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ShangGong Group drives Chinese sewing industry with R&D and merging strategy

by Nitish Varshney

16-January-2019  |  23 mins read

Zhang Min, Chairman, SG Group, China
Zhang Min, Chairman, SG Group, China

ShangGong Group (SGG) is the first listed company with the longest history in the Chinese sewing equipment industry, and with more than 50 years of experience in sewing equipment production. On one hand, where most of the Chinese sewing technology providers are adopting strategies to copy Japanese and European technology to sustain in business, SGG on the other hand, is step-by-step merging and acquiring European pioneers as well as domestic companies to further strengthen them on the technology front with its strong R&D and manufacturing facilities within China. Team Apparel Resources, in an exclusive interaction with Zhang Min, Chairman, SG Group, China, finds out how the group is driving the Chinese sewing industry with its innovations.

AR: Earlier you only had sewing technology under your umbrella. Now, with the acquisition of Richpeace, you have expanded your portfolio to CAD/CAM system, laser cutters, quilting machinery and embroidery division too making almost all solutions of the textile value chain under one roof. How do you see this acquisition from your growth perspective?

Min: There are two reasons behind SG Group acquiring Richpeace. Firstly, as you said, Richpeace is a renowned supplier of CAD/CAM technology and embroidery solutions which we previously did not have in our basket. This acquisition has now made our group complete on the technology front.

Secondly, Richpeace has a strong software engineering team and it’s a fact that the one who has both hardware and software solutions will be the winner in today’s market. However, their market share is rather small as well as their financial capacity and sales network are not strong enough to enlarge their footprints in overseas markets. Hence, I invited Richpeace into our big family so that we can work together to increase the market share of both Richpeace and SG Group.

AR: It’s been 14 years since you acquired Duerkopp Adler and 5 years since you took over PFAFF. How has the market changed in these years? Which strategies you think were successful after acquisition and which strategies need to be reworked?

Min: From the losses 15 years ago to the profits today, there is a long story behind it. When I joined SGG in 2004 and took over Duerkopp Adler in 2005, the market share of SGG was limited due to invasion of Japanese players within the Chinese sewing industry back then and we had to adopt acquisition strategy to survive. The trend of automation increased during the 2000s’ period in China but SGG was lacking in high-end automated sewing machines. So, there was a lot of difference in technologies between SGG and DA and this is the main reason we took over DA and organised a new platform of sales and started using our resources for R&D.

One of our successful strategies includes keeping the decision-making power in SGG’s hands for the Asian market as we are based here. We cultivated the business model ‘R&D and Marketing in Shanghai, Production in Jiangsu and Zhejiang’. Under this model, we re-organised the functions for every factory of ours in China according to the labour cost so that Tier-2 or Tier-3 regions such as Jiangsu and Zhejiang could produce basic products, while Tier-1 region Shanghai, with the help of intelligent equipment and expensive employees, could produce high-end products.

I must say that through the implementation of mergers and acquisitions at home and abroad as well as through the internal restructuring and integration of the company, the synergies gradually emerged and our business model achieved good results. Within last 14 years, we have had a lot of improvements in our technology especially in sleeve setting, pocket welting, pocket setter and button hole machines. We have developed M-type, H-type series of medium and heavy duty machines. Moreover, our renowned IoT technology QONDAC system needs no introduction. After eight years of this acquisition of DA, we had enough financial capacity and experience to take over PFAFF and KSL too and we all are growing together better than planned. A lot of synergistic effects have been achieved between DA, PFAFF industrial and ShangGong. We could extend our business in a wide range such as the airspace industry based on KSL robotic technology. We are on the way to integrate KSL and PFAFF industrial to focus on intelligent equipment development and manufacturing. Meanwhile, we are making use of Richpeace in Tianjin and DAMSH in Shanghai as manufacturing bases to corporate with PFAFF & KSL.

AR: In the annual report (2017) of SGG, the company mentioned very strongly that ‘Chinese sewing machine industry is big but not strong’. What exactly this statement means? Is this because most of the machine manufacturers in China are still focusing on low cost which somehow hampers the longevity of the machines? Or are there other relevant reasons?

Min: The statement was said in reference to the sewing machine manufacturers in China other than SGG. It’s a well-known fact that China is the world’s largest apparel and textile exporter with an annual value worth US $ 280 billion, so it’s obvious that sewing industry in the country is huge. However, only two or three big players have existence in the sewing industry of China and the rest are mid- or low-level machine manufacturers which don’t do the right things in the market and therefore have been unable to beat Japanese or European companies on the technology front. I can say majority of sewing machines produced in China can’t compete with the machines produced in Germany or Japan as there is a huge gap in technology levels. Moreover, to match them at the technology level, many companies in China copy their technology and products and this fact is not hidden from the industry.

So, there is a huge risk of copying if we move the entire production of our European brands in China. This is the main reason that I did not ask European brands DA, PFAFF and KSL to move manufacturing of their high-end products to China though some basic products of these brands are being manufactured in this country.

However, the recent policies made by the Chinese Government to stop counterfeiting are a very good sign for us. In Pudong (a region in Shanghai), the Government has set up a special court which is dedicatedly monitoring the IP. This is the first independent court of such type in China. So, if a company believes its technology is being copied, then it can file a case against the counterfeiter in this court to stop all the copied work.

AR: Now, since manufacturing base of sewing machinery giants has started shifting to China, don’t you feel the local sewing machine industry here will gradually strengthen due to competitiveness? What is the role SGG is playing to uplift the Chinese sewing industry?

Min: That’s true. Rising competitiveness will surely push the concept of originality in the local sewing industry. As far as SGG’s efforts are concerned, I bear responsibility to make those kind of products which have been able to shift the market’s focus from Japanese brands to SGG-owned brands over the years. Now, after acquiring Richpeace, SGG is geared up to use manufacturing facilities of Richpeace for manufacturing of CNC machines of KSL in order to substantially reduce the cost of manufacturing. As of now, KSL products are being used by the top textile manufacturers in China and somehow this brand is not so popular in other markets of South Asia due to its high cost as well as its ability for fully automatic sewing which is actually not in trend in other parts of Asia as of today. Once the cost is reduced, we can convince the market to use KSL machines on a large scale. To make manufacturing smarter and cheaper, we have invested in a new plant in Taizhou city. This will be a modern factory with a complete different set up from that of the traditional factories to mass produce the machines for our group. We are redesigning the process flow in our sewing production line within the factory, as previously, a lot of problems were there in material movement and timely delivery was an issue too. The basic principle of designing is if a station is located at a designated place, then all the required equipment for that station should be in close proximity in order to reduce movement time. This is the principle of logistics while designing a new factory. With the help of this new design, it is possible to move the parts or products inside the factory with so much ease that our logistics flow will be as short as possible. We can start production process in this factory by the end of 2019 or, if we are quick enough, we will achieve this before CISMA next year.

AR: According to China Sewing Machinery Association (CSMA), top 100 machine manufacturers achieved a total industrial output value of RMB 18.838 billion (approx. US $ 2.80 billion) in 2017. What is SGG’s contribution in that value?

Min: China sewing machine industry is massive. If I talk about machine quantities, I am not sure about it. But if we see value-wise contribution of SGG, of course we contribute a substantial share. SGG (Made in China) stands at US $ 100 million. We are still increasing investment in Chinese production facilities and hopeful to increase the market share of all our machines substantially by 2020.

AR: The year 2017 can be said to be a remarkable year for SGG in terms of product development and R&D. It developed a number of new technologies including jeans machine series, shirt automation and automatic shoe sewing machine of Mauser. Please open up about your R&D projects…

Min: In 2017, we increased investment in R&D, developed products in the direction of automation, modularisation and intellectualisation, and actively promoted technological innovation. We completed the design and development of 755 automatic bag opening machines, 670 and 680 sewing shoulder and sleeve lining machines and 1,767 thick material machines and brought them to the market. In addition, we completed the research and development of PFAFF jeans machine series like 3819 and 3840, as well as their production in Kaiserslautern, a city in Germany. Further, the Mauser 591/574 straight drive one shoe machine development was done with reduced cost under the premise of keeping the parts, products of high quality.

Moreover, the development of the second phase of our self-developed sewing embroidery app is in an orderly process, with 85 per cent of the app’s front-end program development and 70 per cent of the background control system, and the work of UE&UI on the web progressing steadily.

Our technology centre has created the software development platform and completed the development and design of the related software module which is compatible with DA AG, DAMSH and PIZ. With all these efforts made in 2017, our technology centre was rated as ‘good’ in the biennial evaluation of Shanghai Municipal Enterprise Technology Centre in 2017.

Apart from the above-mentioned R&D projects, I can share the most recent project of ours which is manufacturing of control box of embroidery machines. Till date, there is only one supplier of embroidery control box in the world which is based in Beijing and as there are no other competitors, the prices are high. We will make this control box with the help of the technical team of Richpeace so that the cost of embroidery machine can come down.

Auto-bobbin changer in sewing machine is another development we are focusing on a lot. Until now, the industry believes that auto-bobbin changer is not useful for embroidery machines if used in the garment industry, rather it is more useful for the textile industry. But I believe in the next five years or so, this technology will be in demand in the garment industry as well and SGG holds the responsibility to introduce technology which is suitable for the market. We already use auto-bobbin changer in our sewing machines and, yes, we can deploy this technology in embroidery machines of Richpeace too and the project is undergoing in our technology center.

AR: How do you see the future of robotics in sewing? Do you feel there is possibility of robotic hands performing the sewing task instead of human hands?

Min: Robotic sewing is not at all a problem, but the loading and unloading of fabric is. The small parts of basic garment such as shirt are not an issue but for the complicated garments, robotic loading and unloading is not feasible. The countries such as Germany and USA are doing mass production using robots but gradually, on-demand manufacturing concept is emerging which works on an entirely different concept than mass manufacturing. Frankly speaking, we have not found the right solution for picking of soft fabric material by robots and placing it in the sewing area. We have recently developed a robotic conveyor but that is not stable, so we are reworking on the same keeping the market needs (on-demand concept) as our priority.

AR: IIoT (Industrial Internet of Things) or M2M communication devices will enable creating smart factories that can generate and consume data. Is SGG creating technology that is IIoT enabled?

Min: There is an important concept to understand. Selling technology in the automotive industry is way easier than doing it in the garment industry as, in the automotive industry, the organisations buy all required machines mostly from one technology supplier only. On the contrary, garment factories buy technology from three or four suppliers and we can’t stop people from purchasing other brand’s machines. In this case, the Industry 4.0 solution should be compatible with all the different machines of different brands. We started installing QONDAC system in car interior production lines first before trying our hands in garment manufacturing. We are upgrading our software and with this upgradation, we can take data from the competitor’s machines in the garment industry. This data includes machine information such as SPM, needle running time, stitch count, spare parts details and maintenance schedule. Most probably, we will showcase the upgraded technology in Texprocess Germany in 2019.

AR: What are your views on markets such as Bangladesh, India and other Asian countries?

Min: These markets, no doubt, provide great opportunity to us. Japanese brands are doing significantly good business in south-east Asian countries such as Vietnam, but I believe South Asian countries such as India and Bangladesh are still not strong for them, so we want to capitalise on this. There are three key factors driving us: Marketing & Sales, R&D and Production. Last year, I went to Bangladesh and saw one of our big customers having installed 550 flat knitting machines of Stoll to manufacture sweaters. Since, automation trend is rising in labour-intensive countries like Bangladesh, it is beneficial for us in longer term.

On the other hand, India is somehow a potential yet strange market. Some customers demand high-end solutions but some are still using basic ones. So, sometimes it is difficult to identify the needs of customers. However, our dealer EH Turel has escalated our share in India with its strong presence in the domestic market. We have also launched our Mauser Spezial brand recently in the Indian market which is getting positive response from the industry.

Furthermore, I have instructed my sales team to make more efforts in south-east Asia which is still an untapped region for us. Probably, we could share more developments regarding the same by next year.

AR: Can you share the future plans of SG Group?

Min: Mergers and acquisitions are part of our long-term business strategy. So this will continue; however, I am working on this strategy differently unlike others who, just to make profits in a shorter period of time, merge with other companies and sell them to other big groups after a few years. This is what’s happening in China. But, what if we take over any company that’s based on our own strategic decision and not financial decision? However, it is not as simple as it seems. The merger of overseas affiliates comes with more challenges due to difference of enterprise culture, management concepts, policies and company regulations. So, we are trying to simplify this merging process.

Secondly, we are focusing on strengthening the manufacturing of high-end machines and basic machines region-wise. In China, Tianjin and Shanghai regions are no longer cheap destinations. So, we will encourage these two regions to produce high-end products only, while basic ones will get regions like Jiangsu and Taizhou. Clearly, this strategy is more cost-effective for us as well as for our customers.

Last but not the least, in order to consolidate European manufacturing, we are still investing in our facilities such as building the second workshop in Duerkopp Adler Romania, reorganising the layout in Minerva factory in Czech Republic and building a new innovation center in Bensheim, Germany.