Shimano – Dominating the bicycle components market
With its innovative R&D and operating model, Shimano dominates the global market share in bicycle components.
Who is Shimano?
Shimano is a Japanese manufacturer of bicycle components, fishing tackle, and rowing equipment. Their bicycle components division has a wide range of product line-ups such as brakes, pedals, wheels, gears, chain sets etc., and represents 80% of the company’s total revenue.
Shimano has about 70% of global share in bicycle gears and brakes, and approx. 50% of the overall bicycle components market.
The 2015 Tour de France illustrates Shimano’s competitiveness in the global market. Out of the 22 teams that competed in the Tour, 17 teams used Shimano components on their road-bikes, and the Tour winner, Chris Froome, used Shimano for most of his bike’s core components (see Exhibit 1).
Fork: Pinarello Dogma F8,
Stem: Shimano PRO Vibe, 120mm, 10-degree
Handlebar: Shimano PRO Vibe 7S, 40cm
Brake calipers: Shimano Dura-Ace 9000
Front derailleur: Shimano Dura-Ace Di2 9070
Rear derailleur: Shimano Dura-Ace Di2 9070
Shifters: Shimano Dura-Ace Di2 9070
Cassette: Shimano Dura-Ace 9000, 11-25
Chain: Shimano Dura-Ace 9000
Crankset: O.Symetric rings on Shimano 175mm cranks
Power meter: Stages
Pedals: Shimano Dura-Ace
Wheels: Shimano Dura-Ace C50
Tubulars: Continental Competition, 25mm
Saddle: Fizik Antares
Other: K-Edge Garmin mount, K-Edge chain catcher, custom frame guard, Shimano Di2 climbing switch with body removed
Shimano’s Business Model
While Shimano manufactures components for a broad range of bicycle types (including non-professional bikes i.e. city bike), it’s core target is the high-end market.
Shimano’s core competitiveness lies in its capability to product extremely precise, high-quality and high-performance components for road bikes and mountain bikes. They sell these items for a premium price to their customers. Shimano does not sell directly to bike users via retail stores, but to bike manufacturers that want to use Shimano’s components on their bicycles. Shimano’s components are compatible with most of the bikes of major bicycle manufacturers, such as GIANT and TREK, so Shimano has a wide customer base around the world.
(Trek and GIANT bikes with Shimano components installed)
Innovative Operating Model
In recent years, technology in the bike industry has been rapidly evolving. Manufacturers now use 3D computer softwares to design frames, make parts and components from specialized materials (i.e. ultralight carbon fiber and aluminum), and conduct sophisticated tests to prove the quality (such as wind tunnels to test a bike’s aerodynamics).
Shimano is leading these technology innovations. Shimano has a robust R&D team (in 2014, their R&D cost was approximately 20% of their total SG&A) that focuses its efforts on product quality through technological superiority. Their continuous innovation provides bike riders with increasingly more reliable and efficient products.
How do they continue to innovate? Every year, Shimano dispatches its employees to work with bicycle manufacturers for several months to gauge consumer trends, as well as to understand the needs and areas of improvements. Additionally, they regularly meet with top racers to discuss future products and prototypes. Their openness to feedback, and their eagerness to make improvements are what drives their innovative culture.
Shimano 2014 Financial Statement
Their success lies not only in the rigorous R&D process, but also in the well-thought operational strategy.
As in the example of Tour de France, Shimano provides its newest technology for bike riders and teams to use in professional races. This acts as a good promotion of their newest product, demonstrating the high quality and performance and building confidence in the market. After debut in the tours, their newest technology are sold to customers to be used in high-end bicycles, charging them with a premium price.
After time passes and new technologies come out, they transfer (degrade) the product to a standard-class version and re-price it so that it could be sold to the mass-market. When a product enters this stage, Shimano transfers the production to their overseas factory, where manufacturing costs can be kept at a low level. This operational cycle (introducing new technology => selling it as a high-end product => transferring it to a standard-class product) takes place in approximately 5 to 6 years. The repetitive process of this operational cycle is what generates their revenues and sustains their competitiveness.
So far, Shimano has been doing extremely well by effectively aligning its business model with its operating model. However, competition is increasing. In order to maintain their dominance in the bicycle components market, continuous functional improvements and frequent introductions of new products are key.
Student comments on Shimano – Dominating the bicycle components market
Very interesting post, Ko. I knew that they were prevalent in the sport, but didn’t realize they were that dominant! A couple of follow up questions/thoughts:
– Do they use the high dollar items to help offset their R&D costs?
– With their core target being the high end market, do you think it decreases the perceived value (of the product and the brand) when they discount the product for the masses?
– For their new products, do they provide these to racers for free or do the racers expect them for free as a “sponsor”?
– I really like how they master the design and recoup significant costs before outsourcing and degrading for the mass market. It seems like a great way to pay for the innovation and still make it easily accessible by the common cyclist.