China's Century of Change - Part 4: A Look At Lenovo
Thursday, June 30, 2005SUSIE GHARIB: The Chinese computer company Lenovo is challenging the Dell`s and the Hewlett Packard`s of the world. Lenovo just bought the PC division of IBM and is moving its corporate headquarters from Beijing to Purchase, New York. Tonight as we continue our series "China`s Century of Change," we look at Lenovo and the challenges it faces in building itself into a global player. And we talk with its new chairman in his first-ever interview with American media.
GERSH: Welcome to Zhongguancun, China`s Silicon Valley. There are thousands of technology companies in this Beijing suburb, but the one to watch is Lenovo. Last month, China`s largest PC maker completed its $1.75 billion purchase of IBM`s PC division and now Lenovo Chairman Yang Yuanqing has to make the deal work. So far, so good. (laughter)
GERSH: Yang is learning English and has made it the official language of the company, though he spoke to us in Chinese.
TRANSLATION OF: YANG YUANQING, CHAIRMAN, LENOVO GROUP: We think we could be the best PC company in the world at balancing efficiency and innovation, because right now, no one in the PC industry can survive without efficiency. So we are really an efficiency company. But we also think that our business can`t grow well with only efficiency. In order for us to develop, we need to be unique. And for us, that uniqueness is innovation.
GERSH: Lenovo`s purchase of IBM`s PC division is being closely watched to see if it becomes a new model. Right now, China is a place where IT products are assembled, not created. Lenovo hopes to change that. The new company bridges the international dateline with daily conference calls. To smooth the transition, Yang gave up the role of CEO to former IBM executive Steve Ward. While its parent company remains Chinese, Lenovo`s headquarters will be in New York. The supply chain will be managed from Beijing. On paper, the deal makes sense: combine Lenovo`s low-cost manufacturing and large Chinese market share with IBM`s global reach and reputation. But high-tech mergers are tricky to pull off and China expert James McGregor is watching to see if the combination of what he calls big red and big blue will succeed where others have failed.
JAMES MCGREGOR, AUTHOR, "ONE BILLION CUSTOMERS": If the Lenovo people can get the IBM people to be less bureaucratic and more innovative and if the IBM people can make the Lenovo people more systematic and they can figure out a way to blend very different management cultures from the east and the west, they could be a huge success. On top of that, they`ve got to come up with new product. They`ve got to beat Dell. They`ve got to beat the best people in the world in a very tight margin business.
GERSH: Yang is aware of the challenges. But he says the two companies share a customer-driven culture and a common language: the language of business.
YANG: Personally, I feel that the cultural differences between the two companies do exist, but it`s not a conflict of the eastern and western cultures. More likely, the differences are originating from different customer bases and business models of the two companies. Of course, we have differences, but they are limited.
GERSH: Yang adds the new Lenovo is committed to research and development. He created Leos (ph), its own multimedia operating system that makes it easier to play DVDs and CDs on computers. This year the new company pledges to spend $300 million on R&D. But McGregor says most Chinese high-tech companies do not develop new products. They create incremental innovations, though that may change.
MCGREGOR: What`s going on now is the multinationals are setting up research labs in China and they`re bringing in very smart scientists. They are going to be under a system that enhances innovation and those scientists that go in at age 25. At age 35, they are going to walk out the door and start their own research institute, their own R&D labs and China will innovate.
GERSH: But for now, most of China`s high tech expertise is in high tech assembly.
ADAM SEGAL, COUNCIL ON FOREIGN RELATIONS: Most of the high-tech exports we see are in fact produced by foreign invested enterprises. Those firms are using foreign technology. They are Japanese, American or European technology. They are often using foreign managers, but the Chinese are slowly trying to build up their own indigenous capabilities. But the overall story is really one of small pockets of excellence.
GERSH: Segal argues China will not develop a world-class high-tech sector without reforming its political system.
SEGAL: The party, because it has so much control over the economy, tends to take too much interest in individual companies or individual sectors and once the state gets involved, then you start seeing a lot of incentives and interests that distort development.
GERSH: Yang believes Chinese companies will develop along a path similar to their American competitors, using a vast domestic market as a launching pad for world-class high-tech brands.
YANG: We realize that manufacturing is not enough. We must be able to innovate. We must have our own intellectual property.
GERSH: And with the huge number of new scientists and engineers pouring into Zhongguancun every year, it may only be a matter of time before the tech products made in China will be invented there, too. Darren Gersh, NIGHTLY BUSINESS REPORT, Beijing.
PAUL KANGAS: Late today the U.S. House voted overwhelmingly to prevent the Treasury from approving the Chinese oil company`s C-Nooc`s $18.5 billion bid for Unocal. The measure was tacked onto an appropriations bill and would block the administration from using any funds to recommend the approval of C-Nooc`s bid. But it`s a long way from being done. The Senate must now look at the amendment. Tomorrow, "China`s Century of Change" continues, the banking system and the challenge of cleaning up its books.
