Formosa Tools Co., Ltd, based in Jhanghua County, Taiwan, had its “Formosa” brand recognized at the end of March as one of the “Taiwan Top 10 Global Brands.” It is one of those SMEs taking new steps to expand its operations overseas. The company has been loading equipment and materials from its 20,000 square-meter factory into containers and shipping them to Thai Binh province in northern Vietnam, where it hopes to open a new factory in early May to coincide with the company’s traditionally slow sales period from April to August. The first phase of the project consists of a 50,000 square-meter plant that will generate annual sales of an estimated US$30 million, a total that would equal Formosa Tool’s current sales and make it the largest Taiwanese business in northern Vietnam.
Founded in 1974, Formosa Tools is Asia’s most prominent garden tools manufacturer and was the first such Taiwanese enterprise to set up offices and distribution warehouses in Europe and the United States.
“They insist on staying away from trading companies and rejecting OEM business. They develop their own products and target big markets and large chain retailers as their prime marketing channels,” observed Walter Yeh, Taiwan External Trade Development Council’s executive vice president.
In its early days, Formosa Tools built its business on sickles. To develop a marketing strategy, company chairman Hsu Chin-tun traveled to Europe, the U.S. and Japan and discovered that the garden tools in these consumer markets were all made by domestic suppliers. None came from Taiwan, and no trading companies seemed interested. Formosa Tools decided to dedicate itself to manufacturing, and had a large, well known trading company handle export sales.
Before long, however, the trading company took the products Formosa Tools was designing and had them made at lower prices to improve their margins.
The resilient Hsu absorbed the blow and from that point on refused to rely on trading companies to promote overseas sales. Formosa Tools, with a big production volume and NT$100 million in sales, decided to rely on itself to gain footholds in markets abroad.
Hsu wanted to attack the world’s biggest market ― the United States ― and traveled to Los Angeles to set up an office with eight employees and a distribution warehouse. To make the most efficient use of time, he bought three Panasonic fax machines, which then in the early 1980s each cost tens of thousands of Taiwan dollars. After visiting countless stores and exhibitions, “my father handed to me at least 200 name cards from potential customers in the U.S. alone,” recalls Formosa Tools general manager Tony Hsu.
Going Directly to Big Retailers
The turning point in Formosa Tools’ efforts to sell directly to the U.S. came when it hooked up with K-Mart. In 1986, with the Taiwan dollar appreciating rapidly, trading companies were unable to meet K-Mart’s price points, and Formosa Tools stepped into the void.
“It really wasn’t worth it for us to ship, but my father said without any hesitation that if the trading companies couldn’t fill the orders, we would. Four months later, we delivered on schedule to K-Mart,” Tony Hsu recalls.
After that, Formosa Tools took over all of K-Mart’s direct orders for garden tools.
“At the time, the profit margin was nearly 50%. For every item we sold, we were earning another one,” the younger Hsu remembered.
With trading companies no longer marking up its sales prices, Formosa Tools had a competitive pricing advantage. But with the rise of China, cutthroat competition over manufacturing costs and sales prices erupted. Relying on its track record with K-Mart, Formosa Tools began to directly approach big distributors.
Aside from the “Formosa” brand of his father’s era, Tony Hsu developed another brand called “Garden Pals” that also targeted the U.S. market. To differentiate the two brands, Formosa Tools invested 3 percent to 5 percent of its sales annually on research and development, coming up with new materials and functions for their products. They imported specialty steel from Japan, hoping it would create added value.
“If you go to their showroom, you will see a really diversified product line,” observes Hai-ping Tsui, deputy director of the Metal Industries Research & Development Center’s Regional R&D Service Department.
Soon, however, Tony Hsu discovered that companies that focused only on honing their manufacturing processes would always be playing catch-up. He needed to find a way to gain insight into customers’ needs if he wanted to grab opportunities before others did.
“You have to assume you are a department of the customer’s company and have to come up with a solution,” says Tony Hsu, demonstrating a service attitude rarely seen in traditional industries.
Changing their focus away from manufacturing and adopting integrated service concepts opened another boom period for Formosa Tools.
‘Wal-Mart Hero’
The younger Hsu, in his early 30s at the time, was Formosa Tools’ “U.S. representative.” His presence there coincided with the rise of Wal-Mart in the 1990s, a development that led to the consolidation of America’s retail sector. Wal-Mart found itself attracted to Hsu’s approach of tailoring solutions to customers that included price point, marketing, and point-of-purchase display elements.
Hsu came up with a unique garden tool display concept tailored for Wal-Mart called the “Pretty Damn Quick (PDQ) display” that revolutionized how garden tools were presented in U.S. stores. Hsu became a “Wal-Mart hero.” The retailing giant, which had only been buying three products from Formosa Tools, immediately took on 40 items, with annual purchases soaring from US$3 million to more than US$10 million.
“At that time, we took away about half of the business of Wal-Mart’s other garden tool suppliers,” Hsu says.
Formosa Tools had established a model for penetrating new markets, setting up new branches and directly targeting retailers with tailored solutions. Hsu copied that model in attacking the European market, setting up a logistics center in the Netherlands, and even a distribution warehouse in Australia.
“But you can’t copy your sales strategy in different markets. Salesmen need to do their homework. They have to understand the markets’ needs even more than the customers’ buyers,” Hsu says, again stressing his proactive nature that has allowed him and his company to continue to seize the initiative in their business dealings.
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