3.china flanders lenovo(1)

8/14/2019 3.China Flanders Lenovo(1)

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From the IBM PC Division to Lenovo

Frdric Raes

Country General ManagerLenovo Belgium Luxembourg


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2Frdric RaesFrom the IBM PC Division to Lenovo

Agenda

1. Lenovo : who are we ?2. The history of Legend

3. The making of the IBM-Lenovo deal

4. Why ?

5. Success factors for the New Lenovo

6. The merge and the deployment of New Lenovo in 67 countries7. Managing the cultural gap

8. 1st year achievements

9. Lenovo in BeLux

10.Plans and expectations for 2006 and beyond

11.New management style and mindset12.China, Europe, Belgium, Etc.


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Lenovo who are we ?

The 3rd

largest manufacturer of PCs worldwide according to iSuppli1. Dell = 17.3% of worldwide market share

2. HP = 15.5%

3. Lenovo = 7.4%

4. Acer = 4.5%

5. Fujitsu-Siemens = 3.7%

The makers of the ThinkPad


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Lenovo Group and IBM PC Division in 2004

Lenovo Group Ltd.

Founded 1984

FY04: Revenue, $3BNet Profit, $135M

10,000 employees

#1 market share in China for 7 years(27% market share, source: IDC)

#1 IT company in China

Small Business and Consumermarket strength

Market capitalization: approx. $2.6B

IBM PC Division

Established in 1981, created the PC

$9B 2003 Revenue

9,500 employees

#2 in WW commercial notebooks

Leader in enterprise PC design andbusiness productivity

Enterprise and Mid-market strength

ThinkPad notebooks have won over1,000 industry awards

100-million PCs shipped


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A Perfect Fit Between Complementary Organizations

Premium Global PC Brand Most-recognized technology brand

globally

Enterprise/Mid-market Expertise Leader in business productivity &

lowest total cost of ownership

Notebook Leadership Leading-technology enhanced

notebook product offering

#1 IT Brand in China Most recognized technology

brand in China

Consumer/Small Business Expertise Differentiated consumer/small

business and extensive retail network

Efficient Operational Platform Low cost infrastructure and

manufacturing scale

Global Sales, Financing,Fulfillment and Service Network Global sales network with financing,

fulfillment and service support


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6

The Legend Behind Lenovo


7/377Frdric Raes

From the IBM PC Division to Lenovo

2

Legend in 1984

Founding members: 11 researchers

Initial investment: RMB 200,000(US$ 25,000)

Over 10,000 employeesLenovo before IBM acquisition

Revenue 2003: HK$ 23.2Bn (US$ 3 Bn)

From Legend to Lenovo: 1984 to 2005


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The early days of a TECHNOLOGY company

1. Founded in Beijing in 1984 The New Technology Developer Inc. is founded by the Chinese Academy of Sciences

1985: distributes PCs from IBM 1987: distributes AST PCs and HP PCs and printers

1987: successful roll out of the Legend Chinese-character card

1988: Chinese-character card gets National Science Technology Progress Award

1988: Starts selling products and services to large corporate & public clients in China.

1. Hong Kong branch in 1988

Legend could not get license to manufacture their own PC in China

Problems in Hong Kong: visa, language, clothes, cost of living, salaries But Hong Kong = window to the world learn about the business world

Joint ventures become sole distributor of AST products in China AST #1 in China

Acquires Quantum Design -> starts making motherboards will become #5 worldwide


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The crisis of the mid-90s

3. Legend starts making PCs in 1989- Las Vegas 1988: decision to make a high-performance, high-quality PC, and to present

it 4 months later in Hanover where they sell tens of thousands in 4 days

- 1990: license is granted to manufacture PCs and Legend establishes a strongdistribution channel for Legend and imported brands

- 1993: Legend Science and Technology Park opens in Huiyang (Guangdong)

4. The mid-90s crisis

- 1992: 70% of PCs sold in China are from Chinese manufacturers but Beijing andWashington enter a bi-lateral negotiations duties on PC imports fall 50% 20%

- American-branded PCs can compete on price, and in 1993 take 67% of the market

- Legends react by adjusting costs, but also strategy and decision making

Integrate technology, supply/manufacturing and marketing in decision-making

Tailor machines to the needs of the Chinese users better than US competitors can

Establish a separate, loyal distribution network, with a strong partnership


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Growing to the Top

1994: listed on Hong Kong Stock Exchange

1995: 1st Legend Serveryoung PC users name Legend their favourite national PC brand

1996: 1st Legend notebook

1997: market leader in China, now strongly profitable

1998: introduction of a modern IT system based on SAP

1999: 1st Internet PC (1-touch internet access)

2000: becomes one of the constituent stocks of the Hang Seng IndexBusiness Week ranks Legend 8th on list of global IT companies

2001: joint venture with AOL for consumer interactive service business in China

2002: enters the mobile handset and the IT management consultancy businesses

2003: Legend becomes

2004: becomes an Olympic Partner

Year Marketshare

1997 10,7%

1999 20,1%2000 26,3%


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Mar. 26th 2004Lenovo is a Top Olympic Partner

Lenovo is a Top Sponsor to the OlympicWinter Games in Turin and the OlympicGames in Beijing

Computing Equipment Provider to both TurinOlympics and Beijing Olympics

Top Sponsorship buys certain rights e.g.

- Use of logos

- Hospitality provisions

- Access to National OlympicCommittees and athletes


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Reasons behind Legends success

1. Lowest costs in the industry, best inventory management, but that is far from all

2. Strategy of being both the cheaper and the faster

= 1st to recognise the potential of the Home PC market in China

= 1st to build manufacturing capacity to benefit from greater economies of scale

= constantly introduced new product generations taking advantage of component cost

reductions faster and never giving competitors a break

1. Disciplined execution of the channel policy, that created a very strong and loyal channel

2. Decision not to copy competitors from USA / Taiwan, but to win in China by developing theability to beat competitors with products better tailored for local users

3. Synergies between the 4 divisions (research, PC, telephony, internet) products with more functionalities, more performant and easier to use

4. Very strong partnerships with Intel, Microsoft, IBM, HP, Texas Instrument learn

5. Ability to deal with shareholders: Chinese leader transparency and governance model


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1999: the Tianxi (the Internet PC)

Legend was first to spot the emergence of a home market for PCs: the spoiled little emperorswere becoming teenagers But Chinese families needed a lot of hand-holding

1995: 1st Home PC for with strong multimedia functions + training classes for families

By 1999 Legend has developed a clear vision how to enter the Chinese Internet market

1. Use the Internet to drive the sale of PCs and new hardware products2. Use its commanding position in the PC market to dominate the Internet

Legend launches the Tianxi, with one-touch-to-the-Net and a large promotion campaign

- Hardware buttons to launch most internet and user support functions

- Strong partnership with China Telecom ready to connect in 2000 towns

- Digital pen to help writing Chinese-character e-mails

- Later additions:

Legends easy-to-use web portal

Notebook and Pocket PC versions, with single dial up country-wide


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Food for thought

Success came despite a very unfavourable political and economic environment

The immediate impact of the US invasion was dramatic and several localmanufacturers disappeared but in retrospect most of the reasons behind Legendssuccess can be traced back to the reforms that have followed the disastrous year 1993

Foreign competitors underestimated Legends strategy and strength and failed to reactuntil it was too late because they did not understand what Legend was doing

Not only Legend did win, but also the Chinese consumer who got better products atbetter prices, foreign firms could not dump second-class products into China any more

Legends successes and its constant media attention changed the perception ofChinese consumers that foreign products are more reliable and of a higher quality.


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Quality Part of Lenovos Heritage

Legend Commercial Kaitian6800, Intel Innovative PC Award, 2002

Legend Consumer Tianlin9220, Intel Innovative PC Award, 2002

NGPCWinner ofGermany IF, 2002

Legend Consumer Tianjiao,Best multimedia desktop by

HK HIGH TECH, 2002

Legend Consumer Tianjiao E, 3rd ChineseEnterprise Product Innovation Sliver Medal,2003

Legend Consumer Fengxing, China DesignAward of 1st HK Asian Most Influential DesignContest

Legend Mobile ZhaoyangE360,Japan Intl ID Grand AwardG-

mark , 2003

Legend Commercial YangtianM6000, Intel Innovative PC Award,2003

Legend Consumer TianjiaoA, Goldenaward of China Product InnovativeDesign, 2002

Lenovo won 2 awards

from the prestigiousGerman Design Institute(Nov. 2005)


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Legend / Lenovo is a

High-tech

High-innovation

High-quality

Company


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The Making of the New Lenovo


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Why ?

No future for the PC Division within IBM- Bringing corporate margins down

- Infrastructure costs

- Had stopped devices


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The Making of the IBM-Lenovo Deal

Summer 2002: IBM CFO John Joyce goes to China in hopes of selling the company's ailingPC unit to Legend. But IBM PCD had lost nearly $400M the previous year Legend refuses.

18 months later: Lenovo is now hungry to become a global player and IBM has radicallyrestructured the PCD. Costs have been slashed, much of manufacturing is now outsourced.

IBM also seeks a bid from private equity giant Texas Pacific Group to put pressure on Lenovo.

April 2004: Legends board + consultants from McKinsey and Goldman Sachs, conclude that ifLenovo can recruit IBM's top execs to help manage the company, the merger can succeed.

Summer 2004: during secret talks in N.C.: Yang and Palmisano agree to make it more thanjust a simple sale of assets: both companies will form a strategic alliance.

December 2004: between the 2 bids (Lenovo & Texas Pacific) Palmisano chooses Lenovo:

- IBM will sell Lenovo PCs via its sales force and distribution network, will provide servicesand financing for Lenovo PCs and will allow Lenovo to use the IBM name for 5 years,

- Lenovo, still partly owned by the Academy of Sciences, will be a help to IBM in China.


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IBM IT

Lenovo acquires IBM PC operations IBM: ownership stake, long-term alliances with the new Lenovo in sales, services and financing

Ownership

ChineseAcademy of

Sciences

EmployeesShareholding

Society35%

IBM Sales

IBM Services

IBM Financing

LenovoIBM

The new Lenovo

13%

IBM

Lenovo Group Ltd.(HKSE Listed)

46%

LenovoHoldings

Transaction Summary

35%

PublicShareholders

6%

PrivateEquity Firms

65%

Texas Pacific Group

General Atlantic Newbridge Capital


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Implementing the deal

Chairman = Yang Yuanqing (ex-CEO of Lenovo)CEO = Stephen M. Ward (ex-head of IBM's PCD).

Headquarters are near IBM's outside New York.

The 30-member executive staff is split down the middle.

December 2004 to April 2005: mixed project teams sides work on the fast start

- to avoid disruptions, New Lenovo will begin with 3 separate business units: ChinaPCs, China cell phones, and international operations (= former IBM PCD)

- But then will quickly integrate all supply-chain operations.

Project is run as 3 parallel 4-month efforts Carve out from IBM IBM proceedings without PCD

Lenovo proceedings without IBM- with project teams

Per function (sales, finance, administration, order management, etc.) By region and country

- 2 waves (large countries 1st of May, smaller countries 1st of August)


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New Lenovo Executive TeamJun Liu,COO Lenovo China

Deep Advani,CMO and ActingCorporate Strategy

Fran OSullivan, COO

Lenovo International

Ravi Marwaha,Worldwide Sales

Scott Smith,AG

Milko Van Duijl,EMEA

George He,Corporate Research &

Technology

AndrewSotiropoulous, AP

Shaopeng Chen,China

Peter HortensiusWorldwide Development

Mark EnzweilerVP, WorldwideBusiness Partner Sales


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The New Lenovo on May 1st , 2005

New York

RTP Beijing

Principal Operations Research Centers Sales Headquarters Manufacturing Centers

Japan

Paris

Sydney

ShanghaiHuiyangShenzhen

Hungary

Mexico


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Achieved in 1st year of new Lenovo

Launched Lenovo in 65+ countries, with no disruption in deliveries and support

Retained a huge majority of our customer base

Delivered on promise of continuity in product strategy, quality, design, roadmap

Established 2 innovation centres (Raleigh (NC) and Beijing)

Retained 98% of our employees; launched cultural gap reduction programme

Delivered 2 profitable quarters, with ex-IBM PCD profitable

Increased customer satisfaction, becoming #1 for mobiles (TBR)

Introduced new products including the very successful X41T tablet convertible

Increased operational efficiencies by combining the Think and Lenovo divisions

Gained share globally despite absence from consumer segment in Europe, NA.

Gained share in the 4 key emerging countries: China, India, Brazil, Russia

Doubled the revenues of the mobile telephony division


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IBM

- Most recognised global IT brand

- Reputation of quality

- Leader in Laptop technology

- Leader in business productivity

lenovo

- Most recognised IT brand in China

- Reputation of quality

- Leader in consumer / small business

- Low cost infrastructure and

manufacturing scale

Lenovos 6-point plan for increased competitiveness

1. Cost and expense competitiveness

2. Product line expansion

3. Brand development and demandgeneration

4. Sales model and sales execution

5. Investment in emerging markets

6. Integration of businesses


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Lenovo in Belgium and Luxembourg

Lenovo (Belgium) sprl / bvba

Lenovo (Belgium) Luxembourg Branch

About 20 people sales team working mostly in home office

Main responsibility: sales, channel management, marketingand communications

Order desk and administration: Greenock (Scotland)

Product marketing + www.Lenovo.com: Basingstoke (England)

Warranty, Technical Support: IBM + 2nd level support: Greenock

Finance and accounting: Singapore

Human Resources: Budapest

European HQs: Paris


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The Values of Lenovo Group, Inc.

Customers

Innovation

Integrity

Dedication to every clientssuccess

Innovation that matters for ourcompany and for the world

Trust and personalresponsibility

in all relationships

Serving customers

Innovative and can do spirit

Accuracy and truth-seeking

Trustworthiness and integrity


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Managing the Cultural Gap Early Stories

Findings: the cultural gap is huge and its hard to predict when glitches will pop up- The Chinese don't tolerate being late for meetings, while IBMers are often late.

- When Yang, Ma, and eight other Lenovo execs landed at John F. KennedyInternational Airport in New York for their first planning meetings, nobody metthem. Not good: In China, visitors are greeted and taken to their hotels in limos.

- Yang brought it up at a meeting, and Steve said, 'We'll fix that."

- Initially, Yang favoured dual headquarters, U.S. and China. It was a point ofnational pride. Ward disagreed, saying there should be a single one, in New York.

- After a couple of days, Yang came around: "Steve made a lot of sense, puttingheadquarters in New York tells our global customers that we're a global company."

Immediate decisions after deal was signed- Educate project members on each others culture- Declare English Lenovo's official language.- Appoint Ward as Lenovo's CEO, Yang Yuanquin as Chairman


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From the Lenovo Intranet On the Cultural Gap

On running cross-cultural meetings:

Equal opportunity conversation: be sure to engage everyone in the room.

Seating arrangemen: avoid having Westerners on one side and Chinese on other. Poorseating arrangement can create negative perceptions + inhibit comprehension.

Pause: take frequent breaks during presentations to ensure comprehension and givetime to formulate an answer.

Name names: use nametags + when meeting the people for first time, reference people

by their full names, not just "Going back to Bill's point..." Be prompt: many US meetings start 10/15 minutes late. Most Asian cultures are very

prompt. If the meeting is scheduled for 10 a.m., begin at 10 a.m.

Speak slowly

Highlight the main points

Repeat the main points with different words

Avoid large meetings: challenging for non-natives: they move fast, people talk overeach other, individuals are afraid to ask questions for fear of looking stupid.

Send written recap: after meetings, send a note to summarise key points anddecisions: individuals studying English have better reading comprehension.

Use visuals


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The World seen by Lenovo (from China)

1. China

2. Other emerging countries

1. India

2. Brazil

3. Russia

4. Middle East

3. Mature countries

1. North America

2. Western Europe


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China, Europe, Belgium, etc.

China as a competitor

- Manufacturing technology & innovation reservoir of young, talented people

- Costs drive to achieve speed of execution learning skills - quality

It is worse for the South

- Available capital

- Chinese product invasions Local companies cant compete Western companies less andless

China as a consumer market

- Distribution challenge distances, cultures local partners

EUs strategies to compete

- Low costs capabilities focus on services (but India ?) skills and education

- Ability to execute and be flexible - SOX

WTO (2003) To AP From AP Delta

NA 249 533 -284

EU 308 417 -109


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Future Success Factors for New Lenovo

Compete successfully against Dell, HP and new entrants

Create strong image of quality and innovation outside China

Build more economies of scale and purchase power, gain share

Become the leader in fast growing (= emerging) regions

Successfully enter Consumer market in NA, EMEA

Protect and keep developing successful IBM brands ThinkPad, ThinkCentre

Combine two cultures into a single company

Reduce structural costs outside China

So far, so good future will tell


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Management Styles

So far, Chinese management keen to

- learn

- set clarity

- drive change

- more than to be hands on

Speed of change and drive to achieve in 7 months:

- Global organisations fully mixed

- Drive to emerging countries

- Supply chain

Reputation of management style = clarity of directions

Lenovo is empowerment and delegation - not typical ?


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Pride at working for such a company

Past record of achievements

Leaders ability, dedication and vision

Capacity to learn, adapt and execute

Values

Contribution to Chinese history in the making

3.china flanders lenovo(1)

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