Lenovo's Long March
|Our Correspondent||Nov 22, 2006|
So far as the outside world was concerned, Hong Kong-listed Lenovo (previously Legend, and referred to in this book by its Chinese name of Lianxiang) came almost from nowhere in 2004 to buy IBM’s money-losing PC division. It wasn’t exactly unknown -- the company, and its Chairman Liu Chuanzhi, were regularly praised in the global business press -- but this was primarily for its success in its home market.
Lenovo had seen off such international competitors as HP, Compaq, Dell, and IBM itself, as well as numerous domestic challengers to become the market leader in PCs in China. Its only international business of any note, however, was assembling motherboards. How could such a company come to be in a position to buy the business that invented the PC? That’s the question that this book sets out to answer.
Written by a Shanghainese journalist, The Lenovo Affair traces diligently the company’s frequently rocky road from its establishment in 1984 in a converted guardhouse of the Computer Institute of the Chinese Academy of Sciences to the signing of the IMB deal and its launch into the global arena 20 years later.
The 11 founders were armed with 200,000 yuan in startup capital from the institute but had no experience of the business world. They managed to be cheated of 70 percent of their seed money almost immediately when a deal to buy and re-sell colour TVs went sour. The company retained strong links with the Computer Institute, however. Not only was it given office space but employees as well, almost all of whom were seconded from the institute, who continued to draw government salaries even while working full time for Lianxiang.
The company was allowed to use both the name of the institute and its technology and gradually it established a business and a brand. Not all the founders, all in their 40s when they set up Lianxiang, were able to adapt to the new world. The first general manager soon departed back to the Computer Institute.
Much of the fascination of the early part of the book lies in following the uncertain path taken by pioneer capitalists as China began opening its economy. Liu Chuanzhi and his colleagues had to learn the ways of the market while also dealing with rules, procedures and practice from the Communist era which frequently lagged way behind the new realities of the market.
Salaries, for instance, were long a problem. The company needed to incentivise staff, especially salesmen, but were tied to pay scales virtually unchanged since the 1950s and subject to a 300percent tax on bonuses. Various grey areas were exploited involving unofficial cash handouts and payments in kind until, during the early 1990s, the system was finally reformed – in large part because of lobbying by companies such as Lianxiang. By the time the story reaches the present day the staff, whose first bonus had been 30 yuan and a bag of cold chicken legs each, are receiving not just real bonuses but share options.
After floundering for a while in its search for a viable business Lianxiang finally married the new craze for personal computers with technology for inputting Chinese characters developed at the Computer Institute (the “Han card”). Initially the computers were imported on an agency basis from Hong Kong, then the company developed its own, building a brand that by 2004 was rated the fourth most valuable in China.
The company leadership had to devise techniques of management, recruitment, incentivization, advertising, and the rest of the structures of modern business in a country that was still high suspicious of foreign capitalist methods. Progress was often uneven: as late as the mid-1990s, the time of the company’s Hong Kong listing, the accounts department still made use of abacuses.
This story, which should be engrossing, is unfortunately recounted in unnecessary detail. We follow the company almost month by month through every development, every blind ally, every path to the future contemplated by Liu Chuanzhi in his “brilliance” (for, make no mistake, he is the hero of this piece) whether or not it is followed. In the end the layers of detail obscure the thrust of the narrative, rather than illuminating it.
The book covers acquisition of IBM’s PC division in nine brisk concluding pages, ending with the “snake eats elephant” announcement of the deal in December 2004. It therefore has nothing about the subsequent recruitment of Dell’s William Amelino as Chief Executive, and his efforts to revamp the IBM PC business. Nor does it cover the company’s post-deal push to internationalize itself – adopting English as its internal operating language and moving its headquarters from Beijing to Raleigh, North Carolina. It is therefore pure history, and of much greater interest as a chronicle of the re-birth of Chinese capitalism than as a guide to how this or any other Chinese company will play its part in the global economy.
The author has clearly had remarkable access to both the staff, past and present, of the company and to its archives. The drawback is that it allows him to incorporate extensive quotations from documents and speeches involving endless internal debates and disputes, as well as arguments with state bodies. Many of these were clearly important, even critical, at the time, but others had little apparent long-term significance – all receive equal weight in the narrative.
There was, for instance, a long-running conflict between Liu Chuanzhi, determined to ensure the commercial success of the company, and Ni Guangnan, its first chief engineer and developer of the Han Card, who was unable to accept that his ambitious plans for a “Chinese chip” had no place there. This appears to have been as much a personal dispute as a business one and many pages of minutely documented accusations, responses and investigations add little to the broader story.
Nor is it clear how much reliance we should place on what we read. The book lacks any notes, references or even acknowledgements. The sources may be good, but the text itself fails to distinguish between verifiable fact, opinion, and the purely apocryphal. Is it really true, for instance, that the company’s bright red, premium-priced, Heavenly Auspicious “One key Internet access” model was bought by “many farming families as a dowry” even though they lacked Internet access, just because they liked the colour and name?
The overall shape of the story frequently becomes confused as it lurches from Beijing to Hong Kong and then out to the salesmen on the front line in distant provinces. The financial progress of the company is rarely clear. There is no mention of any formal injections of capital between the initial 200,000 yuan and the Hong Kong listing 10 years later. Revenue and profit numbers, and even the figures for the volume of computers sold, are inconsistent and sometimes contradictory. This is not helped by an uncertain grasp on the terminology of the financial markets.
The book is hindered, too, by a translation from the original Chinese that is highly literal - at times to the point of laziness. The plodding text at times veers into the ungrammatical, as when we learn that Liu “went to pay his respects on Jack Welsh”.
More significantly and confusingly, however, most names of people, places and companies are given by Romanization into Pinyin, regardless of how they are commonly rendered in English texts, or even what the original language of the name was. Thus Acer is given as “Hongji” and its chairman, universally known as Stan Shih, as “Shi Zhenrong”. Richard Li is “Li Zekai” and PCCW “Yingke”. Even more confusingly, American software giant Computer Associates is named only as “Guanqun”, while Chris Patten becomes Peng Dingkang – although he at least gets his English name in brackets afterwards.
Finally, the index to the book is woefully inadequate, hindering even the most determined reader in following this confused if intriguing tale.