Taiwan's Metal Product Manufacturers Strive to Boost Added Value

Increasing competition from underselling rivals, along with market fluctuations, has prompted Taiwanese manufacturers of traditional metal products to look for ways to boost the added value of their production as much as possible. A report authored by Arthur Hsu, a senior industrial analyst at the Metal Industries Research & Development Centre, sheds light on how they are doing this.

The report notes that from the aspect of economics, added value is defined as the output value of a good or service minus the cost of intermediate inputs of materials and unfinished products.

The Impact of Price Fluctuations

For Taiwanese makers of metal products, the biggest factor in the creation of added value is the fluctuation of materials prices.

According to Hsu's report, the industry's added value ratio declined to 25.5% in 2007 and 2008, when international steel prices skyrocketed. Then the ratio climbed to 29% in 2009 when steel prices dropped, only to dive to 26.7% the following year as material prices rose. Given the fact that the global steel market remained depressed throughout 2012, the report predicts that the added-value ratio would rise again that year.

Fastener Sector

Hsu's report indicates that Taiwan's fastener sector is composed mostly of small and medium-sized enterprises; only a few are publicly listed, including the Tycoon Group Enterprise Co., San Shing Fastech Corp., Chun Yu Works & Co., Rodex Fasteners Corp., QST International Corp., National Aerospace Fasteners Corp., OFCO Industrial Corp., and Sheh Kai Presicion Co.

Among these companies, San Shing Festech stands out for having maintained its added-value ratio at over 30%, higher than the industry average, thanks mostly to its dedication to developing high-end, high-value-added nuts and screws for automotive use, as well as to a well-integrated product lineup that well meets customers' needs. These factors are what set the firm off from its peers in boosting the generation of added value, the report says.

In comparison, Chun Yu, which competes in the global market mainly on the strength of a comprehensive product lineup, has failed to keep its added-value ratio above 20% in recent years, according to the report.

Surface Treatment Sector

Taiwan's surface treatment sector is comprised of coated steel product suppliers and metal product surface finishing service providers, with the former, most of which achieve economies of scale in production, contributing 80% to overall output. Locally listed coated steel product suppliers include Yieh Phui Enterprise Co. and Sheng Yu Steel Co. Added-value ratios in the sector generally stand at around 25%.

In the fierce local competition, surface finishing service providers, largely small and medium in size, show extremely different levels of profitability, notes the report. This situation makes pricing difficult for most insiders, with only industry-leading players and those with cutting-edge services likely to create high added value.

Paragon Technologies Co., for instance, is noted for being first in the world to apply continuous vacuum sputtering deposition technology in the production of notebook PCs, which effectively sets the company apart from its competitors in the heightening of added value. Another bellwether player is the Ways Technical Corp., which applies sputtering, electroplating, coating, and printing to the housings of electronic devices and keypad surfaces and is one of only a few Taiwanese companies of this kind capable of independently making plating chemicals and mixing paint. With competitive know-how helping to improve its yield rate and production efficiency, Ways Technical can achieve a 65-80% added-value ratio, giving it an elevated profile in the line.

Mold and Die Sector

As most of Taiwan's mold and die makers typically handle downstream production of related products in-house, making it difficult to precisely analyze the added value of such products through the sector's output as a whole, Hsu cited only two companies to explain what factors influence the generation of added value in the sector.

One of the companies is the Chien Wei Precise Technology Co., whose main business is high-precision molding primarily for semiconductor foundries. The company's revenues from this business amounted to NT$420 million in 2011, up 8% from the previous year, while the added-value ratio improved to 8.3%, mainly due to the addition of new dies to its product lineup. In 2010 the firm's added-value ratio had dropped to 6.4%, down sharply from 15.3% in 2009, for a variety of reasons including global economic sluggishness, competition from newcomers, and less spending on fixed assets by customers.

The other company cited is the Taihan Precision Technology Co., whose molding business involves plastic injection molding, stampings and punchings, and magnesium-aluminum alloy dies. The company's added-value ratio was kept between 20% and 23% in 2007 and 2008 before plummeting to 6.4% in 2009, due partly to the global financial tsunami and partly to the disposal of assets. Then the ratio recovered to 18.5% in 2011 and the company's annual revenue grew 7.4% to NT$2.05 billion, mainly on the recovery of market demand for 3C (computers, communications and consumer electronics) products, according to Hsu's report.

Future Trends

Since the manufacturing of metal and metal products is a labor-intensive traditional industry in Taiwan, in their efforts to generate higher added value the companies in the line generally consider manufacturing-related variables such as materials prices, R&D spending, and worker productivity.

With major companies forming a trend toward upgrading and business transformation through their active efforts to go upmarket, however, the report suggests that smaller-sized manufacturers should give more attention to R&D, marketing strategies, and integrated operating management so that they will be able to create higher added value in the future, instead of concentrating on manufacturing-related factors as in the past. This will make traditional manufacturers better able to adapt to ever-changing markets, enhance their added value, and assure their sustainable profits. (SC, Feb. 2013)

Analysis of Added Value in Taiwan's Metal Product Industry Value Unit: NT$1 billion
Year	2007	2008	2009	2010	2011	2012 (forecast)
Output Value	732.0	742.6	574.3	674.4	752.0	778.0
Added Value	187.4	189.4	149.1	180.1	195.5	210.1
Added-Value Ratio	25.6%	25.5%	29.0%	26.7%	26.0%	27.0%

Source: Metal Industries Research & Development Centre