China's Next Long March

Lenovo, Haier, TCL, Pearl River Pianos, State Grid Corp, CNOOC. If these names and initials mean nothing to you, you are not alone. In a couple of years, however, some of them may become household words. They are all names of prominent Chinese corporations set to go global.

About a dozen Chinese companies have already achieved the eminence of a listing on the Fortune Global 500, signifying their growing wealth and status as multinational corporations. What they haven’t achieved yet is to imprint their names on the world’s conscience. At least not yet.

No longer content to remain no-name suppliers of generic products for American and other offshore companies, Chinese companies are setting out on the next Long March, into the capitalist paradise of recognizable brand names. A rising economy must create multinationals. The Japanese have their Sonys, Toyotas and Toshibas. Now it’s China’s turn.

In the vanguard of this global movement is Lenovo, China’s leading maker of personal computers. It burst into the American consciousness late last year when it bought the PC division of IBM for $1.5 billion (half in cash and the rest in stock).

Now having consummated the deal, passed muster with the U.S. authorities that scrutinize sales of American technology assets to foreigners, Lenovo is preparing to seal the deal with American consumers through an extensive marketing and advertising campaign to implant the Lenovo name firmly in this country’s commercial consciousness.

Lenovo has long aspired to be China’s first global brand and has been working steadily and purposefully toward that goal. Two years ago it changed its name in English from Legend to Lenovo (an invented word from Latin novo, meaning new) specifically because the name Legend was too common and already trademarked in the West.

In acquiring the IBM computer division, Lenovo gained the ThinkPad laptop and the ThinkCenter desktop, two of the best-known brands in the computer industry. Lenovo’s strategy is to link its name with the better-known products, until they become synonymous in the customers’ mind.

“There will be no doubt that ThinkPad is made by Lenovo, just like iPod is made by Apple,” says Deepka Advani, Lenovo’s senior vice president and director of marketing. The products will be produced under the IBM logo for five years. As the Lenovo brand becomes better known, the company will eventually drop the IBM logo and sell them as Lenovo brand ThinkPads and ThinkCenters.

Lenovo is also taking the unusual step of moving its corporate headquarters from Beijing to New York – the corporate headquarters, not just some “Lenovo America entity.” Lenovo’s young chief executive Yuanqing Yang plans to move into the company’s new worldwide headquarters in Westchester County.

Can Lenovo pull it off? “Yes,” says Oded Shenkar, professor of international business at Ohio State University and author of “The Chinese Century.” “The way the deal is structured, with IBM retaining a stake and putting its brand name on the line, will help them do that.”

Besides Lenovo, several other Chinese companies are poised to cross that great divide between commercial anonymity and renown. Haier, a 17-year old appliance maker based in the port city of Qingdao began quietly selling in the U.S. market in the mid-1990s. It now accounts for about half of the American market for small refrigerators (such as those used in college dorms).

Taking a page out of Lenovo’s playbook, Haier announced that it is leading a group of investors bidding to acquire the Maytag, the number-three ranked American appliance maker. That would give the Haier group control of such all-American brands as Hoover vacuum cleaners, Amana appliances and Magic Chef ovens.

Haier’s longtime chief executive, Zhang Ruimin, likes to call himself the “Chinese Jack Welch” after the famous American business icon and former head of GE. But he is a Jack Welch who is also a member of the Central Committee of the Chinese Communist Party. (Lenovo’s chairman Liu Chuanzi is also a CCP Central Committee member, I believe).

Another Chinese company with huge brand potential goes by the initials TCL International. TCL is China’s largest maker of television sets. Much like Lenovo and Haier, it wants to piggy-back on a famous global brands. Last year TCL acquired majority control of the French television maker Thomson Electronics.

That gave TCL use of the American RCA brand. TCL thus licensed the image of its famous little dog Nipper cocking his hear to hear sounds emanating from an antique phonograph. “We want to be the next Sony; we want to be the next Samsung,” says TCL’s Chief Financial Officer Vincent Tan.

A Chinese company that is also gradually making a name for itself in the U.S. is Pearl River Pianos, which owns the world’s largest piano factory in the southern city of Guangzhou. Competing directly with such established brands as Steinway and Yamaha, Pearl River had garnered about 10% of the American market in 2002 and was on its way to reaching its goal of 25% share of the market for grand and upright pianos by 2005.

Some other Chinese corporations are rapidly acquiring the attributes of global multinational giants, even if they may never become household words since they are either resource companies or parts makers.

One of the newest additions to the Fortune Global 500 was State Grid Corp of China the country’s largest builder of electric power plants. For the moment it probably has its hands full trying keep up with the demand for electric power in China. But one day it may be a global force to reckon with the Bechtels and Hyundais and other globe-spanning construction corporations.And, of course, China National Offshore Oil Corporation just announced it had upped its bid to acquire the Unocol Corporation.

To succeed in the U.S. the Chinese companies have to overcome some perception problems. The Chinese companies are making their move precisely at a time when American anxieties over China’s enormous trade surplus are rising sharply. Newspapers are filled with stories of allegedly unfair trade practices ranging from theft of intellectual property to accusations that Beijing manipulates its currency to make Chinese products cheaper.

China is not the first Asian country to face these problems. But the Chinese have another prejudice that never concerned the other Asian exporters. The brands come from a country that is still nominally communist and one that is seen by some as a rising military threat to the United States.

When Lenovo secured the necessary clearance from the U.S. Committee on Foreign Investments to purchase IBM, the popular CNN commentator Lou Dobbs accused the government of allowing “25 years of research to be passed to the Chinese communists.” The report was accompanied with file footage of parading People’s Liberation Army troops and tanks.

Indeed, many of China’s new global players are still state-owned, although they function like privately owned companies and are listed on the world’s stock exchanges. Lenovo was spawned by The Chinese Academy of Sciences in 1984 at the beginning of China’s market transformation and opening to the world and for most of its life CAS still held a majority interest.

Some say that the Chinese companies may fail when they leave the protective cocoon of their home market. But Haier, TCL and Lenovo honed their management and business skills before launching global subsidiaries. The influx of foreign competition in China, especially in the three years since China joined the World Trade Organization, has provided the locals with tough, world-class competition.

Lenovo was almost knocked out by American and European computer firms, when tariffs on imported computers were lowered substantially in the early 1990s. It still faces intense competition at home from Dell, competition that has kept its profit margins slim and its stock values languishing. Yet it withstood the foreign onslaught to emerge as the largest seller of personal computers in China and now the third-largest in the world. Given its record can Fortune Global 500 fame be far behind?

Todd Crowell is the editor of The Legend behind Lenovo


FOUR NAMES TO REMEMBER

Lenovo. Head office: Beijing (soon New York). Founded: 1984, in a two-room bungalow in Beijing by 11 scientists from the Chinese Academy of Science, a government agency, for the purpose of commercializing research. Now the leading PC maker in China and the third largest-PC maker in the world. State ownership: With the IBM deal, the academy’s stake is just under 30%.

TCL. Head office: Hong Kong. Founded: 1981, to make cassette tapes. Now the world’s largest maker of television sets. Acquisitions: German electronic-appliance maker Schneider; joint venture with France’s Thomson Electronics. State ownership: The Huizhou Municipality owns 25%, the rest public.

Haier. Head office Qingdao. Founded: 1987. China’s leading maker of white goods, such as washing machines and mini refrigerators. In the U.S. market since 1994. Opened a factory in Camden, S.C. to make full-sized refrigerators for the U.S. market. State ownership: None, a “collective,” 100% of profits retained by the company.

Pearl River Piano. Head office: Guangzhou. Founded: 1956, well before market reforms were introduced but has prospered in recent years selling pianos to rising Chinese middle class. Owns the world’s largest piano factory, turning out 250 models a day. Has joint venture with Japanese piano maker Yamaha. State ownership: 100% Guangzhou Municipality.