Pneumatic Power Tools Taiwan Powers Ahead, Unbowed by High Steel Prices

In spite of surging steel prices' a large number of pneumatic power tool suppliers in Taiwan retain a positive view about their business outlook for 2005.

Their roseate view owes partly to their ability' under current market circumstances' to pass higher material costs onto their customers' most of which have accepted higher tool prices.

In the first five months of 2004' Taiwan's pneumatic power tool exports rose 32% to NT$6.3 billion (US$198 million at US$1:NT$32)' from the 2003 comparison period' according to the Taiwan Hand Tools Manufacturers' Association. Exports for 2003 totaled NT$12 billion (US$380 million)' surging 13% from 2002's NT$10.8 billion (US$337.9 million).

Many Taiwanese suppliers hope to further boost their export value by promoting branded products' which command higher margins than tools sold on original equipment manufacturing (OEM) basis.



Growing Fast

Sulien Chang' sales manager of Kuani Gear Co.' Ltd.' states that his company estimates revenues will double in 2005 after growing 34% in 2004. "We are doubling our workforce now to cope with a three-month order backlog'" she reports.

Kuani Gear produces four major types of pneumatic power tools--impact wrenches' air ratchet wrenches' stubby air ratchet wrenches and orbital air sanders. They are used for heavy-duty work at car workshops and auto assembly lines.

Chang attributes her company's success to its specialization in the professional tool market. "Tools for professional use command higher profits than do tools for household users' although the professional market is much smaller than home market'" she explains.

The company began producing professional pneumatic power tools in the 1990s as a contract supplier of gears for foreign big-name tool suppliers. Today it sells many of its tools under the "Kuani" brand.

Although Kuani has many rivals in Taiwan' it continues to hold an edge over them' especially on the quality front' according to Chang. "We have invested heavily in advanced production equipment' including 100 CNC machines and an FMS [flexible manufacturing system] to ensure our high quality level. We have more CNC machines than any other Taiwanese manufacturer' and we are the only Taiwanese manufacturer in this line with FMS'" Chang boasts.

With its FMS capability' Kuani has been able to follow an efficient around-the-clock production schedule. The system automatically fits molds onto the production lines in accordance with pre-set programs.

Chang says that mainland Chinese manufacturers of pneumatic power tools are where their Taiwanese counterparts were 30 years ago. "At that time' many Taiwanese suppliers began shifting to production of tools for professional users'" she says.

Nevertheless' Chang expects the mainland eventually to catch up with Taiwan. "That's why Kuani has to constantly move forward and turn out ever better products."

One of Kuani's latest products is its patent-pending KI-1450 impact wrench. The tool is devised with a unique hammer mechanism' which dramatically boosts the tool's durability and improves torque by 35%. The tool is also equipped with a three-way air intake design that adds 10% more horsepower delivery than wrenches equipped with normal air-intake designs. This tool uses engineering plastic' making it only half as heavy as rival models. It is also much quieter than comparable models' with a rating of 85 decibels compared with an industry average of 90 decibels.

So far' Kuani has registered 67 patents' attesting to its excellent product-design capability. They can be seen on the company's own-brand original design manufacturing (ODM) products. Own-brand products now account for 40% of the company's total output' while ODM and OEM output represent a combined 60%. Every year' the company invests roughly 3% to 4% of its total revenue on product development.

The company ships around 500'000 tools a year worldwide. Chang confers with her company's overseas agents to map out marketing plans every year. By keeping a close eye on market trends' Kuani has been able to grab about 10% to 15% of the global market share each of the past few years. The company now has seven exclusive regional agents overseas in addition to numerous general dealers.

Chang feels that her industry has been less impacted by sharply rising steel prices than have other hand-tool segments. This is because buyers of high-end pneumatic power tools are more able to accept higher prices on high-cost tools.



Automating Production



Like Chang' Lin Hen-shan' president of Hong Bing Pneumatic Industry Co.' Ltd.' feels optimistic about his company's business prospects. Hong Bing' he says' has boosted revenue by 30% in each of the past few years' and profit margins have steadily improved.

Lin attributes the strong performance to his company's increasing reliance on automation. "Automation allows us to boost quality and cut our labor force'" Lin says. His company recently installed two expensive machining centers. Now it is computerizing its warehouse' which stores over 100 types of power tools including its core product-air screwdrivers.

The company's tools are for professional users in the automobile workshop' electronics' toy and machinery industries. "Tools for factories and workshops can outlive tools for household users by at least threefold thanks to their better design and materials'" Lin reports. His company depends on suppliers in industrially advanced countries for around 70% of the alloy metals used in its tools. The automatic switches' clutches and motors on his company's tools are made in Taiwan.

Lin claims his company delivers around 100'000 air screwdrivers a year and accounts for half of the Taiwan-made air screw drivers destined for mainland China. The company also exports to Southeast Asian nations' Australia and the United States. Around 80% of the company's drivers carry its brand name "Onpin".

Hong Bing began promoting its brand name around 20 years ago' when it diversified into power-tool production from hand tools.

Over the past few years' Hong Bing has invested around 10% of its revenue on product development' earning the company nearly 100 patents' Lin says. Among the company's latest patents is one for a design that enables its airscrew drivers to generate 70% less noise as compared with rival models.

Lin recently raised the prices of his tools to reflect the company's rising steel costs. He says most of his customers have accepted the price hikes considering that the tools are costly to make.

Lin is optimistic about the power-tool market' saying many factors will drive up consumption of the tools worldwide. "The first and foremost is that prices will fall. Second' demand is rising fast in emerging economies like Eastern European countries'" he says. In preparation for the market boom' his company is planning to open a warehouse in Vietnam. The company has contracted dealers in over 20 countries.

Competitive Business

While demand may be surging' competition is also intensifying' according to Jackie Hung' chairman of Bao Yeong Industrial Co. In response' his company has shifted focus from power nailers to airscrew-drivers. "When I opened my business 13 years ago' the domestic industry had only around 10 power-nailer manufacturers. Today there are around 100'" Hung estimates.

Since shifting to the production of air screwdrivers' Bao Yeong has boosted its revenues by around 20% in each of the past five years' Hung says.

To keep his competition at bay' Hung has adopted a business strategy that emphasizes the production of specialty high-end items' since barriers to entry for such markets are much higher than for production of common-specification products.

In the power-nailer sector' Hung has focused on guns that can shoot nails ranging from 50mm to 100mm in length. The global market for such tools is small' he admits' but it is sufficient to account for a large proportion of the 50'000 nailers made in Taiwan each month' he estimates.

Each year' Bao Yeong spends around 2% of its revenue on product development' allowing it to meet the goal of presenting four to five new products every year. Its cumulative expenditure on mold building has so far reached NT$40 million (US$1.2 million).

To ensure quality' the company uses U.S.-made or German-made bumpers and driver blades in its power nailers. Before these nailing guns are shipped' they are well examined with computerized gas-leakage testing instruments and other advanced testing devices. All of Bao Yeong's guns are CE certified and guaranteed for at least 200'000 consecutive operations.

The company exports half of its output and sells the rest to the domestic market. The company uses its "Sunco" or "Suntop" brand on its domestic-sale products and some of its exports. At home' the company sells part of its output through the home-center channel B&Q. It is also contracted by tool supplier Rexon Industrial Co.' Ltd.

Although mainland Chinese rivals have lured a lot of business from Taiwan' Hung thinks the mainland's power-nailer industry still can not compete with Taiwan's in terms of quality. "Nail makers in Taiwan have developed consistent-quality products' which can be used with different types of gun. The mainland still lacks this advantage'" he notes.