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Find here the full transcript of China paradigm episode 6. Learn more about Shuyang Cao’s story in China and find all the details and additional links below.

Matthieu:        Hi everyone. Thank you for listening to this episode of China Paradigm, our China vlog where we interview entrepreneurs in China. I am very happy today to welcome Shuyang Cao. Shuyang is a co-founder of Malu Innovation, which is a company doing robots, warehousing solutions in China to move hoards and pallets, and before that, I am going to tell everyone how I met with you. I met with you because you are an alumnus from ESSEC like me. So, we met through the network and then we met when you were still at Cathay Capital. You may actually tell us more about your experience later on. At that time, you were managing basically investment between France and China, and you came up with this idea of creating this company called Malu Innovation. And I am very happy to have you on this China podcast because so far you are the highest funded company I have ever interviewed. So, you just raised – five months ago you raised 60 million renminbi; in terms of USD should be 9 million?

Shuyang:         Yeah.

Matthieu:        Yeah, 9 million US and it’s a series A. So, thank you very much Shuyang for being with us, taking the time its Saturday, so, thank you very much for taking out your weekend. I know you are used to it as an entrepreneur in China.

And the first question is for you – could you give us an idea of the size of your tech business in China currently 2017; if you could discuss some numbers about revenues, number of employees, number of robots – anything which can give us an idea of the size of your business.

Shuyang:         So Malu Innovation was founded at the end of 2015. And so far, our tech company in China has totally around 80 people, so it’s growing very fast because one year ago this time we had just 20 people. The size is growing quite fast. And in 2017 we totally sold 200 robots in 4-5 different projects. All of the projects are in the e-commerce field in China. And in 2018 we target to sell around 800 robots in China, but we are also starting our overseas strategy in South East Asia as well as in Europe. So, today we are quite proud to say we are the first-tier company in the robotic industry in China and luckily end of last year we raised around a financing firm, JD.com. As Matthieu said, we raised 60 million Renminbi. So, JD is also today our strategic partner. We are the only robot – we are housing robot system, supplier of JD.com and we are doing our first projects with them in their key warehouses in East of China, and after the pilot projects, we can imagine a very huge demand from JD system. And also, we start to work with some big names this year in China such BIT.com, Gourmet which is the biggest home devices selling company in China; and we are also working with some very big automobile companies for their factories and their warehouses. So, the market is really booming here in China because everybody needs automatic and smart warehousing solutions in China and luckily, we are the leader here.

Matthieu:        I want to talk about the one question I had when I looked at what you did and how you raised the money. You raised from JD.com which basically you are in the JD.com ecosystem – does it mean that you cannot work with Alibaba? Does it mean that it’s more difficult – sorry for the question if you…if it is confidential and so on, you’re not obliged to answer, but I am very interested to know more about it because you said you are working with Gourmet which is not Suning and Suning is Alibaba, right?

Shuyang:         Right.

Matthieu:        So, I feel there is clearly a strategic partnership which JD.com and that configuration between around Alibaba and JD.com.

Shuyang:         Yeah actually we are facing this kind of tricky problems here in China because as you know our main customers today are e-commerce players and e-commerce players in China, they have different clients. So, like JD and Alibaba and the third parties. So, for sure if we are in the team of JD, it’s quite difficult to work with the RD system. But one thing is that the JD system is very close because JD owns and manages all their warehouses, which is today of 10 million square meters and will be doubled in the next four years. But Alibaba has a very different strategy in the warehousing system in China. So, they have a subsidiary called Cainiao which is a platform instead of a warehouse owner. So Cainiao is a platform, is a network and they work with a lot of third-party warehousing service suppliers such as Jining or Baishi and this kind of third-party suppliers – even if they are in the so-called team of Alibaba, but in terms of warehousing devices or warehousing solutions in China, they still have quite open purchasing strategy. So, we also participate in some bidding projects of the friends of Alibaba in this kind of projects. It’s not 100% closed to us, but for sure we still face some obstacles or some kind of that

.

Matthieu:        Okay, you feel that…?

Shuyang:         Yeah, it’s not impossible, it’s doable, but it’s more difficult than if we are not in this team of JD.

Matthieu:        Okay. Interesting, very interesting those two ecosystems on JD and Alibaba. One thing I was very interested in reading on your website – you described yourself as the Good-to-Man product, Good-to-Man. So I was thinking, I want to go back on the product, which are robots in China, actually – I was thinking when reading that you have a bigger plan actually than being on your warehousing and you talked about automotive industry; you talked about e-commerce which is something I understood that you were doing was very clear for me because I was thinking of some model of Kiva which was bought by Amazon for 70 to 75 million US. You see, I did my homework, so it was in 2012 I guess, yeah. So, I understood the model, and now you are talking about automotive. When I go on your website, I see Good to-Man industry, how would you define the product and its evolution you see in the future?

Shuyang:         Right. So actually, at the very beginning, Kiva was our example, but as you said – after Kiva was acquired by Amazon, so this part of the business is always focused on e-commerce sorting areas. So, they are doing very good in this field actually. But as we asked you – an independent robotics business in China and we are dreaming a very big thing – so our long-term strategy is to handle all the moving process in every area of factory or warehouses or Express companies. So, in all the industrial areas we can handle the moving missions with our robotic system; so not only the sorting area, the picking area of e-commerce, warehouses, but also, we are working with Express companies, post companies, we are working with automobile companies or other industrial manufacturing companies. So, we are realizing that many, many customers need the AGV that the robots – to do different things in their home.

Matthieu:        Yeah. AGV?

Shuyang:         This is the name of our robots called AGV. So, our products will always be AGV but it will – we will have a different series of products with different loading capacity. So today we have AGV of 700 kilos, we have AGV of 1 ton, and we are developing AGV of 1.5 tons or 2 tons. We are developing the small AGVs of 10 kilos or 50 kilo which is mainly for the logistics company or Express companies. So, many different things. So, our potential customer pool could be very, very big.

Matthieu:        Yeah, 2 tons. I mean you could nearly move a car, right?

Shuyang:         Right.

Matthieu:        So, you can move a car with your robot?

Shuyang:         Yes.

Matthieu:        Wow.

Shuyang:         In the near future.

Matthieu:        Okay, not right now. Because I saw on your website, you have currently 4 robots?

Shuyang:         Right.

Matthieu:        4, okay.

Shuyang:         Yeah.

Matthieu:        Okay, interesting. There was one thing I was asking myself when I was studying your tech start up in China is that – actually your background. When you were at Cathay Capital, I guess you saw so many business – dozens, even hundreds of businesses. How did you select this one? What were your criteria? Because I feel that when we are working in investment in finance, the difficulty is that we see so many opportunities. Actually, so many good things to do and it’s very difficult to select as to say this is services, it’s your product. I am going to invest 100% of my time and here is my money and do that for the coming 10 years or even 15 years. Could you tell us more about the process?

Shuyang:         Yeah. Actually, in Cathay Capital, we were looking at many different businesses or companies, and I was always thinking about creating my own company for sure with some friends together. And my logic is that today, at least in China we have two different models of creating new companies. First one is business model creation; the second is technology side, technology creation.

But for business model creation, as you know, in China, we have Alibaba, we have JD, we have Tencent, we have Baidu – all these big names. They have many; they have a lot of money capital and people and human resources. They can do anything in a very short time so you can see any time a new team created a new business model; it will be copied very fast.

So, it’s quite difficult today. But in the technology side, I think if we find a good technology to create a new company and we have an entry there, we have high enough; it’s possible to create our own work and to – instead of being in corporate very fast. So first I chose – if I do something by myself it must be technology, a technology start up in China.

And I think second – we have to do something, which could be done by a small team instead of by a very big team and with a lot of capital. Such as the auto driving thing or AI thing. It’s quite difficult. We need very huge money to do that, and I think for me it’s quite difficult. And the third one is that as I was working in Cathay Capital, my focus the fields are logistic, robotic and automation. So, I think there were a lot of things to do in the robotics industry in China because the country has a strategy of 2025 for industry 4.0 and it’s a country level strategy.

We have all the good policies from the government side and second is that today in China, not only the factories but also logistic companies – the automation level is very, very low, extremely low, compared with western countries. But the demands in… the market is so huge, which means if you have a good product, you have a good technology you have a very big chance to succeed in the automation business. And very luckily, I knew about the Kiva system and at that time they were just acquired by Amazon, and we could see some videos of the Kiva system at that time in China. Some people in the logistics industries, we start to know are there-there was Kiva system which already succeeded, which already proved their business model, their technology model, which is feasible in the real world.

So, I think it’s very interesting and in China, as the e-commerce market size is many times of US market – but there was almost, nearly no warehousing solutions in China. All the warehousing work was done by a human, purely human. So, if this Kiva system or the robot AGV system could be developed and the price was acceptable, for sure it will be a very big chance to run a successful business in China. So, I think it’s very interesting. And at that time, I met with my friends who were just diplomated from Dr., Ph.D. in France and who was also very good at computer science and robotic technologies. And I talked with him; he saw the video of Kiva; he thought it’s – with his background it’s quite doable. He can do that. And for my side, I think market side I can sell it and I know investors in China are interested in it. So, we have all the core success keys in our hands. So very quickly we decided to do this.

Matthieu:        How much time? How much time between the idea and doing it? How much time did you take?

Shuyang:         One month – very quickly.

Matthieu:        One month.

Shuyang:         Right.

Matthieu:        So, one month you called your friend, you said, “Do you think it’s possible to do it?” He looked into it and one month after you said, “Okay, I am going to quit. I am quitting it. I am starting it.” Wow.

Shuyang:         Right. Because you have to be fast, a good idea could be seen by many people, and if it’s a good thing, many people will think it’s a good thing and we will have to be fast and fast to decide, fast to make decision, fast to develop, do the IMB, fast to sell it – everything should be fast. And so, we decided to do that in August of 2015, and we were just with our first robots business in China, in Shenzhen in September and we started to put some employees in Shenzhen and do the first demo, do the prototype.

Matthieu:        2015, right?

Shuyang:        Yeah. And in the middle of 2016, we participated in an exhibition, robot exhibition in Guangzhou. It was our first time to show our demo products to the market, and at the end of 2016, we did our first real test for our first customer, and it was a big success. So, our customers recognize our products, our warehousing solution in China and he gave us our first order which was luckily a very big order – 100 robots.

So, we produced 100 robots in the Q1 of 2017, and in June 2017 the system was running quite well, and the customer decided to buy another 30 robots in the same warehouse in the same project. So, our first project is 130 AGVs in one warehouse which was the biggest at that time, and it is still the biggest one today. It was also since doing this project JD decided to invest in us, because in our small industry, the warehousing robot system, there is not only us, you have a dozen of competitors and JD.com is… they are the biggest customer in this field, and they had a chance to investigate all the companies, all the companies in the robotics industry in China and finally they thought we were number one in technology side, number one as a tech start up in China.

Matthieu:        Okay about the team.  Actually I have a lot of questions about the team. I am seeing 4 co-founders of your robots business in China. Right? And how did you match each other and what is the function of each person. I have this feeling that you were a bit like the Chinese students in France connection… 

Shuyang:         Not only that, It’s a very interesting story. So, we have three boys and a girl. So, four people four founders. These three boys including me we are high school friends.

Matthieu:        Wow.

Shuyang:         So, we did the same high school which is the number one high school in Shanghai. After the high school, our main founder the biggest shareholder Mr. Liu… Dr. Liu, he was sent by the Chinese government to France, to the Grand De-Coup, Polytechnic Paris.

Matthieu:        The best ex-engineering school in France, for those who are not French.

Shuyang:         He did two years after that he enrolled in polytechnic. And he got his second master in Imperial college in the UK, this is our main founder Dr. Liu, and me and another co-founder Mr. Wang, after the high school both of us we enrolled in Fudan university which is also one of the best universities in China.

So, Wang, he was in… his major in Fudan was mathematics, and after four years bachelor, he was also sent by Fudan to Polytechnique, also for maths. So, this is the history of Wang, and for me I enrolled in management school of Fudan and the grade three I was also exchanged to France which is in a business school in France, and after this I enrolled in ESSEC business school for master in corporate finance and after the master I came back to China to join Cathay Capital. Yeah, and the lady she was our friend in Fudan. She was studying in Economic department of Fudan in the same year…

Matthieu:        Okay. But she stayed in China.

Shuyang:         Yes. But she also got her master degree in economics in the UK. After her studies, she was working in her family business.

Matthieu:        Okay so basically you have two co-founders who are very tech oriented and two co-founders who are more commercial oriented, marketing oriented. And fundraising as well because you mentioned that you are in business, but one of the core competence you brought is about fundraising. 

Shuyang:         Right. Because when I was working in Cathay Capital, I had a very good exposure to all the VC’s, investment companies and other types of investors in China, something like that. And I also knew JD.com and their investment arm, so yes that’s why we had access to JD.com clients.

Matthieu:        The product you have started it’s requiring… certainly you have some co-founders who know about the product, but that’s requiring some RnD, that’s requiring some initial investment at the very, very beginning how did you finance and could you share a little bit of rent or some money that you had to put into it, and how you financed it. Just to give an idea at the beginning of how you started your business in China’s automation industry.

Shuyang:         I can say in the first five quarters we used our own money which was about less than 10 million RMB.

Matthieu:        That is a sizeable amount of money from savings 10 million RMB. Okay. What did you do during those one year and three months because you are not working on the RnD, so you are raising money at the same time? Were you already meeting with factories? How were you spending your time?

Shuyang:         Yes, we have done a lot of things. We created the first the very beginning RnD team which was around 10 people. We designed our prototypes, we designed our first software’s and algorithm, we rent a small factory which was 600 sq. meter in the suburbs of Shanghai, which was very cheap I can say…/ it’s not a good place it’s like a garage, something like that and we started to see some potential customers.

Luckily, we met with a guy who was the owner of one of the biggest Taobao shops. He also has his own warehouses, and at that time he was looking for this kind of automatic solutions because he was building his new warehouses in South of China in Guangdong province. And in his current warehouse in Shanghai, he managed 500 workers, which was very sophisticated for him to manage so many people.

So, for his new warehouse in Guangdong, he didn’t want to have the same level, the same amount of people. That is why he was looking for an automatic solution, and at that time we met with him and showed him our demo, and he was never interested, so he decided to do a test with us at the beginning. So, he gave us a small place of 1000 sq. meters in Shanghai and we provided our robots… for sure it was for free, but it’s very good for us to have this kind of opportunity to run our system in the real world and this guy he was also very supportive and helpful to us. But first, it’s quite a precious opportunity because we really need a real warehouse to test our products because before that it was only a demo. We never tried to test our system or our robots with the real orders with the real e-commerce orders, the real inventories, the real goods… we never had that…

So, this gave he gave us this opportunity and doing this test we found a lot of new products, new bugs that we never found, we’d never met with and we handled a lot of problems and also, we showed him that this system, this warehousing solution in China worked, so that’s why after this test he decides to do to purchase our solution in his new warehouse in Guangdong.

Matthieu:        Alright. Do you need to change factories to use your robots in China? Do you need to put on some sensors or floor or so on…?

Shuyang:         No. We just need to put some QR codes which was a small plastic… 

Matthieu:        On the floor.

Shuyang:          On the floor right, yeah and it’s very easy to implement.

Matthieu:        I see, how was it to work with the factories which produced the product? Was it easy to find the right factories? Was it easy to manage them? Have you been afraid of IP protection and so on being copied? Could you tell us more about all those issues and changes to work with factories…?

Shuyang:         Yeah, so for our robots we design everything first. So, for many… something like motors or something like that, we co-design the devices with our supplier, and we have a different supplier for different accessory, for different parts. So, in total, we have close to 100 suppliers…

Matthieu:        100 suppliers?

Shuyang:         For different parts of the robots and I can say, no one is very critical. So, we have always at least two different credible suppliers for one part.

Matthieu:        Wait you are saying that you are not sure of the quality and you are not sure that the people… you can rely on them, so you have always two in case that you can rely on one of them. That’s what you said right?

Shuyang:          Yeah.

Matthieu:        Okay so it’s a lot of management.

Shuyang:        Yes, the supply management is very critical for us but we have established a very reliable system, but we have done a lot of work on it, it was not easy. And, IT is also a key for us, so we never let any supplier know the whole picture of the products for sure. So, each supplier does his own work, and we will handle the whole picture in our team, and we do the assembling by ourselves, so that’s why we have a small factory in a suburb of Shanghai, we have a team of 20 workers today, to do the assembling and the tests.

Matthieu:        Interesting, how to manage IP protection through operations naturally. Okay. What are you doing with the raised money? So, let’s talk about this? What are you going to use it for? Did you say South East Asia maybe Europe West, is it for new products?

Shuyang:         Yeah, we are going to do a lot of things, so first we are as you know, before the ROM A we had 75 people in the company and now we have more than double, so we recruited a lot of new people. For sure we are growing our RnD team because we are developing new products, new solutions, this is very important, and another important thing is that before the round A, we didn’t have our marketing team, we didn’t have our sales team, and the after sales team was very weak, so after this money we establishing these departments in our robots business in China and as you said, we are looking at the overseas markets so in Europe, in South East Asia we have already some potential customers to talk with. So, I think the first project will be done in South East Asia this year, and we are…

Matthieu:        In which country?

Shuyang:          Indonesia.

Matthieu:        Indonesia, okay.

Shuyang:         Right. And we have potential customers in Taiwan, in Hong Kong, in Thailand as well, in Japan too and we are opening our office in Paris thanks to our French background but we think it’s worthy of doing this in France, because in France we have very good RnD human resources, we have a very huge market in Europe…

Matthieu:        Okay, talking about differences between West and China, it’s very interesting… at the very beginning, you said that we have a plan which is called… in China… 2025… where each… okay, I know about it because I’m living in China but some people who are listening to us and watching us may not know about it, and that’s something which is I feel very strong for entrepreneurs in China.  

Private entrepreneurs in China are following what’s going on in the plan. Are following very carefully what’s going on with the plan, policy and so on which are very different from American entrepreneurs. How do you leverage that? Do you get money from the government? Do you get facilities? I don’t know… fewer taxes to pay? What do you get?

Shuyang:         Yeah, actually we have to handle governmental issues, we created our own robots business in China ever since we linked it with governments. So, we have to know what the government wants to do, what’s the emphasis and if you do something which is encouraged by the government for sure, in the policy side we have many subsidies from the government.

Matthieu:        Do you have any specific numbers about…? I don’t know, of subsidies you can raise from the government of tax numbers, because the corporate tax is 25% in China, VAT is 17% of a product, do you have different numbers for your company if you are subsidized and sponsored by the government, how does it work?

Shuyang:         Subsidies, we have a lot of subsidies. The government will… they have many special foundations to encourage different projects, different directions. For example, in Shanghai you have a foundation which is encouraging China’s automation industry, you have a foundation who is encouraging the industrial software, you have a foundation who is encouraging robots in China. You have many this kind of foundations and you can apply for that and for us…

Matthieu:        Its money? They give you money, right? Okay.

Shuyang:          They give us money, like 200,000… I million, it depends.

Matthieu:        Do you have to pay back? How does it work?

Shuyang:         No, you have to apply for this foundation with your business plan, with the investment plan and they will do the audits after one year or after two years to see if you realized your targets, if you really invested so much money, as you said in the business plan.

Matthieu:        Very interesting. Very interesting. Thank you very much Shuyang, it’s nearly close to 50 minutes, I know you have other things to do afterward, last question actually before we end, are you afraid about robots? Are you afraid of a world where you have robots everywhere, and human beings are just useless? What do you think about this?

Shuyang:         Yeah, it’s a critical question, for us what we do is not AI, our solution is to automate, automatic solution. Our system has very weak intelligence I can say. We have our algorithm to schedule, to arrange the robots, but it’s still programming thing, it’s not so intelligent, it’s not a strong AI, it’s quite a weak AI, and presently, yes, I am a little bit afraid of strong AI things, you know its… I cannot imagine.

Matthieu:        It’s an interesting topic, especially for all the entrepreneurs in China who are working in the robotics industry in China. I think there’s a lot of sees still. Thank you very much for your time Shuyang. I hope you enjoyed it. How did you feel about the interview?

Shuyang:         Yeah, it’s very inspiring, your questions are good, and it also made me think about a lot of things.

Matthieu:        Okay. Good. Thank you very much and hope you enjoyed it and I hope everyone with us enjoyed this episode of our China podcast, China Paradigm.  Thanks.

Shuyang:          Bye.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.