In the past, the number of hardware tools skyrocketed globally, particularly during the planned economy era when industries focused on quantity expansion. By the late 1980s, China’s tool industry boasted an impressive annual capacity of 300 million high-speed steel tools and over 10 million measuring tools, leading the world. Meanwhile, Japan, our neighboring competitor, peaked at 120 million high-speed steel tools annually. However, due to industrial upgrades, Japan's output later dropped to 90 million pieces, while China, despite having a smaller manufacturing scale than Japan, produced three times as many tools, signaling a concerning oversupply. Over the last five years, the expansion of export markets has further depressed prices, with some companies slashing prices by 40-50%. This has led to a national sales volume of only 200 million pieces.
During the late 1980s, buoyed by optimistic market projections, key Chinese tool enterprises not only expanded but also established numerous joint ventures. Many of these ventures eventually split from their parent factories to operate independently, giving rise to China's first wave of private and township tool enterprises. These new entities are agile and free from the historical baggage of state-owned enterprises, potentially emerging as a reformative force in the industry. However, talent, technology, equipment, and management deficiencies have kept most of these enterprises stuck in outdated, expansionist practices. Within a decade, the total output surged to 10 billion pieces, yet the variety remains concentrated in low-end products like twist drills, construction drills, woodworking kits, and calipers. Despite their sheer volume, these products account for only around 30% of the domestic market and haven't broken into formal international sales channels due to brand and quality issues. Yet, they've significantly impacted China's tool export market.
A strategic misstep in the hardware industry has deepened structural weaknesses. The rapid technological advancements and global shifts toward advanced manufacturing left China unprepared. Instead of seizing the opportunity to upgrade its product and service offerings, the gap between China and foreign tool industries has widened over the past 20 years of reform and opening-up. Developed nations transitioned to high-tech sectors like information, biotech, and new materials in the 1980s, driving a tech-driven transformation in traditional industries. Automation, IT, and modern control technologies elevated mechanical product standards and service levels. For tools, this meant precision, efficiency, reliability, and specialization—what’s known as "three highs and one specialty."
The new four-roll rolling process for twist drills emerged in the early 1960s but became obsolete in developed countries by the early 1980s. Foreign toolmakers refocused on these "three high and one specialty" goals, abandoning outdated models. Their comprehensive upgrades required significant investments in capital and intellect. Unfortunately, China missed the window of opportunity, leaving weaker firms struggling to survive. The widening gap between China’s stagnant tool industry and the rapidly advancing foreign counterparts is an inevitable outcome of these dynamics.
Industry insiders lament weak market demand and sluggish sales. In reality, demand is shifting toward high-tech products, evidenced by rising annual imports of tools from over $40 million to over $80 million between 1998 and 2000. To thrive in today’s market economy, enterprises must correctly position themselves: understanding their strengths, identifying suitable clients, and determining how best to serve them. Correct positioning is crucial for fostering strengths, minimizing weaknesses, and outpacing competitors. We must learn from the failures of the planned economy, where attempts to be "big and comprehensive" or "small and complete" without clear advantages inevitably failed.
China’s hardware tools industry still enjoys competitive pricing and performance ratios in traditional standardized tools. This edge must be preserved and built upon. However, blind expansion and chaos must be avoided. While we lag in modern tools and "three high and one specialty" technical services compared to international leaders, the global tool industry features both large multinationals and countless small and medium enterprises thriving through niche expertise. As China transitions toward modernization, we too must adopt specialized paths, focusing on small, specialized enterprises. Large and medium-sized firms shouldn’t overestimate their capabilities but instead concentrate resources on critical areas, avoiding blind diversification. Such pragmatic positioning will amplify the industry’s overall strengths and expedite modernization.
Guangdong Kinen Sanitary Ware Industrial Co.,Ltd. , https://www.kinengroup.com