HEC250 Cycles Devinci: Develop an Asia-Pacific Internationalization Strategy

Assignment overview

Monday morning, April 30, 2018. After a relaxing weekend, Alain Pedneault, marketing director of Quebec bike manufacturer Cycles Devinci, ⁴ was meeting with his team. When he announced the corporate objective of 20% annual growth for the next three years, the group’s lighthearted banter quickly turned serious. Such an ambitious objective would require growth in all market segments. While it was true that Devinci had posted phenomenal sales growth for the past several years, the threat of new tariffs on exports to the U.S. could put a damper on sales.

While some in attendance were sceptical about Devinci’s ability to meet this objective, Simon Brodeur, global brand manager for downhill and enduro bikes, was enthusiastic. He saw the Asia- Pacific ⁵ market as a potential El Dorado: the company was already selling some 200 bikes a year there with no real strategy. Brodeur believed that, with sufficient investment, the company could triple this number. When he shared his idea with his boss, Pedneault replied, “I’ll expect your proposal on my desk by Friday morning. Objective: 1,000 bikes sold annually in the Asia-Pacific region within three years.”

The world bike market

In 2017, global bicycle sales were estimated to be more than $45 billion, a number that was expected to surpass $62 billion by 2024. ⁶ Every country had a national brand that was struggling to make its way alongside the major international players. The sector included three types of company – those manufacturing bikes, those manufacturing parts and components, and those manufacturing accessories. The first category, which included Devinci, included builders that designed and manufactured their own frames and assemblers that subcontracted frame production and then designed and assembled bikes marketed under their own brand. Depending on the product, Devinci adopted both of those approaches.

This division of markets and activities was largely the result of price pressures exerted by growing international competition. Historically, each country had supported the emergence of a domestic industry, but, during the 1990s and 2000s, many European and North American countries began to offshore production to Taiwan, then China, to benefit from low production costs. ¹ Despite the unfavourable economic climate, the bike industry was run by dedicated enthusiasts who persevered despite the odds, often in niche markets. Canada was home to several specialized companies, including Argon 18 (road bikes), Cervélo (triathlon bikes), and Rocky Mountain (mountain bikes), as well as companies such as Norco, Devinci, Louis Garneau, which produced a wide range of products.

In 2018, the bike industry was fragmented. With their huge production capacity and vast distribution networks, multinationals such as Merida ² and Giant Manufacturing ³ made bikes to be sold both under their own banner and by other major brands. As a rule, North American and European manufacturers assembled their own bicycles but, with only a few exceptions, outsourced frame production. Some designed their own frames, but others just ordered bikes to be made according to their specifications, then added their brand name before selling them in stores. That was the case with Decathlon and Mountain Equipment Coop.

The positioning of major groups benefiting from economies of scale such as Giant and Merida affected the entire industry. Unable to compete with them on price, smaller companies focused on the quality of their bikes, brand loyalty, and superior service offered to retailers. Building brand awareness on social media played a key role in boosting on-line sales and recruiting retailers. Despite these challenges, more and more SMEs were trying to hold their own against mass producers on the international scene. That’s what Devinci aimed to do.

Cycles Devinci

Cycles Devinci (originally “Da Vinci”) was founded in 1987 in the borough of Chicoutimi in Saguenay, Quebec, Canada, by Guy Ouellet, industrial designer, and Daniel Maltais, mechanical engineer. The company began by hand building aluminum bike frames sold to customers such as Douglas Cycles, in Toronto, and Pierre Hutsebaut, in Montréal. At that time, the company was known to just a handful of aficionados.

In 1988, the two founders met Félix Gauthier. His own bike having been damaged in a crash, Gauthier had contacted the two young entrepreneurs, who enjoyed an excellent reputation, to purchase a new aluminum frame. Two years later, Ouellet and Maltais approached Gauthier for help bailing out their struggling company. Aside from the two managers, the company had no employees at that time and no major clients apart from a few specialized retailers. Having just

received a small inheritance from his parents, Gauthier purchased a 50% stake in the company for $50,000.Under the new partner’s leadership, the company’s name was changed to Devinci, and bikes were marketed under that name. Having quickly identified production problems, Gauthier made the crucial decision to create a research and development department. By 1993, he was the company’s sole owner and had intensified efforts to raise the profile of his bikes and increase the number of sales outlets. By the mid 1990s, the company had entered a period of strong growth, doubling its revenues each year. Once firmly established in Quebec, Cycles Devinci expanded its retail network throughout Canada, the United States, and Europe. By 2018, with eighty employees and a turnover of more than C$20 million, Devinci was thriving in Canada and in several international markets.

Cycles Devinci: an extensive product line

Cycles Devinci covered many market segments. Its principal products included road, city, electric, and mountain bikes (see Exhibit 1). Devinci also supplied bikes for the BIXI bike-sharing system implemented by PBSC Urban Solutions in cities around the world, including Montreal, Chicago, Boston, London, and Melbourne. While these bikes were not marketed under the Devinci name, their robustness contributed greatly to the company’s sales and international reputation.

Devinci products were distinguished by their aluminum frames. Aluminum is an inexpensive, rust- resistant metal offering several advantages over steel: its low density makes it lightweight, so more material can be used in frames, making them more shock resistant. Competitively priced aluminum bikes were thus superior to steel bikes.

Making bicycle frames out of aluminum was an obvious choice: Devinci was located in Saguenay, in the heart of what was known as Aluminum Valley. ¹ Although Saguenay’s position in the world ranking for aluminum production had fallen, it still accounted for 32% of Canadian production. ² The region was home to a business cluster specialized in the manufacturing and processing of aluminum, including major corporations such as Rio Tinto Alcan, along with more than a hundred small aluminum processing companies. Devinci thus benefited from local expertise in processing its raw material.

Over the years, new carbon fibre-based products had entered the market. While more costly, carbon fibre bike frames offer two advantages over aluminum: they’re lighter and, unlike aluminum, have no memory, so they’re more resilient than aluminum frames, which weaken after every shock until their fatigue limit is reached. To ensure its competitiveness, Devinci adapted, adding carbon bikes to its product range.

The company’s products covered all price points from low (up to $1,000), medium ($1,000 to

$4,000) to high ($4,000 and up). Devinci bikes were known to be safe and reliable, and their praises were sung by U.S. and European publications. Outside magazine (readership 2.4 million) named its Spartan Carbon SX one of 2015’s best bikes, and its Troy Carbon received the same rating in Still, the company had to keep innovating. “We must be constantly ready to react to market upheavals, new trends, and new practices,” affirmed Gauthier. “Nothing is written in stone.

Assessment Requirements – Brief Summary

The assessment required students to analyze the internationalization strategy of Cycles Devinci, a Quebec-based bike manufacturer, focusing on its potential expansion into the Asia-Pacific market. Key pointers to be covered in the assessment included:

1. Understanding the company background – history, ownership, product line, market presence, and competitive advantages.

2. Analyzing the global bike market – trends, major players, industry structure, and challenges.

3. Evaluating Asia-Pacific market potential – sales growth opportunities, competitive landscape, and target segments.

4. Developing an internationalization strategy – objectives, market entry approach, resource allocation, and expected outcomes.

5. Financial and operational considerations – investment, production, pricing, and risk management.

6. Strategic recommendations – actionable plans to achieve sales goals (1,000 bikes annually within three years).

The assessment aimed to test strategic thinking, market analysis, problem-solving, and application of international business concepts.

Assessment Approach by Academic Mentor

The academic mentor guided the student through a step-by-step process to ensure all assessment criteria were addressed effectively:

1. Step 1: Understanding the Case Study

   • The mentor encouraged the student to carefully read the Devinci case, highlighting the company’s history, key stakeholders, product lines, and recent growth.

   • This step ensured a strong foundation for contextual understanding before formulating a strategy.

2. Step 2: Market Analysis

   • Students were guided to examine the global bike industry, identifying trends such as the growth of the Asia-Pacific market and competition from multinationals like Giant and Merida.

   • The mentor emphasized looking at pricing pressures, manufacturing strategies (outsourcing vs. in-house), and niche market opportunities.

3. Step 3: Identifying Opportunities and Challenges

   • Through guided discussion, the student assessed Asia-Pacific’s potential, noting that Devinci was selling only 200 bikes annually without a formal strategy.

   • Challenges included tariffs, competition from local and global brands, and adapting products to market preferences.

4. Step 4: Strategic Planning

   • The mentor helped the student formulate a strategic objective: achieve 1,000 bikes sold annually in the Asia-Pacific region within three years.

   • Students were guided to propose actionable plans: market entry strategy, promotional activities, partnerships with retailers, and leveraging social media for brand awareness.

5. Step 5: Operational and Financial Considerations

   • The student was taught to consider production costs, sourcing aluminum frames, pricing strategy across low, medium, and high-end products, and investment requirements.

   • Mentor emphasized risk mitigation strategies, including monitoring competition, tariffs, and market trends.

6. Step 6: Recommendations and Expected Outcomes

   • The student consolidated insights into clear, actionable recommendations: product diversification, targeted marketing, partnerships, and customer engagement.

   • The mentor ensured that these recommendations aligned with the company’s objective of tripling sales in Asia-Pacific.

Outcome Achieved

By following this structured approach:

• The student produced a comprehensive strategy report covering company background, market analysis, opportunities, challenges, and recommended internationalization strategies.

• The report addressed all assessment criteria and presented practical, evidence-based recommendations for Devinci’s Asia-Pacific expansion.

• Learning objectives covered included:

  • Application of strategic management concepts in a real-world scenario.

  • Market analysis and international business evaluation.

  • Problem-solving and decision-making under industry constraints.

  • Developing actionable, evidence-based recommendations.

  • Understanding operational, financial, and competitive considerations in international expansion.

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