Four Development Trends in the Fastener Industry
2008-08-18

In first half of 2007, China turned out 1.099 million tons as US$1.29 billion worth of fasteners export, up 30.82% from the year before and securing it one quarter of the global market, the highest among Chinese-made hardware parts. Despite the energy crunch and rising materials costs, China s fastener industry continued to barrel ahead in recent years. During the 2001-2005 periods, output in the segment grew at an average annual clip of 14.32%; revenue rose 23.07%; export volume increased 24.91%; and exports jumped in value by 31.95%. From 2001, the Chinese fastener industry has grown rapidly. Domestic shipment volume has reached 2-2.4 million tons annually, while exports have hit 1.5-1.8 million tons. Industry competition has been cruel and price wars are rampant as companies vie on brands, technology, online marketing, service, and management. It is expected that in the short term, the industry will develop in the following way: 1. Importers will bring in standard fasteners made by Asian companies. U.S. fastener companies will produce their own fasteners overseas and bring them in to supply the domestic market. Those fasteners, wherever they are from, have to reach the end-user and distributors remain the most efficient way to do that. Some distributors have chosen to generalize-adding thousands of items to support inventory management programs or thousands of local outlets to offer convenient pick-up counters for the construction and MRO trades. At the point of sale, their knowledge of fasteners, fastener functions and availability has become diluted. Technical knowledge about fastening and assembly and new developments in the industry represent a meaningful asset to fastening specialty distributors, both in serving the needs of other distributors and the needs of fastener end users. Technical knowledge today is a value added. In years past, the relationship between distributor and fastener manufacturer was as important, in fact more important, than the distributor-customer relationship. The mutual trust that was so essential to that relationship was lost as competition in the fastener market reached a critical stage. Manufacturers found distributors shopping important parts, both domestically and overseas, to find lower cost sources to meet competitive conditions. Distributors found manufacturers using the lower "distributor price" to retain competitively threatened end-user business. Admittedly these were, and remain, difficult times. Distributors must add meaningful value to compete. Dave Merrifield points out that today's extending lead times put a premium on local (distributor) stocks. A willingness to maintain local inventory cushions for customers is worth something to the customer. In addition, master fastening specialty distributors are in a position to quickly respond to other distributors small quantity requirements. Fastener manufacturers still need qualified distributors to effectively service their markets-even on the more high performance, problem-solving specials where they feel particularly vulnerable to competitors. Some, like ESNA, Spiral and Micro Plastics, are working with selective distributors to rebuild market partnerships. This is a trend that will grow. They are looking for distributors with a strong end-user base and a good basic understanding of fasteners and assembly technology. 2..As the industry succeeds in raising fastener prices it must face the reality that those improved prices, offsetting, almost exclusively, raw material cost increases, do nothing to improve dangerously minimal profit margins that resulted from the survival mode of the past few years. Shrinking markets and incredibly lowpriced fastener imports combined with increasing costs on everything from workers' comp to health insurance, energy and freight, dramatically eroded profits. Some effort must be made to get at least incremental relief in this area. We cannot exist as a non-profit industry. According to Dave Merrifield, Executive Vice President of the National Fastener Distributors Association, today's distributors must reduce costs in the supply chain by making effective use of new technology. Everything from selling costs to order processing, receiving and material handling needs to be cost analyzed. 3. Further industrial concentration Four major production bases are emerging in Ningbo, Wenzhou, Yongnian, and Jiaxing, each with its particular advantages and niches and each characterized by intense competition between state, private, and joint-venture enterprises. 4. Brand building the key to growth Having broken through their bottlenecks and achieved strong sales performance in both the domestic and overseas markets, many companies with brand products are focusing more of their promotional effort on such products not only in China but in overseas markets as well. Although such efforts are unlikely to produce short-term gains, it is an essential strategy for the long-run competitive strength of Chinese fastener makers.