Taiwan's DIY hand tool makers step up cross-strait labor division

Taipei, Nov. 7, 2003 (CENS)--Affected by the price hike on raw materials, Taiwan's leading manufacturers of do-it-yourself (DIY) hand tools are adjusting their operating strategies.

Chiu Ting Machinery Co., Ltd., specialized in the production of woodworking planers, has begun shipping cast iron back to Taiwan for assembling machines. Rexon Industrial Co., Taiwan's leading manufacturer of DIY woodworking machinery and bench-type machine tools, has moved production lines for low-profit items to the mainland.

Besides studying the feasibility of moving some production capacities to the mainland, Chang Type Industrial Co., the world's largest manufacturer of 10-inch circular saws, is considering producing cast aluminum and operating CNC machining job on its own, rather than commissioning outside specialist plants. The company's move is designed to boost its profit margins through internal vertical integration.

The prices of raw materials for DIY hand tools have gone up since the end of last year, with the price of cast iron going up 20% and that of iron climbing by 50%. Recently, the price of cast iron is said to rise further by 7% to 10%.

Most of Taiwan's manufacturers of DIY hand tools are producing on the OEM and ODM (original equipment/design manufacturer) basis. They have to shoulder the price hike in raw materials to see profit margin decline.

Despite the decline in profit margin, domestic manufacturers of DIY hand tools boasted they would enjoy continued sales growth in the fourth quarter of this year. For instance, Chiu Ting estimated its sales revenue would reach NT$530 million (US$15.58 million at US$1:NT$34) in the fourth quarter, hitting a new single-quarter high. Rexon posted NT$504 million (US$14.82 million) in sales revenue in October, up 15% from the previous month's NT$435 million (US$12.79 million). Meanwhile, Chang Type said it would deliver self-developed bench-type sawing machines in the fourth quarter of this year and then introduce some other innovative machines, including radial sawing machines.

Chiu Ting is the world's largest manufacturer of woodworking planers. The company also specializes in the production of belt sanders and some sophisticated machine tools such as bench lathes and computerized numerically controlled machining centers.

Ho Tsung-hsien, sales manager of Chiu Ting, said because of the price hike on raw materials, his company has seen gross operating profit decline to current range of 16% to 18% from the average 18% up to 22% last year. Although the company has recently raised its product prices by 3% to reflect the increased costs for materials, it hopes its product prices can be raised by 10%.

Chiu Ting has begun shipping cast iron from its Huiyang plant in Guangdong Province, mainland China back to Taiwan for assembling machines. The company said the adoption of the cast iron made in mainland will help it save production costs by 20%.

To mitigate the impact of the price hike on raw materials, Rexon has gradually moved production lines of drilling machines to the mainland over the past year to use the cast iron produced by its subsidiary in Hangzhou, Zhejiang Province.

Using aluminum ingot and irons as materials to produce DIY hand tools, Rexon said it has seen gross operating profit decline by 1% over the past several months just because of the price hike on raw materials. The company said it would further negotiate with the contract manufacturers of iron products, hoping to attain price-competitive materials.

To counter the price hike on materials, Chang Type chairman Chang Ching-chin said his company would move to disperse operating risks by expanding production lines to cover the products with high profit margin. To this end, the company will develop iron-cutting machine, tile-cutting machines, and automated door-closing devices with sensors.