) on board as a minority shareholder. Lenovo's CFO Mary Ma recently spoke with Asia Correspondent Frederik Balfour about the challenges of merging two corporate cultures and keeping Legend Holdings, Lenovo's state-controlled parent, happy. Edited excerpts of their conversation follow:
Q: What was the genesis of the IBM-Lenovo deal?
A: When the economy of a country develops to a certain level, enterprises will seek wider possibilities and more opportunities for future development. This is not a surprise to anyone, since China's economy has been developing for 20 years. Which industry will lead and what kinds of companies will lead depends on the industry and company.
The IT industry is very globally based, and you can never be a successful multinational and only be [situated] in a local region.
Q: What role does the government play in the push by Chinese companies to go global?
A: I don't know [about other companies]. For Lenovo, this is purely a commercial and business decision. We did a very careful study, and we believe that the PC business is a scale business. We had 30% of market share in China and were profitable and dominant. [We had to think about] what was next to maximize return to shareholders. [It] was a very industry-driven decision.
Q: But you do have a large state shareholder.
A: From the day this company was set up 20 years ago, [it was decided it was] best that our major shareholder never manage us, or interfere in commercial decisions. [Our former] chairman said being a daughter-in-law staying with her parents in-law is a torture. We have an open-minded and very supportive commercial-oriented parent-in-law.
For example, [look at] our decision to list in Hong Kong. We were very profitable then so why would [Legend] want to dilute their control from 57% down to 40%? The answer was new investors -- international investors who would help us have better corporate governance. This is very open-minded and international thinking.
Previously, Legend Holdings [which owns 60% of Lenovo] was 100% owned by Chinese State Academy of Sciences, and three years ago they gave 35% to senior management and the founder. That was a very strategic move to have management participate in ownership.
From Day One this company has been competing in China in a fair and commercial way -- there is no protection. Yet people say the success of Lenovo came from protection of the government. This is not true.
Q: What advantages do have through the State Academy ownership?
A: The academy has many research institutions, some related to IT. We assign some research projects to them, and in the restructuring of the Academy they authorized us to manage the Computing Technical Institute so we can leverage their talents and resources working on some of the projects. But we have to pay for the projects we assign to them.
Q: Did you also buy IBM for its management expertise?
A: This is how a Chinese company makes a good merger [and achieves] success in the marketplace. The success factor for us is not only management and synergy. Lenovo has strong supply-chain control -- that's the beauty of a Chinese company being very efficient in production. But we have no experience in sales and marketing and managing teams in more than 160 countries [like IBM].
Q: How has the move of headquarters to New York been?
A: The real operations remain in Beijing and Raleigh [N.C.], while marketing and sales have been in New York for years. Purchasing, sales and marketing, and [the] CEO are there to improve communication between Chairman [Yuanqing] Yang, myself and two senior management who spend time in New York.
Q: What about the differences in cultural approach between IBM and Lenovo?
A: I'm glad you didn't say cultural differences. Approaches is a better word. Any corporation has a culture, it's not just an East/West thing. But we remember the words of Chairman Yang [who became Lenovo's new chairman after the IBM acquisition]: "Frankness, mutual respect and compromise."
But the market thinks Lenovo China is a Chinese company, hence a state-owned enterprise -- very rigid, very slow, with lots of politics and difficulty with change. But Lenovo is not that kind of Chinese company. It's very open, international, and willing to change -- a good base for cultural integration.
Q: What are some of the differences in management styles?
A: Lenovo China would normally approach something top down. But the PC division of IBM has a very strong execution culture. It's a very different approach, but if we have good communication, there will be good synergy. This is something we spent a lot of time on.
Q: Where do you want Lenovo to be in five years, once you no longer have the rights to the IBM name?
A: We will still play as a premium producer offering customers total solutions. We appreciate that IBM signed an agreement to [allow Lenovo to] use the logo and brand for five years, but the new company will build up own brand in less than five years.
We definitely will be focusing on IBM's Thinkpad PC brand, with its premium value among our customers, and brand with Lenovo in some targeted customer areas. EDITED BY Edited by Patricia O'Connell