Bravo Lenovo

Few transactions between countries have caused Americans to take notice of the rising commercial power of China more than Lenovo’s recent successful bid to buy IBM’s personal computer business for $1.75 billion.
Inevitably, comparisons were made with the late 1980s and early 1990s when giant Japanese companies swept through America buying up such trophies as Rockefeller Center and Universal Studios. Yet such comparisons are slightly off the mark, or, more exactly, a little premature.

The big Japanese companies, like SONY and Matsushita, were already established international players and well-known recognizable brand names, virtual household words, when they went on their buying spree. Moreover, it came at the height of the Bubble Economy, when many Japanese companies had more cash than they knew what to do with.

Lenovo is not all that rich, and the actual cash outlay -- $650 million, the rest of the deal in stock – is relatively modest. Indeed, Lenovo’s profit margin has been squeezed in recent months because of intensive competition in the Chinese PC market with major American computer firms such as Dell.

That’s one reason why analysts that follow Chinese stocks in Hong Kong have been recommending that investors sell their Lenovo stock. The IBM deal made little difference to the analysts at UOB Kay Hian in Hong Kong, which continued to recommend selling the stock due to “execution risk,” meaning uncertainties that come from merging corporate cultures.

The other difference, of course, is that Lenovo is all but unknown in America. These days it is virtually impossible for Americans to buy a Christmas present that is not made in China, but one has to look closely at the label to find out. On the other hand, not one person in ten thousand could come up with even one Chinese brand name.

You could tell that the television newscasters had never formed their mouths around the word Lenovo before. But that is essentially the point. Lenovo’s ambition is to be the first internationally recognized Chinese brand name, the first Chinese equivalent of SONY or Toshiba, and the IBM deal is its means of doing this.

Lenovo has long aspired to be a global giant and has been working steadily toward that goal. Two years ago it changed it name in English from Legend to Lenovo (an invented word from Latin, meaning new) specifically because the name Legend was too common and already trademarked in the West. It had the added advantage of being completely deracinated. The company retains Legend, or Liang Xiang, meaning “association,” as its name in Chinese.

The deal gives Lenovo ownership of two globally recognized trademarks the ThinkPad laptop and the ThinkCentre desktop. The company gets the right to use the well-known IBM name in front of the two brands for five years. But eventually it plans to sell the PCs as Lenovo ThinkPads and Lenovo ThinkCenters. To reinforce its global ambitions, Lenovo plans to move its corporate headquarters to New York -- the corporate headquarters, not just some “Lenovo America” entity.

The only other Chinese company that could also aspire to worldwide brand consciousness is probably Haier, the Chinese maker of refrigerators, air conditioners and other household white goods. Haier established its U.S. branch and bought a headquarters building in New York in 1999. But it does not go out of the way to advertise that it is a Chinese company. You can read the web page of Haier America and never know that it is a Chinese company, merely the U.S. branch of the “international” Haier Group.

But most Americans, if they knew it, would admire Lenovo’s story. It was founded in 1984, literally in a two room, one story bungalow in Beijing by eleven scientists from the Chinese Academy of Sciences, not one of them a businessman. They were armed with the equivalent of $24,000 in seed money (most of which was soon embezzled by an unscrupulous distributor) and a vague mission to turn the academy’s research into some kind of marketable products.

If one were to choose the first global Chinese brand, one could hardly find a better representative of the New China than Lenovo. Here is a company that made its way through China’s emerging and changing socialist market economy with no special government favors or support apart from the initial small grant and no special guanxi, or connections to the Communist Party leadership.

In a country that has traditionally favored the elderly, Lenovo puts the emphasis on youth. Lenovo’s Chief Executive Officer and soon-to-be-Chairman, Yang Yuanqing, earned his post while in his 30s. In a country where business activities are sometimes opaque, Lenovo is famously transparent. All major share transfers, mergers and acquisitions are disclosed fairly and equably.

It took the plunge to produce its own line of branded PCs, withstood the onslaught of foreign competition and emerged as the largest seller of personal computers in China, and now the number three PC company in the world, behind Dell and Hewlett-Packard. In doing so it virtually invented the concept of the state-owned but privately managed enterprise, borrowing management techniques from the West when applicable, but refining them to meet the peculiarities of Chinese culture. Bravo Lenovo.

Todd Crowell is the editor of the forthcoming The Story of Legend, the history of China’s largest computer company.