Hota Announces Ambitious Plans For Competition In Int'l Transmission Parts Market

Hota Industrial Manufacturing Co., one of Taiwan's leading precision-gear manufacturers and its first to have developed its own complete automobile-transmission gearbox, is a paragon of the local auto-parts industry. Starting off as a supplier of gears to domestic motorcycle makers, it has evolved and grown into a vital producer of high-precision gears and shafts for transmission systems for major international brands such as BorgWarner, ArvinMeritor, and Tractech of the United States as well as ZF Friedrichshafen of Germany.

Having gained a solid foothold in the international market, Hota chairman Shen Kuo-rong recently announced the "313 Project," aimed at boosting the company's status in the international transmission-gear market within the next three years.

The three main goals for the project are 30% revenue growth and10% profit growth annually over the next three years, and zero debt when the period is over. The chairman is targeting earnings per share (EPS) of at least NT$5 (US$0.15 at NT$34:US$1) in 2006, which would make Hota one of the most profitable auto-parts suppliers on the island.

To achieve these goals, Shen plans to cut costs, boost its defect-free product ratio, and heighten per-employee production value. The effort will be helped along by several newly developed products, including Taiwan's first home-grown transmission gearbox and several differential models. The company also plans to enter the parts-making machinery line with new gear-shaving machines.

With these improvements, the company expects revenues of NT$1.3 billion (US$23 million) in 2004, up 30% from the previous year. The revenue figure is projected to reach NT$1.7 billion (US$50 million) in 2005 and N$2.2 billion (US$65 million) in 2006.

Seeds of Success

"Our success is the result of long-term cultivation and strenuous efforts in quality upgrading, R&D, and pursuit of best business practice in all areas," comments the firm's vice president and spokesman, Charles Chen. When the bankruptcy of a major customer brought the company to the brink of financial ruin 14 years ago, a new management team brought in new management concepts and a new corporate culture. That turned the company around, and since then its revenues have expanded 15-fold.

The new auto-transmission gearbox, which took Hota two years to develop, will be used with the 1,200cc engine that China Motor uses in its Verica mini commercial van. The engine, too, is the first such to be developed in Taiwan.

For over 20 years, Chen adds, China Motor installed Japanese gearboxes (developed by its partner, Mitsubishi) on its mini commercial vehicles, and continued doing so even after it started using the home-grown engine in them. Development of the native gearbox was commissioned to Hota by the Taiwan government as a means of prodding the development of the island's auto industry.

Hota's new gearbox will be used with vehicles made by China Motor in Taiwan, its subsidiary South East Motor in mainland China, and by more companies in other countries once China Motor has worked out certain issues with Mitsubishi.

More and more big international brands are ordering transmission parts from Hota, thanks to its demonstrated ability to provide superior-quality parts at more competitive cost than the buyers could achieve themselves.

Chen reports that his company began supplying key parts for BorgWarner's ITM-1 torque transfer system, which is now used in Hyundai's Santafe luxury sport-utility vehicle (SUV), in 2002. Chen expects the value of this business to shoot up to about NT$240 million (US$7.35 million) in 2004, compared with just NT$28 million (US$820,000) in 2002.

The German Connection

Together with ZF Friedrichshafen, Hota recently began supplying 14 key items for bulldozer transmissions. The company began cooperating with the German transmission-system maker four years ago.

"We're now garnering the fruits of our hard work during the past eight difficult years, after we decided to transform ourselves from a supplier of motorcycle gears into a maker of high-precision car and truck transmission parts targeted at the U.S. and European markets," Chen says. He goes on to say that it often takes five to six years of intensive evaluation and trial operation for transmission-system makers to settle on an appropriate and reliable supplier.

As a result of its transformation, Chen states, Hota now faces no competition from rivals in Taiwan because few local companies would be able to spend such a long time getting themselves into position to win orders from tier-one suppliers worldwide. "Our competitors are mostly strong, technologically advanced rivals in Japan, the U.S., and South Korea," he comments. "Our international competitiveness lies in our lower costs (about 10% to 20% less than those of Japanese manufacturers) coupled with even better precision."

Such quality is not easy to achieve. For example, Chen explains, "ArvinMerit, a leading American transmission-system supplier, first contacted us about the outsourcing of a through-shaft model. Thereafter we spent two years in materials research (even cooperating with China Steel in a joint development project) and in manufacturing the first batch of samples for testing. About four years after ArvinMerit's first contact with us, it closed two of its plants that made the shafts-one in the U.S. and the other in Brazil-and commissioned us to supply the 200,000 or so shafts that it needs every year." This success also helped China Steel to become qualified as a supplier of auto-parts materials to the international market.

Chen expects his business to develop even more smoothly in the years ahead, especially since most Japanese suppliers have demanded that their parts suppliers cut costs by 20% within two years. This means that all tier-one parts suppliers in Japan will try to find new contract suppliers overseas, especially in Taiwan and South Korea, for the procurement of lower-priced but high-quality products.

Space to Grow

To accommodate the needs of its expected business expansion, Hota has applied to the Ministry of Economic Affairs (Ministry of Economic Affairs) to procure land in the Central Taiwan Science Park, and plans to set up a new production facility there in the near future.

The company has also set up an affiliate, Armstrong International Corp., to assemble all-terrain vehicle (ATV) products made mostly with Hota-made parts.

Chen reports that gear products for powered two-wheelers (PTWs) made by Triumph of the United Kingdom as well as major Taiwanese manufacturers such as Motive Power Industry, Aeon Motor, and Her Chee Industrial currently account for about 22% of Hota's total revenue. Parts for cars, trucks, and industrial machines account for the remaining 78%.

About 80% of the company's products are made on an original equipment/design manufacturing (OEM/ODM) basis, and around 15% are sold to the U.S. replacement market through a subsidiary, Hotatech Inc.

"We're very proud of having become an international transmission-parts supplier in such a short time and with such limited resources, especially financial support," Chen comments. "The most important factor in our success is our commitment to R&D work, which absorbs 5% to 6% of our total revenue and keeps 12% of our employees busy." The company has about 300 employees in Taiwan, of which 36 work in R&D. There is also a 250-worker Hota plant in Wuxi, Jiangsu Province, that primarily produces gears for motorcycles.

The company's R&D capability is so well established, Chen reports, that "BorgWarner now commissions Hota to head the development of all of the gears used in its products."

Hota, which holds QS9000, ISO014001, and ISO-TS-16949 certification, plans to develop high-precision gear-shaving machines using technology from a Japanese partner. Chen says that only four companies in the world make such machinery, and Hota wants a piece of the action-especially in the booming automobile-gear market in mainland China.