Many people always think that manufacturing overseas = making a lot of money. After seeing the thirty-year development history of Superstar Technology, it makes people feel panicked.
We have the most complete hardware industry chain in the world. On the streets of the Yangtze River Delta and Yongkang, steel, molds, heat treatment, and electroplating are fully equipped, and hundreds of thousands of sets of wrenches and pliers can be produced a day. Seven or eight out of ten DIY tools in the garages of European and American households come from Chinese factories.
But for a long time, people who make tools have earned the meager hard-earned money; foreigners who sell goods under brand names have made most of the profits. This gap has spanned for decades.
Let me first do some real calculations with you. The clear data in the industry are here: the gross profit margin of ordinary hardware OEMs is around 10%. A pair of wire cutters with an ex-factory price of ten yuan will make a few cents in net profit for the factory. Only by increasing the volume can it barely support the workshop workers and cover the factory’s electricity bill of raw materials.
For the same pair of pliers, labeled with Wal-Mart or Stanley and placed in overseas supermarkets, the terminal selling price will directly increase five or six times. The wholesale gross profit margin of brand owners and channel stores can reach 35% to 50%. The intermediate price difference has nothing to do with the manufacturing factory.
Superstars in the early years followed this model. More than 80% of orders were ODM, and the drawings, standards, brands, and sales channels were all in the hands of American giants.
If someone lowers the price of an order, the factory can only passively accept it; if overseas sales outlets adjust their purchasing plans at will, the entire production line will have to be shut down and on standby, without any pricing power or say.
At that time, domestic hardware factories were all working in the same way: immersing themselves in production capacity, fighting for low prices, and grabbing OEM orders. It seemed that there was a steady stream of orders, but in fact they were always trapped at the bottom of the industrial chain.
The price of raw materials has increased, and tariffs have been imposed overseas. The rising costs can only be absorbed by ourselves. We dare not raise prices casually. Once the price is raised, major customers will directly transfer orders to Southeast Asia. The equipment is aging and we want to upgrade and develop high-end power tools. We have no extra profits in our pockets and no money to invest at all.
To put it bluntly, after decades of OEM production, we are just a “cheap production workshop” for foreigners. Our products are popular in Europe and the United States. No one knows the Chinese company that manufactures them, and we cannot get a cent of the dividends.
Many people will wonder: Since OEMs suffer so much, why didn’t they just do their own brands in the early years?
To be honest, this road is ten times more difficult than simply making tools.
The DIY market in Europe and the United States has been developing for hundreds of years. Old tool companies such as Stanley have deeply cultivated global channels. Home Depot and Lowe’s chain supermarkets have a firm control on shelf resources. Local consumers look for local established brands, and unfamiliar Chinese brands cannot enter offline stores at all.
Building an overseas sales team from scratch and cultivating consumer awareness requires investment of more than ten years, and they have to continue to bear the costs of brand promotion and after-sales warehousing. Most factories cannot bear the initial losses and simply work as OEMs to earn stable and small profits.
The most rare thing about Hangzhou Superstar Technology is that it refuses to just be a behind-the-scenes processing factory all its life. It has suddenly found two ways to break out and regain the initiative little by little.
First, we must first bring OEM manufacturing to the top of the industry and build a solid foundation.
Relying on the mature hardware supply chain in the Yangtze River Delta, it has improved tool quality control and production efficiency, and its delivery speed and cost control are far ahead of overseas local factories. Walmart and Home Depot are inseparable from its supply. Only by accumulating cash flow from stable large orders can they have the capital to lay out the brand track.
Second, creating your own brand + acquiring overseas established brands is the smartest move.
It has built its own brands such as WORKPRO from scratch, and deployed Amazon’s cross-border channels to directly target overseas consumers. At the same time, it has made large purchases of local tool brands with century-old experience in Europe and the United States, including PONY, Arrow, and Lista, all of which are established overseas brands.
These acquired brands have their own local channels and user reputation, eliminating the long cycle of expanding the market from scratch, and then grafting domestic low-cost and perfect supply chains to directly increase their competitiveness.
After more than ten years of working step by step, the situation has completely changed.
In the early years, private label revenue accounted for less than 15%. Today, OEM and private label each account for half. The gross profit margin of private label is stable at more than 35%, which is 6 percentage points higher than that of OEM. The premium advantage is visible to the naked eye.
The scale has reached the third place in the world and the first in Asia. 70% of the revenue is sold overseas. It no longer relies solely on OEM to earn processing fees. With the brand in hand, it has independent pricing power. Even if tariffs fluctuate, its risk resistance is much higher than that of a pure OEM.
Just making hand tools is not enough. Superstar continues to make breakthroughs in the high-profit track, focusing on power tools and laser measuring instruments, winning long-term purchase orders from chain stores in North America, jumping out of the involution of low-end hand tools, and extending into areas with higher technical barriers.
But we cannot blindly tout “complete turnaround”. The objective differences must be explained.
First, the global leader Stanley Black & Decker is far larger than a superstar. The brand mentality and global offline channel network accumulated over decades will be difficult to catch up in a short time. The habit of ordinary overseas consumers giving priority to local established brands will take a long time to reverse.
Secondly, half of the revenue still relies on OEM. There is still a long way to go before we can completely get rid of OEM dependence and realize the dominance of our own brands.
There are still shortcomings in the core components of high-end power tools and the deep overseas offline channel layout.
Thirdly, brand operation expenses are huge. Overseas promotion, warehousing and after-sales continue to burn money. Private brands cannot achieve a profit scale that completely overwhelms OEMs in the short term. Transformation is a protracted battle and cannot be rushed.
Looking at the entire Chinese manufacturing environment, the breakthrough of superstars is not an exception, but it is the most representative microcosm.
Most of the more than 6,000 hardware tool companies in China are still trapped in the quagmire of OEM. They only know production but not branding. They work hard to make goods and lose profits.
Our manufacturing capabilities have long been among the best in the world, but our brand voice and channel control are the most valuable top-level links in the industry chain.
If you only immerse yourself in making products, you will always be able to get the smallest piece of the cake; if you hold the brand in hand and face consumers directly, you can fully enjoy the full premium of the product.
Some people used to say that they would be satisfied if they could steadily receive overseas OEM orders.
But the thirty-year experience of Superstar tells everyone: making a living through OEM is always passive, and building your own brand is the foundation for the long-term survival of the manufacturing industry.
From making wedding dresses for European and American brands to owning multiple global tool brands and firmly ranking among the top three in the industry, this road has been painful and slow, but it has been the most determined.
Some people think that acquiring overseas brands is a shortcut and does not reflect real skills; others recognize this curve of going overseas and believe that it is the best solution for domestic enterprises to quickly acquire overseas channels.
Do you think domestic manufacturing factories should continue to do OEM work to ensure stable cash flow, or should they grit their teeth and spend money to build their own brands?
Welcome to chat about your views in the comment area.
