Emergence of a giant

After snapping up IBM’s PC division earlier this year, Chinese firm Lenovo is set to take on all comers. Its chairman Yang Yuanqing tells Rhys Jones how he plans to topple the IT hierarchy and outpace industry growth.

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By  Rhys Jones Published  October 2, 2005

Emergence of a giant|~|32-Yang-Yuanqing-03-200.jpg|~||~|CHANCES ARE YOU’VE NEVER HEARD of Lenovo. If you haven’t, you most certainly will have done by 2008. Perhaps you think Lenovo manufactures shampoo or pharmaceutical drugs. You might even think it’s an obscure Scandinavian car-making firm, which specialises in designing strangely shaped electric vehicles. But you’d be wrong. The Lenovo Group — one of the main sponsors of the next two Olypmic Games — is the largest personal computer (PC) manufacturer in China. And earlier this year the company, which is relatively unknown outside its homeland, leapfrogged its way to become the number three computer maker in the world (second only to Dell and Hewlett-Packard) by completing the audacious US$1.75 billion purchase of IBM’s PC division, including the ThinkPad range of high-end portables. Despite the fact that it’s mixing it with the big boys these days, Lenovo and its affable chairman Yang Yuanqing are not intimidated. Far from it. Yuanqing, who joined Lenovo in 1989, wants the company to grow at twice the industry growth rate over the next five years — hopefully leaving its venerable competitors in its wake. “Over the next five years we will become the most competitive PC company and the best PC brand in the world,” he says. Although Yuanqing has a confident and quietly assured air about him, you would never put him down as one of the most influential men in China. But he is. Previously the president and CEO of Lenovo, he is also a director of China’s Entrepreneur Association and a professor at the University of Science and Technology of China. Despite the considerable power he wields there isn’t a hint of the domineering chairman-CEO stereotype about him. There’s no booming voice nor in-your-face spiel and not an Armani power suit in sight. What you get is an engaging, softly spoken, mild-mannered man who knows his business — and when he talks, people listen. “I think if we can realise double the growth of the industry average we will improve our position as a serious competitor to the likes of Dell and HP,” he explains, clearly focused on the challenges ahead. “I don’t know about the targets and objectives of our competitors, but I fully understand where we’re going and what we’re trying to do,” he adds. Like its fellow Asian rival, Acer, Lenovo is keen to take on the ‘old world PC makers’. While Dell looks relatively secure at the moment, HP is starting to cast nervous glances over its shoulder as Lenovo and Acer continue to acquire market share. Lenovo is experiencing strong growth in emerging markets, which account for 53% of the company’s current growth. In order to topple its rivals, Yuanqing says the company will combine high-profile marketing alongside sleek products to maintain its accounts with large corporations and government institutions, which were so carefully cultivated by IBM. It also plans to simultaneously expand its presence in the small-medium business (SMB) space and emerging markets — areas largely ignored by the Big Blue. “IBM had a less proactive growth strategy than we have, but if you want to grow in the SMB area you need to do a lot more marketing and investment and you need to build,” states Yuanqing. “But in terms of where we are now, SMB is a hugely attractive emerging and growing market but it needs investment. It also requires a proactive strategy and IBM didn’t have that — it put the PC division into a sort of steady state — but Lenovo has been a growth company all along,” he adds. In terms of this future growth, Yuanqing is clearly eager to take advantage of what he perceives as the huge opportunities currently available in both the consumer and SMB areas. “Focusing on very large enterprises was IBM’s strength. But in SMBs and the consumer segment we have no presence at all, meaning we only cover 50% of the total PC customers so it will be easy for us to grow if we can invest in these segments,” he predicts. Like other PC makers, Lenovo is also looking beyond just making personal computers. In China it already sells a range of consumer products including mobile phones. Yuanqing has previously hinted that the company might expand its product offerings in other markets, but in the meantime he says the overall focus of the company will remain on innovation in the PC market. Lenovo recently announced a new line of ThinkPad notebooks, the Z60 series. While previous ThinkPad models such as notebooks in the ‘X' and ‘T' ranges have been more business and corporate minded, the Z60 series ThinkPads will be consumer-focused. Furthermore, Lenovo is poised to launch a new series of cheaper and more colourful ThinkCentre desktop computers intended to extend the brand to the small business buyers neglected by IBM. Prices for models in the new E-series desktops are expected to start at less than US$400 without a monitor, about US$100 less than the current cheapest ThinkCentres. The new range of laptops come with wider screens, built-in wireless data access and are being offered with covers made of ‘brushed titanium’, a break from IBM’s tradition of selling them only in its trademark black. As well as its consumer aspirations, Lenovo believes that because of its lengthly experience in China it has a major advantage in another of its target areas — the emerging markets. “Fortunately Lenovo China has very good SMB and consumer products and we have a very mature business model in these two segments and that is an advantage for us,” Yuanqing states. “We also understand how to develop emerging markets because of our experiences in China so we understand how to duplicate this success in other emerging markets, one of which is the Middle East,” he adds. The transition from IBM to Lenovo “has gone very smoothly so far” according to Yuanqing, who admits there will be a period of differentiation between the new Lenovo and the old IBM. Lenovo has rights to use the IBM brand on its notebook and desktop PCs for five years, but plans to phase out the Big Blue brand and boost use of the Lenovo and ThinkPad marks gradually. The Chinese company’s PC products will keep the same IBM branding until the end of 2006 and the company says nothing will change for the end-user, claiming the technologies they buy will remain unchanged, while the look and feel and the service and support will also be identical. “We can have the IBM logo on products for up to five years and we will have it for as long as it takes for the customers to understand the continuity,” says Yuanqing. “Then we will bring out the next generation of products under the Lenovo brand name so you will see Lenovo coming up but all the while keeping the focus on the IBM product,” he adds. In order to avoid any bumps, Lenovo aims to pick the best elements of IBM and the best of the old Lenovo, creating a new entity whose focus on design and innovation allows it to compete with the PC world’s hierarchy. “We did some research in America around a few brands and it turns out that the ThinkPad is the personification of IBM. As a result, we decided to keep the appearance and the Think naming because we thought it was critical that the high-end customers would associate it with IBM’s quality,” he says. “We can use the ThinkPad to strengthen our brand because everyone knows that the ThinkPad is associated with IBM’s reliability and quality,” he explains, hoping that this strategy pushes the company towards major profits. Lenovo’s third quarter results for 2004-2005 put turnover at US$823 million, down 3.7% over the US$845 million for the same period last year. Net profits were up just 0.6% to US$42 million, compared to the US$41 million during the same period last year. However, despite this lacklustre quarter the company has moved ahead with its plans to list its stock on the New York Stock Exchange. Executives forecast that Lenovo can grow sales at 9% annually until 2009, with the company’s PC sales set to jump to 273 million units in 2009 from 178 million units last year. In the US, the company aims to grab a 27% share of the market by 2009 — an aim which has led the Chinese PC giant to undertake an ultra-aggressive marketing campaign. One element of this is the Olympic Games sponsorship deal — a cornerstone of Lenovo’s branding strategy. It plans to use the 2008 Beijing Games in particular as a springboard to create worldwide brand recognition for its products. This is something the company hopes will reap rewards on a global scale. “The Olympics will be where we demonstrate to the market that it’s Think by Lenovo because we will have developed the brand further by then,” says Yuanqing. “After that we will bring out products under the Lenovo brand name so people will say ‘ThinkPad is IBM and Lenovo and I know Lenovo from the Olympics’,” he adds. As its involvement with the Olympic Games shows, the computer maker is clearly intent on presenting itself as a global company. It has been China’s largest-selling brand of PCs since 1997 and has 27% market share there, while in the Asia Pacific market (excluding Japan), it has a market share of 12.6%. At the turn of the century, the company decided to go global by creating a globally accepted name and in April, 2003, it formally announced its decision to re-christen its product Lenovo, forsaking the former brand name, Legend. The fact that the company has its main executive office in New York — where Yuanqing now lives — only adds to Lenovo’s burgeoning global image. “I was running Lenovo, which was a 100% Chinese company, from Beijing, but now we have the executive headquarters in New York and I actually live in Manhattan. The business is run out of New York, but we still have our research centres across the globe,” he says. “But the way to run the company is really to globalise the management system, to take a physical location such as New York, which will continue to be the worldwide headquarters and to integrate the supply chain, marketing and have a clear branding strategy,” he adds. Being based in the Big Apple and taking constant trips to the company’s targeted emerging markets has earned Yuanqing “many, many air miles”. However, when asked how he enjoys the power and fame his high-profile role affords him, he is typically humble. “I travel much more these days and also have more jet lag, but it’s constantly exciting,” he reveals. “But I feel very lucky to be able to work with such a great team and I’m very proud of the work the team does,” he says, adding that this is the time for Lenovo to make a real global impact. “We have received more and more recognition across the board recently, but now we have a real battle ahead to expand our business and I’m very confident we can achieve our goals,” he says. With China’s growing share in global manufacture and its rapid emergence as one of the most sought after investment destinations in the world — you wouldn’t bet against it. ||**||

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