Dell boys build the Lenovo legend overseas

Lenovo is controlled and part-owned by the Chinese government, around 10% is still owned by IBM and 40% is publicly traded

“World sourcing” is the catch cry of Lenovo president and chief executive officer Bill Amelio.

“The trend is to globalisation and it’s being driven by technology,” was the message he gave to staff and customers at a presentation in Sydney earlier this month.

And branding, for the moment, appears to be what it’s all about for Lenovo.

In May 2005, the company came from left field to buy IBM’s PC division. Under the agreement, it paid US$655 million in cash and US$600 million in shares, and it also acquired the rights to IBM’s PC-related trademarks, such as ThinkPad. (The size of the IBM logo is gradually being reduced on PCs.)

IBM had rationalised that PC hardware was becoming a commodity, and the company is now largely a software and services company. It currently generates more than 30% of its revenues from software alone.

Today, Lenovo has revenues of more than US$13 billion, about the same as Apple generates. It is the third largest — perhaps fourth when and if Acer acquires Gateway — PC company in the world, which isn’t bad for an organisation that began life in a back-room in 1984, with just US$25,000 in funding.

That company, New Technology Developer, helped build the first Chinese PC, and became Legend in 1989. In 2003, it was renamed Lenovo — “Le” from Legend, and “novo” for new.

The company is controlled and part-owned by the Chinese government, through Legend Holdings, which is majority-owned by the Chinese Academy of Sciences. Around 10% is still owned by IBM — Lenovo and IBM are each other’s biggest customers — and 40% is publicly traded.

Amelio, the former supply-chain boss at Dell, pitches Lenovo as a “unique combination of East and West” with a “combined heritage”.

He says customer loyalty has been retained by providing faster innovation. Certainly, Lenovo has introduced several technological improvements, particularly in the areas of heat management and ruggedness. Indeed, it has pitched much of its advertising around the latter, with laptops being driven into walls at high speed and dropped from considerable heights, and still being able to function.

The company has committed what is obviously a multi-million-dollar budget to sponsorship. It provided the technology for the Torino Winter Olympics and takes on the much larger task of the Beijing Olympics next year, and for the Williams Formula One motor racing team.

But the one part of the market Lenovo has not addressed yet is the consumer retail space, which the company describes as the “transactional” market. That will happen before the Beijing Olympics, both in Australia and New Zealand.

However, it will begin marketing its laptops in the United States in January, where the market is dominated by Hewlett-Packard and Dell, both of whom are reported to be eyeing the consumer space in China. The US entry will coincide with laptop launches in France, Russia and South Africa. Desktop computers will follow two or three months later.

Lenovo chairman Yang Yuanqing was quoted last week as saying: “We have almost no consumer market overseas now, and hope to expand that to about the same as for China.”

The key to all this is the company’s global supply chain and Amelio’s “world sourcing”.

Manufacturing is carried out in several locations around the world: China, obviously, but also Mexico, India and Europe. This gives Lenovo proximity to component suppliers and to key markets.

Procurement is regarded as strategic — to take cost out of products. Logistics, procurement, manufacturing, planning and fulfilment all report to another Dell hire, Gerry Smith, who is senior vice president of global supply chain.

All this translates into seven-day delivery time, says Amelio.

• Jackson was a guest of Lenovo in Sydney

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