The High Cost of Lowering Costs: Taiwan’s Cookware Leader Moves to China

Ni Hsin Co Ltd, Taiwan’s leading cookware manufacturer, recently shifted a portion of its Malaysian and Taiwanese production base to China. While the move may reduce operational costs, the company now faces the challenge of convincing Taiwanese consumers that quality will not be compromised.

Comfortable share and a broad consumer base

In 2011, Ni Hsin’s sales accounted for 18% of Taiwan’s NT$4.8 billion (US$165 million) cookware market. A well-recognised and highly regarded name in Taiwan, Ni Hsin is primarily known for its Buffalo brand of stainless steel cookware. Within the brand, the company offers several product ranges that cater for distinct price segments, which include Function (premium), Free (mid-to-premium), Basic (middle) and Calf (economy).

Strategic reasons for a manufacturing shift

Although the company’s entire production base was initially located in Taiwan, Ni Hsin has since moved the majority of its cookware production to Malaysia, with manufacturing of additional kitchenware products in China.

However, the combination of rising operational costs and increasing competition from low-priced producers led the company to reorganise its operational structure, resulting in a shift of some mid-range cookware manufacturing to China.

In the face of generally volatile and recently rising metal prices, upon which Ni Hsin’s operational costs are largely dependent, several factors make the manufacturing shift more cost-efficient. Among other factors, China’s labour costs in the manufacturing industry are considerably lower. In 2011, wage per hour in China’s manufacturing sector was only a third that of Taiwan’s and under two-thirds that of Malaysia.

Labour Costs and Business Climate in China, Malaysia and Taiwan, 2011

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Source: Euromonitor International

Dangers of a manufacturing move

While Ni Hsin’s production shift may bring benefits to its operational cost structure, the move risks undermining the company’s local identity – and main advantage – as a purveyor of high-quality cookware. Because many Taiwanese consumers question the quality of Chinese-manufactured products, Ni Hsin is in danger of losing customers to other highly-regarded competitors.

Company Shares for Cookware in Taiwan 2011

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Source: Euromonitor International

Among them, global category leader Groupe SEB could benefit. With a distinctly European identity attached to its Tefal brand and a global reputation for high-quality cookware, SEB might look to capture interest from those put off by Ni Hsin’s recent moves.

Preventing a dip

If Taiwan’s cookware leader hopes to maintain its present position, it will need to reinforce its brand image and assure consumers that its quality remains untarnished. To do so, Ni Hsin should consider bolstering marketing campaigns and areas like new product development to further emphasise its commitment to durable, well-designed cookware. Such strategies will ensure that the Taiwanese company remains competitive across each of its varied price points.