China accounts for 70 percent of the world's supply of power hand tools, with overseas shipments expected to cross the US$3 billion mark in 2005. The industry continues to expand in terms of exports, products made and number of suppliers. There are now an estimated 2,000 companies making power hand tools, which is double the size of the supplier base when we reviewed the industry in August 2004.
Export growth rates, however, have slowed after a boom in 2004. In the period January to July, 2005, the country exported US$1.6 billion worth of tools, a year-on-year increase of 19 percent. This is much lower than the 37 percent growth the industry experienced in the entire year of 2004. In terms of volume, however, shipments have been relatively stable, growing 19 percent in 2004 and 11 percent in the first seven months of 2005.
One of the main reasons for higher growth rate in terms of value is the increase in shipments of midrange and high-end tools. In fact, the share of pneumatic tools in total exports has doubled from 4 percent in 2003 to 8 percent in the seven months to July 2005.
The following are some of the key trends we see in China's power hand tools industry:
• Exports of midrange and high-end DIY tools as well as pneumatic tools for professional use will continue to rise, as the competition in the low-end intensifies further.
• Higher raw material costs will force many makers to increase export prices. But stiff competition will limit the adjustments to 10 percent or less. Suppliers will try to mitigate the effects of higher production costs by investing in more efficient production and management systems.
• Makers will continue to improve products in terms of aesthetics, power and efficiency. R&D will also focus on enhancing the efficiency and operating life of motors.
• Product development will remain oriented toward meeting the requirements of OEM buyers, with only a few large companies focusing on expanding exports of in-house brands.
This report covers the four major categories of China-made power hand tools: drills, saws, sanders, planers and grinders, and fastening tools. The key attributes of these products and factors related to pricing are discussed in the Products & Prices section.
Suppliers' manufacturing capability is discussed in the Manufacturing section of the report. This section provides an overview of the major production processes, which for most makers focus mainly on assembly, finishing, packaging and QC.
About half of the power hand tool suppliers in China are locally owned private companies. Forty percent are state-owned enterprises while the rest are foreign-invested.
The report covers 62 locally owned private companies. The other 18 suppliers consist mainly of Taiwan- or Hong Kong-invested firms.
Company profiles of several key makers for each power hand tool category are featured in this report. Among these is Kinpow, which produces more than 600,000 power hand drills a year. Another is Zhejiang Zhongjian, a major maker of power hand saws, with annual output of the category reaching 800,000 units.
Industry Overview
Seventy percent of China's power hand tool output still consists of models designed for common DIY or household repairwork, primarily because these products are quite easy to make and require only basic manufacturing technology. In addition, demand for this product line has been growing steadily as more buyers turn to China for their sourcing needs.
It is precisely this low entry barrier and high export growth potential that has attracted many new suppliers. Industry sources estimate that there are now 2,000 companies in China making power hand tools. This is double the size of the supplier base when we first examined the industry in our August 2004 report.
Most of these makers, however, are small, offering power hand tools at half the price of their midsize or large counterparts. As a result, competition in the low-end segment of the DIY market is fierce.
To avoid direct price competition, which has been eroding profit margins, many suppliers are moving away from the low-end DIY segment and breaking into midrange and high-end markets. A number of companies that are already producing upscale DIY models are increasing output of professional tools.
As discussed in our 2004 report, the shift to professional tools is relatively simple, because midrange and high-end products closely resemble professional tools in terms of housing materials, performance and functions.
Some high-end DIY tools makers, for instance, are now using magnesium-aluminum alloy composite instead of pure aluminum housings to reduce tool weight. This type of material was typically used in professional models where tool weight is a major concern.
Other features becoming more common in both upmarket DIY and professional tools from China include motor-protection systems that automatically switch the motor off if torque exceeds maximum level.
Many China suppliers are also improving the overall quality and performance of DIY power hand tools. Some new releases, for instance, use a sealed motor that extends operating life by as much as 20 percent. This type of motor can be used to replace traditional C-type motors.
By extending operating life and introducing other improvements in tool performance, makers have found it relatively easy to expand their market reach and shift to midrange and high-end DIY tools.
Aside from focusing on product performance, companies are improving their capability to make motors in-house, by investing in semi- or fully automatic winding machines. In an industry where outsourcing is still common among small makers, the in-house production of motors is a critical positioning advantage. In addition to providing more control over quality, it gives manufacturers more leverage in negotiating material prices with their suppliers, as they are able to purchase these in bulk.
Industry composition
China's power hand tools industry is an exporting powerhouse. Last year, the country shipped 192 million power hand tools worth US$2.7 billion. This surpassed exports of even Germany, in terms of volume and dollar value, and made China the biggest exporter of power hand tools in the world, providing about 70 percent of global supply.
Supplier Profile
ASA Enterprise Corp.
ASA is one of Taiwan's leading specialists in industrial precision electric screwdrivers, which received the National Gold Award of Excellence in 2000.
About 60 percent of exports bear the in-house ASA brand. The rest is shipped to OEM/ODM clients including IBM, HP, Dell and Sony. The company claims to have a 40 percent share of the market in Silicon Valley in the US.
With exports to mainland China thriving, the maker plans to look for 300 agents there in the coming years. To further stimulate sales, ASA recently began offering free mold development services for every order of 12,000 units during the first year.
ASA is currently constructing a 6,600sqm factory in Shanghai that will have a workforce of 300 and estimated capacity of 90,000 to 120,000 units monthly.
Products
Electric screwdrivers from ASA are suited for use on small screws and bolts in high-tech 3C assembly lines. Most models meet CE (EMC LVD), UL and CSA standards.
The company recently developed low-inertia and low-impact electric screwdrivers with aviation-grade brushless motors from Switzerland. These models consume less power than conventional products and can last for up to 10 years if used properly. Torque accuracy is ±1 to 2 percent.
ASA's SS-2000 model is said to be the smallest screwdriver made in Taiwan. The tool is 26mm in diameter and 158mm long. It weighs 187g and consumes 6W power. Its eight directional bearing design reduces machine wear and increases torque accuracy.
Export prices vary according to the type of motor used, torque range and complexity of design. Midrange to high-end designs range from US$100 to US$500 each.
All this column of information contained in China Sourcing Reports is the result of original, independent and impartial research conducted by Global Sources analysts.
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