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Emerging Markets Lift Fortunes of Taiwanese Hand Tool Suppliers

Struggling industry sees bright spots in growing economies with the right strategies and focus

2013/04/15 | By Steve Chuang

Demand for hand tools in emerging countries has been rising steadily over the past few years, helping Taiwanese suppliers with exposure to those markets clock in solid gains in 2012 despite the global economic doldrums.

Eason’s brand new headquarters in Nantou Couty, central Taiwan, has automatic warehousing systems and advanced manufacturing facilities.
Eason’s brand new headquarters in Nantou Couty, central Taiwan, has automatic warehousing systems and advanced manufacturing facilities.

A report issued by U.S.-based market researcher Global Industry Analysts, Inc. estimates that the global market for hand tools and accessories will hit US$28 billion by 2018, driven by upticks in global construction activity, car production, and demand in the do-it-yourself segment, a growing preference for the ergonomically designed tools and, especially, surging demand in emerging markets.

The report predicts that, among emerging countries, China and India will serve as the two biggest growth locomotives for global hand-tool sales due to fast-growing residential construction there. For instance, China just kicked off an ambitious urbanization plan that will allegedly involve up to RMB4 trillion (about US$645 billion) in investment. The plan, along with China's booming automotive industry, is expected to boost demand for hand tools in that market in the coming years.

Taiwanese hand tools suppliers who have diversified their exposure from the U.S. and European markets to emerging markets were well rewarded in 2012 as exports to up-and-coming economies have helped to offset declining shipments to developed countries in 2012 and local forecasts of an industry decline from 2011.

CENS recently took the industry's pulse in interviews with three Taiwanese hand tool suppliers, Easen Hardware Corp., JYH Tools Co., Ltd. and Hans Tool Industrial Co., Ltd., that have been sowing business in emerging markets.

Easen grew briskly in 2012 on exports of high-quality wrenches, sockets and tool sets to Russia.
Easen grew briskly in 2012 on exports of high-quality wrenches, sockets and tool sets to Russia.

Easen on Russian Market
Easen, a veteran OEM (original equipment manufacturer) and ODM (original design manufacturer) of wrenches, hammers and tool sets headquartered in central Taiwan, estimates that its business surged by around 20% in 2012, mostly thanks to sharply higher shipments to Russia, according to company sales manager, Warner Chen.

Easen began penetrating the Russian market in 2004, following earlier moves by major Taiwan brands, such as King Tony, Force, Jonneway and Hans, from 2000, Chen said.

When Easen first tapped the Russian market, Taiwanese suppliers were making steady inroads based on their reputation for high quality and reasonable pricing among local buyers. Later, some players lost shares as the market model changed, partly due to the character and preferences of local users.

Easen chairman Charles Chen (right) and sales manager Warner Chen (left)
Easen chairman Charles Chen (right) and sales manager Warner Chen (left)

"Russian people are very different from Americans and Europeans in their buying and decision-making," Chen says. "They are more scientific and tend to establish their own criteria for needed tools based on personal experiences rather than simply being fed by vendors. This is one of the factors that required us to change our market model." Chen also noted that as some Taiwanese brands failed to properly adapt themselves to this change, local distributors and agents began sourcing from OEMs and ODMs, which opened the door for Easen.

Backed by Extensive Experience
Beginning as an OEM and ODM supplier, Easen has extensive experience and know-how in troubleshooting for customers. This strength perfectly met Russian clients' need to supply products tailored to the local market, according to Chen.

Hans built its success on successful marketing strategies in emerging countries.
Hans built its success on successful marketing strategies in emerging countries.

"We found that market potential for OEM services was huge then," said Chen. "To seize this chance, we took advantage of our decades-long experiences in OEM with American and European buyers to serve as a solution provider helping local brands increase market share." In short, while some of its peers focused on OBM (original brand manufacturing) in Russia, Easen positioned itself as a professional contract manufacturer to exploit local market potential. This strategy enabled Easen to boost shipments to Russia account for 30-40% of its total in 2012, helping the company to grow despite the sluggishness of the global economy.

"We are quite optimistic about the Russian market in the years to come," said Chen, "Customers there generally have a brighter business outlook for 2013 after the nation's presidential election in 2012."

Focus on Southeast Asia
In addition to Russia, Easen is turning its focus to Southeast Asia as another growth driver in a global market that Chen expects to remain challenging this year, partly due to higher raw material costs.

"We will target Southeast Asian countries with high demographic dividends and high growth potential," noted Chen. "As we did successfully in Russia, we will continue to concentrate on OEM operations coupled with problem-solving services to help new customers compete locally. Emerging markets are increasingly important to the future development of our company."

To pave a route into Southeast Asian market, Easen has opened a factory each in China and Malaysia. It also has two plants in Taiwan, including a brand new headquarters that was completed in July, 2012, in Nantou County, central Taiwan. The 7,500-square-meter facility has automatic warehousing systems and advanced manufacturing facilities.

"Easen aims to become a world-level solution provider for customers of hand tools backed by growth in emerging countries," said Chen.

Hans is one of Taiwan`s best known brands of auto repair tools.
Hans is one of Taiwan`s best known brands of auto repair tools.

Hans on Africa
Established in 1973 in Taiwan's central city of Taichung, Hans is a globally competitive brand that is also increasing sales to emerging countries. Public Relations Director H.C. Chang said that his company enjoyed robust growth in 2012, even though the industry's overall annual output is believed to have fallen from the NT$60 billion level seen in 2011.

Over the past two years, Hans has actively ventured into North and West African countries, enticed by rapidly growing resource exploration and production there, according to Chang.

"We foresee that emerging markets in these regions have tremendous growth potential, since exploration activity increases demand for professional-caliber tools," Chang said. He furthered noted that quality demands are high for tools for such applications, as energy exploration is normally carried out in remote areas where it is difficult to maintain or replace tools. Additionally, African buyers demand tools with better utility since tight budgets encourage locals to procure only those tools that are absolutely useful.

All of these qualities play to Hans' strengths, prompting the company to explore these emerging markets earlier than most of its peers, Chang said. He is confident that his company can gain a solid foothold in Africa, reasoning that Taiwanese suppliers have advantages over most rivals in manufacturing technologies and cost control. Hans has an additional asset its global reputation as a high-quality hand tool brand.

Building on a Successful Emerging Market Strategy
In fact, Hans has been nurturing business in emerging markets for several decades, starting with its entry to the Middle East as one of the first Taiwanese hand tool brands in that market. The company has since extended its emerging market reach to Central and Southeast Asia and Eastern Europe. In fact, combined sales to all emerging markets outstripped shipments to the U.S. and European Union.

While some Taiwanese makers have a cautious outlook for 2013, Hans appears comparatively optimistic about its growth, partly because of its successful branding in emerging countries and partly because of its devotion to continuous product improvement. Underscoring his company's dedication to product excellence, Chang noted that his company once spent considerable time improving a very conventional, unprofitable wrench model after a client returned about 10 units of this model that had worn down after long periods of use.

Drawing on his experience, Chang encouraged Taiwanese suppliers to assess the risk before venturing into new emerging markets. In some cases, their all-around services are not feasible and profitable. He thinks that Taiwanese hand tool makers planning to tap emerging markets should concentrate on the type of products they offer. He noted that Taiwan-made sockets enjoy a very high profile in India, though few Taiwanese brands are popular there. This suggests that suppliers need to provide good products to guarantee sustainable development in a new market.

JYH on the Russian Market
Another Taiwan-based hand tool maker that is growing in emerging markets is JYH, a 30-year veteran screwdriver manufacturer located in Taichung. The company chalked up solid growth in 2012 on strong shipments to Eastern European and former Soviet bloc nations, according to sales manager Charles Chang.

JYH’s sales manager Charles Chang
JYH’s sales manager Charles Chang

"JYH has been exploring the market for industrial-caliber hand tools in Russia for a decade," said Chang. "Over the past few years, shipments to the country have steadily grown to command a 30% share of our annual total." The company is now forming partnerships on an OEM and ODM basis with a few major local brands with extensive distribution channels throughout the region.

Asked how to deal with Russian customers, Chang reported that buyers in the country are mostly attracted to German brands and therefore pay attention to quality. "Our competitive advantage is in supplying top-end tools and providing timely, attentive service," he said.

Chang also noted that his company periodically develops new products to win customers and drive up its ODM business in Russia, where development of light industries is backward compared to that of heavy industries. "Customers also give us feedback on how to develop marketable tools," added Chang. "These partnerships are mutually motivated and positive and rooted in the customers' trust of JYH's capabilities."

JYH produces screwdrivers for the global OEM and ODM market.
JYH produces screwdrivers for the global OEM and ODM market.

Eyes on Central and South America
Knowing that emerging countries have increasing clout in the global economy, Chang said that his company would continue extending its reach to Central and South America. He revealed that his company has been in talks with a few customers in the region over future cooperation.

Chang is confident that his pla

n to penetrate the Central and South American markets is sound. Some local governments in the region are actively promoting manufacturing, which has generated considerable market demand for tools for precision machining. This market trend has been confirmed by many insiders and the Taiwan External Trade Development Council, a semi-official promoter of Taiwan's exports.

As to prospects in 2013, Chang shares the view of most of its peers that the global market will likely remain slack, but he stressed that his company won't definitely resort to price cuts in exchange for orders. "Underselling will undermine the high profile that the industry has built," said Chang. "As long as Taiwanese suppliers stick to high quality and top-notch service, we will eventually weather the market uncertainty."

To stay globally competitive, the company has consistently honed its trend-setting designs and market information to turn out screwdrivers meeting the market demand for functionally and visually appeal. Most of the company's screwdrivers also are GS and VDE certified. The efforts have paid off in making JYH one of Taiwan's top-three three exporters of screwdrivers by volume and a globally prestigious OEM and ODM supplier in the segment, Chang said.