Taking Advantage of the Opportunity to Transform and Upgrade

At the beginning of the foundation, Times New Material was devoted to the development in the rail transit industry. During nearly 20 years of development, the average growth rate of its annual sales income exceeded 30%. However, with the continuous expansion of its enterprise scale, the development speed slowed down, and the relatively single industrial structure became a bottleneck for its development. At the same time, the great market opportunity and vigorous market demand in China attracted European, American and Japanese enterprises to establish plants here, resulting in more and more intense market competition. Through decades of accumulation and deposit after the reform and opening-up, the capital and technical possession of some superior Chinese enterprises increased rapidly. Internationalization becomes an inevitable choice for Chinese enterprises when they step into certain stages. The continuous economic downturn in Europe and America provides the “bargain-hunting” opportunities for the overseas M&A.

Under this background, after prudent analysis, the management group of Times New Material considered overseas M&A, a circuitous strategy, as an important way for this company to participate in the global competition, realize the international transformation and upgrading and win in the Chinese market and markets of other emerging economies.

In January 2011, Times New Material purchased 100% of the shares in Australian Delkor Company successfully with AUD 2.835 Million (about RMB 18.80 Million Yuan). By virtue of the low-cost development and production advantages of Times New Material and the local service and marketing system of Delkor, Delkor’s profit increased by 100% in the first year after the M&A. In 34 months following the M&A, all of the project investment was taken back and the company kept profitable with excellent performance.

With the successful experience accumulated in the M&A of Delkor and the strong confidence in the industrial development of the automobile vibration and noise reduction components, Times New Material spent EUR 290 Million (about RMB 2.407 Billion Yuan) purchasing the whole rubber and plastic business of German ZF Group in December 2013. In September 2014, BOGE Company formally completed this business transaction. 

Under the strong support of the CRRC and the superior CRRC Zhuzhou Office, by implementing the development strategy of “new base, new products and new market”, BOGE improved the productivity construction in low-cost countries, finished the construction of automatic production lines, and cooperated with manufacturers such as Porsche and Tesla. Both its sales revenue increase and operating profit increase hit a record high in 2015. Meanwhile, thanks to the M&A, the original auto industry of Times New Material was backward integrated into the global operation management system of BOGE, and the sales scale of automotive shock absorber and lightweight business of Times New Material jumped into top three in the world.

After a series of purchase and M&A, Times New Material has begun its journey of transformation to an international enterprise in big strides.

It has established overseas R&D and manufacturing bases in seven countries in five continents.

The company’s overseas sales revenue and overseas employees both account for nearly 50%.

The company has created a safer and more efficient industry system including such industrial sectors as rail transit, automobile and wind power.

All the industrial sectors have innovative and synergetic development with the strategy of “internationalization, informationization, and high technology”, gradually forming a unified network system of global marketing, purchase, production and logistics.

Innovating on the Shoulders of the Giants

Under the globalization tide, enterprises have to transform from the following-type innovation aiming at filling in the blanks at home to leading-type innovation faced with the global competition. Standing on the shoulders of the giants, the company can easily surpass the domestic peers who took the first step. Also, with their advantages, the company can narrow the gap of technology between itself and the overseas competitors.

Due to overseas M&A, Times New Material has realized the enrichment of superiority effect. By integrating the multi-aspects advantages, including the mechanical manufacturing technology of BOGE, new material R&D and application technology of Times New Material, and the electrical control technology of CRRC Zhuzhou Office, the company speeded up the industrialization of intelligent impact-absorbing products, leaping to the biggest supplier of auto macromolecule parts in China.

Due to overseas M&A, the original rail transit industry of Times New Material achieved technical synergy innovation with BOGE. With the help of BOGE’s advanced technology platform, the company launched joint projects including the hydraulic bushing project of railway vehicles, the formulating research project of rubber vibration absorber for elastic wheels, the optimal design project of stop dog for WJ8-7 gauge and the basic database construction project for the fatigue life prediction of rubber elements by dispatching Chinese technicians to German Technique Center for study and joint development.

The Global Associated R&D Center was established. Based on the resources of BOGE, Times New Materials established the Global Associated R&D Center, aiming at promoting cooperation with top- ranking enterprises and scientific research institutions, and continuously improving its competitiveness with prospective technical innovation and mode innovation in the view of globalization.

Informatization Remodeling Cost Advantage

The deep integration of informatization and industrialization triggered the “Fourth” industrial revolution.

The United States has strongly recovered its economy and actively promoted the reindustrialization policies; Europe and Japan have their exchange rate rattled and devalued, strengthening the competitive power of export; the manufacturing industry in low-cost countries rose sharply, attracting many labor intensive industries to move in; on the other hand, China has gone through the “Lewis Turning-Point” (namely, the turning point from labor redundance to labor shortage), after which demographic dividend dropped dramatically, resource constraint was increasingly aggravated, environmental awareness was continuously enhanced, and traditional manufacturing industry was faced with great challenges.

China is implementing the development strategies of “Integration of Informatization and Industrialization” and “Made in China 2025”, expediting the deep combination between the “large but not strong” made- in-China and informatization, making the economic transformation and upgrading a new normal situation.

Based on the above analyses on the global development environment and economy trends, enterprises have to accelerate the deep integration between informatization, automation and lean management, promote the improvement of management efficiency and quality level, and keep lowering the product costs.

Overseas M&A improved both the asset size and the operation scale of Times New Material greatly; however, the span of time and zone bit made the resource management and information exchange speed a big problem for the management team of Times New Material—it’s obvious that the traditional management mode doesn’t fit Times New Material during its process of internationalization, so information construction becomes the only key to solve the problem.

Smart factories were constructed. At the end of “the 12th Five-Year Plan”, Times New Material spent EUR 22 Million on German Digimate Factory, where the company constructed the production line of plastic pedal boxes according to the standard of “Industry 4.0”, and realized automatic manpower-saving informational management with the client evaluation reaching the international advanced level. Meanwhile, by informational connect, the company accomplished the IT framework check of BOGE and the integration plan design, shifting the IT service of BOGE from ZF Group to CRRC system, which intensified its control and management over overseas assets and, at the same time, lowered the informational operation cost of BOGE.

As for the production cells at home, by learning from BOGE, Times New Material began to introduce MES (Manufacturing Execution System). Taking advantage of SAP/APS/MES and device integrated acquisition system, by means of barcodes, system integration, mobile applications and so on, the company realized the live visual and electronic management of logistics, planned dispatching, production execution and quality control, improved the production efficiency, and ensured the high-quality delivery.

After the practice of informatization and industrialization integration, the traditional production and management pattern of Times New Material has been changed. The rapid integration of informatization, automation and lean management effectively raised its production efficiency, product quality and corporate competitive ability.

Multiple Financing and Investment Platforms Supporting the Efficient Development

Just as the saying goes, “Food and fodder goes before troops and horses.” Enough capital guarantee is a crucial precondition for the overseas M&A. However, while getting low-cost financing income based on the global capital market, the exchange rate risk continuously goes up, which requires the decision maker to scientifically manage and control the operating risks brought by the fluctuation of global exchange rate and interest rate.

As a listed company, Times New Material collected money for overseas M&A and development by means of owned fund, equity refinancing, bank loans and so on. Firstly, the company totally collected RMB 3.5 Billion Yuan by three rounds of refinancing. Secondly, the company obtained Euro loans from Societe Generale and Bank of China by bank financing. Thirdly, the company set up a subsidiary in Hong Kong, which got soft loans in 2015 and injected into BOGE, and thus dramatically reduced the loan interest on year-on-year basis. Fourthly, the company seized the opportunity that China issued new policy that foreign exchange fund of transnational corporations should be operated intensively and successfully applied for a transnational platform for business capital, realizing the initiative collection of offshore funds, expanding the finance channels for cross-border funding flows, and making it convenient to intensively manage and readily allocate the capital worldwide.

The application of multiple financing and investment platforms ensured the smooth advancement of internationalization of Times New Material.

Experience and Learning

At the early stage of M&A, the company should insist on the 12-word policy of “the traction by strategy”, “the choice of timing” and “the effect of synergism”. The traction by strategy means insisting on the industrial M&A idea of “facing emerging industries, facing high-end market and facing global resources”. The choice of timing means deals of proper price are easy to make when the global economy is weak and the target firm industry is going down. The effect of synergism means choosing the target companies with huge potential and development in the Chinese market and creating synergy effect with its own advantages.

During the process of M&A, the company should achieve three tasks. The first one is striving during the exclusivity period. Chinese companies often face complex approval process at home during M&A, because the goal of cross-border M&A will trigger the global monopoly review and relevant provisions in service law of all the countries. The second one is retaining the key managers and core talents, establishing smooth communication mechanism and winning their trust. The third one is attracting outstanding consulting team. The average consulting fee for international M&A ranges from 6% to 10% of the transaction value, but an outstanding consulting team will bring benefits in aspects of price negotiation, risk analysis and avoidance, etc., which worth much more than the fee.

Internationalization is just a kind of strategic measure to realize the development goal of the company, rather than the goal. Regarding cross-border M&A as a core path, Times New Materials is dedicated to becoming an internationalized and informationalized high-tech enterprise with “worldwide business, highly synergetic industries, top- ranking scales and leading technologies”.

Rubber industry must edge itself into the wave of economic globalization, actively implement reform and transformation, and seize the chance that Chinese economy is rapidly integrating with the world economy to climb up and up along the global value chain.