Taiwan's Hand Tool Makers Turns Out 0.4% More Products in 2008
2009/03/05 | By Steve ChuangMarket diversification helped to offset sagging orders from the USA
While the Big Three automakers teetered, with Saab also filing for bankruptcy and Opel feeling insecure due to GM's woes, and the construction sectors in the USA and Spain reportedly battered, the hand tool makers in Taiwan still managed to turn out products valued at NT$59.26 billion (US$1.7 billion) in 2008, a 0.4% growth, with its exports, however, dropping slightly by 0.7% annually to NT$55.7 billion (about US$1.6 billion at US$1: NT$34.8), according to the statistics compiled by the ITRI (Industry & Technology Intelligence Services) of the Department of Industrial Technology, under Ministry of Economic Affairs. Such feat is not only remarkable considering that some of the world's largest banks faltered in 2008, but also places Taiwan's hand tool sector on relatively solid footing in the wake of the sub-prime mortgage turmoil stateside and the global recession.
Had the financial fallout spared Taiwan's hand tool makers, they would have very likely achieved much better sales growths in 2008. Given that the American DIY market had been sapped by the nation's financial system collapse early in the year, Taiwan's hand tool makers still exported 2.5% more products annually in the first quarter, totaling NT$20.88 billion (US$600 million), due to solid sales growths in Australia, Belgium and Finland. In other words, market diversification apparently helped Taiwan's hand tool makers minimize the risk of overdependence on the world's largest consumer market.
Domino Effect
However, the sub-prime-mortgage crisis in the U.S. undermined the solvency of major lenders to trigger the credit crunch that eventually sparked the global recession, with the domino effect striking hard the Taiwanese hand tool makers in the second half. Diminished spending power, after all, took its toll on hand tool purchasing, which are not priorities for most consumers. Noteworthy was that the U.S.'s leading brands as Armstrong®, Jacobs®, Allen®, K-D® and Holo-Krome® brands under the Danaher Group and Stanley suffered sales declines in the third quarter, which hindered orders placed with their OEMs (original equipment manufacturers), who saw export orders decrease by 20-30% and were forced to cut either salaries or working days to cope with the slowdown.
In the fourth quarter alone, Taiwan's hand tool makers turned out only NT$14.58 billion (US$419 million) of products, sharply declining 12.6% from a quarter earlier or 1.8% from a year earlier, with NT$13.94 billion (US$401 million) in exports, dropping 10.3% quarterly and 2.2% annually, and the rest in domestic sales, according to the ITRI.
Fortunately, declines in exports to Europe and the USA were offset mainly by contract orders from emerging countries like Russia, Brazil and India that grew overall by around 30% annually. Having built globally-recognized reputation for quality and competitive prices, Taiwan's hand tool makers could successfully tap market diversification strategies.
Gloom Continues in 2009
Official figures on the GDP and exports in 2009 do not paint a pretty picture for the hand tool sector in Taiwan, which is likely to continue suffering another wave of recession.
After reporting a growth in the 2008 GDP at only 0.12%, in sharp contrast to 5.7% in 2007, officials at the Directorate-General of Budget, Accounting and Statistics (DGBAS), under the Executive Yuan (the Cabinet), forecasted the 2009 GDP to decline by 2.97% and exports to plummet annually by 31.81%, 29.36% and 21.02% in the first three quarters of the year, respectively.
The latest report by the Ministry of Economic Affairs, Taiwan's export orders fell a record 41.67% year-on-year to only US$17.676 billion in January.
Ray of Hope
To strive to cut cost to weather the downturn, Taiwanese hand tool makers, banding with peers from the machinery, hardware and fasteners sectors, have appealed for price reductions in the key raw material steel, with such effort proving productive. China Steel Corp. (CSC), the largest steelmaker on the island, will cut the domestic prices of various steel products starting the first quarter.
Barraged with criticism from downstream clients for its higher-than-expected steel prices, CSC has already cut 22% on average its quotations for the first quarter of 2009. Perhaps realizing that its own business hinges on improved cost competitiveness of downstream manufacturers, the CSC, despite being the monopoly steelmaker in Taiwan, recently announced to further cut about 14% its steel prices for orders in April and May.
The CSC's latest quotations on domestic steel products show cuts to a wide range of items, including NT$4,166 (US$119.71) on a metric ton of steel plates, NT$3,500 (US$100.58) on steel rods and bars etc., with such reductions to help hand tool makers to win more export orders.
Product and Market Diversifications
Just as the saying “God helps those who help themselves,” the hand tool makers must also work harder to find ways to boost global competitiveness through product and market diversifications, according to ITRI's analysts.
They indicated that, despite economic stimulus programs adopted by European and North American nations, the biggest importers of Taiwan-made hand tools, these developed countries can't significantly revitalize local markets this year, mainly because they need more time after being struck the hardest by the financial fallout.
Instead, Taiwan's hand tools makers must pay more attention to promoting products in emerging markets in East Europe, Latin America and Asia than in the past, especially when reports are that Asia and India may do better amid the global recession, with such nations still needing ample tools for DIY, construction and auto repair applications. To effectively carve out niches in these promising markets, they could also promote products under own brands, which is feasible since Taiwan-made hand tools, featuring a perfect balance of price and quality, have proven quite competitive there.
Besides, Taiwanese hand tool makers should also introduce new technologies to develop more functional, value-added products, like digital hand tools, and international standard-compliant medical devices. Plus, cross-industry alliances in Taiwan is a savvy strategy to strengthen hand tool makers' competitiveness, according to ITRI.
Taiwan Hand Tool Industry's Output Value | ||||
| Q3, 2008 | Q4, 2008 | 2008 | Year-on-year Growth |
Total Output Value | NT$16.70 B. | NT$14.58 B. | NT$59.26 B. | 0.4% |
Export Value | NT$15.54 B. | NT$13.94 B. | NT$55.70 B. | -0.7% |
Source: ITRI