Tong Lung Overhauls Manufacturing Operations to Keep Sales Growing

The Tong Lung Metal Industry Co., Taiwan's leading lock maker, is trying to cope with its Chinese competition by transplanting its lock production to the Philippines and converting its Taiwan factories to the production of kitchen appliances.

The conversion of the Taiwan factories to the production of both own-brand and OEM (original equipment manufacturer) kitchen appliances, mostly targeted at the domestic market, is expected to be completed within three years. The firm's water heaters, gas ovens, and range hoods were put on sale in March in retail outlets operated by the Test Rite Group, Tong Lung's parent company and a leading retailer of household wares, and now rank third in sales of such products on the island. Production of these items has been outsourced in the past, but in the wake of the enthusiastic market response the company decided to start turning out kitchen appliances at its own factories in December.

Meanwhile, Tong Lung will continue expanding the capacity of its manufacturing base at the Subic Bay Free Port Zone in the Philippines. The aim is to make Subic the company's main lock-production base in three years, leaving only R&D operations in Taiwan. The Philippine manufacturing base is now turning out 1 million locks per month (a figure that was expected to reach 1.2 million by the end of the year), mostly lower-end models; this is double the output at the Taiwan factories, which focus on higher-end products.

The Philippine plants are now running at full capacity to fill an influx of orders, notably from Black & Decker, one of the three largest lock brands in the U.S. Black & Decker, among other customers, is attracted by Tong Lung's low production cost at a time when Chinese suppliers are being plagued by soaring labor costs and appreciation of the renmimbi. In addition, foreign buyers are impressed by the improving quality of products from the Philippine base, whose revenue shot up over 40% to NT$2.3 billion (US$74.2 million) in the first three quarters of 2010.

Tong Lung has cooperated with Taiwanese chipmakers in developing two smart electronic lock models, an electronic RFID (radio frequency identification) lock and second-generation electronic push-button lock. These new products were expected to hit the market at the end of 2010, initially for supply mainly to local hotels and luxury houses and then expanding into overseas markets, particularly China and the U.S.

The company raked in an after-tax net profit of NT$181 million (US$5.8 million), or NT$2.2 per share, in the first three quarters of 2010. After-tax net profit for the year as a whole was expected to hit NT$240 million (US$7.7 million), up 19%, on revenues of NT$3 billion (US$96.8 million).