Case @ China
Cheung Kong GSB Case Study Centre
for Lenovo to Go Global
—A Case study of Lenovo Group Strategies
I.Lenovo: refocus on PC operation
On December 8 , 2004, Lenovo consummated a deal with IBM whereby Lenovo was to acquire IBM’s desktop and laptop PC unit and its R&D and procurement operations worldwide for the sum of US$1.25 billion. On May 1 2005, Lenovo completed its acquisition of IBM’s PC Unit. “Using an analogy, our enterprise is well likened to a tortoise but our foreign competitor is more like a rabbit. Instead of racing against the rabbit heads-on, we would rather ride on its back and let it carry us forward,” said former Lenovo Chairman Liu Chuanzhi. L e n o v o a c q u i r e d I B M ’s P C U n i t w h e n i t s management succession had neared completion. To become the world’s top PC maker is the ideal of the Lenovo leader Liu Chuanzhi and Yang Yuanqing, though they expressly acknowledge that it will not be an easy goal to attain. When Yang Yuanqing assumed office, he laid out an ambitious three-year blueprint to transform Lenovo into a major international corporation diversified in IT operation and leading in technology. But for Lenovo—an established business well beyond its prime stage of entrepreneurship, it is not at all easy to turn from a strong enterprise into a great international corporation. As its three-year plan fell short, Lenovo had no alternative but to rethink its past strategy and refocus 132 China Economist November 2007 st th
on core operations. Acquiring IBM’s PC Unit at the end of 2004 was a sign of the real start of Lenovo going global. At the same time, Lenovo struggled to make a successful handset debut in 2005 when China’s mobile phone market was at a low point. In retrospect of several strategic transformations at Lenovo, we may wonder whether Yang Yuanqing’s “refocus” this time could jumpstart Lenovo onto a trajectory of opportune growth for the next five years. Another question is whether Lenovo’s successful handset operation in spite of its struggle has laid a foundation for Lenovo’s future dualcore strategy.
(I) Strategic transformation: A dream of diversification
In the spring of 2001, the banners of “New Beijing, New Olympics” were seen flying along all streets of Beijing. A similar slogan “New Century, New Lenovo” was also found at the Lenovo New Year “Staff OathTaking Rally ” on April 20 th . At this event, Yang Yuanqing, the newly appointed president of Lenovo announced the three-year plan from the FY 2001 to FY 2004. Under the plan, Lenovo was projected to realize 28 billion yuan of sales in FY 2001 and subsequently increase sales by 50% each year, while boosting net income by 40% year over year. According to such predictions, Lenovo would be generating 60 billion yuan of sales by FY 2003, and in 5~10 years, Lenovo would become
a Fortune 500 company in terms of sales. Lenovo’s vision is to mould itself into “a high-tech Lenovo, a service-oriented Lenovo and an international Lenovo.” This oath-taking rally indicated the beginning of Lenovo’s “transformation from a pure PC maker into an integrated IT service vendor,” remarked Yang Yuanqing. Lenovo’s strategic plan was symbiotically associated with structural readjustment. Lenovo employees said, “We don’t want people to think of Lenovo just as a PC three years from now.” “Lenovo will be based around the Internet to build diversified operations along the two dimensions of products and services under the customer-focused principle of meeting the needs of homes, consumers, SMEs and large enterprises in key industries,” added Yang Yuanqing. Internally, Lenovo employees amusingly called PC and motherboard operations something in their “bowls”, likened servers, handheld devices and peripherals to something in their “pots”, and compared information operation, IT service and IT one-for-one to something in their “field”. So, eating what was in the bowls, staring at what was in the pots and looking...
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