Setting up a factory in Asia International Crystal

Setting up a factory in Asia International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Purpose : • Glass industry development has followed all other industrial activities developments in China. – Flat glass. – Hollowware. – Tableware, giftware. • China has always got an anchored craftsmen tradition in glass and crystal. • Food service is drawing Art of Table industry. • As an international major group in this business, Arc -International has decided to invest in this growing market. "China One" has been its first industrial action. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Why a plant in China ? (1) • Our position in Asia before 1998 : – Rep. offices in Japan, China, Hong-Kong, Singapore… • Be able to serve the local and surrounding markets. – Manufacture near the consumer • Some internal markets already well developed are dragging collaterally: – Food service, housing property are dragging housing and art of table markets. – Be able to support sales development with locally produced volumes. • Local production costs. – Be competitive on those local markets. – Be able to promote our quality standard. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Partnership ? • When our project started, it was very difficult to work without any local partner ( Nowadays it is legally conceivable. ) • Different potential partners : – Financial. – Inside our field of activity. – Administration (local, province…). – J. V. with another foreign company. It depends on the project, but what is shared (capital, assets, knowledge, brands, market, representatives, management, objectives…. ) has to be clearly defined. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Where ? International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Nanjing • A local industrial glassware manufacturing partner. • A promising development of infrastructures : – New, modern and well located Industrial zones. – Important node on transport and energy networks. – Industrial and technological level. – University and training well established in different skills. • A "proactive" welcome of local administrations. • Seems to be at that time the optimum socioeconomic and geographic "center" between the great towns of the East coast and the under equipped "Far West" International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia The A. G. N. J. V. • The administrative "run". – Letter of intention. – Feasibility study. – National, provincial or local ratification : • Level of investment. • Type of activity : encourage, controlled… – J. V. Contract and other linked contracts. – Business license. => Official existence of the J. V. as a company. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Setting and running the first facility • Rent on a development zone of existing buildings • Installation of "cold end" processes : – Packaging, – Decoration, sand blasting… Objective : Learn how to run a production business in China : - Chinese industrial culture knowledge, hiring manpower, training… - Purchasing, transports, logistics. - Distribution networks, customers organization and practices. - Circuit of money (investments, customers, providers…), banks. - Learn how to work with a partner inside a J. V. - Learn about administrations (national, provincial, local…). International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia China One – Decision / Objectives • Mid 2001 decision to launch "China 1" project – A modern glass factory with an industrial furnace. – Be able to produce for the Chinese and Asian markets glass item down Arc International brands within our quality standard. – Facility to be operating beginning 2003. – Maximize contribution of local providers in the project. – Rely a maximum on the existing A. G. N. local team. – Engineer an evolutionary and modular project. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia China One – Land choice and purchasing • Inside or outside an industrial zone ? • Functions of the industrial zones. • Principle of land acquisition in China. – Right usage for a certain period. • Land availability and cost evolution. • Our decision : – Inside NETDZ one of the most recent zones in Nanjing. – On a new lot development. – Non leveled (leveling started January 2002). International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Land preparation - NETDZ International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Project engineering • Specification for the plant done by AI engineering and future users. – A. P. S. Advanced Specification to launch biddings. – P. R. D. Detailed Specification ; basis of the contracts. • This final organization took several months to be set up and work efficiently with AI engineers. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Understanding engineering way to do • Understanding Engineering Chinese organization and targets in such a project : – Specific structure gathered around a project leader made of numerous teams (civil work, electrics, piping. . ? ). – More motivated at the beginning to capture know how than to enter inside the project itself. – Used to work with heavy standards (GB) and promote their solution as a standard. • After 3 months we got a much better level of mutual trust and work became very productive. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Environmental impact study • Very complete environmental impact file : – Urbanistic aspect, traffic and people migrations. – Air pollution. – Water pollution. – Noise – Security and safety • To be on an Industrial zone make more easy. • Involvement of the Nanjing Environmental Science research Institute. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Selection of providers and sub-contractors • Selection of providers : – Non process equipments (compressors, batch system, power generators…). – Specific building parts (roofing and siding…). – Process equipments out of A. I. delivery (lehrs, handling lines and machines, shelves system in warehouses, forklifts…). • Selection of subcontractors : – List and references is part of the answer to bidding. – No access to their contracts. – Difficult to manage second level of contractors. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Furnace Engineering and construction • Original engineering from AI : – Scope: furnace, civil work and networks linked to furnace. – Drawings provided by our own furnace engineering. • Drawing converted in Chinese standard by BCEL : – Standard conversion. – Detailed drawings (networks, metallic structure…). • Purchasing in and out of China : – Maximized Chinese refractory (AGN prospecting). – Some imported from France and machined in China. • Assembly by a Chinese specialist (Baosteel). International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Construction great steps • Leveling, preparing the land roads : – January to May 2002. • Soil treatment and basement construction : – May to August 2002 (Picture 1). • Building erection : – July to January 2003 (Picture 2). • Installing the process and furnace : – November to March 2003 (Picture 3) • Setting and trying the networks : – January to end of march 2003. • Furnace pre-heating : – March 15 2003. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Trials and reliability process • Process equipments : – Mainly imported from A. I. – Installed by local contractors supervised by A. I. specialists. • Networks mounted by Chinese companies: => Need for a formal and detailed trial period : – Match between networks and equipments. – Debug engineering and mounting defects. – Train and get the teams to reach a satisfactory level of performance. – Get trained to the emergency procedures. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Manpower and H. R. aspect (1) • Despite the existence of glass factories, no really skilled people available in the area. • Main key employees were hired at the very beginning 3 to 4 years ago. • Most of the primary production manpower has been hired 4 to 6 months before the production start up. • Production people has participated to the installation of the process and the trial and reliability period. • The factory started to produce with more than 600 persons => need for social structures (logging, buses, canteen, lockers, medical care…). International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Manpower and H. R. aspect (2) • Basic salaries lower than in Europe (~1/10) • High percentage of charges : – Social legal taxes. – High rate of company benefits. • Transmission from SOE's to private companies (Chinese or Foreign capital). • Turn over could become a serious problem : – High rate of "modern companies" development. – Chinese executives may "negotiate" their "international" skills. – Round the clock factories are less attractive. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Start up production • Production started on April 7 2003 : – First day 2 lines out of 8. – First week 6 lines out of 8. – First week able to package some items under the AI brands (Arcoroc, Luminarc), quality standards where ratified by A. I. Quality management. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Production and yields ramp up • First 6 months : – Despite interruption during 2 months of heavy technical assistance the factory has followed the targeted ramp up plan mainly based on : • Machine operation and failure yield. • Tonnage production. • Quality and management organization involving more and more Chinese people, and diminution of expatriates structure. • Second year : – Production extension – Improvements of yields • Improvement in organization and production costs. • Development of our local collection. International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Picture (1) Soil treatment and foundations International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Picture (2) Buildings erection International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia CH 1 – Pictures (3) installing process and furnace International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Pictures (4) setting and trying process and networks International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Picture (4) A. G. N. April 2004 International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Lead Crystal main producers in China (1) • Mei. Ying Glassware (Zhejiang) Co. Ltd – – • Shandong Hua Peng Glassware Co. Ltd – – • 2 Electric Furnaces : 8 T / 24 h + 15 T/ 24 h (start at Sept 2005) 24%Pb. O Crystal Hand-made process + semi-automatic process Vase , Astray, Tumblers, craftworks etc. 1 Heavy oil Furnace : 3 T/ 24 h No Pb. O Crystal Automatic blowing process VAP (main products ), Tumblers Guangdong Jia. Rong Glassware Co. Ltd – – 1 heavy oil furnace : 50 T/ 24 h + 1 pot furnace : 2 T / 24 h No Pb. O Crystal 2 Automatic Line + 1 Semi-automatic Line Perfume Bottles , Wine Bottles International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005

Setting up a factory in Asia Lead Crystal main producers in China (2) • Da. Lian Sheng. Dao Glassware Co. Ltd – – • 1 Electrical Furnace : 10 T/ 24 h 24%Pb. O Crystal Hand-made process + Semi-automatic Line VAP , Vase, Astray , Tumbler, Craftworks Chang. Chun Ao. Pu Optical-Electrical Co. Ltd – – – 1 Electrical Furnace : 10 T/24 h K 9 Domestic Market Chongqing Bei Glass Factory • – – – Pot Furnaces Colored Glass (Soda Lime) Hand-made process – VAP, Vases, Tumblers, Craftworks International Crystal Federation - XVII Technical Exchange Conference Telfs-Buchen, Austria – 8 th-11 Th October 2005