Challenges in Recession: Responses from Fastener Manufacturers
photos & article by Eric Liu, Fastener World Inc.
Interview: Mr. Hector Chu, president of ANCHOR FASTENERS INDUSTRIAL CO., LTD.
Anchor Fasteners Industrial Co., Ltd. established in 1986 is a typical manufacturing factory in Taiwanese fastener industry. Through 20 years of efforts and growth, it exhibits superior performance and quality in terms of technologies, quality, production lines, and even factory scale. It is one of the biggest fastener manufacturers and a well-known riveting nuts manufacturer. Its products are generally used for construction & maintenance, and the auto industry, most of which are non-standard industrial products required by orders. Under the global recession, downfall of market demands, and the large scale of fluctuation of material cost, corresponding management and business strategies have to be taken. As a result, Anchor Fasteners should be the best choice fit for the requirement of a representative fastener manufacturer and other companies with a similar property can take Anchor Fasteners as references.
Elastic Adjustment for Excessive Production and Strict Control of Materials Inventory
As a famous fastener manufacturer, Anchor Fasteners has to consider the social responsibility in addition to its revenue & cost balance. President Chu said the company has to keep its way towards the goal, though the recession is very severe. The biggest dilemma of the domestic fastener manufacturers is “Followers are almost catching the pace but forerunners are still far away”. Followers mean China, India, Russia, and other countries in Southeast Asia. To consider medium-to-low level of products, the quality is nearly the same as Taiwan. They make most of advantages of lower cost to set a more comparative price in international trades. That is the reason that orders made to Taiwanese manufacturers have declined a lot or have been cancelled. As for the forerunners such as Europe, the U.S., and Japan, they do also have fastener factories. Under the premise of higher cost, there are still production lines operating in the European and American countries. This represents their demand of quality control and other relevant factors are stricter than others. Taiwanese cannot still meet the standard in terms of technologies, and therefore, European and American fastener manufacturers still retain a considerable profit margin. To my company, this is the part we’d like to look for. But this is related to the point of “Up Grade”. We can actually meet the demands but it’ll be very difficult! In terms of the domestic fastener industry, everyone would like to stretch their market to the field of autos, aerospace, and other high value-added industry. But it includes technology upgrade, products accreditation, mechanical equipment, staff training, and R&D, which will need much time and capital. Under the global recession, it’ll be very hard to go this way. As for some large scale of factories, they invest most of their capital in mechanical equipment, if there should be changes or needs to manufacture products with higher value in production lines or, it will be really difficult. Because available product specification of mechanical equipment is limited, so to upgrade mechanical equipment, staff training, R&D, factory space, processing management, marketing are needed for the transformation. It is hard and the cost is considerable.
To consider my company, most of our products are special, especially anchors, most of which are used for the construction industry, the repair & maintenance will need many such products. As the demand for houses and decoration are decreasing, especially in the U.S. market, so we need to figure out some adjustment and strategies, such as products modification, specification transformation. But as we’ve mentioned earlier, the part regarding machinery is limited, therefore we have to cooperate our marketing approaches to adjust the strategies. What we’re doing now is to sell excessive products in the U.S. to Europe, Japan, or other Asian countries. There are smaller impacts from the global recession in these areas rather than the U.S. So far, we’ll focus our sales in Europe and Asia and find the target customers hoping to get orders and make the production line can function very well, that is, to make some adjustments concerning customer sources and major markets. On the other hand, most of or products are actually OEMs, which are comparatively the stable orders, though the delivery amount declines but the market demand still remains. The part of OEMs involves international certification, quality norms, so it’ll be hard for cooperating customers to transfer their orders to other companies. In addition, our main products cover rivets, one of the special products, which are generally applied to industrial use, such as mechanical equipment or the auto industry. So there is no bad situation regarding orders of this part.
But the market demand declines obviously, on the contrast, we also have some problems of excessive production, and corresponding strategies are thus made. We make adjustments: 1. elastic leave-off without pay- it is not a uniform regulation to ask employees to leave-off for days but regulated by managers of each department to decide how may days an employee can leave-off, properly lowering the excessive production. 2. regulated on-shift- work must be completed within working hours, which only focuses on production lines. As for the department of sales and trades, some leave-offs are prohibited to reinforce the contact with customers for gaining more orders. This is a very active strategy. 3. salary cut-back- lower the expense of regular personnel management. 4. the worst one, lay-off- we’ve laid off 4% of our personnel caused by the recession. We have no intention to do this but we are forced to, after that we can totally lower the excessive production and the large scale of personnel expense, lowering the stationary cost. In addition, we have to construct a close relationship with customers and be active to contact with our customers. Like what San Shing Tech’s ex-president John Wu said at the last big event of the fastener industry, we actively contact with customers and inquire them if we have to adjust the quotes or other factors. Considering responses from customers, our price is still competitive, but the question now is the decline of market demand, to adjust the price will break the appropriate market price and indirectly squeeze the profit margin. So I think we should maintain a proper price. Price-cutting will worsen the company revenues.
In fact, under the contraction of the market demand, the most important thing is how to save money, that is, “Cost Down”. For the stationary cost, we can adjust personnel expense, but the most effective way should be material cost management. The price of wires produced by CSC is a little higher than those of the other foreign markets, but the quality is good. As a result, we manufacture products with high value in comparatively expensive materials, while the cheaper materials are used for producing products with a low price. The price competition is very severe in the market, so using materials with low cost can create a better profit margin. In the mechanism of the market, we have to sacrifice some of our products. If we can choose, it’s definitely to choose materials with lower cost. But if to consider the long-term development, CSC is a great one for cooperation. So we have to maintain regular quotas. This may be considered exploitation for profits but a proper sacrifice is a must. It’ll be good for the company in a long term. As for the production lines, we have to strictly control the inventory of wires and other products. The future demand of wires have to precisely meets the requirement within 1~2 months, preventing too many materials from generating inventory pressures and the loss caused by the price fluctuation of wires. It’s better to keep wires under zero inventory, advancing the working efficiency of production lines. And we do it really well. For the industry, it is a kind of learning and growth. We have to adjust and revise our ordering and production lines, after that we can react soon to order cancellation, delivery postponement, accounts receivable collection, delayed lead-time and any other sudden situation. This is what I think a manager should have. Facing the crises, the fast reaction and ability, forecast to the fluctuation of exchange rate, and response to the market mechanism are management skills and capabilities that a manager should cultivate.
Master the Global Situation and Multiple Marketing Approaches
Although the global economy is not ideal, I think there will still be expectation to the future of fastener industry. When it comes to my company, we position us to be a “manufacturer”. In the premise of exports, we do not entirely control the market, many marketing approaches have to rely on foreign import traders. It needs many levels of channels for every product to be delivered to end-users, profit margin will be squeezed every time it goes to each level. In these channels there are pressures on profits and business operation after all. So I think fastener manufacturers will develop their own brand one day. When you cannot obtain better sales record through agents, you should take back your agency right and do it yourself. Like ACER, it develops its own brand and marketing approaches, but the entry barrier may be still high, for example, setting offices at another countries or service centers, which can thus make you close to the market, create higher returns for you. If these ideas are achieved someday, I believe Taiwanese fastener manufacturers will definitely replace exporters, importers, or even foreign distributors in the marketing approaches, lowering levels of profits exploitation. The domestic manufacturers including us, we do not have the ability. But I do think it’s a trend, and after that we can be closer to the real demand of the market.
As the price lowering by CSC this time, it did really react to the market demand. To consider wires, the wire price of CSC is very close to that of China considering the exchange rate, which is a benefit to fastener exports of the domestic market especially in the European market. The competition between China and Taiwan will be more obvious, because the largest cost of this industry is wires. In ordering, it takes months to display the benefits after the wire cost is down. I think CSC should return to the market mechanism and make the pricing strategy more flexible.
It’ll be a good chance for Taiwanese companies after EU begins to impose anti-dumping taxes on fastener products from China. What CSC has done can force Taiwanese companies to share the EU market. As a president of the fastener factory, we have to master the global situations and make an appropriate response and reaction, ensuring the company will not be kicked out of the market.
Support from the Government is Expected and Materials Return to the Market Mechanism
What companies do to sustain their operation to defy the recession are nearly the same. It does not go away with those methods and strategies we’ve mentioned before. But focusing the unexpected recession, the government or official administrations should figure out some policies or measures to help the industry, like “ASEAN + China”, “ASEAN + China, Japan, and South Korea”, or “General Cross-Straits Economic Agreement”. I think this will truly benefit the exports economy. As a manufacturing exporter, I agree the government to make treaties regarding non-tariff and relevant trades. For products being exported, it’ll be better there exists no tariff barriers, which can elevate the competitiveness in the global market. But we will also face more price competition from the market. However, I do hope the agreement can be made as soon as possible.
In addition, everyone is talking about “industry upgrade” at many events of the fastener industry. The government is also calling for industry upgrade and offers many budgets to help the industry such as projects by MIRDC and Industrial Technology Research Institute, but these focus specifically on technology, production, and quality and do really benefit companies a lot. But now most successful products in the market depend on the marketing and management, which is the most important part concerning SME’s upgrade. We can actually see many fastener manufacturers make a progress in technology and quality but their production lines and management remain unchanged, which will cause the invisible loss. Since the government has offered some budgets and projects to help upgrade the industry, so we should carefully examine if the way is right and if the outcome meets the expectation? I hope the government can put more emphasis on helping SME’s marketing and management like the development of international market, the contract concerning the economy and tariffs, and the application of management software, especially internal management software of the company, which most of SMEs do not have, after that the traditional manufacture industry can be effectively helped. The industry upgrade needs capital, especially for SMEs, when they develop to a specific scale, it becomes hard to buy land, like what I’ve said, when it comes to industry upgrade, the production procedure will also change, but limited by the space and factory scale, the production procedure can not be efficiently achieved. Under such a limitation, the efficiency cannot be developed even if we upgrade, which is waste of resources and cost, and which is actually one of the reasons that many companies chose to invest abroad. Since the land claim is not difficult in China and other countries in Southeast Asia, Taiwanese developmental experience can be completely transplanted and simultaneously revised to idealize the production procedure, plus comparative low material price, personnel, and stationary cost. Considering this, the industry would like to select areas with a broader space to develop their operation and business. This is a problem for the development of Taiwanese economy and the industrial problem waiting for the government to deal with it.
Finally, I hope the wire price of CSC can return to the market mechanism. Although the original quarterly quotes and the bi-month quote are comparatively not sensitive to the fluctuation of international materials price. For fastener companies, the material cost is easy to handle, but this is not a true market situation. To consider quotes of international trades, the wire cost is a very important reference. I prefer month quotes, which is a favorable method for CSC and low stream companies. One thing, CSC can respond to the international market demand and create a higher profit margin. For another thing, companies can cultivate their sensitive global situation and judging ability. This is a true pricing strategy concerning the market mechanism and “being close to the markets”.