R&D Center for Taiwan Hand Tool Makers May Become Reality in 2010

Many years of effort spent on production capacity and R&D are enabling Taiwan-based hand tool makers to turn out better products versus their emerging rivals, hence helping them successfully build overseas footholds in the global supply chains.

Statistics from the MOEA's Industrial Technology Information Services (ITIS) show Taiwan's hand tool sector produced NT$12.8 billion and exported NT$12.5 billion (around US$400 million and US$390 million at US$1: NT$32) of items in the second quarter, dropping 13% and 11% from a year earlier.

The first half of the year saw the sector's production value total NT$28.3 billion and export NT$27.5 billion, respectively down 0.8% and up 2.3% from a year earlier, with the export unit price also growing 0.6% to NT$207.4 per kilogram.

As in many other businesses, the American sub-prime mortgage turmoil and ensuing global credit crunch have rocked its economy-depressing not only the consumer market for DIY (do-it-yourself) tools but also the construction sector stateside. One recent CNN TV report said a sizable builder in the U.S. has had its financing severed by the Bank of America, hence causing the firm to halt construction of a batch of semi-finished homes. Such trend spells gloom for Taiwan-based hand tools exporters, who ship over a quarter of their output stateside yearly.

Despite enjoying an export growth of over 10% in maintenance tools, Taiwan-based suppliers have seen the exports of hand tools to the U.S. decline by 7% to only NT$7.4 billion in the first half of the year. Such slowdown has alarmed some insiders to move to cope with new strategies.

One such strategy for some suppliers has been to divert selling hand tools to East Europe and other emerging markets. Although the sector's production and export value are both expected to continue rising for entire the year, but with the global financial meltdown looking to simmer indefinitely despite the recent bailouts, as well as rising raw material prices, Taiwan-based suppliers have anything but their work cut out.

Drawing from his experience of having taken charge of technical cooperation with quite a few small and medium hand tool suppliers in Taiwan, Yang shares insights and opinions about what is in store for the sector.

The MIRDC is a non-profit organization engaged in R&D of state-of-the-art technologies for metal and related industries in Taiwan, and has helped to upgrade production technologies at a number of manufacturers in traditional industries, including basic metal, metal products, machinery, electrical appliances, transportation equipment and precision instrument.

Fortuitously Now

Yang said that Taiwan-based DIY tool makers' market shares are gradually being encroached upon by both the global recession impacting the U.S., and dumping of cheaper tools from China and emerging Southeast Asian countries. However, the light at the end of the tunnel is that growing Taiwan exports of auto repair and garden tools to Europe and emerging countries, like India, are offsetting such sale declines in the U.S.

The ITRI statistics show, for the first half, that Taiwan-based hand tool makers posted strong growth of up to 15% in exports, mainly garden tools, wrenches and steel hand tools to Eastern Europe, especially Belgium with a 40% surge from the corresponding figure a year earlier. Exports to Holland, Italy, Sweden and Finland also grew between 3% and 6%.

Another hopeful prospect, despite waning exports of DIY tools to the U.S., is that Taiwan-based makers still expect to see production value rise 8.4% to NT$64 billion and export increase 9.6% to NT$61.5 billion this year from last year.

"In fact, various factors seem to be working for Taiwan-based suppliers-that now is the best time to expand global market shares," Yang stated. "Rising material and manpower costs are forcing major global brands to outsource hand tool production, as well as switch to cooperate with Taiwan-based makers."

Yang added that Taiwan-based makers wield more influence as global suppliers than ever before, partly due to being backed by well-developed production capability and ample supply of quality steel from China Steel Corp. and partly due to the clustering effect-with many small and medium suppliers boasting various capacities close together enabling production flexibility for rapid delivery.

Opportunity Masked as Challenge

Taiwan-based suppliers currently rely on auto repair tools as export staples for the North American market, with such products having to meet DIN standards. "Most Taiwan-based makers can easily comply with DIN now, so can most rivals from China and emerging countries in the near future," Yang stressed.

To cope with the inevitable closing of technological gaps, Yang advises Taiwan-based makers to retain their competitive edge by going upmarket-to turn out tools for professionals in, for example, factories and assembly plants. "A professional-grade tool is often used for 8-hour shifts and hence has to be lightweight, very durable, structurally tough, and feature digital readout," he said.

Although Taiwan-based hand tool makers can meet most global standards, they still cannot turn out professional-caliber tools. "In other words, they need to measure up to higher levels of quality to tap such segment," Yang said. "Meeting this challenge takes painstaking efforts in production upgrades but would realize better profitability."

An encouraging news is afoot: the Industrial Development Bureau under the MOEA and China Steel are planning to set up an ERC (Engineering Research Centre) in Taichung County in central Taiwan, a hub of hand tool makers, by 2010. The ERC will work with MIRDC, National Chung Hsing University and hand tool makers to develop high-end tools for professional users, according to Yang. Such teamwork integrating official and private resources will certainly help to strengthen the hand tool sector's technological superiority over emerging rivals in China and Southeast Asian countries.

Door of Opportunity

Another door of opportunity slowing being pried open by hand tool makers in Taiwan is medical instruments, the quality of which must meet U.S. FDA (Food and Drug Administration) regulations. According to Yang, some Taiwan-based makers can turn out FDA-approved Class I and Class II medical devices, which are non-life-sustaining tools as surgical tweezers and scalpels, unlike Class III devices that sustain, support life and hence have to meet stricter quality standards. Regardless, the former two classes must feature antibiotic and anti-corrosion finish, while Class III tools have to be of specialized materials.

Another hurdle for Taiwan-based suppliers is that FDA regulations govern a huge range of medical devices, each of which must meet specific standards. The bottom-line to acquire FDA approval is significant investment and enormous paperwork. A technological barrier also exists: Taiwan-based tool makers are often on foreign turf to work with high-tech metals as stainless steel and titanium alloy, which are often required to turn out FDA-approved surgical tools. In fact, there is likely nobody in Taiwan even equipped nor knowledgeable enough to repair aluminum bodywork on Italian exotics as Ferraris.

As a first step to overcome such hurdles, MIRDC plans to provide the whole FDA regulations and have it translated into Chinese as reference by 2010-aiming to help local suppliers eyeing to tap such niche. Also, the institute will try to offer training for makers to help them penetrate the market, Yang said. "With help from MIRDC, I believe Taiwan-based makers will clear the existing hurdles in production technology and standards in the near future."

Tools to be Reckoned With

In addition to auto repair tools, Taiwan-based suppliers are also prioritized by major global brands for garden tools and digital tools. Having successfully developed female-friendly designs, structural improvements and enhanced materials, as well as effort-saving functions, Taiwan-based makers of garden tools are widely praised by foreign buyers for their R&D knowledge and as ODMs (original design manufacturer).

"Currently Taiwan-based suppliers of garden tools are still smug as their Chinese counterparts haven't yet widely applied steel alloys in their products," Yang explained. "This is critical why they can't progress significantly in product quality."

Also Taiwan-based makers are making headway with their digital torque tools globally. Scores of makers have jointly ventured into production of digital tools, with Eclatorq Technology Co., Ltd. being the foremost supplier of this kind on the island; while some are engaged in R&D of chip modules, aiming to set up a fully integrated supply chain for such product.

"Backed by proven quality, Taiwan-made digital torque tools are well received in North America, where low-end models are DIY tools and high-end models are aftermarket tools," Yang said. "But making such tools more durable under various ambient conditions is imperative for sustained business."

Finally, Yang urged Taiwan suppliers to be more global-marketing-savvy to achieve even better performance, drawing from his real-life experience of helping local hand tool makers: Taiwan-based suppliers can build global image by aggressively participating in international design and innovation contests, like Germany's iF Awards. "Winning design awards is an excellent way to impress foreign buyers-effectively associating Taiwan-made tools and makers' names with world-class quality." Also, joint promotion in emerging markets-via traveling in groups and booth-sharing in trade fairs-is also feasible, economical marketing given limited resources.