Last year, China’s largest personal computer maker, Lenovo, merged with the former PC division of American giant IBM, creating a new force to challenge the dominance of PC market leaders Dell and Hewlett-Packard. The Lenovo brand, currently almost unknown outside China, will be promoted internationally from early next year, and the company hopes to emulate the global success of other Asian firms such as South Korea’s Samsung.
The additional scale means lower component costs, an important benefit in a low margin industry where procurement costs account for 70-80 per cent of total revenues. Lenovo estimates that it can save about $200m a year simply by consolidating procurement. Further efficiencies arise from an integration of supply chains.
The firm’s current success in China, where its market share is about 30 per cent, is the result of years spent winning the loyalty of distributors. While foreign PC companies developed a reputation for squeezing distributors’ margins when times were hard, Lenovo stuck to its rule of treating distributors fairly.
Also, Lenovo is unusually explicit about what it expects of executives, employees, suppliers and business partners. For example, employee performance is assessed using “forced ranking” of the kind popularised by Jack Welch, former chief executive of General Electric, the US conglomerate. The system forces managers to classify certain percentages of employees as highachievers, solid performers or underperformers. It remains controversial even in the US. In egalitarian China, it is almost unheard of.
