TELECOM Digest OnLine - Sorted: Chinese Computer Giant Showcaes Capitalistis Credentials

Chinese Computer Giant Showcaes Capitalistis Credentials

Terril Yue Jones (
Sat, 6 May 2006 18:23:56 -0500,1,3131923.story?coll=la-headlines-business

From the Los Angeles Times
By Terril Yue Jones
Times Staff Writer

Yang Yuanqing heads the world's third-largest maker of personal
computers. But few in the United States have ever heard of him -- or
his company, for that matter.

Lenovo Group aims to change that. Since the Chinese company bought IBM
Corp.'s PC business last year for $1.25 billion, the company has moved
quickly to establish itself as a global brand.

To that end, Lenovo signed on as the official computer sponsor of the
2006 Winter Olympics in Turin, Italy, and the 2008 Summer Olympics in

Lenovo made the acquisition amid a backlash in Congress against
Chinese companies trying to purchase American corporations. Chinese
oil company CNOOC Ltd. ditched its attempt to buy Unocal Corp. and
appliance maker Haier Group ended its effort to join two U.S. firms to
acquire Maytag Corp.

Lenovo has moved its global headquarters to Purchase, N.Y., and kept
most of its ex-IBM development staff in North Carolina. The company
has brought its ThinkPad laptop line to U.S. retail stores and plans
to sell Lenovo PCs to small and medium-sized businesses.

Yang, Lenovo's 42-year-old chairman, was in the U.S. recently while
Chinese President Hu Jintao was making an official visit. He spoke
with journalists in San Francisco at the annual convention of the
Committee of 100, a group of Chinese American business and civic

Question: How is Lenovo doing in the United States? Do consumers here
know the brand?

Answer: I don't think so. We are a new company, but so far we are
satisfied with our performance because we are keeping the business
very stable. This is our first target. Maybe for the next step we
should consider how to grow. We recruited a new CEO [former Dell
Inc. executive William Amelio], and I believe he will lead this group
not only for the U.S. market but also the worldwide market.

Q: Do you worry about any stigma associated with being a Chinese
company in the minds of American consumers?

A: I'm not worried about the public. I'm a little bit worried about
the government. For the past couple of weeks, there have been some
articles related to procurement of our PCs by the State Department.

Our company is a 100% market-oriented company. Some people have said
we are a state-owned enterprise. It's 100% not true. In 1984 the
Chinese Academy of Sciences only invested $25,000 in our company. The
purpose of the Chinese Academy of Sciences to invest in this company
was that they wanted to commercialize their research results. The
Chinese Academy of Sciences is a pure research entity in China, owned
by the government. From this point, you could say we're different from
state-owned enterprises.

Secondly, after this investment, this company is run totally by the
founders and management team. The government has never been involved
in our daily operation, in important decisions, strategic direction,
nomination of the CEO and top executives and financial
management. Everything is done by our management team.

The third thing is actually we were the first group Chinese company to
be listed in the Hong Kong market, which is a totally free market. We
were the first group of Chinese companies to adopt a high standard of
corporate governance and diversified shareholder structure to get
foreign investors in our company.

Q: How will you enter the U.S. market and gain share?

A: The IBM PC business had some presence in the U.S. But they only
cover large enterprise customers, so-called relationship
customers. It's a very limited customer base. So in the future, we
will try to keep ThinkPad as a high premier brand to continue to sell
to this customer base. In the meantime, we will have the Lenovo brand
to cover small and medium businesses and maybe consumers.

Q: Will you sell Lenovo computers to U.S. consumers this year?

A: It will not be so fast. We asked our team in the U.S. to focus on
the commercial segment first.

Q: Will you do more deals like the kiosks Lenovo has in Best Buy,
where selected models are for sale?

A: So far we haven't had this thought. We sell to [small and medium
business] customers through Best Buy. Right now, we have no consumer
product line to be launched in the U.S. The Lenovo 3000 product line
is mainly for [that] segment. It's a good test. I think if we can have
success with Best Buy, that can give us a lot of experience.

Q: Are you structured more as a Chinese company or as a Western

A: Lenovo was one of the first companies that awarded our founders and
management shares and gave our employees stock options. So I think
these incentives helped our company compete in the market.

Since we acquired the IBM PC business, we became a multinational
company. Right now, our shareholder structure is very diversified, so
we have the Chinese Academy of Sciences, IBM and some private equity
companies as shareholders.

And we have a very international board. On our board, there is no
representative of the government, including the Chinese Academy of
Sciences, whose purpose is not controlling this company but getting a
return from the company. Right now, they are very happy - they only
invested 25,000 U.S. dollars, but every year they can get a couple of
times that in dividend. So it's totally capitalist.

Q: Does the direct model work in China?

A: The direct model is good for relationship customers. But especially
for small cities in China, if you want to use a direct model, it
doesn't work. For consumers, they want to look and feel the
machine. After they feel better, they will decide to buy. Also they
want to get the machine immediately after their payment. They cannot
wait three days or one week to get the machine. So you have to have
inventory in your retail shops.

Q: How big can the Lenovo brand be in the U.S.?

A: Certainly we wish our brand will be among the top-level PC brands.
Certainly we have a long way to go.

Q: You're already No. 3 in the world.

A: It's only related to scale. Our brand recognition is still weak,
especially in the U.S. and mature markets. From one aspect, we should
further leverage the IBM brand, the Think brand, to keep our business
stable. From other aspects, we should build ourselves a [Lenovo] brand

Q: Do you feel the center of technology inevitably moves from the
U.S. to China?

A: China is actually more a manufacturing-oriented country. But the
government has started to pay more attention to innovation. The U.S.
government gave a lot of importance to [intellectual property]
protection in China, but the fact is the Chinese government started to
realize if we cannot protect IP, we cannot have a better environment
to encourage innovation.

Copyright 2006 Los Angeles Times

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