The Living Legend

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After 30 years of stewardship, Liu Chuanzhi has made Lenovo a giant in consumer electronics. Here’s how he built a technology empire from a small room in Beijing

When Deng Xiaoping began promoting market reforms in the mainland, a collective sigh of relief swept China’s long-suffering proletariat. For many aspiring entrepreneurs the national leadership’s policy shift meant new horizons. With the worst excesses of the Cultural Revolution behind them, a restricted and in many ways suffocating freedom could now be enjoyed by those willing to take their chances in business.

For Liu Chuanzhi and his team of aspiring entrepreneurs the pitfalls could not have been more hair-raising. The opportunity was there, but the conditions for success were slim. Scientists by profession, the fledgling team had spent their budding careers in the premises of the Chinese Academy of Sciences (CAS) and had no business experience. Electronics and the nascent PC revolution were unfamiliar territory. So that if they wanted a stake in the game, it meant starting from scratch and learning through trial and error.

“The lowest thing you could do in the early ‘80s, as a scientist,” Liu recalls in a 1997 interview, “was to go into business. China had a strict planned economy and there was barely room for a freewheeling company like ours.”

In 1984, with a 200,000 yuan (US$24,000) loan from CAS, Liu and his 10 co-founders named their start up Legend—Lianxiang in Chinese.

Their first major venture was researching magnetic storage technology for PCs with the expectation of selling commercial applications based on what they gleaned from such studies.

Legend’s debut product in the mainland’s newly liberalized market was the Han card, which was designed to make computers process Chinese characters. More than 15,000 of these were sold in 1989, with updated versions selling more to fix a growing number of bugs, which hurt its sales.

To reverse this negative trend for their main product line, Liu pivoted Legend into a distributor for foreign- made PCs and peripherals until the end of the 1980s.

Then came an unprecedented opportunity. In 1990, the Chinese government allowed Legend to manufacture its own PCs. The big challenge at the time involved overcoming the low tariffs enjoyed by foreign PC makers, who were taking the local market by storm. This meant nothing less than a concerted strategy to diminish their market share. Liu had already studied at least two of his competitors, Hewlett-Packard and IBM, and was determined to beat them.

Power Play

Liu also realized Legend had its own advantages over its competitors: lower Chinese wage levels, no tariffs, shipping charges, and other taxes to worry about. And more importantly, it had the Han card.

It only took six years for Legend to surpass IBM’s market share in China, a position it maintained until the turn of the century. At this time, Liu introduced a number of innovations in the Chinese PC market like Pentium II. The company was also the first Chinese firm to offer stock options to its employees and promote talent to higher-level and managerial positions.

In 2004 Legend changed its name to Lenovo. The company at the time was already selling computers in Europe, where its British and German competitors had trademarked the word “legend” for their own products, prompting Liu’s decision to change his company’s name.

Having reinvented itself, Lenovo set its sights on the US. The opening salvo was the lightning acquisition of IBM’s computer business (including its US$500 million debt) in 2005 for US$1.75 billion. This triggered a backlash in the US Congress against Chinese firms buying American businesses. By sidestepping the controversy Lenovo was able to execute a strategy that made it a more visible brand in a foreign market.

Not wishing to let the company’s executive leadership calcify, Liu chose to remain a mere board member for four years after its US invasion before taking control of the company’s management in 2009. As Time’s Beijing correspondent Michael Schuman puts it, Liu “recast Lenovo as a global company with a consensus-style Chinese management structure.”

With Liu once again steering the ship, Lenovo’s progress was persistent yet subtle. It quietly became the world’s second largest PC vendor in 2011. In the third quarter of 2012, it overtook HP as the world’s top computer maker based on figures released by consulting firms Gartner and IDC. Although the milestone could be interpreted as a slip on HPs part considering its ongoing leadership crisis, Lenovo’s ascension might also be a swansong for a PC market that is slowly stagnating.

Meanwhile, as the 2013 Consumer Electronics Show (CES) raged in Las Vegas at the beginning of the new year, Lenovo pulled no stops teasing its sleekest offerings in hopes of making a dent in the handheld market. The same kind of dent that paved the way for its growth into a global behemoth. Liu is surely hoping for it.

Print ed: 03/13


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