Bearing Manufacturing in Taiwan May be at Bottleneck

2013/05/09 | By Steve Chuang

Local demand still relies on imports due to superior quality

Bearing manufacturing in Taiwan is a comparatively young industry that grew in the 1980s, whose operators today face increasingly competitive global markets and must look for new ways to fuel growth.

According to a report by the Metal Industries Research & Development Centre (MIRDC), a Taiwanese industry researcher, bearing manufacturing is a precision industry that calls for higher levels of technologies compared to traditional manufacturing, capacities that must be sharpened to keep developing and growing in line with downstream sectors including automotive, PTE, electric and electronic instrument, machinery, ground and air transportation, precision machinery and other machines. Bearings are literally essential for machines of all kinds to operate smoothly.

Industry's Rise

Bearings have been developed over 120 years since the late 19th century, but few Taiwanese companies were capable of making such products independently until the late 1970s, according to MIRDC.

MIRDC's report says that the industry was born in Taiwan in 1966, when a local company, Tungpei Industrial Co., Ltd., set up a joint venture with Japan's NTN Corporation to produce roller bearings. San Yun Industrial Co., Ltd. was founded in 1972 as the second Taiwanese bearing maker. In those days nearly all bearings needed locally were imported, with the industry comprised mostly of local traders, coupled with the two abovementioned manufacturers, and only a few maintenance centers run by foreign suppliers.

Later, as local companies forged partnerships with foreign peers to introduce bearing-related technologies and build production lines in Taiwan, the industry significantly expanded and swiftly developed after 1985, with the number of makers doubling to 32 between 1990 and 1980, MIRDC indicates.

A couple of Taiwanese makers with high profiles globally today were founded in the 1980s, including Taiway Industrial Co., Ltd., a joint venture between NTN, British GKN and Taiwan's ROC Spicer Ltd. in 1983 to make CV (constant velocity) joint bearings; Chung Yuan Daido Co., Ltd., an automotive bearing manufacturer founded by Japan's Daido Metal Co. and Taiwan's Yeh Shan-mu Group in 1984; and Nachi C.Y. Corp., founded by Taiwan's Chien Hsin Trading Co., Ltd. and Japan's Nachi-Fujikoshi Corp. in 1987 to produce ball bearings and related components, whose annual output surged to 15 million units in 1993 from only 6 million units in 1990, only next to Tungpei; and Hiwin Technologies Corp., a ball screw maker set up in 1989.

Mainly driven by these major companies, Taiwan's output value of roller bearings and related products soared to NT$3.29 billion in 1989 from NT$1.5 billion in 1985 at a compound annual growth rate (CAGR) of 30.4%.

Status Quo

MIRDC points out that the industry's current development hinges on the prosperity of the three major downstream sectors, machinery, automotive and PTW and electric products, as domestically-made ball bearings, commanding the largest share of the industry's overall output, are mostly used in motors and ceiling fans, while the second-biggest category, needle bearings, are mainly applied in motorcycles.

Industry growth exploded from 1985 through 1995, when output value surged to NT$5.82 billion from NT$1.13 billion, then steadily rose over most years during 2001-2010 to reach an all-time high of NT$9.43 billion by 2010, shows MIRDC's report.

Quantitatively, however, industry output had fluctuated and stagnated between 22,000 and 26,000 tonnes in the past years after hitting a zenith of some 26,900 tonnes in 2004, then recording 24,987 tonnes in 2010. MIRDC attributes such intermittent downtrend in output volume to mostly local downstream manufacturers moving offshore and underselling competition from emerging rivals.

Average price of output per kilogram grew to NT$377 in 2010 from NT$249 in 2002, the report notes.

From 2006 through 2010, the domestic market for bearings and related products consistently expanded as well to NT$14.4 billion from NT$12.1 billion, 15-17% of which fed by local manufacturers, shows the report.

Imports

While more Taiwanese companies are making bearings, the domestic market, nevertheless, relies mostly on imports, primarily due to relatively superior quality. Imports are still better than locally-made bearings in terms of precision, noise, lifespan, diversity and reliability, according to MIRDC.

MIRDC's report shows that bearing imports rose to NT$11.93 billion in 2010 from NT$10.25 billion in 2006, with average price of NT$448.2 per kilogram. Ball bearings amounted to NT$5.89 billion, or a 49.3% share of the industry's total imports, as the most popular item, followed by cylindrical roller bearings and tapered roller bearings, which commanded a 9% and 8.6% share, respectively.

In 2010, imports from Japan totaled NT$5.08 billion to account for 42.6% of the total, making the country Taiwan's largest supplier of bearings and related products. Meanwhile, China, Germany, the U.S. and Italy commanded a 19.5%, 10.5%, 5.7% and 4.5% share, respectively, as the other four biggest suppliers to Taiwan, according to MIRDC's report.

Exports

Compared to imports, bearing exports grew moderately during the same period. According to the report, exports totaled NT$5.396 billion in 2006 and NT$6.931 billion in 2010, with the five-year CAGR of only 5.5%, and only 2.1% CAGR in volume.

Separately, 55.1% of the industry's exports were ball bearings in 2010, valued at NT$3.82 billion with 2006-2010 CAGR of 8.1%. The biggest three outlets of such products were Singapore, Germany and the U.S., which bought 17.7%, 10.5% and 10.3% of the industry's total in the year.

Other ball bearings and roller assemblies had been the industry's second-largest exports, which totaled NT$726 million to command a 10.5% share of the total in 2010, when exports of needle bearings reaching NT$472 million for a 6.8% share as the industry's third-best seller.

Slow Development

MIRDC concludes that Taiwan's bearing industry perhaps has its growth choked as the abovementioned figures suggest for a variety of reasons, including insufficient R&D spending, limited financial resources and high labor costs at home. Worsening the situation is that many operators making low-to-mid range products are racked by underselling competition from emerging competitors globally, also failing to further enhance their exports to drive up overall output over the past years.

The researcher furthers that the industry is currently composed of some 56 manufacturers, mostly typical small and medium-sized enterprises who are generally stymied by resource limitation to upgrade products and ramp up output on their own.

Another structural problem that hampers the industry's sustainable development is overdependence on foreigner suppliers, which is partly due to lack of homegrown technologies. MIRDC notes that larger companies, like Tungpei and Nachi C.Y., depend on technological support from foreign partners to produce standardized, high-precision bearings; and smaller manufacturers, who mostly work on lower-end bearings for light-duty, low-surface-speed applications, still can't be weaned from foreign supply of key materials and components.

>Taiwan Bearing Industry's

Output and Domestic Market Demand

Year

2006

2007

2008

2009

2010

Output Value

NT$7.234 Bn.

NT$7.654 Bn.

NT$8.064 Bn.

NT$6.238 Bn.

NT$9.425 Bn.

Exports

NT$5.396 Bn.

NT$5.641 Bn.

NT$6.145 Bn.

NT$4.914 Bn.

NT$6.931 Bn.

Imports

NT$10.251 Bn.

NT$10.083 Bn.

NT$11.866 Bn.

NT$8.280 Bn.

NT$11.929 Bn.

Domestic Market Demand

NT$12.088 Bn.

NT$12.095 Bn.

NT$14.324 Bn.

NT$9.603 Bn.

NT$14.423 Bn.

Growth Rate of Demand

0.1%

18.4%

-33.0%

50.2%

Import Dependence

84.8%

83.4%

82.8%

86.2%

82.7%

Source: Industrial Development Bureau and

Taiwan Customs (compiled by Metal Industrial Research & Development Centre)

>Taiwan's Bearing Imports

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