Shanghai Evans Investment Management Limited

Interview with Mr Riccardo Campanile, General Manager | Modula (China)

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Modula manufactures automated picking and storage solutions for factories and warehouses around the world. Worldwide, we employ 300 people in our 3 plants in Italy (Salvaterra di Casalgrande, Reggio Emilia), in US (Lewiston, Maine) and in China (Suzhou SIP).

Script of Interview

Interviewee                                   Mr. Riccardo Campanile (RC)

Position                                         General Manager

Company name                           Modula(China) Automation Equipment Company Co., Ltd.

Company website URL     

Interviewer                                   John D. Evans, CFA (JE)

Interview conducted on             30th July 2020

About Riccardo Campanile

JE:  1. Start off by giving a brief personal overview of yourself (where you grew up, now live, etc.), 2. Brief professional overview (studies & specialisation, etc.) & 3. Your location/travel for business (Italy/Europe initially but now engaged with Mainland China/elsewhere).

RC: My name is Riccardo Campanile, I am the General Manager of Modula China. I am Italian and Modula is an Italian company. I grew up in Italy where I studied humanistic studies before and then Engineering later in Genoa. Now I am living in Suzhou, China, since 2008, where I came to establish a company of the group I was working for before. I am a Doctor in Mechanical Engineering, a professional Engineer with the specialization in thermal technical exchange. At that time when I was young, nuclear was a growing business and so I was encouraged to look at applications in the nuclear industry related to mechanical engineering. But that area has since be abandoned. I had been working in Italy for many years, until 2008 in the production side, like with Schneider, the electro- mechanical industry. Later on, in single band class production. Then I started my career in the area of industrial goods, working at Trumpf for almost ten years. Trumpf is a leading company for making machines converting sheet metal into various industrial goods. It is number 1 in the world in its sub-sector. At that time, I was traveling a lot of meeting customers from very small to very large size. This gave me a lot of experience with different customers and why I find marketing interesting. Later I moved to another group, though still in industrial goods. This area was after-market automotive equipment. That was the company where I established a subsidiary here in China for manufacturing and sales. Later on, I left that company and joined Modula where I have been working since January 2019.

JE: Now, did you say you got a Doctorate in Engineering? So, we need to refer to you as Doctor Campanile?

RC: At that time, it was called a Doctorate as opposed to a PhD. But as I am not a medical doctor I do not refer to myself as ‘doctor’.

About Modula Group and Modula China

JE: You said you took over as General Manager of Modula in January 2019, so about 18 months ago. Is this a different type of company, in terms of challenges, compared to the ones you worked at before?

RC: Yes, for sure. All the groups I had worked for before, like Trumpf and Nexion, they have a specific product and a specific market. The challenge at Modula is that it is suitable for any kind of business, so you cannot fish in one lake. There are many, many lakes to fish in and the challenge is to choose the right lake at the right moment. That is the big challenge at Modula.

JE: So, the difference at Modula is the business strategy. All your companies have related to mechanical engineering, but it is the business and marketing side that is different here.

RC: Completely different, yes. As I mentioned, Modula is suitable for any kind of industry or business from offices to hospitals to manufacturing companies to e- commerce companies, etc. The difficulty is to focus on the right one at the right moment.

RC: First, just a very short introduction about Modula. It was born as a spin-off from System Logistics, a company established in Fiorano Modenese, Italy. System is a large group and Modula was just one department inside the company. Modula was then separated from System in Italy and more recently in China (where System also operates) in 2018. Modula is now both the name of the product and the name of the company. Before, Modula the product, was being sold in China by System, though manufactured and shipped from Italy. Then System started manufacturing the Modula product in the System factory in China. Then, in October 2019, we built the new Modula factory here in Suzhou. The new factory has been built as a hub for Asia but initially just producing for China. Currently, Italy supplies the product for the rest of Asia, but over time, Modula China will supply equipment for the Asian market (including Australia) in total. In America, Modula has one production site and sales office but is building a second as the market there looks very promising. The two American factories will be responsible for all of north and south America. So, the group works in three regions: USA for all of the Americas, Italy for all of Europe and China for all the East.

JE: Let me get this timeline correct. Your new China factory opened October 2019. You started in January 2019. You said Modula was producing at the old factory since late 2018, so you are really starting Modula China from its beginning?

RC: Not quite correct as the GM of System was responsible for selling Modula into China earlier but importing from Italy. They started the first China production, in System, in late 2017. So, there was about 11 months of production in the old (System) factory before we took over and moved to the new premises.

JE: But, in terms of the new, independent Modula China with its new factory, you basically started it here in China.

RC: Yes.

JE: You described how Italy currently provides for all of Asia (ex-China) but there will be a transition where Modula China takes over responsibility for supplying the rest of Asia.
Describe how that will work and how long will be the transition.

RC: We are planning to standardize the products of Italy with Modula China as of 1 September 2020. There is a very minor difference between the two factories. We will initially sell this new model just in China until we see everything is working well. Then we will slowly take over providing production to the larger area. It will just be manufacturing in the near-term as Modula has a trading company in Singapore and that office (and its dealer relationships) will be in charge of sales and marketing in Asia (ex-China). We will have a role in the ‘sales back office’ and logistics, which goes together with production and delivery.

JE: You are responsible for your own sales and marketing in China. So, what is ‘the team’ in China? The management team, the sales team, administration team, total people dedicated to China.

RC: We have very few workers in production & logistics, less than 20% in production, 30% in customer care (after-sales service), 10% in sales and the rest are management and administration. We are just under 100 persons in total. Our production process is highly automated (using robotics), hence the lower number of workers in production. We have about ten sales in Suzhou, Beijing, Chongqing, Shenzhen and Tianjin. We focus on the ‘Golden Banana’ or what people refer to the east coast of China as.

JE: ‘Golden Banana’? I have been here for eight years now and have never heard that expression before. So, 100 staff. I have seen your process that is highly automated using robotics. The production people are there in a monitoring role to ensure everything is produced as it should be. It is interesting in that Industry 4.0, getting to a very high level of automation, is a goal in China and you both support that industry but are also an example of a company that uses the highly automated processes.

RC: Yes, this is due to the strong capability of our Founder & shareholder, Mr Stephanie, who has a strong passion for the technology and always wants to use the leading technology. He says you cannot make a good vertical lift if you are not using the best equipment and processes. Precision is absolutely essential in our production, there is no margin for error.

About the Precision Storage Industry

JE: What industry category do you put Modula into (precision storage, vertical lift, Industry
4.0, etc.)?

RC: It is very difficult to categorise for, as I said before, Modula a great many types of applications. If you consider a 4.0 production line, then Modula can be fully integrated into that production line, which could be for many different types of products or industries. However, if you think about a company providing archives or storage, then Modula is just a vertical lift. So, as the product is suitable for so many applications, we do not fit into just one category.

JE: Industry 4.0, automation of manufacturing processes, I sense that is a huge market worldwide. So, how large is Modula’s market share in this market (as broadly as you want to define it) and how many other competitors do you have?

RC: Market share of Modula, we are probably the ‘2nd player’ in this market. The largest one is a German company and our main competitor. They did not start before us but started in Germany with German manufacturers and grew quite quickly. To date, the auto sector has been the biggest users and the auto industry is very large in Germany but not in Italy. It has been a similar situation in China to date as the German car manufacturers have a large presence here and also use the equipment as all the suppliers to the German auto industry followed out to China as well. We also have three other European competitors. It is really just the German competitor that is well established in China, as is Modula, not the other three European firms. It also arrived in China before Modula giving it a further advantage. The advantage Modula China has is that it is the only one of the five firms with manufacturing facilities in China. This means we can build and ship a machine to a customer in China within 30 days. Whereas our European competitors need 30 days to build and then another 60 days to ship from Europe to China. Chinese customers often want delivery quickly so having this local production should be a good advantage going forward. There is another advantage of this local production, more than just delivery time. All of my 100 staff here they follow all of the training about the product and so they are aware of what they are talking about. For example, my CFO would be perfectly capable to describe all the technical elements of a Modula and is fully qualified to sell a Modula to someone. So, it is also about building a culture as opposed to just moving paper. So, in difficult economic times like this, all members of staff are able to promote the company to people they know, and they do that. This culture is not common in a typical trading company. We also have a strong focus on customer care: installation, training, service, maintenance, etc. and about 30% of our staff are focused in this area.

JE: You said that of the five players in the industry, all are European. Why is it only European firms in this market?

RC: I know Mr Stephanie developed the model for the vertical lift many years ago. When I was with Trumpf, I sold Mr Stephanie his first laser cutter to start building Modula. It is a type of a cluster. In northern Italy, there are many examples, for example Nexion with tire changers, that with their success a whole industry (cluster) developed around them. The same thing happened with Modula. Large industrial clusters develop from the person or company that developed the core business. I do not worry about the European competitors who do not have production facilities in China. The risk is that there becomes a local, China competitor. However, it would take a new company several years to catch up with our technology.

JE: It sounds like this vertical life is still very early in its life cycle. It may be established in the auto industry, but it sounds like a new concept for many other industries.

RC: That is correct. What we are doing now is to put a lot of seeds into the ground. We face two problems now. The first is that so many companies just don’t know about vertical lifts. Second, is that many companies in China do not know that Modula can provide this product. We need to first build product awareness and then brand awareness. I am spending my time on product awareness currently. Most of our customers are European firms with operations in China. Many of the domestic companies do not know about the product.

JE: It sounds like general product marketing and education are very important at this time. What are you doing in that area as opposed to direct sales?

RC: We have many direct sales and a few distributors. We are supporting them through mass email, through social media (LinkedIn, WeChat, etc.). So, we are pushing very hard awareness of the product and our brand. We are also doing many in-house events. During the start of COVID19 we started doing webinars. We segment and tailor our events and webinars to specific market/industry sub- sectors as well. Now that internal travel has resumed, we are back to doing events each month to industry, business associations, universities, etc. Though potential customers are more focused on the benefits, we want to show our production process, the quality and precision, so they understand what ‘precision storage’ requires in terms of performance and reliability.

JE: I am interested now in one question. You have stated that the potential for China is huge, you are nervous there may be a domestic competitor coming along, is Modula considering a domestic partner or JV that would give Modula access to domestic customers and perhaps make a competitor into a partner?

RC: We are collaborating in marketing and sales with some companies. But on the production side, it is not contemplated to have cooperation with a local company. Our current facility can provide us with much more output than we have at this time, lots of room to grow. We do cooperate with many local ‘integrators’, which has the role to integrate our software with the software of the end-user. There are some businesses, say the military, they will never allow our software to enter into their system. The software is an essential component of the offering as well. These entities have their own trusted suppliers who integrate the software of the supplier into the systems of the end-user.

JE: Local governments are active in industrial strategy of their region. Do you work with local governments in approaching different industrial parks?

RC: It works well. We work with the Suzhou Industrial Park where Mr Stephanie has had a good and longstanding relationship with the senior members of the park management. The relationship was good with System, and it remains good with Modula and the SIP is the largest industrial park in China and it is a benchmark for other industrial parks developing in China. The management of SIP also provides consultancy to other parks in China, so it has many connections.

JE: I want to extend the discussion you started about software and the military. Outside of military type entities, say in local government, is Modula’s software (essential for your product) a barrier to you doing business in China?

RC: No, there are no other restrictions. Just these very few sensitive areas where we cannot link directly our WMS (warehouse management system) to the host entity. But these are very few (army, navy, police).

JE:  Compare and contrast the market for the Modula Group’s offering in America, Europe and Mainland China. For a manufacturing facility with Modula products, what percentage is it of the whole plant’s cost (small %, medium or large)? Who are the main buyers of Modula’s products (industry, company size, etc.)? Who are the key suppliers to Modula in China? I understand that during this year, Modula China will take over responsibility for all of Asia, not just China. What are the details of this internal change and what implications does this have for Modula China (staffing, logistics, etc.)? What are the main challenges for growing the China precision storage market now? What has been the net impact of COVID19 on your overall business? Has it provided any new business opportunities?

RC: At first we had to adjust our behavior to the restrictions about movement. But we changed our behavior to what we call ‘smart working’ and that was a positive. But, surely, the business has been seriously affected. There are firms in China that are still investing but investing in things can be bring a return in a very short time. Integrating Modula into a new assembly line to increase production is still a possibility. But many uses for existing plants is to increase efficiency (optimisation) and that is a longer-term payback. These investments are not being made now. Projects are not being cancelled but they are being delayed. If we look at MNC’s, headquarters are very cautious and not allowing any new investment and local entities have no authority to change the situation. Also, companies that do have cash are not prepared to spend that money but want to hold that in reserve in case they are forced to shut down for another period in a lockdown.

JE: Putting COVID19 to the side, the other big issue is the trade talks and conflicts. Does that have the potential to disrupt your business?

RC: China is a big country that focuses on exports. If exports go down and confidence is lost then that will make people less willing to invest and that will impact all business. Business sentiment was getting nervous last year, before any mention of COVID.

JE: As you are taking over the production for all of Asia, and as we have discussed, it appears early in the life cycle for vertical lifts and for Industry 4.0, even if trade at the macro level goes down, I would expect the potential for your product and Modula is still positive, regardless of the broader economic trends?

RC: I agree and just to give you some figures. Our factory in Italy produces more than 2,000 machines per year and 1,000 are just for Italy. Italy is 60 million people, and the economy is smaller than Jiangsu province. Today, the market in China is just about 500 machines per year for all competitors. So, you can imagine the potential size of the market in the future, particularly as China gets more sensitive about costs and builds up Industry 4.0. Also, as COVID has taught us, very crowded environments are a risk, including in a factory. So, this may be another motivating factor to automate.

JE: As a General Manager, as a foreigner in a foreign firm, how do you feel about working in China? There is a lot of talk about ex pats going home. How do you view being a foreign industry executive in China today?

RC: For sure, we have to consider that China is investing a lot in education and so they have to think about giving a job to all of these people. It also depends to a certain point on the views of the investors in a particular company and who they want to hire. For me, nationality is not an issue. In the past so many new companies in China were foreign an brought with them investment and many foreign staff. But the number of new foreign companies entering China is declining and so you would expect to see a decline in new ex pats. Also, for someone on an ex pat package, the cost of the package is much more expensive than for a local as it must include other costs like private healthcare, private schooling, etc. So, it is much more expensive to hire someone on an ex pat package.

Case Study

JE: Choose a historical example of one completed case you have done (negotiations, manufacture and install, etc.). Just a brief description, what and where, and the timeline of the project.

RC: Even though the Modula is quite simple, every unit is customized and so the process is quite long. From the first meeting with the client to the actual installation of the machine, it can last several months. First, we must do an in-depth analysis of the customer’s needs. We must inspect the location where it will go; is the floor strong enough to bear the weight. Importantly, we must analyse the goods to go inside the Modula. One interesting story was an electronics supplier that produced PCBs that was currently in quite an old factory. They also produced some ‘sensitive’ devices (as we found in our analysis) that needed special care. So, we installed a Modula that had an air conditioning unit with it to maintain a cool temperature and low humidity in the warm weather. We also discovered that by pumping air in from the side it kept the internal chamber very clean (as the dust exited via another exhaust hole), which was an added benefit for the components’ storage. For the electronic industry these are very important benefits.

JE: Now not every Modula system has air conditioning. So, only when customers buy Modula with the air conditioning option do they also get the ‘clean space’ benefit. So, I guess this one company just described would be a great example to show other firms about this potential configuration.

RC: Yes, the last time I took people there the General Manager was more interested to show his Modula unit than his own company’s production.

JE: Anything you would like to add as a closing comment?

RC: Just that every Modula made anywhere in the world is to the same specifications, right down to the cables that are used. So, for MNCs, that use Modula in different locations they can be certain they are getting the same design and quality anywhere in the world.

JE: Let us close out with a question about time. We see that Modula in Asia is at an early stage in the life cycle. Do you have any personal plans about how long you expect to stay in China to build this business? Do you plan to go back to Italy some day?

RC: I am very happy to work in China as it is very challenging though not easy. I am 62 and have no plans to go back to Italy before I can get my pension, which will be at least five years and I will spend that time in China.