Formosa KY - Hunting Down New Directions

Hunting Down New Directions /Report by Greg Niederhaus At FORMOSA KUANG YUNG ENTERPRISES CO., LTD., or FORMOSA KY, the focus has always been on traditional style machines. These include straight line jointer rip-saws, upper / lower two sided planers and multi-ripsaws. But times are changing and so are market trends, and the company is adapting while it evolves. General Manager Lee Tsung-Wei is a very busy man. His approach is to have FORMOSA KY act as an agent for renowned European companies PADE of Italy, and PAUL Maschinenfabrik of Germany. Wei is, as we speak, on his way to Germany, then Brazil, then to Guang Zhou for business talks. wfd was pleased to catch him before he took off, and Wei showered us with that famous Taiwanese hospitality in addition to giving us an insightful interview. High-end Agency in CNC ***************************** Q: For our first question, could you please share with us all of your technical secrets? We want to sell them to the Mainland. A: Secrets? What secrets? Our machines are traditional. It's a joke, right? Q: Yes, Actually we were wondering if you could shed some light on your decision to become an agent for European companies in Asia. A: Well, our machines sell well and will probably always do so. That side of the business pretty much runs itself, so there is time to make new beginnings. As an agent for high-tech CNC machines, namely those of PAUL and PADE, we are gaining lots of new experience in CNC. They are expensive machines, and it is vital to our customers that they can rely on and trust us to take care of them. Q: How is most of your time spent in this realm? A:.CNC service and maintenance is very important. Initially we spend a lot of time training the client how to use the machines properly. But just about every day someone needs our attention for troubleshooting and maintenance. Q:.Does that mean there is something wrong with the machines' quality? A: No, you can usually find the source of the problem with the operator. Normally in Asia, the factories will run push the machine hard for 20 hours per day. Sometimes they push it even longer. These problems don't happen in Europe, so what that means is we have to allocate more time to train the operators, and even offer refresher courses periodically. We make many stickers saying things like "Warning" this and "Warning" that, "Don't forget to" this, "Remember to" that... Some machines look like the entrance to a Chinese home at New Year's, with all the red banners stuck everywhere for good fortune and prosperity! Entrepreneurial Survival ************************** Q: Do your traditional Machines sell well in the west? A: Not yet. The market there is getting deader and deader. But our relationships with PAUL and PADE are very close, almost like family. Almost ten years. We view our relationships as a type of marriage, meaning forever. We believe that when the economy bounces back we will find the right agents in those regions. Our main markets for traditional machines exist mainly in Asia. Q: You know how every government is thinking up ways to stimulate their economies. Do you think the restructuring that Taiwan's government is implementing will be of much help? A: Taiwan is very small. Nobody really knows the future. Should we hang on for 3 months or 6, 3 years or 6? Nobody knows. All we can do is reduce costs and rely on our entrepreneurialism. Action has to take place immediately. Before we consider laying off employees, we must first reduce our own salaries. Even by 50% if necessary. We are a family company, so how can you fire your own brother? Copy Cats and Technical Secrets Q: Are you considering manufacturing for these high-tech companies you represent? A: When the time is right, yes. But there is a very serious problem we must consider regarding copy cats. You know, I go to just about every exhibition for woodworking there is. You can see a new machine unveiled by foreign exhibitors at a show in China, and within a short period you will see the same thing being exhibited by a Chinese company. There's nothing you can do. They copy your machine and sell it for half the price. Q: What solutions are there? A: Not many. Look at it from the end user's point of view. From Taiwan to China there are import taxes. If you can acquire a like machine for half the price, which one will you choose? The business people there are very close, sort of like when Taiwan was starting out. Many small factories needed machines but didn't have much money. Like China, some of the machines were copied from the US, Japan, Europe, etc. We like to say "reverse engineered". Basically, the trend has been repositioned, and as we have been trying to develop the market in China over the past ten years, it's happening over there. You can't do anything. What you can do though, is find products that you can make that they are incapable of producing, and that's what we are on the hunt for. Things are made in China very cheaply, but the quality is... Q: Terrible? A: Yes, terrible. But some things are improving, not everything is terrible. Q: So should we hope that their quality stays that way? A: No. We should never wish bad things onto others. We should just do our best in our own activities. Asian Markets in a Western Shadow ****************************************** Q: What do you see happening in the markets of various Southeast Asian countries? A: Well, Malaysia and Thailand both seem to be getting worse. Indonesia still shows signs of hope. Vietnam has been very good for Taiwan up until this year. But they oversupplied the furniture market which led to dumping, or selling in this case bedroom sets at prices well below their own production costs. Now China is setting up factories in Vietnam, some of which put out more than 200 containers of product per month, no problem. The Chinese go in, buy big land, and set up for big business. In China, even with anti-dumping taxes, there is lots of over-supply. Maybe in America the market is 50% of what it used to be. But for the suppliers it grows 2-3 times per year. In the long term that's going to create big problems for them. They're already feeling it. This last Chinese New Year lasted all of January and February, probably the longest holiday in history, because there was no work. I know. I was there. This is a big problem, and it's not because of Asia... Q: It's been said that whenever there's been a recession in the West which affects the world, that Asia has historically benefitted. Do you agree with that? A: The largest market for Asia has always been America. In comparison to the past, economic problems were relatively contained geographically. This time it's worldwide, and it boils down to who spends the money. The end user hasn't got any money, that's the problem. We are not benefitting, because there are no orders. All we can do is wait and hopefully find new markets. At this time Japan is looking good because the exchange rate is strong. There are some orders coming through to Vietnam, but not enough. It's not a big market, but at least it's more stable. The American market still places orders, but there's no guarantee they can pay before shipment. They have a lot of stock and often request super cheap or free goods to use for promotion to keep business running. Some of them talk in terms of monthly orders spanning a year at a special price, and within a couple months they request reduced special prices with no guarantee. For the manufacturer who has prepared the budget and materials for the initial big order, it is very worrisome. It's particularly tough for high-end furniture. Q: What can you say about the current competitiveness about Taiwanese woodworking machinery? A: They are still highly competitive, but as I said about reverse engineering in China, there are concerns. In Qing Dao, they have acquired some technology from Italy and have started producing some CNC machines. It is time to focus on new types of products, closer customer relations, and building higher levels of mutual trust. Q: Thank you for your time with us today, Wei. We appreciate your perspective. Taiwanese Hospitality Never Dies ************************************** In a recap, there was a moment of awkwardness or two when it sunk it that the plight many factories are suffering is due directly to what is going on in the USA. We asked the questions, and sometimes the answers are not easy to hear. Business is business, but with that said Wei insisted on treating us to an incredible seafood dinner alongside the magnificent Kaohsiung Harbor. Dusk fell, ships floated by and as the clouds swirled in a warm sky turning purple from pink, the worries of economic strife just sort of vaporized. The focus became how to de-shell a jumbo prawn without getting one's hands sticky, a feat worthy of learning very slowly so that Wei would have you repeat the challenge again and again until you got it down. Normally we'd be looking at a 4 hour drive back to Taichung, but with the advent of this awesome high-speed rail Taiwan has completed building, we were back well inside of an hour.
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