Breaking through the Growth Ceiling - Internationalization Road of
Lenovo Yang Yanqing President, Lenovo
Mr. Chairman, Ladies and Gentlemen,
I'm very pleased to be here today and discuss with other distinguished
speakers about the Internationalization Road of Asian Companies. I would
like to share with our distinguished speakers and delegates about the
thoughts and experiences of Lenovo from our own internationalization
exploration.
The first experience we have gained from our internationalization
exploration is that"companies can't go international just for the sake
of internationalization. Instead, companies shall make its decisions as
whether to go international based on the sustainable growth of its own
companies, i.e. the internal driving force for the decision-making shall
be growth" Why so? This relates to the internal law of business development.
The business development curve of any company can't go up forever, when
it reaches a certain stage, it has to slow down and maintain its pace at
a platform. At this stage, business executives will inevitably face the
challenge of how to break through this growth ceiling.
In the development of Lenovo, we have gone through three stages:
1. The first stage being the initial starting up period, which is the
hardest stage many companies have also gone through. At the starting up
stage, the main challenge is to survive the market competition rather than
development. Lenovo decided to act as agents for foreign products and
brands, with viable incentive mechanism of private sector, excellent
corporate management system and well-received corporate culture in place,
Lenovo survived the initial starting up stage.
2. After Lenovo has gone through its initial stage, initiators of
Lenovo started to plan for the next stage business development strategies
and decided to manufacture its own brand PC. We had a difficult time at
the beginning and encountered fierce competition from foreign brands.
When I took over the PC business in 1994, our PC annual sales volume was
just around 20000 and barely made ends meet. However, after thorough
market survey, we found three weaknesses of the foreign brands, namely
low efficiency of its national agency system, long stock duration, and
deviation of its PC provided in China market from its global market. In
response to this, we have developed a distribution system at provincial
level, combined with our product innovation capability on the basis of
our comprehensive understanding of domestic market; we overtook the
market share of foreign brands and have grown to be the leader in the China
market. Our annual sales volume for year 2004 was 4 million, which has
increased over 100 times than ten years ago.
After year 2000, Lenovo faced another growth challenge: Lenovo has
by then enjoyed 30% of the market share in China. In a fully competitive
market, it's very difficult to increase the market share to a higher ratio.
We have to think out ways to break through the growth ceiling once again.
Obviously, there were two options, namely diversification and
internationalization. We tried to take the diversification strategy in
2000. However, we ignored the reality that after China's accession to WTO,
we have to compete with the biggest companies of various businesses if
we want to make breakthrough in these businesses whereas the core
competitive edge we have developed in the past was contained in the PC
business and can not be applied to other areas. We also realized that
competitive edge can not be developed in a short period of time. In this
connection, and after prudent consideration and analysis, we have
readjusted our priorities and put internationalization strategy before
diversification.
3. Now we have entered to the 3rd development stage of building a
strong international company.
How should we go international? This brings about our second
experience: internationalization is not as simple as changing a label,
it requires structured approach and need core international business
values.
In the case of Lenovo, we tried self-development approach at the
beginning. But after several years of exploration, the brand awareness
of Lenovo was still comparatively low in international market. We were
also embarrassed to find that not only Chinese brands but also Asian brands
as a whole were not well accepted in international markets. From the
international customers' perspective, they are fine with Asian
manufactured or assembled products, but when it comes to Asian brands,
they would be regard them as low price and low quality products. Not a
long time before, an American friend came to visit Lenovo. He was stunned
after seeing our products and visiting our world class research center.
Before he came, he thought of our product as White Box, and now he knew
that was completely wrong. However, due to such wrong assumption, it's
difficult for Lenovo to recruit qualified talents in international
markets, without which, the business development is baseless. In view of
the lessons we learned, and after prudent opportunity and risk analysis,
we have decided to grasp the opportunity of acquiring IBM PC business when
IBM approached us. According to our judgment and analysis, the acquisition
shall provide more opportunities than risks and we have the confidence
of containing the risks within a reasonable range.
The deal shall cost Lenovo USD 1.25 billion, however, in return,
Lenovo has in its control the global business network of IBM which was
developed in the past several decades as well as the premier quality IBM
Think brand. In addition, Lenovo also gained the excellent research and
manufacture capability of IBM notebook, IBM's high-end customers and
world class management team and staff. Should we develop all these by
ourselves, it would certainly be much more costly and take a much longer
period of time. Further, we're not even sure whether we would be able to
get the same result.
As a matter of fact, the acquisition is just an essential step in our
internationalization exploration, but not all. To be an international
company, you should not only see your product in international market and
control international distribution network. More importantly, it should
be a company with international CI, governed with international practice,
run by international talents and equipped with international corporate
culture, i.e. it should be a company with international core values. We
have been planning for this a long time before the acquisition took place.
As you may recall, Lenovo started using its new English name from April
28, 2003, and signed global partner agreement with Olympic Committee on
March 26, 2004. All these are the components of Lenovo
internationalization strategy.
After the details of our acquisition deal with IBM was revealed by
the media, some might took our choice of keeping the senior executives
and CEO of IBM in Lenovo and relocating our headquarters to New York as
a compromise, which is not true. The choice is actually Lenovo's choice
right from we started the negotiations with IBM. The aim behind this choice
is to internationalize Lenovo's business operation and management team.
Another important decision Lenovo has made in its internationalization
endeavor is to attracting international strategic investors.
We
declared to accept the investments from three private companies TPG, GA
and NB on March 31. The rational behind this decision is to govern Lenovo
with international norms and regulations. Through these measures, Lenovo
has now had an international Board of Directors and under guidance of such
Board, Lenovo is gaining more international strategic development and
business development capability and structured corporate governance.
All the above are our efforts in internationalization. Of course, our
plan is not perfect, for instance, we have overlooked the severe scrutiny
from CFIUS and resulted in the risky situation Lenovo faced at the
beginning of this year. Fortunately, with full cooperation and support
from various parties involved, the acquisition was eventually authorized
by CRIUS. This has also taught us a lesson which we will remember in our
future business developments in the world market.
Not long before, I read an article in a business magazine which
describes the efforts of Lenovo internationalization as"now we see a
Chinese company with distinctive international characteristic, Lenono is
not just a Chinese company with several areas internationalized, but an
overall internationalized company. Lenovo is international not only in
terms of its manufacturing system or marketing distribution network, but
also in terms of its shareholders structure, financing structure, and
partnership etc." I would say such a description is an accurate account
of Lenovo.
This article is entitled as"InternationalizationC Lenovo Definition".
To all those who have decided to choose internationalization strategy,
whether you would go international alone or with partnership, through
acquisition or investment, the key factor in making such decision is to
evaluate your own strengths, resources and your major challenges, and then
on the basis of such evaluation can you come out with concrete
internationalization strategies.
From such perspective, if internationalization could be defined by
Lenovo, it could also be defined by any other company who has found an
appropriate road to internationalization.
Thank you.