When Lenovo, China's leading computer manufacturer, agreed earlier this month to purchase IBM's personal computer division for US$1.25 billion, it was a giant step onto the global stage for a company that started only two decades ago in a shack near the Chinese Academy of Sciences in Beijing.
Liu Chuanchi, founder of Legend Group, which later renamed itself Lenovo to tap the overseas market, steered the tremendous growth of his company. He started by selling personal computers for big-name companies like IBM and Hewlett Packard. He now owns IBM PC.
In fact IBM approached Liu three years ago for a proposed sale. However, Liu said no to the Big Blue right away. Why? As he told reporters a week ago, he believed the venture was too risky at that time.
Three years ago, Lenovo was a giant in its own right. The potential in the domestic market was huge. Chinese people, eager to log online, put a premium on owning a computer at home. Businesses, small or large, were also keen on automating office work. Lenovo was one of the primary choices for businesses and individual PC buyers.
The company, which accumulated huge sums of cash, also began looking for new outlets of investment. Electronic cameras, MP3 players and other peripheral devices became a new focus for the PC maker.
Attracted by the high profit margin in the real estate sector, the PC maker also developed its own property for sale and lease. Lenovo was becoming a cross-industry conglomerate employing tens of thousands of employees nationwide.
However, as Liu admits, many non-PC businesses witnessed a decline in
profitability over the past two years. And to add salt to injury, its core business PC manufacturing also reported less-than-forecasted growth. Liu, who had planned to delegate day-to-day business management to his senior management staff, had to re-appear on the business stage and refocus on his giant group.
He believes that Lenovo must make a firm commitment to go global and it should focus on its core business, PC manufacturing.
"We started talking to the big international players to understand the challenges. Eventually, we came to see IBM's offer in a different light," he said, during an interview with Western journalists.
As discussion progressed, Liu gained confidence that many of the risks he had feared earlier could be distributed or controlled.
"For example, we worried about losing customers. So we worked out an agreement that would allow us to continue using the IBM brand, to keep IBM salespeople, and even to keep top IBM executives as CEO," he was quoted by Fortune magazine as saying.
IBM has been focusing on developing solutions for customers. Some observers say the Big Blue earns more money in consulting, software development and solution development for customers than selling computers.
It seems logical IBM wants to get out of low value-added computer manufacturing. However why does Liu want to be expand his PC-manufacturing capacity?
In China, Lenovo has 27 percent of the domestic market. There is not much room for further growth. However, the global PC market is estimated to be worth US$200 billion. The room for growth is huge if we look beyond the domestic market.
Liu believes IBM has a lot to offer to Lenovo, in particular its management know-how and international reach.
Over the past decade, IBM has developed a well-connected national distribution network. Liu believes by combining a strong brand, high-quality product and wide distribution network, Lenovo will see increased profitability down the road.
With the acquisition of IBM's PC unit, Liu has geared up his strategy to become a global company. At the launch ceremony, he disclosed that Stephen Ward, Vice President of IBM would become the new CEO of Lenovo Group to replace incumbent Yang Yuanqing. Yang Yuanqing will replace Liu as the group's chairman.
Most of the top executives in IBM's PC unit would join Lenovo, including the division's general managerFran O'Sullivan, who will become chief operating officer, Liu said.
Liu also actively sought new financing from international investment houses. He said Lenovo would receive a US$500 million bridge loan from Goldman Sachs to help finance the acquisition of IBM's PC asset.
After the acquisition, Liu pushed Lenovo Group onto the world stage. "There is no turning back. Lenovo has made a firm commitment to compete on the world market," he said.
In fact, Liu had long made his vision to expand overseas. On many occasions, he urged his management staff to study the overseas market, adopt advanced Western management techniques.
To realize this vision, he retained over 10,000 employees of IBM PC. Compared with the downsizing at the beginning of this year, Liu seemed to give little heed for the cost.
"I believe that the strong capability and management system IBM has built up will boost Lenovo's strategy by competing globally," he said.
Liu is undoubtedly the architect of Lenovo. He founded the company, grew it into the scale it is today and has steered its course of development. Though Liu does not have any formal position, his influence will remain in the computer maker. And the world is waiting to see how Lenovo performs after taking over the Big Blue's PC business.
(Shenzhen Daily December 24, 2004)
