November 9, 2005 2:00 am

A global power made in China

By Simon London

On the morning of September 30, Beijing's press corps gathered at the headquarters of Lenovo, China's largest personal computer company. As
flashbulbs popped and television cameras whirred, Yang Yuanqing, chairman, announced a management restructuring that gave half the
company's top jobs to executives of American, Australian and Indian origin.
Mr Yang had signalled his international intent in December 2004 by announcing the $1.75bn acquisition of the PC division of IBM. At a stroke,
the deal transformed Lenovo from a company selling exclusively in China to an international group with 60 per cent of its sales in other
countries.
Ten months on, however, the 41-year-old computer scientist was ready to go even further. The restructuring would
create China's first technology multinational. Management would be spread across national boundaries and time zones in a way that few
companies anywhere have attempted. For students of international management, the ambition is breathtaking.

"They are trying to make a massive leap," saysChristopher Bartlett, professor emeritus at Harvard Business School and anauthority on
multinational management.
Michael Dell, founder and chairman of the world's largest PC company, is more scathing: "It won't work."
Whether Lenovo triumphs has implications that spread well beyond the PC industry. Success would surely encourage other Chinese companies to
hasten their international expansion. Failure would send a warning signal: for all their energy and ambition, China's emerging technology giants
may not have the management skills to take on the world's best.
Conventional wisdom suggests that the odds are stacked against. Academic research has repeatedly demonstrated that most big acquisitions end
in failure. The challenge of integrating large organisations seems to outweigh the hoped-for economies of scale or scope. The failure rate for
cross-border deals is even higher.
As Mr Yang is quick to point out, however, every deal is unique. Lenovo defied expectations to achieve a dominant 30 per cent share of the
Chinese PC market (see below). He thinks itcan do so again: "We are pioneers."
Yet the nature of the challenge was on show even at the September 30 press conference. The organisation chart presented to journalists showed a
multinational team. Yet all but one of the faces blinking into the bright lights of the television cameras were Chinese. Alongside Mr Yang sat Liu
Jun, newly appointed as head of global supply chain; Mary Ma, veteran chief financial officer; George He, chief technology officer; Chen
Shaopeng, general manager for China; Lu Yan, head of the desktop computer business. The only former IBM executive, seated at the far end of
the top table, was Bill Matson, head of human resources.
The absence of other managers from the IBM side was perhaps understandable. The flight from Beijing to New York, where Lenovo has
established a small international headquarters and many of its US executives are based, is 13 hours across 12 time zones. To get to Raleigh, North
Carolina, where the former IBM business has its main operations, travellers must change planes in Chicago and add another few hours to the
journey. Making the trip in either direction for a quick press conference - or even a full day of meetings - is out of the question.
"You can't get people together just for a day because you lose a week. You have to plan on a week and try not to screw up everyone's weekends in
the process," says Fran O'Sullivan, head of worldwide product strategy and development under the new management structure.
It was not only Mr Matson's Caucasian features and jet lag that set him apart from his Chinese colleagues. His father worked for IBM. So did his
grandfather. Mr Matson himself joined the company in 1981, giving him 24 years in the service of Big Blue before the deal.

Alice Li, head of marketing and communications for Lenovo in Beijing, tells a very different story. She joined the company despite stiff opposition
from her parents at a time when private enterprise was still regarded as a risky experiment for the Chinese economy. Signing with the technology
upstart meant leaving the dull but secure job with a state-owned enterprise to which she had been assigned on graduation.
"My parents were very worried. They told me not to 'break my rice bowl'," she recalls.
Ms Li is the face of the new urban China. Like most of her colleagues on Lenovo's Chinese management team, she is relatively young, educated
and in a hurry. Lui Jun is 36. Chen Shaopeng is 35. Prior to the IBM acquisition, the average age of employees at China'slargest technology
company was 28.
Senior IBM executives had several months to get the measure of their new colleagues before the deal was announced. Fact-finding and
negotiations were in progress throughout the second half of 2004. But rank-and-file IBM employees had only rumours to go on. The deal was
unveiled on December 8 in Beijing - the middle of the night in Raleigh - so most IBMers first found out about it from breakfast news bulletins.
Many in Washington were taken by surprise too. Lobbyists and politicians soon voiced concerns about everything from China's growing
industrial might to the potential for industrial espionage. The transaction was approved only after lengthy vetting by the Committee on Foreign
Investment in the US, a high-powered group including representatives from the Departmentsof the Treasury, Commerce, State, Defense and
Homeland Security.
Eleven months on from the announcement, the sense of shock has faded in both Washington and Raleigh. Even so, not everyone is happy. In
Germany, where labour laws dictated a voluntary transition of IBM employees to Lenovo, the company finds itself short-staffed. Ms O'Sullivan
concedes that the former IBM operations in Japan arehaving to be "over-managed" to get them comfortablewith the idea of Chinese ownership.
Some politicians also remain wary. "I don't think Lenovo will encounter any hostility from the [Bush] administration, but Congress won't be
reconciled to this deal any time soon," says Bill Reinsch, president of the National Foreign Trade Council, a Washington-based lobby group.
Among former IBM executives, there seems to be genuine enthusiasm. It was no secret within IBM that PCs were not core to the group's strategy.
"As part of IBM we were handcuffed because IBM was not willing to invest in what is, let's be honest, a relatively low margin business,"
concedes Bill Owens, head of services and support in the new integrated management structure.
Now the handcuffs are off. For all the challenges of integrating a Chinese company with a US-based one, Mr Yang has made clear that he wants to
take the fight to Dell and Hewlett-Packard, the market leaders. By combining Lenovo's strength in China - the manufacturing hub of the

worldwide PC industry as well as itsfastest-growing market - with the international expertise of the former IBM division he believes he can create
a potent third force.
Ravi Marwaha, 62, the Indian-Australian charged with running worldwide sales, says: "I spent 36years in IBM. I couldeasily have retired. Why
am I here? Because it isexciting."
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