Prices of carbon frames increase when prices of raw materials such as oil and chemicals increase. Prices will increase again as the Chinese currency (the Remnbi) appreciates against the US dollar. Currently, the Remnbi is undervalued against the US dollar; China manages its currency using a trading band so that the country's exports to the US and other markets stay cheap. This arrangement is viewed as unsustainable.
This article in the New York Times Changes in China Could Raise Prices Worldwide suggests that labor costs in China are also set to increase (from a very low base) and might push up prices worldwide. Seventy percent of all bicycle equipment is imported from China and Taiwan. Given that bicycle manufacturers readily pass on all or most of their higher costs to the consumer, it reasonable to believe that bicycle equipment prices in the US will increase in the future.
This implies narrower profit margins for the manufacturer and the IBS. If prices are always passed on to the consumer, it means that demand will drop as consumers leave the sport. The article underscores how the industry needs to use the principles of frugal innovation to drive growth. The existing model will be hard pressed to survive in a world of rising costs in China.
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