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Gem-Year Carves Niche in Chinese Fastener Industry

By , 2008-03-08 12:00:00

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When Hurricane Katrina slammed into New Orleans in August 2005 and destroyed about 200,000 electric poles, causing a massive blackout, Taiwan`s Gem-Year Group came to the rescue and delivered 1,200 metric tons of power-grid fasteners to the stricken city in a single month.

Normally, comments Gem-Year chairman Y.S. Tsai, "filling a need of that size is not a problem at all. The problem then was, the need had to be filled in less than a month." His company won the supply contract, he explains, because "Our industry peers would need at least a month to manufacture that many fasteners, and another 45 days to deliver them into the hands of the rebuilders. We made it because we have a strong delivery capability in addition to a 600-metric-ton inventory in our warehouse."

When he received the Katrina order, Tsai began popping out bolts at the rate of 1,000 a minute. Within a week all 1,200 metric tons of them had been packed into containers Gem-Year`s factory in Jiaxin, Zhejiang Province, in mainland China, and had been shipped by rail to Shanghai where they were loaded onto a cargo vessel bound for the United States.

This outstanding efficiency won the confidence of the American buyers and bolstered Tsai`s own self-confidence. The experience also prompted him to place top priority on the establishment of distribution channels in mainland China.

Another success for Gem-Year came four years ago, when the company won a contract to supply around RMB50 million (US$6.2 million at RMB8:US$1) worth of fasteners for the Qinghai-Tibet railway in China, the world`s highest railway line.

This was the beginning of the company`s major push into the Chinese market, and the business deals have grown since then. A recent breakthrough was the winning of half an RMB750 million (US$93 million) contract to supply fasteners for China`s high-speed railway connecting Zhengzhou of Henan Province and Xian of Shanxi Province and the railway connecting Wenzhou of Zhejiang Province and Fuzhou of Fujian Province. (A German firm won the other half).

The company now plans to compete for even bigger projects, worth an estimated total of RMB6 billion (US$750 million): one line from Beijing to Shanghai, another from Harbin to Dalian.

Sights on China

China`s booming electrical power and car markets are also in Gem-Year`s sights. China`s 11th five-year development plan calls for the spending of at least RMB8 trillion (US$1 trillion) on the installation of electricity grid networks. Ultra-high-tension grids, around which these power projects are centered, require large amounts of special-purpose fasteners. Since most mainland Chinese manufacturers lack the technology needed for turning out such fasteners, Gem-Year is optimistic about its chances of winning the contracts.

The company has been supplying fasteners to Chinese carmakers since 2004. Its customers include the top manufacturer in the industry, Wanxiang Group.; the value of this business is relatively small, only around RMB400,000 (US$50,000) a month, but Gem-Year is confident of expanding its presence in the Chinese auto industry.

"Over the next few years," Tsai reports, "we`ll place our emphasis in China on car fasteners and special-purpose fasteners, because these two types of products command much higher unit prices than do ordinary products." To accommodate the expected increase in production, the company has installed new equipment from Taiwan, the Netherlands, and Germany in its Chinese factory.

The company is preparing to open new facilities in the mainland, including a factory in Dezhou, Shandong Province (on a 500-hectare site chosen because of its proximity to the steel center in Xingtai, Hebei Province), and a logistics shop on a 70-hectare site in Guangzhou.

Tsai says that the Shandong factory will start producing in June, turning out mainly wires and fasteners for the medium- and low-end markets. The new logistics service will boost product value. "Fasteners and bolts are low-priced products, no matter how you look at it," Tsai notes. "Just think: how much does a pack of bolts cost? Maybe only 10 RMB. The price can climb to 200 or 300 RMB per pack at the retail end, though, so we plan to make money not only from manufacturing but also from the supply of logistics and distribution services."

Gem-Year already has more than 40 branches in China to serve hardware shops and carmakers, and plans to expand the number to 500 within five years.

Tsai is targeting revenues of RMB5 billion (US$ 641 million) in five years, up from RMB1.2 billion (US$15.7 million) in 2006. His company listed its A-shares on the Shanghai Stock Exchange in January.

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