and replacement market. With respect to market share, the bicycle dealers association estimated that as at the end of 1978, Raleigh und Far East each has captured about 35 per cent to 40 per cent of the market. The remaining 20 per cent to 30 per cent is shared by the other brands.