Taiwan Carves Market Niche With Focus on Innovation and Quality

20030909062.jpg] While the majority of Taiwan's furniture manufacturers have joined an exodus to mainland China in a quest to trim production costs, many of their peers in the furniture-parts industry are managing to operate profitably in Taiwan thanks to their commitment to high-quality and high-margin products.

Taiwan's overall furniture exports dipped 8.9% in 2002 from the year earlier to US$1.19 billion, reflecting the growing number of manufacturers that have moved shop across the Taiwan Strait. In the same period, however, exports of locally made furniture parts posted 4.7% year-on-year growth to US$106.34 million last year.

The noticeable performance of the local furniture-parts industry is largely the result of efforts by manufacturers to maintain their competitive edge through production innovation and better quality, industry sources say.

Furniture-part makers on the island have also sharpened their competitiveness by integrating and automating their plants to meet ISO9001 standards--attesting to their technological capability. Others have opted to cooperate closely with foreign buyers on product development.

Craftsman Quality
Yi Sheng Industrial Co., a manufacturer of household decorative products, shifted part of its production capacity for furniture accessories five years ago in a cooperation project with a Taiwanese trading company, which supplies a wide variety of household products to Target of the U.S.

Under the cooperation plan, Yi Sheng developed a series of cabinet-drawer knobs made of polyresin for Target on an original equipment manufacturer (OEM) basis.

The craftsmanship and elegance of the products helped Yi Sheng secure a long-term product-development and production contract from Target, says Yi Sheng president Huang Chin-cheng. Since then, the firm has become a qualified supplier of household and gift products for Target, including poly knobs, switch panels, decorative clocks, and bathroom accessories.

Today, though Yi Sheng still manufactures knobs and bathroom accessories for Target at its plant in Taipei County, northern Taiwan, the company has set up a production line in Dongguan in the southern Chinese province of Guangdong. The Dongguan production line, currently manned by a workforce of 60, handles orders for products requiring labor-intensive processes, such as grinding and painting.

"Most buyers of Taiwan-made furniture, like Target, have established purchasing offices in China and they inevitably require Taiwanese suppliers to produce goods there in order to consolidate shipments and reduce shipping costs," Huang says. "We have to familiarize ourselves with the production and supply situation in China so that we can cope with these buyers' varying demands."

Although Yi Sheng and most Taiwanese manufacturers of poly products are under intense price pressure from their mainland counterparts, Huang says that Taiwan's suppliers still have two advantages--expertise and information--in their contest with mainland-invested producers.

"Expertise and information are what you need to make innovative products, and that's why we can still beat out our Chinese rivals," Huang says. Furthermore, the comparatively low skill levels of mainland Chinese laborers and the higher relative transportation and utility costs also partially offset the advantage mainland factories enjoy in regard to lower labor costs.

Yi Sheng now ships about US$150,000-US$200,000 worth of products from mainland China per month. Moreover, Huang says he expects that the monthly turnover at his plant in Dongguan will be increased substantially in the second half of the year as the firm has installed six new grinding/forming machines.

Emerging Markets
Siquar Hardware Industry Co. enjoyed a 20% revenue gain in the first quarter of 2003 from the same period a year earlier due largely to increased shipments to new buyers in eastern Europe.

Kerwin Lin, marketing manager of Siquar, says he expects the company's exports to continue expanding at the same pace in the second half of the year, lifting the firm's 2003 revenue to about US$20 million from US$17 million last year.

Siquar specializes in the production of stainless-steel drawer slides for high-end wooden furniture, as well as in a wide variety of metal-furniture fittings such as hinges, handles, catches, and casters. To meet growing demand from overseas, Siquar expanded its production capacity by 25% last year, according to Lin.

Like Yi Sheng, Siquar still manufactures and exports its furniture fittings in Taiwan. "We are probably the only furniture-slide supplier that still has its main production facilities in Taiwan," Lin says.

Siquar's plant is located at Yenchao in southern Kaohsiung County, and has a workforce of 650 people. The plant was ISO9001-certified in 2001 and has advanced automation equipment and R&D facilities to handle foreign orders on both OEM and ODM (original design manufacturer) bases, Lin adds. "Our continuous-stamping machines, automated powder-coating facilities, and strong R&D capability help us stay far ahead of our competitors both at home and abroad," he asserts.

Integrated production lines have also helped Siquar keep production costs down despite a 40% hike in raw steel prices over the past year. Lin says that he expects steel prices to stabilize in the second half of this year, which he believes will enable his company to post steady revenue growth through to the end of 2004.

Upside to SARS
Tung Yu OA Co., Ltd., Taiwan's leading maker of mechanisms and other parts and components for office chairs, also predicts that prices for raw materials will stabilize in the second half of the year. The firm calculates that this will contribute to revenue growth at least through to the end of the July-December period.

Emily Lin, manager of Tung Yu, says that her company posted only modest growth in the first quarter of the year due to price-cutting by factories in mainland China, including Taiwanese-owned facilities there.

However, Lin continues, the outbreak of severe acute respiratory syndrome (SARS) may help Taiwan-based manufacturers of furniture fittings regain foreign orders at the expense of mainland China rivals.

The World Health Organization revealed in mid-April that the scale of the SARS epidemic in China was far worse than the latter had to date admitted, stating that Chinese authorities were covering up the epidemic in the capital of Beijing.

"A lot of buyers are scared as a result of the mishandling of the SARS epidemic by the Chinese authorities and are therefore considering to shift their orders to Taiwan, where efforts to prevent SARS from spreading have been very successful," Lin says.

Tung Yu anticipates that its revenue will hit NT$200 million (about US$5.8 million at US$1:NT$34.5) in 2003, slightly higher than the 2002 level, says Lin.

According to Lin, Tung Yu is the first furniture-parts factory in Taiwan to be ISO9001-certified. "We have to distinguish ourselves from our rivals in mainland China by using different manufacturing technologies, raw materials, and designs," Lin says.

Lin says that Tung Yu earlier this year introduced a new series of office chair mechanisms--the SN-89B, SN-628 and SN-68, which have been well received by a number of foreign buyers.

Although Tung Yu still produces the bulk of its products in Taiwan, the company is also evaluating the possibility of venturing into mainland China to take the advantage of the cheaper labor available there.

She notes that at least 10 Taiwanese furniture mechanism companies that have the same quality and production level as Tung Yu have established factories across the strait to meet the growing domestic demand there or export to overseas markets.

Rolling Into Europe
Jenp Jou Enterprise Co., Ltd., also an ISO9001-certified furniture parts manufacturer, focuses on the production of steel chair bases and high-end, powder-coated casters. The company says its revenue rose significantly in the first quarter of the year due to new demand in Europe.

Previously, the bulk of the company's products were sold to local furniture manufacturers, but the firm has in recent years stepped up its efforts to increase its shipments of furniture fittings directly to foreign buyers, which currently account for 70% of its revenue.

"We have successfully transformed into an OEM and ODM supplier," says Albert Wu, sales manager of Jenp Jou. According to Wu, automated production, strict quality control on every shipment, and innovative products have helped pave the way for Jenp Jou's successful transformation.

Jenp Jou also has recently completed an expansion project, making the company one of the top three manufacturers of casters in Taiwan, Wu says

One of the company's best-selling items is a patented double-brake caster with a second safety lock to ensure smooth and safe chair movement. The collar/wheel of the casters come in 32mm, 38mm, and 60/75mm diameters.

Although the chair bases and casters are two different categories of furniture parts, Jenp Jou has managed to efficiently manufacture the two categories of products by automating production, Wu says. "The cross selling of chair bases and casters not only has helped us provide a more complete service to out buyers, but has also helped us boost profitability," Wu says.

Selling to Mainland China
Chung Hsing Chemical Industrial Co., Ltd., a leading manufacturer of armrests and arm pads, also reports that its sales in the first half of this year have been much better than the year before thanks to big-ticket orders for armrests from Taiwanese-invested companies in China.

The mainland order will keep the company's production lines humming for the next two months, according to Bill Wei, a senior sales executive at Chung Hsing.

However, Wei says that the firm's business outlook for the second half of the year is not so bright due to the outbreak of SARS, noting that a large number of foreign buyers have decided to cancel or delay their business trips to China and Hong Kong, the two hardest hit areas by the deadly mysterious illness.

With concerns over the uncertainty of SARS, Wei predicts that his company's revenue for 2003 is likely to hover around last year's level of NT$100 million (US$2.9 million). The ISO 9001-certified Chuan Hsing concentrates on OEM and ODM production.

"Chinese factories will have no trouble catching up with Taiwan-made product in terms of modeling, die-casting, tooling and injection processes are concerned. But they still lag far behind Taiwanese manufacturers in terms of production innovation. And that is the niche that Taiwan-made products can exploit," Wei says.

Nevertheless, Chung Hsing has also followed a "go-west" policy by setting up a factory in mainland China's Kunshan, in Jiangsu Province. Wei says that his company uses the mainland plant as a supporting factory to meet orders for large orders of lower-end items and for sourcing new materials.

Chuan Hsing's armrests and arm pads are available in nylon, PVC, ABS, and glass fiber, depending on buyers' specifications.