Yong Yen Metal Co. offers a model competitive strategy for Taiwanese hardware manufacturers in all industries, focusing on the development of unique products that distinguish it from low-margin rivals.

One recent result of the firm's sprinkler development efforts is an innovative palm- sized sprinkling nozzle, with patents pending in the United States and Taiwan, that has eight spray-pattern selections. It took the company about a year to design the product and make a prototype for what is "a unique product in the line" according to Yong Yen chairman Huang Kou-shu--all work, he emphasizes, done completely in-house and completely from scratch.

The sprinkling system is composed of a 50-foot polyester hose and a case made of acrylonitrile butadiene styrene (ABS). The hose can handle water pressure of up to 300 pounds per square inch. The specially designed nozzle makes this system perfect for watering gardens. Its use is simplicity itself: just connect to a water faucet and set the spray pattern.

Unlike many of its local counterparts in the industry, Yong Yen has decided--for the time being, at least--not to move its production facilities to mainland China. It hopes that its innovative products will help it stay at home.

"Only manufacturers that are heavily dependent on labor need to go to the mainland," Huang explains. "We feel no urgency to do this, since we've made it our strategy to develop unique products that separate us from those manufacturers that live on cheap labor turning out products sold at cut-rate prices." The chairman is confident that this strategy will help his company become an industry leader.

Breakthroughs Needed

Huang concedes that, in general, "Taiwanese manufacturers have to make breakthroughs in the upgrading of our products, because we're losing our competitive edge to our mainland rivals." To that end, Yong Yen spends NT$2 million to NT$3 million (US$57,000-85,700 at NT$35:US$1) a year on product development.

Well-equipped facilities back up this commitment to development. Yong Yen is one of the few makers of sprinkling systems in Taiwan, Huang says, to possess integrated production capability, with one plant for processing metal parts and another for making hoses. (Another factory, to handle processing work which is currently farmed out, is under construction.) The metal-parts plant has 20 computerized numerically controlled (CDC) lathes, as well as other manually controlled units. The hose factory boasts five production lines. The company can make the molds required for its new products in-house.

These facilities enable Yong Yen to turn out sprinkling products with at least 100 different specifications, in diameters of 3mm to 60mm. In addition to complete sprinkling systems, the firm also produces such parts as plastic trigger nozzles, metal trigger nozzles, hexagonal brass couplings, brass connectors, brass clincher couplings, brass nozzles, brass nozzle- connector sets, brass connectors, plastic connectors, and hoses.

Two years ago the company won ISO9002 quality certification, 1994 version, and is now working on the 2000 version.

Huang emphasizes that in-house production enables his company to control quality and production costs as it strives to ensure the provision of a wider range of product models than its rivals. "The most obvious savings," he explains, "are in avoiding transportation costs that would accrue for contract parts."

Focus on Quality

Quality is another focus, and this, Huang says, "has lured more customers to us and helped boost our revenue by 20% to 30% during each of the past several years." But quality comes at a price; each CNC machine requires an investment of NT$1.5 million to NT$1.8 million (US$43,000-51,000). Happily, another consequence of having such advanced equipment is a reduced defect ratio.

The chairman reports that he now ships about four 40-foot containers a week, with 60% of production going to the United States and the rest to Europe and Southeast Asia. In all markets, Yong Yen's products are sold under customer brands at large retail outlets and specialty stores.

Huang established the company 25 years ago; at first it concentrated on the supply of sprinkling-system parts on a subcontracting basis, but in 1993 expanded into more profitable complete systems. The chairman says that after falling off for a time, orders have come flooding in again since early in 2002. As a result, his workers have had to put in a lot of overtime. Huang thinks, however, that business will cool off again after March 2003, since that month marks the end of the normal peak season for the business.

Despite a recent 5% hike in the cost of imported brass, Huang stresses that he has no plan to pass the increase on to his customers. "We don't want to see our products lose competitiveness," he comments. "Anyway, the recent rise in value of the New Taiwan Dollar has helped offset the increased costs."