Forum Sheds Light on Taiwan's Hand Tool Industry's Prospects

After several decades of development, Taiwan's hand tool industry has grown and achieved varying degrees of success in quite a few segments, including tools for DIY, auto repair, medical care, gardening, construction and even digitized versions. Perhaps driven by the automotive market that continues to simmer in China, India and elsewhere, the auto repair tool sector is seen as the most promising to provide Taiwan's suppliers a steady basis for growth, a topic which took center stage among the panelists and experts at the Hand Tool Industry's Clustering and Innovation Forum.

Held on October 29, 2010 in Sinkansen Grand Hotel in the central city of Taichung, the forum was organized by the Metal Industries Research & Development Center in association with the Department of Industrial Technology under the Ministry of Economic Affairs and Taiwan Hand Tool Manufacturers' Association (THTMA) in Taichung, also the hub of hand tool manufacturing, with nearly one hundred industry insiders packing the venue.

Corporate managers and decision-makers, a university professor, MIRDC ITIS Project analyst and THTMA representatives and panelists discussed issues related to Taiwan's suppliers of auto repair and maintenance tools and ways to strengthen their roles in the global supply chain, which shed light on why the auto repair segment is emerging as the goose to lay the golden egg for the industry.

Moving Upmarket
H.C. Fu, head of the MIRDC, opened the panelist discussion, saying that the MIRDC has fully utilized resource-sharing to help Taiwan's traditional manufacturing industries to boost competitiveness by forming around 30 cross-sector R&D alliances over the past few years, involving over one hundred companies.

Citing the Veterinary Surgical Instrument R&D Alliance, established on July 15, 2009 and consisting of the MIRDC, three hand tool manufacturers—K&W Tools, Kuang Yuang Industrial and Top Well Tools—Taiwan's leading veterinary centers, National Veterinary Hospital and National Chung Hsing University, Fu emphasized that although Taiwan-made hand tools are recognized worldwide for top quality and competitive prices, others as DIY and lower-end tools have been almost displaced by cheaper ones made in China and emerging countries.

To cope with the underselling rivalry and achieve sustainable development, Taiwan's suppliers have to move upmarket by tapping synergy or teamwork, primarily because manufacturing higher-end tools calls for specialized R&D of materials and manufacturing methodologies, which is typically beyond the capacity of any single hand tool maker, stressed Fu, adding that forming cross-sector alliances like the Veterinary Surgical Instrument R&D Alliance will therefore become an industry trend.

Fu also emphasized the importance of value creation and marketing, saying: “Every year Taiwan consumes 10 times more steel than the global average, but mostly for OEM (original equipment manufacturing), which is also the main revenue generator for Taiwanese hand tool makers but creates less value compared to ODM (original design manufacturing) or OBM (original branding manufacturing). So enhancing industrial design and branding capabilities is also top priority for Taiwan's suppliers.” An over-simplified view is the carmaker of a well-known brand makes more profit than what it pays a subcontractor or OEM for supplying brakes or windshields. Also it's a fact that generic products always sell for less than branded counterparts.

Trend-sensitivity
M.H. Lin, director of the manufacturing department at Central Motor, a Taiwanese maker of Lexus sedans, said that although a brisk car market can create for Taiwanese tool makers considerable opportunities, criteria and standards for quality and practicality of auto repair tools can vary with automotive developments, meaning only those sensitive to market trends and able to build tools for the newest computerized technologies and materials can tap the market.

For example, Lin mentioned, while over 2 million hybrid cars are rolled out worldwide per year, concerns about environmental protection and fuel efficiency also prompt global automakers to reduce mass of cars than ever. Automakers know fuel consumption is decreased by 8% for each 1% reduction in car's weight. Therefore, lightweight materials such as aluminum-magnesium alloys, carbon-graphite, titanium and composites are used for frames and other parts.”

Therefore, Lin furthered, auto tool makers are obliged to develop tools that are compatible with manufacturing and repairing cars of such lighter materials without damage, as well as lightweight, multifunctional, user-friendly and high-precision tools that are widely wanted by carmakers and mechanics.

Besides, with the growing computerization of cars today, the demand for suitable diagnostic instruments and tools will rise, which can also create opportunities for Taiwanese tool makers, especially considering that Taiwan is a leader in IT (information technology) and electronics manufacturing globally.

Academia-industry Cooperation
Revealing the necessity and benefits of tapping academic resources for development of auto repair tools, Lee Tsong-li, professor and head of Nan Kai University of Technology's R&D Office, noted that universities can help manufacturers with systematic analysis and research on structural designs and material characteristics to cut R&D costs.

Citing a real-world example, Lee said, Nan Kai assisted Stand Tools, a veteran Taiwanese tool maker, to solve problems in designing a key component for the MEMS (microelectronic-mechanical system) chip-integrated digital torque wrench, proving universities can be an R&D partner to develop higher-end tools.

Stand Tools' chairman H.S. Hsiao stated that, based on his observations, the industry's prospects are brighter than expected, mainly because economic fluctuations in advanced countries and rising emerging economies are actually fueling the global market demand for vehicle repair tools and maintenance instruments, so Taiwan's suppliers are headed in the right direction by trying to explore this segment.

However, Hsiao stressed that manufacturers interested in this segment must completely understand the competitive landscape and learn the market conditions before switching to making such tools. Citing personal experience, he mentioned that, after deciding to work for Central Motor, he brought his R&D team to the factory to discover potential demand, leading to the development of a couple of practical tools.

Besides, Hsiao also pointed to the importance of broadening knowledge of different technologies besides manufacturing. Citing the development of his company's MEMS-integrated digital wrench, he said that, to achieve electrical stability, his R&D engineers designed an improved power supply with a voltage regular, hence making the MEMS sensor work well, boosting torque precision and prolonging lifespan.

“In terms of ODM (original design manufacturing), a supplier has to build products in demand, and hence has to study the market from the ground up. Simply put, we must provide truly functional, practical auto repair tools for end users. This is the only way to stay ahead of competitors.”

Value Creation
Representing the THTMA, Tony Wu, CEO of King Tony Tools, a successful tool supplier in Taiwan with solid footholds overseas selling the eponymous branded tools, pointed out that Taiwan, affected by changing supply value chain globally, lost its 1998-2003 export-value lead supplier status to China in 2004, and then fell behind Germany to No.3 in 2008.

Falling in global ranking is not a disappointment to Wu, who said, “I am very optimistic about the Taiwan industry's prospects for having unparalleled manufacturing flexibility and showing steady growth in output and competitiveness for decades, unlike other traditional manufacturing sectors like umbrellas and shoes, which have downsized and almost disappeared in Taiwan.”

However, Wu is worried about sustainable development for the industry is unfamiliar with its market and consumers, unable to create much value through marketing. The industry is mainly composed of small and medium-sized enterprises unable to make sizable marketing impact, considering that only major players can survive in the global hand tool market. For instance, through acquisition of its competitors, including Facon, and worldwide manufacturing deployment to expand scale and market share, Stanley has built an unshakable lead in the market, while Danaher and Cooper have also merged their hand tool business for better development, said Wu, implying Taiwanese makers simply are not in the major league, so have to take different strategies to survive and position themselves in the global supply chain.

“Whenever asked about how to fare well globally, I say creating value is a top priority,” said Wu, adding that Taiwan has the largest number of hand tool patents, but the least value created as a consequence. Taiwanese tool makers are superior in R&D, but poor at watching market changes and end-user needs, hence impeding

their foray into the auto repair segment.

Citing an ongoing change in the AM (aftermarket) market, Wu said most AM parts distributors and retailers have added tools to their lines in recent years, unlike in the past when AM parts and repair tools were seen as two different businesses. To some degrees the change is driven by increasing consumer demand for auto repair tools; and as hand tool suppliers don't see such market change and fail to create value for buyers, they will lose the market.

Vertical Integration
Therefore, Wu concluded, Taiwanese tool makers should also pay more attention to vertical integration, aside from branding and innovation, and boost teamwork to provide foreign buyers value-added manufacturing and one-stop sourcing. After all, Taiwanese suppliers can't satisfy buyers independently due to limited manufacturing scale and product range. Instead, they should partner with peers to expand product range and output to be more competitive with an integrated supply chain, but not merely on price or quality but create distinct value in the industry and for customers.

Practicing what he preaches, Wu and staffers in the Corporative Synergy Development Center helped to form the T-Team in July 2009, composed of many Taiwanese hand tool companies and their subcontractors, which aims to boost industry profile and strengthen the image of Made-in-Taiwan tools globally.

With 16 members, the T-Team has three larger core members—King Tony, A-Kraft Tools Manufacturing and Machan International—who help the smaller partners to reinforce competitiveness and exert respective value to go global and contribute to the team.