Consumers on a buying spree congregate before a wall of shelves displaying all kinds of hand tools, including metal cutters, pliers and wrenches. This is the scene at Home Depot Inc., one of the leading home improvement stores in the U.S.
Three full months after President Donald J. Trump took office, share prices of hand tool suppliers in the U.S. picked up steam and hit new highs, thanks to new U.S. government policies benefitting infrastructure and real estate development.
During the period, the stock price of Home Depot rose by more than 8 percent, nearly 5 percentage points above the Standard and Poor 500 Index, to US$147.56, with company revenues totaling US$11.4 billion last year. The share price of Stanley Black & Decker Inc., the leading hand tool group in the U.S., gained 10 percent to top US$130, while Lowe’s Companies Inc., the second largest home improvement retailer in the U.S., also saw its share price surge over 13 percent to US$82.
But unknown to the public, the majority of these firms’ products were made in Taiwan.
When it comes to the pride of Taiwan’s manufacturing sector, first thoughts are of bicycles, machinery and sporting equipment. But little do most people know that hand tools better represent Taiwan’s manufacturing prowess.
Taiwan’s hand tool exports totaled more than NT$110 billion (US$3.6 billion) in 2015, or roughly twice the country’s signature exports of completed bicycles or medical materials in the same period, with the former growing faster than the latter. While hand tools are neither a high-profile industry nor a spotlight focus, they are a major contributor to Taiwan’s foreign reserves and an important industry that has been long overlooked.
In contrast to bulky machinery housed in a factory for product processing, hand tools are available in hardware stores and mostly used for daily chores such as cutting wires and repairing faucets and bicycles. They are also the necessities of construction workers and handymen, and are categorized as electric, manual or steam.
Li Ming-hua, president of Eclatorq Technology Co. Ltd., said if a product comprises many components, 99 percent of them will have to be assembled with screws, naturally requiring hand tools. Chen is the developer of a digital wrench priced at more than NT$10,000 per unit.
A regular torque wrench retails at less than NT$1,000, but those made in Taiwan can sell at 20 times the price. At Home Depot, the most expensive tool kit marketed under the Gray Tools brand and priced at more than US$2,000 a set was not produced in Germany, Japan or mainland China, but Taiwan. The industrial scissors marketed under the Milwaukee Tool brand, which are at least 30 percent more expensive than those of others with a sales volume of several hundred thousand units per year, were also made in Taiwan, as were the hand tools favored by NASA staffers.
Huang Hsin-te, chairman of Allprofessional Mfg. Co. Ltd. and vice chairman of Taiwan Hand Tool Manufacturers’ Association said the country is a world leader when it comes to contract manufacturing of medium- and high-end hand tools. Over half of such products marketed under major international brands are sourced from Taiwan.
According to Orhan Altin, general manager of Germany’s leading professional hand tool supplier KS Tools, Taiwan firms have the ability to develop high-end professional products, flexibility to cater to the needs of even small clients and innovative spirit to engage in R&D endeavors. “Without Taiwan’s hand tool manufacturers, KS Tools would not have achieved what it had today.”
These mighty firms from Taiwan, which command the global high-end hand tool market, are mostly housed in less than stellar facilities. According to the latest survey by Metal Industries Research and Development Center, there are more than 2,200 hand tool producers in Taiwan employing 47,000 individuals—an average of 21 employees per company. Around 70 percent of the businesses are located in central Taiwan.
But one should not underestimate these mechanic entrepreneurs. According to an industry insider with more than 30 years’ experience, most hand tool companies in Taiwan chose not to float their shares but to make profits without raising attention. The exception is such outfits as nail gun suppliers Basso Industry Corp. and De Poan Pneumatic Corp. Firms with a thriving business can report net profit margins of between 20 percent and 30 percent and make after-tax earnings more than their paid-in capital.
Behind these inconspicuous but remarkable mechanical entrepreneurs is a powerful legion that has taken the global hand tool market by storm. In Taiping and Dali Districts of Taichung City, there is one such industrial cluster per every 0.1 square meters. This equates to a hand tool processing factory every 10 kilometers in the city, with most of them located in the Dadu, Dali, Longjing, Taiping, Wufeng and Wuri districts.
Yu Hsiang-chen, chairman of Redai Precision Tools Co. Ltd. and Taiwan Hand Tool Manufacturers’ Association, said professional division of labor is the major characteristics of Taiwan’s hand tool industry. “With these industrial clusters, anything can be done with just one phone call.”
Industrial clusters are the first reason why Taiwan can produce exceptional hand tools. According to industry sources, businesses in these clusters work in much the same way as handset manufacturers in Shenzhen, mainland China do. These Taiwan firms divide their offerings into entry-level and medium- and high-end products so as to provide a wider selection for their clients. In this way, the firms can support each other by sharing equipment and molding costs, cutting manpower need and offering faster delivery and more flexibility, including arranging shipment for even only one single product.
With the backing of these clusters, Taiwan’s small and medium enterprises can focus on such core activities as R&D, design and quality control while using external resources for other business functions to enhance their competitiveness. For example, there is one entrepreneur in his 30s who established a business that designs and trades hand tools. The company invests NT$5 million a year on patent applications and win over customers with their R&D efforts, while sourcing out the manufacturing to the local clusters. Despites a five-strong headcount, the firm can still generate sales revenue of NT$250 million a year.
The history of Taiwan’s hand tool clusters dated back to the Vietnam War. According to Wu Tien-tsai, secretary-general of Taiwan Hand Tool Manufacturers’ Association, during that period, the U.S. military purchased a large number of tools from Taiwan and other Asian countries, which helped the local industry take off.
Before Taiwan embarked on its Ten Major Construction Projects in the 1970s, most local firms in the steel industry relied on breaking ships and making steel out of the scraps. The ship-breaking business and hardware manufacturing know-how left by the Japanese from the colonial rule (1895-1945), as well as the availability of raw materials, provided the foundation for the development of the local hand tool industry in central Taiwan.
A key figure during this time is Kirk K. Chow, founder of Ruey Yang Tool Mfg. Corp. in Taichung, who is widely regarded as the father of Taiwan’s hand tool industry. Applying know-how from Japan, Chow was the first to make a breakthrough in continuous molding technology, churning out products in a split second like minting gold coins. At that time, Taiwan’s national hand tool inspection agency was located inside the premises of Chow’s company. Then Republic of China (Taiwan) Premier Sun Yun-suan also personally visited the facility.
Because of Ruey Yang’s advanced technology, Stanley Black & Decker acquired the company with US$100 million 31 years ago. After the merger, former members of the Ruey Yang management team began to set up their own businesses, leading to the establishment of many satellite factories in the area like mushrooms after the rain and helping Taiwan become the top global exporter of hand tools in 1998. (E)
[By Wan Nien-sheng / tr. by Meg Chang]