Lenovo at a Crossroads

Posted by: Steve Hamm on January 24

I’ve been following the path of Lenovo Group ever since it announced a little more than two years ago that it would buy the IBM PC Co. What an incredible twist that was! The iconic US PC pioneer sold out to a Chinese upstart. Well, the journey was a bit of a rough ride at first, with Lenovo losing market share and turning in some poor quarterly reports. But the patience of Yang Yuanqing, the company’s chairman, is finally paying off—though the fading US economy could prevent him from throwing a victory party any time soon.

When I met him today at Davos, he proudly reported that the company had meet all of the three-financial targets he had set for it—in terms of revenues, profit, and return to shareholders. The key vital sign is that Lenovo’s revenues are growing quite faster than the overall PC market, meaning it’s gaining share. Yang said he’s even more pleased with the progress the company has made in integrating the old Lenovo and the old IBM PC Co. That’s done. The company has a single global organization and a single set of business processes. He’s also pleased with the cultural integration between East and West, though he said there’s still some progress to be made there. “It’s not yet like Chinese working with Chinese and Westerners working with Westerners” he told me. The goal if for people from across the cultural divides to understand each other more quickly so they can make decisions quicker and act quicker.

In an effort to encourage understanding, the company ran what they call a “culture compass” exercise—a weeklong online discussion between employees in an effort to identify the areas where there is still a potential for misunderstanding. One issue that came up is the fact that in a Western meeting, if somebody at the table doesn’t comment, it means they agree with what’s being said. That’s not necessarily so in Chinese business culture. As a result of this exercise, Lenovo managers are encouraging Chinese employees to speak up more at meetings, especially if they disagree. Yang believes there are still a lot of similar cultural gaps that they haven’t spotted yet.

The one down note that Yang sounded today was his assessement of the global economic situation. So far, Lenovo’s sales in the US, almost entirely to large businesses, have remained stable. But he’s wary about the possibility of a downturn. The Chinese economy and demand for Lenovo PCs is very strong, but he’s worried that if the US goes into a recession, the Chinese economy will slow, too. The rule of thumb he’s going by is that for every 1% decline in US GDP, Chinese exports will drop 4%. It doesn’t take a big drop in the US for China to feel it.

Lenovo has a lot at stake here. It just launched its global consumer strategy, and will be selling notebook PCs to US consumers in a matter of weeks. If American consumers zip up their wallets tight just as Lenovo tries to get this business off the ground, Yang’s financial goals may slip out of his grasp.

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