The Prospects OF THE Eco-friendly Two-wheeler

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If the pages of history do not quite repeat themselves, they certainly do rhyme. As we move towards an eco-friendlier change, we are adopting bicycles as a popular form of transport. The chain driven two-wheeler has been a beacon of change since its advent in the 19th century. Bicycles enabled the middle and working class to go as they pleased. The mobility pushed for economic independence and commuting was faster than ever!
In modern days, pedal power provides the means to beat the city’s snarling gridlock in which cars crawl along at a snail’s pace. Globally, almost twice as many bicycles as automobiles ply the streets every day. As for Bangladesh, bicycles have also aided education, healthcare, and employment in rural sections. Enhanced carrying capacity and reduced commuting time meant more time could be allocated to productive activities like agriculture and manufacturing for an economic uplift. Moreover, with the proliferation of e-commerce and food delivery platforms, the demand for bicycles is now at an all-time high. While the domestic demand is met through imports, three Bangladeshi companies have made a global mark with their bicycle, mainly in the European market. An estimate of Eurostat says that among the non-European exporters of bicycles, Bangladesh holds the 3rd position while in the global market it holds the 8th place. Bicycles make around 0.24 percent of Bangladesh’s total export of Bangladesh earning as much as USD 73.22 million in just the first 11 months of FY 2019-20.

Bicycle industry in Bangladesh

Direct labor cost associated with producing bicycles in Bangladesh is only USD 3 to 5 which gives Bangladesh a competitive edge. However, the production is somewhat capital intensive and thus, it requires huge investment in capital and machineries. As such, the emergence of the bicycle export industry in Bangladesh was facilitated by Foreign Direct Investment (FDI) by a Malaysian investor back in 1995. They established their new plant named ‘Alita’ in Chittagong EPZ with an investment outlay of US$ 2.0 million.
Meghna Group of Industries was the next to enter the fray as manufacturer and exporter of bicycles. The group had prior experience of trading in bicycles and bicycle parts during the 1960s, produced bicycle spokes during the 1970s and assembled bicycles for the local market during the 1980s. The group then went on to become the largest manufacturer of bicycles and bicycle parts in the country during the 1990s. It now has two dedicated factories for the export market, two for the local market, and five factories for producing bicycle components. The latest entrant in the exporting market is Rangpur Metal Industries which is a sister concern of Pran-RFL Group. The company started exporting in 2015 while meeting the local demand with its growing brand Duranta Bikes. Today, earning from bicycle exports makes up 12 percent of Bangladesh’s total light engineering export earning. Besides complete bicycles, Bangladesh also exports accessories such as frames, forks, spoke, bicycle tyre and tubes, wheels and other plastic components of bicycles.

 

As an estimate of Eurostat says that among the non-European exporters of bicycles, Bangladesh holds the 3rd position while in the global market it holds the 8th place.

A stumbling block for domestic market

Largely, the bicycle industry comprises two markets: an export oriented original equipment manufacturer (OEMs) section and a small-scale bicycle and parts manufacturer section. The local manufacturers, however, have failed to retain brand loyalty. Most cyclists purchase new bicycles every two years and they have been seen to purchase locally manufactured bicycles only when the price of import is high. Most people prioritize performance and durability when it comes to purchasing bicycles. Cycling groups like BDCyclists have been actively trying to promote local retailers but people still prefer imports from competitors like India and China because they offer higher quality at a lower price. Increase of import duties from 10% to 25% on spare parts and materials such as brakes, gears increase the cost of production for Bangladesh, and is a snag when competing in the global arena. Other than that, recommendations from friends and family, social media, store websites and suggestions from salesmen play important roles in influencing a potential buyer about which brand to buy.
The onset of the COVID-19 pandemic brought out an even greater opportunity for bicycle manufacturers internationally. To meet the social distancing protocols many are pedaling to work or school instead of using public transport. This has surged bicycle sales at home and abroad. While this is good news for Bangladeshi exports, local manufacturers are yet to utilize the full potential of this opportunity. Retailers like Lion Cycle Store sell their own brands named Core and Nekro, but also import Trek, Ghost, Merida, Upland, etc. CycleLife Exclusive, the local retailer of Meghna Group also sell their own brands called Veloce and Prince. Other than these, there are numerous other retailers like Master Wheels, The Bike House, Exit Bicycles, and Bicycle Shop BD, etc.

High Anti-Dumping Duties on China Favoring Bangladesh

The exporters of bicycles produced in Bangladesh are enjoying their heyday. Over the last two decades Bangladesh has expanded its export to an annual 0.8 million units to 18 destinations including UK, Germany, Netherlands, Italy, Greece, Ireland, Belgium, Denmark, Australia, Portugal, Russia, and India. European countries alone demand 18 million bicycles annually 40% of which are imported. Huge potential was unlocked for Bangladesh following the imposition of anti-dumping duty on China with an import tariff of up to 48.5% by European Bicycle Manufacturing Association in 1993. The originally intended cut off point was extended further following a new methodology for calculating anti-dumping on imports from countries with significant market distortions. The decision has kept the portal open for the bicycle export industry in Bangladesh to flourish for another five years.
An estimate says that the expiration of the penalty can expose us to extreme competition from China since Chinese bikes cost 10 to 20% less and bear a 35 to 50% shorter lead times compared to Bangladesh. Although the firms are vertically integrated to overcome the absence of modern parts supplying industry, they have to rely on imports for the bulk of their needs. Coupled with constraints in trade facilitation and logistics such as port delays, the lead time in Bangladesh is significantly longer than its competitors. Nevertheless, the sector has exhibited as much as 6 percent growth in FY 2019-20 earning USD 73.22 million in just 11 months. In FY 2018-19 the value was USD 70.59 million. Recently, Bangladesh has received orders from a few North American buyers which can significantly add to our annual export.

A potential global market

According to a Persistence Market Research (PMR) report, the global market for bicycles is anticipated to expand by 37.5% over the period 2016-24. By 2024, the global market size is expected to reach at USD 62 billion. The Asia Pacific region is anticipated to be the most lucrative market for bicycles over the forecast period while electric bikes will be the leading segment of the market. In 2015, 54000 electric bikes were sold in Europe which exhibited an impressive growth of 24% compared to 2014. Compared to it, the domestic market in Bangladesh remains relatively small. It has been growing steadily over the years owing to the traffic snarls in Dhaka city. More and more people are taking notice of the feasibility and cost-effectiveness of bicycles. According to Bangladesh Bicycle Merchant Assembling and Importers Association, the local market demand for bicycles is estimated at nearly 1.5 million units a year with an annual demand growth of 30 percent.

 

People still prefer imports from competitors like India and China because they offer higher quality at a lower price.

 

Policy options for improving competitiveness

Domestically, the introduction of bicycle-sharing apps has a high potential of raising the demand. Jobike, a bicycle rental service has been launched in a few areas in Dhaka and Chittagong with further plans to expand in the country. The growth requires broader policy level support including proper infrastructure to ensure safe movement of bicycles. To boost the market, we need to reduce the import duty on modern parts and components while announcing a tax holiday to stimulate foreign investments in both this sector and backward linkage industries. In translating the dream into a reality, the government should pave the way to new investment removing hurdles including cumbersome registration process.
Ensuring better access to finance can help producers, including original equipment manufacturers (OEM), who are hampered or inconvenienced by dearth of financial backing. This should be complemented and supplemented through improved financial access for the SMEs. Bicycle production for the domestic market in Bangladesh is also highly protected. Increasing competition in the domestic market by lowering the domestic effective rate of protection would prove beneficial.

Local bicycle industry shows promising opportunities for entrants to successfully capture market share within a shorter time via effective marketing schemes aimed towards the target population. But entering the industry will also require a good level of investment, owing to other countries’ cost advantages, lack of local suppliers, longer lead time, and already existing large firms in the country. The sooner we remove the bottlenecks to utilize the full potential the industry holds in the global arena, the better prepared we will be to compete once the anti-dumping duty on China expires.

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