Roundtop Takes on Undersellers with Customized Machine Tools

Product differentiation and constant R&D enables the maker to stand out in price-slashing competition

Compiled by KEN LIU

Chairman of Rountop Machinery Industries Co., Ltd., S.M. Lin, says after years of adjustments to product strategy to give buyers made-to-order products so as to combat underselling mainland Chinese competitors, customized heavy-duty machining centers now account for over 90 percent of corporate sales to make the company one of Taiwan's leading makers of this category of machine tools.

Obviously well aware of the importance of product differentiation and with plentiful machine-tool makers in Taiwan, Lin stresses the necessity for Roundtop to take a different strategy to handle undercutting competition from the mainland Chinese manufacturers.

Lin points out that the company began shifting to customized products from off-the-shelf or standard products four years ago to tap the diversified yet profitable market. In the niche segment of the overall industry that calls for diversified, customized products to be delivered, Roundtop can generate really good profit without having to secure a huge share in the market, nor does the company have to compete with the mainland's manufacturers on price for orders, says Lin, who implies that Chinese rivals lack the expertise to customize machinery.

Roundtop's notable products that are shipped to European and North American buyers include heavy-duty vertical lathes and crane-type machining centers that are used to process crude oil exploration equipment, vessel components, automotive parts, and wind turbines.

Attractive Margin

Customized production paid Lin's company dividend of NT$2.50 per share in after-tax net income throughout last year, an increase from 2013's NT$1.48 and 2012's NT$1.19, with gross margin rate exceeding 25 percent.

The company racked up total revenue of NT$1.13 billion (US$36.45 million) last year, an increase of 20.3 percent year on year, with December revenue of NT$100.12 million (US$32.29 million), surging 54.97 percent from the same month of 2013.

In the first quarter of this year, the supplier made NT$42.98 million (US$1.38 million), or NT$0.54 per share, on revenue of NT$277.19 million (US$8.94 million).

Background

Founded 1979 in Taichung City, central Taiwan, Roundtop began with production of precision milling machines and computer numerical control (CNC) milling machines, then branched out into production of machining centers, high-speed precision lathes and large-scale high-speed precision lathes. It went public on the over-the-counter market in 1999 and then the main board in 2002 on Taiwan.

The company now builds heavy-duty machining centers at its main factory in Shengang District, and small- and mid-sized machining centers and CNC lathes at its factory in Fengyuan District of Taichung City.

Before making built-to-order machines, the company had been making staple or standard machines, a market which has been dominated by multinational suppliers and mainland Chinese makers who adopt low-margin pricing.

When Lin's company began tweaking its product strategy four years ago, it worked aggressively to improve not only R&D capability but also processing precision and assembly capability.

Partnering with academia

To improve R&D capability, the company worked with Dayeh University, a private university in Dacun Township, Changhua County, Taiwan that was established in 1990 as Dayeh Institute of Technology by Yeh Song-Gen who aimed to set up the first German-style polytechnic, to train its R&D engineers and asked subcontractors to send personnel for training. Now the company has 30-plus R&D engineers to account for a considerable portion of the company's total 138 staff.

Thanks to efforts of the R&D team, the company has developed heavy-duty vertical lathes that process workpieces up to eight meters across and crane-type machining centers that handle workpieces up to 16 meters across not to mention multifunctional combo machines.

Its R&D team also deserves credit for designing a 28-meter-high crane-type machining center used to process railway carriages for a mainland Chinese manufacturer and a five-axis crane-type machining center used to process landing gears. The railway carriage processing machine is priced at approximately NT$50 million (US$1.61 million) and the landing-gear machining center at over NT$80 million (US$2.58 million).

Adapting lead times to suit degree of difficulty of customizing machinery, Lin offers the lead time within 45 days for contracts calling for moderate customization and up to six months for orders involving high customization, having also set up an apprenticeship program whereby senior engineers train newcomers in made-to-order skills.

Lin says he knows not a better strategy than building tailor-made heavy-duty machines to keep at bay underselling competitors. The chairman is spot on because typical makers know how to emulate or copy existing products and techniques but innovation is necessary to design added function. For example most lathe makers can supply turning centers to make automotive alloy wheels, but it takes genuine innovation to build such turning center with, for example, a robotic arm to lift the wheels, stack them without damage on pallets for transport along a conveyor to a loading dock. This extra degree of creativity separates men from boys in the highly competitive machinery field where emerging rivals often rely on underselling to survive.