Falcon Machine Padding Mainland China Nest

Falcon Machine Tools Co., Ltd., Taiwan's leading manufacturer of computerized numerically controlled (CNC) grinding machines and machining centers, is speeding up its deployment in mainland China and will also step up expansion of its marketing channels there, according to the company's chairman and CEO Chang Pao-ming.

Since its establishment some 25 years ago, Falcon has focused its operations on the development of grinding machines and other added-value machine tools. The company's division-of-labor deployment across the Taiwan Strait has been taken both to expand sales in mainland China and to the United States and the Europe.

Chang believes mainland China's machine-tool market will take off within the next three to five years, and says Falcon is concentrating on increasing mainland sales of its CNC profile- and surface-grinding machines, which are among its most profitable products..

"Although we entered the mainland market later than some domestic machine-tool manufacturers, we have not pushed against proper business principles in an effort to catch up--our rule has been ‘steady and methodical,'" Chang notes. "For instance, two years ago we established a subsidiary called Chevalier Machinery (Shanghai) Co. in Jiading Industrial Park, near Shanghai. Instead of purchasing the land lot and existing plant facility there, we leased them to avoid an unnecessarily large initial capital outlay and refurbished the plant. The investment was made through our overseas holding company registered in the British Virgin Islands."

With a total investment of NT$34.57 million (US$1 million at US$1:NT$34.5), the Jiading plant began production of CNC grinding machines and CNC machining centers in March last year. In another mainland move, taken in the middle of last year, Falcon invested NT$14.93 million (US$433,000) to establish an electronics subsidiary, Falcon (HaiKou) Co., Ltd., setting up a manufacturing plant on Hainan Island, off China's southern coast, to produce video and audio equipment.

The two subsidiaries are not yet in the black, but Chang remains untroubled. "I anticipate substantial sales growth for the full year this year in the mainland," he states. "We are quickly laying a solid foundation there, focusing on increasing the number of our distribution points and raising market share. The implementation of our China/Taiwan division-of-labor strategy is strengthening our international competitiveness and will enable us to take a slice of the lucrative mainland machine-tool market within the foreseeable future."

Chang sees promising prospects for profile- and surface-grinding machines in the mainland because such products best meet the demands of the mainland's fast-growing automotive-parts industry. "We have already established strong brand recognition for our grinding machines in the mainland," he notes. "Half of our sales of CNC grinding machines in the mainland are to automotive-parts makers, with the other half going to aerospace- and textile-machinery makers. Most important, many of the machines are sold as part of whole-plant packages, which generate more profits than those sold on a single-unit basis."

Falcon has been making an all-out effort to augment its distribution in the mainland since last year. The company has to date set up dedicated distribution outlets for its grinding machines and machining centers in Hebei, Sichuan, Shandong, Shanxi, Guangdong, Jiangsu, and Zhejiang provinces. As a result, substantial growth in sales revenue is expected this year, with total sales revenues expected to challenge the RMB120 million mark.

Currently Falcon's headquarters in Taiwan is responsible for shipping such high value-added products as CNC surface grinding machines to mainland while Chevalier Machinery (Shanghai) is in charge of producing medium- and low-price manual and semi-automated grinding machines and machining centers to meet the demand of mainland customers.

Over the past several months Falcon has been engaged in a full-scale corporate-reengineering program, streamlining personnel and reducing inventories. In addition, it will dispose of all idle assets and sell most of the shares it holds in non-core businesses.

To make its production lines more flexible, Falcon has commissioned specialist manufacturers to make some low-end products on an original equipment manufacturer (OEM) basis. The company believes the adoption of flexible production methods will help it cut personnel costs and better handle rush orders.