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Published: August 8, 2014
 / Autumn 2014 / Issue 76

 
 

Lenovo Goes Global

China’s most recognizable brand has plans to overtake Apple and Samsung.

In the beginning, it was cultural and managerial chaos. When Chinese computer company Lenovo dispatched a team to New York in 2004 to discuss acquiring the personal computer division of IBM, only one member of the team—the company’s chief financial officer—spoke English. Lenovo was an offshoot of a Chinese government research institute, and none of the leadership team had operated outside Chinese-speaking Asia. Yet they were dealing with executives from IBM, a sophisticated multinational active in 160 markets. Gina Qiao, who was a member of the Lenovo team representing human resources, recalls that she was completely baffled by IBM’s compensation and pension system. Nothing like it existed in China.

Once Lenovo acquired the much larger but unprofitable PC division on May 1, 2005, for US$1.75 billion, the two sides discovered that they truly didn’t understand each other. Lenovo executives decided that English would be the official language of the new company and started learning it. But the challenges went beyond vocabulary. Words could be translated from one language to another, but underlying assumptions couldn’t. “We had two rivers of culture,” recalls Qiao.

For example, the two sides did not know how to disagree with each other. When the U.S. executives spoke in a meeting, the Chinese often said, “Shi, shi, shi,” which means “yes, yes, yes.”

The U.S. group took this as a sign of agreement, but the Chinese were really just saying, “We hear you; please continue.” It was only after the meeting that the Chinese explained privately that they didn’t agree. They were trying to be polite, but the way they expressed disagreement after the fact infuriated the other side.

Another problem: Western managers expected their direct reports to push back and sometimes challenge their superiors’ decisions, but the Chinese tendency was to merely execute what a “great boss” had decreed. “In China, we have to respect the leaders,” Qiao explains. “If you ask me to do something, I just do it. If you make that decision, you know more information. You are above me. You are smarter than me.”

The Chinese decided they wanted a Western executive to be the chief executive officer of the combined company, so CEO Yang Yuanqing stepped into a non-executive chairman’s role. The first Western chief executive, Steve Ward, an IBM veteran, didn’t last long. Then William J. Amelio, a former Dell Inc. executive who had run that company’s operations in Asia, stepped in as CEO later in 2005, bringing many Dell people with him.

Amelio tried to impose the Dell way of operating the company. He commissioned a consulting firm to hammer out a common strategy document, but it was 15 pages long and too complex. Amelio managed to expand annual sales from $13 billion to $15 billion. But after global financial shocks knocked the company into a money-losing quarter, Amelio stepped down. On his way out, he publicly complained about the company’s “yes, yes, yes” culture. Yang returned as CEO in February 2009.

Around 2010, the company finally began to click. The worst of the cultural differences were getting resolved, and the Chinese had spent the period of upheaval learning about the capabilities needed within a multinational company. “They came to the United States ready to learn and absorb expertise,” says Yu Zhou, a professor at Vassar College and author of The Inside Story of China’s High-Tech Industry: Making Silicon Valley in Beijing (Rowman & Littlefield, 2008).

Today, Lenovo has emerged as China’s first true multinational, surpassing Hewlett-Packard Company and Dell to become the world’s largest maker of PCs. Sales have grown to $39 billion as of the fiscal year ending in March 2014, more than twice the level of 2008, thanks partly to several acquisitions. Its most recent deals, announced within the space of a week in early 2014, were the purchase of IBM’s low-end server business in China for $2.3 billion and the handset division of Google (once part of Motorola) for nearly $3 billion.

 
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Resources

  1. William J. Holstein, “China’s Long Road to Innovation,” s+b (online only), Nov. 18, 2008: An inquiry into China’s challenges in creating true technology-based innovation.
  2. John Jullens, “Why Haier and Lenovo May Soon Be Household Names,” s+b (online only), Sept. 23, 2013: A look at China’s branding challenges.
  3. Chuck Salter, “Protect and Attack: Lenovo’s New Strategy,” Fast Company, Nov. 2011: A detailed on-the-scenes account of Lenovo’s origins.
  4. Oded Shenkar, Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge (Harvard Business Review Press, 2010). An argument that China can copy, or acquire, the Western management skills and technologies it needs.
  5. Yu Zhou, The Inside Story of China’s High-Tech Industry: Making Silicon Valley in Beijing (Rowman & Littlefield, 2008): One of the most definitive surveys of China’s technology aspirations.
  6. For more thought leadership on this topic, see the s+b website at: strategy-business.com/global_perspective.
 
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