IN THIS ISSUE. Anywhere, anytime.

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3 IN THIS ISSUE If you missed our flurry of forums across Europe in May, or simply want to relive the highlights, this is the issue for you! We bring you excerpts from all four events in Munich, Zurich, London and Paris plus a bonus wrap up video. The magazine is also chock full of other great information you can use. There are inspirational lessons from the fascinating company Covestro, which left the comfort of the heavyweight Bayer brand to strike out on its own. In the Knowledge section, we look at how four smart companies are reaping goodwill from providing sustainable solutions that shape all our lives. Then there are the people we profile on our pages. In an inspirational CEO Talk, the President of Shangong Group, Zhang Min, explains how he and his team grew a company on the verge of bankruptcy into a giant within the global sewing machine industry. Over in Alumni Voice we introduce you to legal luminary Zhang Jijun who lives by the mantra that there are always more solutions than problems. And of course there s a lot more on these pages: updates on how our impressive alumni are shaping the world of business as well as a round-up of events across our three campuses and five locations. We re looking forward to sharing your stories in the months ahead. So be sure to give us your feedback at alumnimagazine@ceibs.edu and keep your suggestions coming about what you d like to see in the next issue! Snow Zhou Editor-in-chief Assistant President, CEIBS Charmaine N. Clarke Editor-in-chief Assistant Director, CEIBS Marcom Anywhere, anytime. WeChat Online

4 contents 02 thelink l Contents Volume 3, 2016 Briefing 04 Brexit Vote Reactions From Faculty, New Sports Management Programme, Former ICBC Chair Joins Faculty, and more Feature 10 Covestro: An 80 year-old start-up CEO Talk 18 The Path to Revival Cover Story 22 Lessons from Europe 24 Munich Tangible benefits to Sino-German Ties Industry 4.0 & the China Market 30 Zurich Swiss Companies Doing Business in China Fix Your Balance Sheet, Says Xu Xiaonian 36 London Open for Business ~ People s Bank of China Woos London Internationalisation of ICBC Chinese Banks Ready for RMB Internationalisation? 42 Paris Win-win for Chinese & French Enterprises CEIBS Knowledge 48 Sustainable Solutions Boost Goodwill

5 contents 03 thelink l Contents Volume 3, 2016 Scene@CEIBS 54 Financier s Salons; Healthcare Forum 2016; Faculty Shine During Accounting Summit; Transforming China s Innovation Capacity; Innovation Forums; Industry 4.0 in China; Sustainable Energy Forum; 1st Global VR Convention 59 Alumni Voice 66 Solutions Always Outnumber Problems ~ Meet Legal Luminary Zhang Jijun 70 Creating Lifelong Ties Through Mentoring 71 PUBLISHER: CEIBS EDITORS-IN-CHIEF: Snow Zhou, Charmaine N. Clarke MANAGING EDITOR: Lei Na CONTRIBUTING EDITOR: Du Qian REPORTING & TRANSLATION: Janine Coughlin, June Zhu, Richard Wu, David Yu Jiang Junjun, Wang Xiaohong, Scarlett Cheng CHINESE EDITORIAL INTERN: Zhao Guangzhi ART EDITOR: Mickey Zhou & Saya Snap Printing PHOTO EDITOR: Juana Zhou COVER DESIGNER: Marius Ziubrys CONTACT US: TEL: FAX: alumnimagazine@ceibs.edu CEIBS SHANGHAI CAMPUS 699 Hongfeng Road, Pudong Shanghai , P.R.C. Tel: Fax: Website: BEIJING CAMPUS Building 20, Zhongguancun Software Park 8 Dongbeiwang West Road, Haidian District Beijing,100193,China Tel: Fax: bjo@ceibs.edu SHENZHEN REPRESENTATIVE OFFICE 8/F Block A, Rongchao Business Centre No.6003,Yitian Rd, Futian CBD Shenzhen, , P.R.C. Tel: Fax: szo@ceibs.edu EUROPE CAMPUS Lorange Institute of Business Zurich Horgen, Switzerland Phone Fax info@lorange.org AFRICA FACILITY Horizon Building 60 Liberation Road, 2nd Floor Accra, Ghana Tel: Published bi-monthly by CEIBS. The authors' views expressed in this publication do not necessarily reflect the views of our editors or of CEIBS. Copyright 2016 by CEIBS. All rights reserved.

6 briefing 04 BREXIT VOTE REACTIONS FROM FACULTY. A historic decision to leave the EU were still unfolding, with the entire world keeping a watchful eye out for what comes next. Will the pound sterling rebound? Will the UK s main political parties splinter even further or will they be able to salvage some modicum of the cohesiveness needed to guide the country through the unchartered waters ahead? collective gasp around the world, CEIBS faculty comments were made widely available to the media and the general

7 briefing 05 Chinese companies have always dealt with the EU on a country-by-country companies that were hoping to use Britain as a stepping stone to the larger European market, this could be a major blow. Prof Ding Yuan Vice President and Dean Cathay Capital Chair in Accounting CEIBS forward, they will face challenges related to taxation, and transactions fraught with friction. Oliver Rui Prof of Finance and Accounting CEIBS Chinese companies targeting the European market need one base inside Europe. If Britain moves ahead with Brexit, that base is unlikely to be the UK. Not even Chinese investors like uncertainty; expect them to put their money elsewhere now. Europe needs to speak with one voice when negotiating trade agreements It s unlikely that Brexit will give the UK a better trade deal with China. With only 1% of Chinese imports, the UK has very little bargaining power! Klaus Meyer Prof of Strategy and International Business CEIBS

8 briefing 06 New Sports Management Programme The launch of a Sport and Leisure Management Programme has made CEIBS the first top-tier Chinese business school to launch a specialised course for the sports industry. The Programme joins the long list of the school s Executive Education offerings, which are ranked No. 25 worldwide by the influential Financial Times, based on the placement of both Open and Custom programmes in The Sports Management Programme will cover everything from management to leadership and events, with study tours in Europe and the US where participants can learn from and about industry heavyweights such as the Swiss-headquartered International Olympic Committee (IOC) and International Federation of Association Football (FIFA), along with America s National Football League (NFL) and National Basketball Association (NBA). Another important element of the course is that scholarships will be provided for a number of retired Chinese Olympians. Like athletes from many countries around the world, Chinese Olympians often have a hard time making the transition to another career after their time in the spotlight has come to an end. The scholarships are being provided by the Hong Kong-based Chinese Athletes Educational Foundation which dedicates itself to ensuring that education and training programmes are available to current and retired Chinese athletes and coaches. Former Chinese Olympic gymnast Li Ning was among those attending the Programme s Opening Ceremony on June 24, This CEIBS programme is essential for retired athletes, including me, because it gives us the knowledge and courage to transform ourselves, he said. In a way, it also helps prolong our lives as athletes because starting a brand new career requires all the same qualities when training and playing sports: toughness, agility and persistence. CEIBS Executive Director of Executive Education and sports enthusiast Hobbs Liu conceptualised the programme. Forty participants are already signed up, a mix of sports enthusiasts, entrepreneurs and large companies, potential investors, as well as professionals who specialise in the niche area of sports law, he said ahead of the launch.

9 briefing 07 Former ICBC Chair Joins Faculty CEIBS already impressive list of faculty now includes Dr Jiang Jianqing, former Chairman of the Industrial and Commercial Bank of China (ICBC), one of China s largest financial institutions. He joined the school in July as Adjunct Professor of Finance. Dr Jiang was Chairman of ICBC from 2005 to 2016 and has served as Vice Chairman of the China Finance Society. He has many years of rich experience in the financial industry, and has also developed many highly regarded theories on banking history, banking management and financial reform. Dr Jiang s expertise goes well beyond China s banking industry. The numerous books he has authored include Analysis of Overseas Financial Crises, Reflection on Financial Crises, and Technical Revolution in the American Banking Industry. He received his doctorate degree in Management from Shanghai Jiaotong University in He was a recipient of the 2015 Global Outstanding Financial Service Achievement Awards, and has been named among Bloomberg Markets 20 Most Influential. He has also been honoured as The Financier Most Motivated for Reform, Most Influential Leader of a Listed Company in China and named among Outstanding Asian Directors. TEDxCEIBS The fourth annual student led TEDxCEIBS conference was held May 28 at the CEIBS Pyramid on the Shanghai Campus, during which seven thought leaders from diverse industries shared their interpretations of the conference s theme, Path. More than 100 people attended in person, while many more watched via live-stream on the internet. The speakers were: Director, Producer and Screenwriter Stanley Tong; Chairwoman of Chengdu Aiminer Leather Products Liu Qiongying; Vice President of China National Arts & Crafts Hong Zhang Hong; China President of HTC VR Alvin Wang Graylin; Founder & CEO of PowerVision Technology Zheng Weifeng; President of Greater China at Wyndham Hotel Group China Leo Liu; and Chairman & Chief Editor of the Hurun Report Rupert Hoogewerf.

10 briefing 08 Humans vs Robots The Chairman and CEO of ABB China, Dr Gu Chunyuan, gave a CEIBS Master Class on the Internet of Things (IoT) on April 26. The venue was the Shanghai Campus. In his lecture, Dr Gu explained how IoT can help provide the manufacturing industry with solutions to the many serious challenges it faces today, which include increasing shortages of labour, land and energy resources, along with environmental issues, and having to find ways of reducing costs and improving productivity. He said that the synergy between robots and humans illustrates well how IoT works. Professor of Economics Zhu Tian moderated. Lujiazui Forum for Global Economic Growth and Financial Reforms Challenges was the theme of the 7th Annual Lujiazui Forum held June 12 in Shanghai. It was organised by CEIBS and co-hosted by the Shanghai municipal government, Peoples Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission. Keynote speakers included Shanghai Mayor Yang Xiong, CIRC Chairman Xiang Junbo, President of CEIBS Lujiazui Institute of International Finance (CLIIF) Wu Xiaoling, and CLIIF Co-President Cao Yuanzheng. CPC Central Politbureau Member and Secretary of the Shanghai CPC Committee Han Zheng attended the opening ceremony. CEIBS Vice President and Dean Ding Yuan participated in the ifeng Finance Session and CLIIF Executive Vice President Dr Gary Liu participated in the Session hosted by Tencent s Atom Think Tank.

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12 Feature 10 Covestro: An 80 year-old start-up By Charmaine N Clarke & Wei He Unless you know Covestro s story, it s hard to understand why CEO Patrick Thomas describes it as a start-up with 80 years of experience. The fact is that the company has very strong roots; it began as Bayer MaterialScience (BMS), part of the Bayer Group. Covestro was born in September 2015 after Bayer decided to focus entirely on the Life Science businesses and to float the materials business side of its operations on the stock market as a separate company. An IPO followed a month later and Covestro racked up an impressive 12.1 billion in global sales last year. Now no longer under the umbrella of the powerhouse Bayer brand, Covestro is determined to make a name for itself. While it is far from having the brand recognition

13 Feature 11 that Bayer does, its innovations are all around us if you know where to look. They can be found in the interiors of our automobiles, on our mobile phones, sports shoes, even the mattress that gives us the perfect night s sleep. Some of Covestro s most well-known collaborations include pilot-protecting insulation work on the cabin of Solar Impulse 2, an airplane attempting to fly around the world using only energy from the sun. They also have a track record of working with Adidas, Covestro has made China a huge part of its strategy for longterm success providing material (when they went by the name BMS) for the 2014 Brazuca ball. More recently, they partnered with Adidas to develop the Beau Jeu, the official match ball for the European soccer championship. Covestro (and Bayer) also has a strong relationship with CEIBS and already there are several of the school s alumni on their team (see sidebar). This comes as no surprise as Covestro has made China a huge part of its strategy for long-term success. Read on for an exclusive interview with Steffan Huber, President of Covestro Greater China, for an insider s views on what it was like to take a leap of faith and leave the comfort of a 150- year old mega brand to start all over again. TheLINK: What were some of the challenges of launching a separate company and is there anything that, looking back, you would have done differently? It wasn t easy; it was emotional. I personally have 30 years of Bayer history under my belt, and a lot of people on

14 Feature 12 our team had only ever worked at Bayer. So for some of them, not being part of Bayer anymore was like taking their home away. Especially in the company s home country, Germany, it s been quite emotional for a lot of people. Not only just for those from Covestro, but also for those remaining at Bayer. Having said that, it s also clear that there were a lot of advantages. For example being able to experience an IPO, and a situation where a complete unit is taken out of a company and becomes a separate entity, would be a highlight in anyone s career and I was lucky enough to be able to play a role there. The entire carve-out of the businesses took quite a while. By the time the announcement was made in CEIBS Covestro According to Steffan Huber, President of Covestro Greater China, the almost one year-old company fully intends to build on the strong relationship it had with CEIBS when it was a part of Bayer. Over the years, both sides have benefited from an exchange of ideas (speaker engagements, membership on the school s Corporate Advisory Board), shared talent (internships for MBAs who help address real life challenges at the company while getting much needed work experience) and employment opportunities. We like CEIBS graduates because they are of high quality, said Huber. There has been continuous collaboration under the old Bayer name, and now under the Covestro name, there is going to be continued collaboration. Meet two CEIBS alumni who are proudly part of the Covestro team: From Chemist to Innovator Roy Lin, who graduated from the CEIBS EMBA programme in 2006, is heading the Material Science Center at Covestro s innovation hub, the Polymer Research & Development Centre. He joined Bayer MaterialScience (BMS) 15 years ago, as Marketing Manager for polyurethanes products, after BMS acquired the business from Lyondell, a company he was working for in Singapore. In 2004, he was transferred to Shanghai and has been in the city ever since. Before CEIBS I was a trained chemist with strong expertise in technology management and marketing. But I knew if I wanted to move to the next level, I had to gain a holistic overview of business strategy and integrated business operation. So I chose CEIBS in order to strengthen my skills. The decision to do the two-year programme, which would not have been possible without the company s support, paid off well. At CEIBS I learned how important it is to have an overall and integrated picture of business management, skills I use on the job. Covestro is all about making the world a brighter place and this is my favourite thing about working for the company. I am most impressed

15 Feature 13 September 2014, of course there had been a bit of work done already. We had to make sure that on the first day of independence, everything worked, from accounting to finance to payrolls, everything. So this took a lot of work. Also, one of the main requirements at the very beginning was that we wanted to have a friendly carve-out because we would still be neighbours, in Germany, in Shanghai, everywhere. Neighbours should work well together, and they should help each other. And we have achieved that. Overall we made the transition in a very collaborative way and maintained a friendly atmosphere among our colleagues at Bayer and Covestro. We still have regular exchanges and it s still a very friendly environment. and excited about the emphasis on environmental protection and safety. Covestro puts a great deal of emphasis on sustainability, which in turn benefits people and the planet and of course generates a profit. This emphasis is demonstrated throughout the products and technologies that we are developing for the market. I see Covestro as a place to foster your global citizenship. Joining Covestro, where I have benefitted from a multi-national company view, and studying at CEIBS, where I truly learned about China business insight, have been the two great decisions of my life. Campus Talk Pays Dividends An October 2006 campus talk by Bayer executives was enough to let Janet Yang (MBA 2007 graduate) know she wanted to work with the company. Almost a decade later she still believes she made the right choice. Yang began as a project manager at Bayer s Supply Chain Centre (SCC) and today she is Head of SCC Covestro after the company was carved out from Bayer. She still remembers the gruelling interview process for the job. It was a one-day assessment centre (AC) with six observers who were also senior managers from the company. The AC was intensive it included an individual presentation, group discussion, plus role-play but I did learn a lot from it, especially the feedback from observers. I was also left with the deep impression that Bayer (and now Covestro) invests a lot (time and effort of senior managers, AC design, funds, etc) on people/talent recruitment. I made up my mind immediately after I walked out of the AC meeting room that I would definitely join the company if given the opportunity. My CEIBS studies did a lot to prepare me for the job in terms of how to interact with others and network effectively, as well as structural and big-picture thinking. CEIBS alumni at Bayer/Covestro usually have a regular lunch together, especially when we have a newcomer from CEIBS. When there is a trainee who is a CEIBS graduate being rotated to SCC, I always take good care of that person and help him/her quickly adapt to company culture and values. The best part about working at Covestro is that both the office facilities and our colleagues are very nice. Coming to work here was a good choice.

16 Feature 14 The numbers are quite promising. In the first quarter of 2016, we increased our core volume growth by over 13 percent in China. TheLINK: What is your relationship with Bayer now and how has Covestro been performing since going out on its own? Our first day of independence was September 1, Since then, we have been basically running on our own. We are completely a stand-alone legal entity. Of course Bayer is still a major shareholder. But operations are run completely independently from Bayer, managed by a Board of Management, a global leadership team. We are off to a great start into our new journey. Covestro s numbers were quite satisfactory in 2015, with global sales of 12.1 billion. We have had our first Annual Shareholders Meeting, we have done our first official quarter results report and the numbers are quite promising. In the first quarter of 2016, we increased our core volume growth by over 13 percent in China. That s an important achievement. In terms of what we could have done better: If we had a bit more time, I would have done a more bottomup approach to make our organisation smarter and more efficiency driven. As a player in the materials business, Covestro should be competitive in all aspects, not just in terms of quality, but also in cost and overall set-up. But overall, I think the entire transition went pretty well. TheLINK: How important is the China market for Covestro? China is a big market for us. We are a German-based company, so you would probably argue that Germany is our home market; but we also call China our home market. Over the last decade we have continuously improved our footprint in China, which in terms of sales volume is the second largest country in the overall Covestro organisation. Also, our biggest location across the world is the Covestro Integrated Site in the south of Shanghai. Over the years, BMS and now Covestro have invested heavily in our asset footprint, and also our innovation capabilities in China. We are here in China to stay. We even moved some global functions to China, for example our Polycarbonates business unit is now headquartered in Shanghai because of China s importance to the global polycarbonate market. And of course, China is very fast moving. A lot of

17 Feature 15 PHYSICS CHEMISTRY EXPLORE SCIENCE our core industries, such as IT, electrical and electronics, automotive, are maintaining a strong presence here. In the past, a lot of multinational OEMs came to China, but now we see a growing number of local OEMs. They provide additional opportunities for us. TheLINK: Have there been any significant changes in your strategy since you left the Bayer umbrella? When we went public, our board stressed that we will continue to serve the markets that we have been serving for many, many years. So we are not going to have a shift in strategy; we will continue on the path we have started. But of course we hope that now, being a stand-alone company, we will be able to focus more on the needs that our businesses have. As part of the Bayer conglomerate, we always had to compete with the life science businesses for resources; now we can fully focus on [and funnel resources to] our needs. And of course that comes with the added benefit of faster reaction time, with flexibility to meet market requirements. So I would hope that after we have really settled down as a new company, we will also see the benefits and merits from our independence: being faster and being a bit more flexible. TheLINK: What has it been like, adjusting to being without the strength of the Bayer brand? MATHS Bayer is a strong global brand, and a positive brand, so it was always easy to enter meetings and meet with stakeholders and present the Bayer-branded name card. So why did we launch a separate company? It s to allow the material sciences business, which is now Covestro, and the life science business that is still part of the Bayer Group, the freedom to grow. Standing alone now, while we don t have the Bayer brand, we have a very strong name and a strong logo, and now it s up to us to put some substance behind that. We have a lot of experience; we invented almost all the products we sell,

18 Feature 16 Over time our goal is to put a strong brand into the market, one that hopefully would be equally strong as the Bayer brand so we have a very strong track record in innovation. It s of course now important to put meaning to our values of being Curious, Courageous, Colorful. We also have a new Covestro vision: We make the world a brighter place. We accomplish this by doing a lot of innovation in all areas. We will play a significant role in providing solutions to some of the problems that currently exist globally and specifically in China. For example, Covestro is playing a role in providing a solution to the issue of carbon dioxide emissions. We are building our brand around sustainable values, being responsible for the environment, for people, focusing on health and safety. These are strong values that we need to communicate to all our stakeholders; but first of all we have to live up to them ourselves. Over time our goal is to put a strong brand into the market, one that hopefully would be equally strong as the Bayer brand. But Bayer has a history of over 150 years, and Covestro is less than a year old so we know we will need to work a bit on that. TheLINK: Do you consider your IPO a success and how does having shareholders affect how the company operates? We had a successful IPO launch on October 6, The opening price was 26, up from the issue price of 24. Our stock has been basically going up ever since (the price was up nearly 50% percent as of June 8). We have now been listed

19 Feature 17 on the MDAX, a very important listing for us, the STOXX Europe 600, and recently the MSCI. So these are quite important indices in international stock markets. I think we can say we had a very successful IPO. We have always had shareholders. In the old days of BMS, our shareholder was Bayer AG. But now there is no more Bayer as a buffer in between the market and us. We are independent so we answer directly to our shareholders, and no longer to the Bayer board. We have to also answer directly to our financial investors. Whatever we do will immediately get feedback from the market. If we are doing well in our industries, it will hopefully be positively reflected in our share price. The fact that our share prices have been doing well gives us a certain level of confidence that our investors are happy with our business. But it also comes with certain responsibility. Our shareholders need a certain degree of predictability and stability from us. We also have a responsibility (not just the board but everyone at Covestro) to make sure that whatever we do, at the end of the day it helps create value. We will continue doing this to build a strong reputation, not only with customers but also with our owners. We want to be an attractive investment for everybody. The long-term goal is to build a strong brand, not only one that will convince investors that we are a worthwhile investment, but we also want to build our brand for our employees. We need to be attractive to the very best talents and a strong brand can help us do this. We also have a lot of sustainable targets, which helps us to be a sustainable employer. For example we have ambitious targets to reduce our carbon footprint and we also have targets to reduce our overall energy consumption. This is more or less in line with the overall trend of utilising resources in a smarter way. In the short term, we have to maximise the return of our units. We have invested significantly in production assets, so now we need to capture the growth and maximise the return we can generate out of our units. We also need to position ourselves in the most appropriate way to capture growth in key industries, and that is linked to innovation. We need to be innovative in terms of products, solutions, and business models to find smarter ways to interact with customers and stakeholders. TheLINK: What s next for Covestro?

20 ceo talk 18 The Path to Revival By Sun Jiong How does a state-owned enterprise, which 12 years ago was on the verge of going under, fight back and become a giant in the global sewing machine industry? In the 1970s and 80s, the Butterfly sewing machine, Shanggong Group s flagship product, was a musthave for almost every household in China. However the Butterfly s popularity didn t last beyond the mid-1990s, when the high-tech products of foreign manufactures and low-priced ones of private local enterprises jointly stole its thunder. But by 2004, thanks to mergers with several German companies, the Butterfly was among the top three within the industry and its technical capabilities on par with the best in the world. Today its client list is a roster of the world's leading prestige brands, high-end car manufacturers in Europe and the United States, as well as commercial aircraft companies Boeing and Airbus.

21 ceo talk 19 In May the CEIBS 2016 Sichuan & Chongqing Entrepreneurs Tour took about 60 businessmen inside Shanggong Group, a CEIBS alma mater enterprise, to listen to President Zhang Min (EMBA 2013) share the company s inspirational story. Two negatives make a positive In many ways Shanggong group is a typical listed global company, with highs and lows in its performance over the years. Launched in Shanghai in 1965, it enjoyed nationwide fame during its heyday but began to wane in the face of competition. "At the time, everyone said that there was no way for the company to survive, said Zhang. The turning point came when SASAC of Pudong District was named Shanggong s new controlling shareholder (it originally fell under the Shanghai Municipal Light Industry Authority) and the company s management team was transferred to Pudong. Zhang, who was then chosen to lead the company, embarked on a global strategy that transformed Shanggong into one of the first movers in China s light industry. Shanggong also has the distinction of being the only Shanghai-based company to make such significant inroads in the sector. Today Shanggong is an industry leader both at home and abroad; but it was a hard-fought battle. Throughout its journey, many doubted whether a company often on the verge of bankruptcy could successfully implement a new strategy that had globalisation at its core. Shanggong s first acquisition target was DURKOPP Adler, a German company which was also performing poorly. The question was: could they generate a profit by merging two unprofitable entities. Most of the board s outside directors (those whose only link to the company was their seat on its board) did not agree with the merger; but Zhang was confident it could work. He believed that DURKOPP was losing money because it had failed to keep up with market trends that had seen sewing machine s downstream industries being transferred from West to East. He was convinced that Shanggong could help DURKOPP regain market share by leveraging Germany s advanced technology and China s position as the main market for global garment processing. Zhang was also personally driven by a need to succeed. His predecessor had left his mark by making Shanggong a listed company, and Zhang felt honour-bound to keep the company going and successful. Sure that the acquisition of DURKOPP was vital to that success, it took him five tries but he eventually persuaded the outside directors to agree to this risky move. His gamble paid off and after eight years of hard work the merged entity turned a profit, proving that two negatives can indeed make a positive. At the time, everyone said that there was no way for the company to survive. In 2013, a strengthened Shanggong did two other mergers by issuing shares: it bought PFAFF, a longstanding competitor of DURKOPP, and KSL, a relatively young enterprise (founded in 1964) that was attractive because of its 3D sewing machine robot technology. Then in 2015, Shanggong invested in the German company H Stoll, the world s largest manufacturer of flat knitting machines, with annual sales of about 300 million and a history of 145 years. The deal made Shanggong H Stoll s largest limited partner and coming as it did on the heels of previous acquisitions

22 ceo talk 20 led the German media to crown Zhang as the father of German serial acquisitions. Innovation driven But the successful acquisition of a business is just the first step; Shanggong still needed to reorganise its newly-acquired resources and creativity would be needed in order to do this well. Each step of the process was guided by Zhang s belief that innovation is the basis of product technology. Starting from basic manufacturing of mechanical products, Shanggong now boasts mechanical and electrical integration, computer-controlled machinery, and technology for controlling robots that produce items in 3D. In fact, Shanggong has developed the world s only robot manufacturing centre that produces flexible material; it is one of only five enterprises to have mastered fibre placement machine technology and if its small fibre placement machine were enlarged, they would be able to manufacture airplanes. Today they are working on ensuring that their system is in line with industry 4.0 standards, the very latest trends that will impact China s entire manufacturing sector. But what exactly does Shanggong do, and what does Zhang mean when he speaks so passionately about industry 4.0 in relation to industrial sewing equipment? He explained that it means, for example, working with three major customers to develop the M2M system for manufacturing car seat covers. The machines, ideal for thick material, are linked via Wi- Fi, enabling production data to be uploaded to the cloud for analysis by a central computer before feedback instructions are conveyed back to the production line. The combination of this system and ERP (Enterprise Resource Planning) is called intelligent sewing, and it can greatly improve the factory s efficiency. Zhang anticipates that this industry 4.0-driven system will be revolutionary. Had it not been for technological innovation and product innovation, we would have had to wrestle with private enterprise to lower the wages of manual labourers and the cost of producing basic sewing machines. Those are the machines upon which we rose to prosperity 20 years ago but had to later abandon, he explained. Then, a single sewing machine sold for RMB3000, now the price is RMB700, does it make any sense to engage in a battle over price? In stark contrast to its humble beginnings, Shanggong is now manufacturing sewing machines with parts made from a carbon fibre composite, the same material used in airplanes and space technology. The machine is worth about RMB15 million. Global resource sharing This technological revolution was the fruit of tremendous energy and effort by Shanggong. In the past Zhang s major meetings were limited to talks with the board of directors and supervisors in Germany. But at one point he had to play a major role in convincing all the company s German mid-managers about the importance of changing the way their company had done business for more than a century. They were puzzled when he said, What you've been working on for 150 years, you may want to stop that now. He explained, You spent 150 years studying sewing mechanical action and the line tension, and making sure the needle distance control is perfect. That s enough. Now you need to focus on AMS. A stands for automation, M is for module, and after the two are completed, then comes S (Smart), which is the future.

23 ceo talk 21 labour force is relatively cheap, they set up factories for mass production products; electronic control boxes are made in a factory in Nanxiang, Shanghai; a factory in the Czech Republic is responsible for sewing machine casing machining and die assembly since they have a high level of industrialisation; and none of the four factories in Germany is for mechanical processing or production of parts and components as it has the highest wage costs. Looking ahead That was a turning point for the Germans. Today they focus on issues such as how to control the development process, or how to make a robot hold flexible material, such as cloth. That is a challenge which could revolutionise the garment industry and Shanggong is now working on it. Innovation is also reflected in Shanggong s business model. According to Zhang, while it is easy to issue shares with each of their acquisitions or mergers, he is keenly aware that institutional reform also requires innovation in the market. As far back as ten years ago Shanggong felt that the cost of manufacturing basic sewing machines in Shanghai was too high. So eight years ago they changed their business model to have the R&D and sales done in Shanghai, where it is relatively easier to attract and retain high-end talent, while the production process is done in factories in Jiangsu and Zhejiang provinces. Another key issue in their strategy is what they refer to as global resource sharing. The company s seven factories must not duplicate each other s tasks; instead they must share their work. The same goes for the Chinese and European branches (whose main task is to provide support). The goal is to achieve the maximum degree of cost savings through global sharing of resources. Shanggong organises its resources according to levels of cost: in Zhangjiagang and Taizhou where the Through the acquisition of German enterprises, Shanggong formed a technologically strong R&D system which has guaranteed them a product that can meet market demand. That has translated into a healthy balance sheet. In 2015 most sewing machine enterprises lost money, only Shanggong is still profitable, and we are doing well, said Zhang. It helps that the company has been ahead of market trends. For example they moved into automation of the enterprise five years ago, and are now fully prepared to reap the fruits of today s market demand. What s next for Shanggong? Zhang believes it is the aerospace manufacturing industry. His plan is to establish a firm foothold in the aircraft manufacturing industry chain, where he is confident that Shanggong s new materials and new technologies will go a long way towards ensuring success.