At a crossroad - The Taiwan High-End Assembly OEM - Axman as an example

I categorize Taiwanese bicycle assembly plants into three tiers: The first tier, besides revenue, includes companies with capabilities in assembly, frame production, and their own brands, like Merida and Giant. The second tier consists of plants with assembly and painting facilities but also strong management and the capability to assemble high-end bicycles. Companies like Axman, Ideal, and, previously, Kenstone fall into this category. I'll get back to why Kenstone is no longer in tier 2 and has fallen off a cliff in a future article.?

Today, however, we’re focusing on Axman. And based on that, we’ll be discussing Taiwanese high-end bicycle assembly plants in general. What makes a plant "high-end"? What capabilities do they need? And what challenges might they face in Taiwan?

Compared to other assembly plants, Axman is what we call "small but sort of beautiful." Their main clients include Rocky Mountain, QBP, CRC, and Halfords in the UK, and recently they added YT Industries and Pivot to the list. They for sure have the ability to assemble high-end bicycles.

What exactly does it mean to be capable of assembling high-end bikes? First, having strong supply chain relationships is crucial. Second, the ability to understand and work with newly launched components. Third, effective supply chain management. Fourth, flexibility—without it, dealing with expensive parts without the ability to make changes could be a disaster for the brand. Fifth, timely and accurate information provision.

I haven’t worked with Axman personally, so I’m not entirely sure about the last two points regarding flexibility and data provision. But from their financials, it’s evident that Axman’s management is stronger compared to other second-tier assembly plants.

Based on Axman's financial reports, they’ve shown growth from Q1 to Q3 of 2024, even in the post-pandemic era. This is partly due to them taking on clients from other poorly managed assembly plants. (See Table 1)

(Table 1) AXMAN Quarterly Revenue?

(Table 2) Yellow Line is “Gross Margin”; Blue Line is “Operational income”; Red line is “Profit before Tax”

Another thing that caught my attention wasn’t just their revenue but their inventory turnover and overall operational efficiency. (See Table 3)

It’s worth noting that even during 2022, when component lead times were still challenging, Axman was already starting to gain control over their operations. That's quite impressive.?

(Table 3) Yellow is their A/R; Blue is Inventory Turn, Red is Operational Turn?

Axman’s Customer Distribution?

(Table 4) Axman Customers Revenue which is more than 10%

I don’t know for sure who B/C/D/F are → My personal assumption is :?

B =QBP, C=Boardman, D= CRC .F=Norco . Again, Just assumption.?

I’ve always known that Rocky Mountain is Axman's largest client, but I was still quite surprised by how high the proportion is.?

This highlights a common dilemma faced by Taiwanese high-end bicycle assembly plants:

With more and more customers moving their operations elsewhere—most of the high-end bikes for Europe are now being assembled in Europe, and North American brands are getting even more consolidated. Brands with high-end models are practically tied to the top three assembly giants: Specialized is with Merida, Trek used to be with Giant but has now shifted its main production away from Taiwan; Giant itself obviously stays with Giant; and Cannondale, regardless what cost, apparently remains tightly linked to Fritzjou(and now their relationship with PON is still growing)?

This leaves dozens of other Taiwanese assembly plants competing for a handful of smaller yet solid clients. Back when I was at Kenstone, we had Norco, Cervelo, and YT Industries (trying to maintain a balance of three core clients plus other smaller but promising ones). Each assembly plant has its own client base, but Rocky Mountain accounts for nearly 50% of Axman’s business. Such a relationship could shift at any moment due to market changes. What if Rocky Mountain decides to move to Vietnam? After all, Canada and Vietnam are part of CPTPP, which would drop general bike tariffs from 13% to 0% if they move production there. Although electric bikes already have zero tariffs, relying solely on e-bikes isn’t enough to sustain full production capacity. Vietnam might not yet be capable of handling high-end, intricate, and flexible orders, but eventually, someone will get there. I also understand why Axman felt the need to invest in Vietnam. But at the same time, having more small clients is also risky. The maintenance operational cost for each customer is the same, no matter big or small. And the more you have, it might intervene or complicate the whole management process. I am not smart enough to figure that out.?

But investment in Vietnam is more than just money—it takes well over a year from buying land to getting operations up and running, not to mention all the management challenges in between. From the workforce numbers , Axman’s headcount isn’t massive.. Will they end up overstretched when the time comes? If, during this transition, Rocky Mountain shifts its procurement policy or something else happens, Axman could face the loss of most significant revenue from their Taiwan plant while simultaneously burning money on their Vietnam operations—a situation of being stretched too thin on both ends. Also can they maintain the same level of service to all the other customers ? I had seen very little success that medium Bicycle Taiwanese manufacture could be successful having too many sites.?

This is the dilemma for Taiwanese high-end assembly OEMs: From Axman's perspective, effective supply chain management and cost control are the keys to maintaining profitability.

But the question that assembly plants often face is: If you want to keep improving, as a manager, what should you keep investing in? For an OEM assembly plant, several key factors come into play:

1. Control your costs.
2. Choose your clients wisely (and align with the right clients).

Everyone wants high-quality, high-volume clients, but competition is fierce. After the giants have taken their share, the rest of us pick what’s left. Many years ago, someone from Specialized casually told me, "With just the Star Jumper series alone is 100,000 units a year—can Kenstone TW handle that?" I knew my limits, so I wasn't upset by it. I asked myself honestly—could I even open up capacity for something that massive? And might not be able to keep it for long? I am very conservative anyway..?

For an assembly OEM, the bigger the volume and the higher the quality of the client, the more everyone wants them. Once, my client was acquired by a large group, and the group procurement director suddenly decided to re-evaluate assembly partners. The head of procurement looked down on me and said, "Assembly is nothing; we can switch anytime," just because my competitor down the street was willing to take on their project at 0% profit. Even though we had worked with that brand for a decade. We were forced to lower our price to keep the order, but I knew that the moment I decided I? no longer wanted to be an assembly plant.

Sure, we can invest in painting equipment, convert reverse assembly lines to right-side up? assembly, invest in RFID, warehouse automation, etc. But will these investments genuinely enhance our competitiveness, or are they just flashy "White Man's Technology" that only impresses surface-level observers (of which there are many)? Will these investments increase your fixed costs (because, frankly, it's impossible to cut labor costs significantly, and labor costs for assembling high-end bikes aren’t even that high)? Or should we attempt vertical integration (often facing technical barriers)? Or, like Axman, start considering whether Vietnam is a good option?

Among all the assembly plants, I really admire Fritzjou. Even though they only do assembly and painting, they’ve invested heavily in equipment and labors(even till today they still have 600 people)? While I don’t think it’s necessarily made them better—compared to others like Giant, they’re not faster, more flexible, or more competitive on price or quality, no vertical-integration —they’ve still managed to secure many clients and build long-term (personal) relationships, such as Pinarello, Cannondale, and Canyon, and even grabbed Specialized away from Merida. They’ve successfully established themselves as Taiwan's third-largest assembly plant. It’s said that they even surpassed NTD 10 billion in revenue last year. That's an impressive achievement, something I could never accomplish.

I have to believe the secret of success behind FJM is more than just how it looks. We always said “ do not judge a book from its cover”. However, FJM should not just have a shining cover but I trust they also have something inside the book. I have to believe their service is very good. Otherwise I have no clue how they could take the Specialized business away from Merida for just assembly (not even painting). Since they're a private company, my information about FJM is pretty limited, however I did compare their quotations to big clients a few years ago. What I saw left me shocked; it was pretty expensive compared to any other assembler, and I will admit that I felt almost jealous about it :)?

But it might also prove that I was wrong – investing in that shiny equipment which I thought only helped increased cost, not really saving any meaningful labor was actually working. Thank God I am no longer in the assembly business. Otherwise I would be screwed…

I digress… Returning to what makes a high-end assembly OEM capable: Besides the points I mentioned above, there’s one more thing I want to add as the last critical piece:?

The management of information flow.

Given the high value per bike, any market change—even if the volume is small—can lead to significant losses for both the client and internal management. Traditionally, assembly plants liked to push all the responsibility onto the client, but I believe the assembly plant itself also needs to be flexible, and should paint and assemble the bikes as late as possible to adapt to customers’ demands as quickly as possible..?

High-end assembly OEMs face a supply chain where every component supplier has its own rules (Shimano, Bosch, etc.). Information flow management involves both internal and external aspects. Externally, you need to understand the situation and delivery timelines of gating item suppliers. Internally, you need to ensure that each production stage and supply chain information is communicated quickly and accurately to the client—transparency, accuracy, and real-time updates are key.

I’ve worked with other assembly plants, and they were not only slow in providing information but also often inaccurate. For high-end assembly OEM plants, transparency is crucial—this helps clients make decisions quickly. During the pandemic, many bottlenecks were actually at the assembly site—I’d say assembly plants turned into information black holes. Component suppliers provided feedback, but the assembly plants couldn’t generate accurate, timely information for clients. Pre-pandemic, this might have been an acceptable mistake, but during the pandemic and even now, in the post-pandemic era, the lack of transparency and the "black hole" nature of assembly plants is a challenge that assembly plants themselves need to address and improve.?

I would say, invest in improving ERP, Information Flow – these should be the key investment for assembly factories. From my past experience, trying to change ERP was difficult: super expensive and very slow. Most Modular ERP providers didn't like to change.? However, now with AI and AI agents, I do see the possibility to help smaller business to improve their ERP/Information flow by utilizing AI?

Overall, I think Axman is a solid medium size high-end bike assembly OEM company, with a good understanding of high-end bike supply chains. I do worry a little bit that they went public. Because that might force them eventually losing their character and advantage – being small, competitive and efficient. When you are a public company, you are forced to change, and you also have less flexibility.? Now Axman decided to go to Vietnam as their next venture. Hopefully they can still maintain their customers to make it worthwhile.

PS; The charts I quote in the article are from the website : “Statementdog.com “