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Thursday, October 31, 2019

‘Reverse Upgrading’ in Nanjing with CEIBS’ RSLM

October 29, 2019. Nanjing – Thirty CEIBS MBA 2021 students led by CEIBS Associate Professor of International Business and Strategy Shameen Prashantham travelled to the historic city of Nanjing recently for a three-day Real Situation Learning MethodTM (RSLM) module to learn about the trend of globalisation of private companies in a Chinese context. The journey began with a 1.5-hour high-speed train journey from Shanghai to Nanjing, which served as a reminder of how much more advanced China’s transport infrastructure has become in recent decades in comparison with international standards. The recent leaps and bounds in China’s economic development were a key focus of the module in which Prof. Prashantham guided the students in exploring different strategies Chinese private companies have utilised to internationalise in order to – more often than not – ‘reverse upgrade’ their capabilities in the domestic Chinese market. The concept of ‘reverse upgrading’, which was looked at in depth over the three days, involves bringing resources, brands, technology and skills acquired internationally back to China in order to gain strategic competitive advantages in the domestic market.

The first event of the trip was a welcome dinner attended by CEIBS Nanjing alumni at the Crowne Plaza Nanjing. The evening provided MBAs with an opportunity to meet and talk with alumni about how they have been able to apply skills and knowledge from their time in the classroom to the real world, and to learn about some of the challenges of internationalising from a Chinese perspective. The event also demonstrated how strong the CEIBS China alumni network is, and how enthusiastic alumni are about connecting with current CEIBS MBA students.

On first full day of the trip, the group visited Chervon, a hugely successful power tools company that was founded by CEIBS alumni Mr. Peter Pan (CEO 2008 alumnus), Co-founder and CEO of Chervon, and Ms. Stephanie Zhang (EMBA 2010 alumnus), Co-founder and VP of Chervon, which has generated over $1 billion USD in sales. Chervon is exemplary of a Chinese company which has successfully risen to a global top 10 position through internationalisation and which now challenges western companies for a top 5 global market share. The company’s success has come from its transformation from an OEM to an ODM and finally to an OBM manufacturer, expanding internationally through the acquisition of FLEX (a European power tools brand), and leveraging acquired capabilities to develop its own brand, Devon, in the Chinese market. The company visit consisted of an exciting tour of Chervon’s high-tech automated manufacturing facility, which includes power tool assembly, li-ion battery production and advanced motor manufacturing. The highlight of the visit was meeting Ms. Zhang, and hearing first-hand her story of how the business developed from a start-up based in two hotel rooms to a business that could successfully make several large international acquisitions and now sells over 90% of its product overseas. Ms. Zhang was very honest and open about the challenges of being a Chinese company trying to operate internationally and the cultural and operational barriers that arise because of the distances and scale involved in such operations. Prof. Prashantham wrapped up the session by asking Ms. Zhang about the leadership skills and talent required to grow the business in the future – an area where international MBA students with China experience may be able to assist.

Following the Chervon visit, the group enjoyed dinner on the 47th floor of the Intercontinental Hotel, reviewing what was discussed during the day and how their perceptions of internationalising Chinese companies had developed.

On the second day of the module, the group set off in the morning to visit Suning, a diversified Chinese conglomerate that has recently acquired Carrefour China. The class enjoyed learning about Suning’s history and rapid growth, from its humble beginnings selling air conditioners in 1996 to becoming a conglomerate with 150 billion RMB in annual revenue from home appliances, e-commerce, real estate, finance, logistics, media and sports. The group also experienced Suning’s latest innovations in smart-home appliances, such as the smart mirror, smart closet and an auto-replenishing refrigerator. Visiting Suning offered a look into the future of a technologically-enabled world and fully-connected society, exemplifying China’s role in leading technological innovation.

After peeking into China’s future, the class ventured into Nanjing’s history, enjoying a Nanjing-cuisine banquet at the luxurious Grand Mansion Hotel, followed by a walked through Nanjing’s historic streets to the Presidential Palace. Nanjing served as China’s capital throughout various dynasties, kingdoms, and governments and holds the key to important insights about the history of culture, politics and the economy in China. Seeing the old town’s skyline juxtaposed with tall skyscrapers further symbolised China’s rapid growth against a backdrop of the country’s rich culture and history.

The next morning the class continued the RSLM experience at Sumec Group, a state-owned conglomerate invested in supply chain integration services, advanced manufacturing, and engineering contracting. From a pre-assigned case reading, MBAs learned about one of Sumec Group’s business divisions called Sumec Textile that produces household textile products, and which underwent a value chain transformation throughout its 40 year history to become a global manufacturing powerhouse. Sumec Textile is the largest exporter of blankets in the world and is a top 10 global exporter of pet products. The company acquired an American company, Berkshire Blanket, in 2013 to expand its foothold in the global market, and set up factories in Myanmar, Vietnam, and Ethiopia to achieve further cost leadership. Interestingly, Sumec’s rapid growth can be attributed to its ‘entrepreneurial’ spirit – breaking the stereotype of a state-owned company – that which it adopted from the ‘Amoeba Way’ – a Japanese management method whereby the organisation is split into small independent profit units.

The CEIBS group was warmly welcomed to Sumec’s new corporate headquarters by CEIBS alumni Mr. He Jun (GEMBA 2010 alumnus), General Manager of Sumec Textile, and Ms. Angela Tong (MBA 2013 alumna), Manager of Sumec Investment. Chairman Yang Yongqing of Sumec Group also presented the history and globalisation strategy of Sumec Group and how it aligned with the Chinese government’s Belt and Road Initiative. Sumec Group has recently expanded its business in countries such as Vietnam, set up renewable energy power plants, and established an apparel factory in Myanmar. The class also was given the opportunity to have lunch with Sumec executives, who provided key insights into Sumec’s working culture and ownership structure, which grants 65% of the company’s shares to employees, with a 35% stake being held by the state. Sumec’s unique ownership structure and amoeba working units have forged an agile organisation that is well-positioned to take on the global market.

The highlight of the visit was a two hour open floor Q&A session with Mr. He Jun, President of Sumec Textile. From where the group’s case readings left off, students were eager to dig deeper and learn more about Sumec Textile’s globalised operations, market strategy, and amoeba team working culture, and how the company is navigating global geopolitical and economic uncertainties. Mr. He candidly spoke about Sumec Textile’s continued goal to upgrade its value chain from manufacturing to creating a global brand. When asked how Sumec would integrate the new brand into the its existing product line, Mr. He replied that the company strategically leverages each of its portfolio brands to meet local market demands, all while optimizing its global supply chain. This highlighted an important point from Prof. Prashantham’s lecture earlier in the day, where he explained how Chinese companies pursuing international markets have shifted from an adapting strategy of ‘Think Global, Act Local’ to a learning strategy of ‘Think Local, Act Global’. This is strategy is also evident in the marketing centres the company has set up in the US and Europe to keep up with local consumer demand. In this way, Sumec Textile can react quickly and be proactive in supplying local markets with the best products. Finally, CEIBS students were given a first-hand experience of Sumec Textile’s products with an impromptu winter-wear sale outlet in a conference room, just in time for the Shanghai winter.

Prof. Prashantham wrapped up the module with reflections on the group’s experience in Nanjing and reiterated that – whether companies or individuals – it is all about learning and being entrepreneurial. CEIBS international students came to China to take risks and immerse themselves in the dynamic Chinese business world and to better understand China and Chinese companies. The Nanjing module provided a perfect hands-on experience and real-life insights into China’s history, political and economic development, and Chinese firms’ rapid ability to adapt and learn through internationalisation strategies. Chervon, Suning, and Sumec have inspired CEIBS MBAs to never stop learning and to develop the entrepreneurial spirit that has allowed Chinese companies to dominate the global market.

Joseph Cheng (MBA 2021); Fay Surya (MBA 2021)
Michael Donald Thede