Shimano's Growth Strategy

Shimano's Growth Strategy

Summary

Shimano is a Japanese manufacturer of excellent quality bicycle components. Their core strength lies in the development of innovative technologies and extreme customer attention and care.

In this case, I will look at what makes Shimano such a success story in the bicycle parts market, and if they should continue diversifying into different markets such as the golf equipment market. This case is really close to my heart, since I am a certified bicycle mechanic myself and I love working with Shimano.

The key to a successful strategy, is understanding the challenges and the industry. Therefore we shall look at the external and internal industry analysis first.

Industry Analysis

Shimano started off as a high quality freewheel producer, and until 1970 it concentrated all its energy solely on bicycle parts. From the beginning there was a focus on expanding the business globally and to pursue new technologies. Because of its high attention to detail and extreme customer care, Shimano was able to become a leader in their category and flourished until the late 1950's. Then, because of changes in the market, they were forced to expand into new markets and diversify. We are looking at the external market situation at this point in time.

At the end of the 1950's the Japanese bicycle boom has started to taper off, and Shimano had to change their strategy. They decided to go for a completely new technology and invested in a cold-forging plant, which enabled them to cut their production price by 30%. Thus, they were able to sell a top quality part for a very cheap price. At this point in time, because of the lagging Japanese market, it became clear that Japan had to go overseas in order to continue to grow. Which market they chose I will discuss after the Internal Analysis.

Internal Analysis & Key Success Factor

Shimano has strong core competencies, for one their bicycle parts can be used with almost all road-bikes made by the big frame manufacturers like Trek, Giant and Bridgestone. They were able to identify their core market as highly qualitative bicycle parts sold for a premium price, so much so that any attempts made by the frame manufacturers themselves to manufacture these parts themselves completely failed.

Especially their strong attention to detail and forward thinking, which enabled them to come up with revolutionary products such as the "system components" and the use of BMX geared technology in all their road bikes, set them far ahead the competition. The product line-up that Shimano offered more than doubled that of even their closest competitors. They offered a broad array of products in all 3 major markets (mountain, road, and comfort bikes), giving them a distinct competitive advantage over other manufacturers. Also, because the components were designed to specifically work better with corresponding components from the same manufacturer, the convenience factor gave Shimano a definite advantage.

Shimano has 25% of its workforce assigned to research and development, but there is more to their success than just R&D. The cooperation between the production and marketing teams is extremely valuable to the company's guiding principle to inspire and strive for continuous improvement. This method was not common amongst manufacturers in this industry and gives Shimano a definite advantage. Also , their willingness to go overseas and invest in manufacturing in a time when that kind of thing was not done attests their extreme belief in being forward and going out there to grab the market which they did by opening up offices in New York and Germany to start with and moving some production overseas to Singapore.

Summing up with the SWOT analysis

Strengths

high R&D development & investment in future technologies

expertise in metalworking, skilled local workers available

family business structure & dedication to quality and reliability

using own network to directly sell to manufacturers

lack of domestic competition

strong sales force & customer oriented company

Weaknesses

unknown in US and EU market

no trading company ties in overseas markets

location, far from targeted overseas markets

appreciation of yen in 1980's

Opportunities

higher demand for quality parts in especially US

booming bicycle MTB and high level bicycle market in US and EU

Using BE bicycle team to create awareness for quality parts

Threats

well known EU companies such as Campagnolo who are fiercely protecting their market

import restrictions, differences in markets

financial risks such as exchange rates

Strategy

Shimano made a very smart decision in the 1960's to move into the US market first, since this was an emerging market in an otherwise very motorized society. The EU market, on the other hand, had long established players who were already manufacturing high quality parts.

Shimano decided to incorporate their 3-speed hubs into bicycles that were exported to the US, to overcome the hesitancy of US bicycle manufacturers to invest in parts from an unknown Japanese newcomer. Because of the quality and the subsequent customer service, and Shimano's willingness to develop new parts on demand and deliver them quickly, they were able to grow their reputation as an excellent parts manufacturer.

The US was relatively easy to conquer, but the EU was another matter.

Shimano decided to go into the bicycle racing world and became the sponsor of the Belgian Team Shimano Flandria, notably using the new Dura Ace unit. This is still a legendary team in Flanders today, so I'm quite passionate