Twenty years after "the snake swallowing the elephant", Yang Yuanqing interprets Lenovo's globalization methodology | Frontline
"Looking back, I believe going global is one of the most correct strategic decisions Lenovo has made."
On October 30th, in Beijing, at the "Navigator's Journey: 2024 China Enterprise High-Quality Overseas Expansion Forum" hosted by Lenovo Group, Yang Yuanqing, the Chairman and CEO of Lenovo Group, said, "Without the Reform and Opening Up, and without globalization, there would be no Lenovo as it is today."
In December 2004, in a merger and acquisition case that was described as a "snake swallowing an elephant", Lenovo acquired IBM's PC business, which was valued at ten billion US dollars with a thirty-billion-dollar deal. This move attracted global attention and is still widely mentioned today.
Yang Yuanqing reviewed the starting point of Lenovo's globalization. "In 2000, I led the team to the United States and visited many high-tech enterprises including Microsoft, Intel, HP, and Cisco. In Pebble Beach, California, we made up our minds to build Lenovo into a truly global enterprise within the next ten years. To achieve this goal, Lenovo tried different paths, such as self-built development. After several explorations, we finally chose to officially set sail overseas by acquiring IBM's PC business in 2004."
However, to achieve true globalization, the merger and acquisition is only the starting point, and integration is the key.
In Yang Yuanqing's view, integration is not only the consolidation of financial statements, but also involves a systematic integration from products, brands to supply chains, organizational culture, and other aspects, with an extremely high level of complexity.
Take products and brands as an example. In order to avoid the risk of employee and customer loss after the merger, Lenovo chose a model where Lenovo and IBM's products and brands operated independently during the transition period. After the business stabilized, in-depth integration began, and different integration paths were adopted according to the different characteristics of different categories.
Organizational and cultural integration is even more difficult. The old Lenovo's processes and operations emphasized vertical management, while IBM emphasized matrix management; the old Lenovo had its own long-established Chinese working language and terminology system, while IBM had a completely different English system with dozens of specific abbreviations and terms; the old Lenovo's management method based on a single country's business was for the business department to directly reach the regional market for specific management, while IBM managed indirectly through business teams in each country/region in the global market; in terms of culture, the old Lenovo was proud of the "ownership spirit" and "keeping promises", while IBM had a manager culture, etc.
After experiencing all aspects from running-in to integration, Lenovo finally has a stronger competitiveness and has accumulated more experience and methodologies. In his speech, Yang Yuanqing for the first time refined Lenovo's 20-year practical methodology of globalization, summarizing three key pillars of the global supply chain, global R & D system, and global marketing system, as well as two bases of digitalization and ESG. These are the key capabilities that every Chinese enterprise going global needs to forge.
"The foundation for the growth and expansion of Chinese enterprises in the global market must be rooted in China. Looking back at the past 20 years, Lenovo is not only an external expansion but also an internal empowerment," said Yang Yuanqing, Chairman and CEO of Lenovo Group. Approximately 80% of Lenovo's manufacturing, 70% of its R & D personnel, and 60% of its employees are located in China. By deeply cultivating the overseas market, Lenovo can more effectively integrate global resources, achieve a strong feedback to the domestic market, and thereby inject new vitality into the country's economic prosperity and development. Such an overseas expansion path is precisely the meaning of China's expansion of high-level opening-up to the outside world.
However, the external environment for Chinese enterprises' "going global" is also constantly changing. At this moment, the world is at a critical juncture where the global trade pattern, the industrial chain and value chain reconstruction, and the technological revolution wave converge.
Yang Yuanqing, Chairman and CEO of Lenovo Group, said that as Chinese enterprises, "going out" is an effective path to explore overseas markets and enhance the competitiveness of enterprises. However, simply "going out" is not enough; Chinese enterprises also need to accelerate "going in" and "going up".
How to achieve such a goal? Yang Yuanqing further put forward three suggestions: First, attach importance to building a globally renowned brand through localized product innovation; second, attach importance to building a resilient supply chain by being close to the local market; third, attach importance to shaping the image of a local market corporate citizen through win-win cooperation.
Yang Yuanqing, Chairman and CEO of Lenovo Group
The following is the full text of the speech by Yang Yuanqing, Chairman and CEO of Lenovo Group, edited and released:
Yang Yuanqing: Distinguished guests and friends, hello everyone! I am very glad to participate in the "Navigator's Journey" China Enterprise High-Quality Overseas Expansion Forum. Not far from here is the famous "Zhongguancun Electronic Street" in the 1980s, which not only witnessed the transformation of China's scientific and technological innovation but also is the starting point of Lenovo's "computing dream" and "overseas expansion dream". Forty years ago, we started our business from a messenger room, and step by step, we went from being an agent for other brands to developing our own brand, from internationalization to diversification, from winning the global personal computer market championship to leading the new wave of artificial intelligence development today. We have grown into one of the most globalized enterprises in China in 20 years.
If Lenovo's internationalization 20 years ago was a risky trial voyage, now, more and more Chinese enterprises are going abroad with a more confident attitude, bravely exploring the broader world. The categories of going global are increasingly diverse, from the "old three" of clothing, furniture, and home appliances to the information products from pocket to cloud, from the "new three" of new energy vehicles, lithium batteries, and photovoltaic products to the new catering going global, game going global, and cultural going global, injecting a new vitality from China into the global economy.
Just now, President Bai shared his insights from the macro trend level. Next, I would like to talk about how going overseas and globalization have shaped Lenovo today based on corporate practice, and share my thoughts and suggestions on how Chinese enterprises can accelerate "going up" in the new wave of going global.
As an enterprise that has been struggling in China's IT industry for a full 40 years, Lenovo is one of the earliest private enterprises that grew up with the east wind of the Reform and Opening Up, and it is also one of the first batch of Chinese enterprises that set an international vision and successfully achieved it.
Back to the beginning of the new century in 2000, at that time, I led our team to the United States and visited many high-tech enterprises including Microsoft, Intel, HP, and Cisco. In Pebble Beach, California, we made up our minds to build Lenovo into a truly global enterprise within the next ten years. To achieve this goal, we tried different paths, such as self-built development, but soon found that as a pioneer of the overseas brand for consumers, not only could we not get a strong endorsement like the Chinese national brand as it is today, but also we had to bear the preconceived label of "low price and poor quality" that people had given us for a long time. So, let alone moving customers, it was even difficult to recruit an employee. It was impossible to succeed without a long-term investment of resources and accumulation of experience. As everyone knows, in 2004, we chose to officially set sail overseas by acquiring IBM's personal computer business.
A thirty-billion-dollar company acquiring a ten-billion-dollar business, this acquisition was described as a "snake swallowing an elephant". While everyone was cheering for us, they were also sweating for us. At that time, there was no precedent for Chinese enterprises to successfully acquire overseas brands. We could only "cross the river by feeling the stones" with the mentality of "either succeed or die".
The reason why a successful merger and acquisition is difficult is that the greatest difficulty lies not in the difficult negotiation, but in the difficult integration process. It is not just a simple consolidation of financial statements, but a systematic integration from the front end to the back end, from business to functions. It is impossible to stop the high-speed operation of the enterprise and wait for the integration to be completed before moving forward, nor can it be done uniformly (a translation of "一刀切" meaning to handle things with a one-size-fits-all approach), but rather requires detailed and targeted strategy design according to the different situations in different fields, and more importantly, it needs to be flexible in the implementation process and find the best balance between compromise and insistence.
Take products and brands as an example. In order to avoid the risk of employee and customer loss after the merger, we chose a model where Lenovo and IBM's products and brands operated independently during the transition period. After the business stabilized, in-depth integration began, and different integration paths were adopted according to the different characteristics of different categories. For example, for desktop computers, which are already very mature and commoditized products, the priority of efficiency and cost is higher, so we made a rapid and thorough integration, moving the entire chain of IBM products from R & D to manufacturing from the United States to China, making it our cash cow since the beginning of the complete integration; for notebook computers, we adopted a step-by-step and collaborative approach. We cherish the ThinkPad brand, which has the highest reputation among commercial customers, and fully retained the R & D team based in the United States and Japan to carry forward its innovation advantages and exquisite craftsmanship. At the same time, we fully utilized Lenovo's advantages in excellent operation over the years to turn this product line, which lost two to three hundred million US dollars per year in the IBM era, into a leading profit level in the industry. Based on the integrated R & D and supply chain advantages, we also launched the global consumer brand YOGA, which complements ThinkPad and continuously improves Lenovo's market position in computers until it became the global personal computer market champion in 2013 as a whole.
Not only products and brands, but also sales, services, supply chains, manufacturing, R & D; and even human resources, organization, processes, culture, and other aspects have gone through such a process from running-in to integration and then to a stronger competitiveness. For Chinese enterprises, opening up overseas markets has always been an adventure with both risks and opportunities, requiring not only fearless courage and boldness, but also the resilience and perseverance of long-termism. It can be said that it was not until Lenovo became the global personal computer champion and could maintain the continuous growth of overall revenue and profit, with a balanced development of various regions, that we dared to say that Lenovo had completed the biggest adventure and achieved a phased victory of "going out".
Looking back, I think going global is one of the most correct strategic decisions Lenovo has made. It can even be said that without the Reform and Opening Up and without globalization, there would be no Lenovo today. 20 years of active globalization has not only brought us an increase in annual revenue of more than 18 times, but also enabled Lenovo to steadily build a balanced layout and resilient competitiveness rooted in China and winning globally. Today, we have 18 R & D bases and more than 30 manufacturing factories worldwide, conduct business in 180 markets worldwide, and more than 75% of our revenue comes from overseas. We are one of the most trusted and appreciated Chinese brands in the global market.
If the merger and acquisition integration is Lenovo's path to internationalization, then what key capabilities should be forged after stepping onto the global stage? We have also summarized several key points, hoping to be of reference significance for Chinese enterprises that are determined to go global. That is - three key pillars and two bases.
The first is the three key pillars, which are the global supply chain, the global R & D system, and the global marketing system. This also constitutes the core content of Lenovo's unique "global resources, local delivery" operating model.
On the one hand, we fully utilize high-quality global resources to build a global supply chain, a global market sales system, and a global innovation R & D system to achieve efficient integration of global resources; on the other hand, we fully mobilize the sense of ownership and flexibility of each regional market, through local-featured product and service innovation, efficient and flexible local delivery, to be infinitely close to the local market.
Different countries and markets have their own comparative advantages accumulated over time. China has an industrial chain cluster advantage, Japan has an engineering advantage, the United States has an innovation and design advantage, India has a software service advantage, and Eastern European countries have a multilingual business support advantage, etc. We fully utilize the advantageous resources of various regions, draw on the strengths of each to condense more innovative technologies, products and solutions, as well as a more competitive value chain. Therefore, we have not only formed an R & D triangle with China - Japan - the United States as the fulcrum, a globally unified configuration and management of procurement, manufacturing, and logistics network, but also the last-mile production and delivery service centers are all over the place, radiating the world: Mexico supplies the entire North America, Hungary supplies Europe, Brazil, Argentina, Japan, and India supply the local markets with unique customer preferences, and the Saudi production base under planning and construction will supply the Middle East - Africa where the digitalization process is continuously accelerating.
The second is the two bases, referring to the digital base and the ESG base that support the three key pillars.
After the completion of the acquisition of IBM's personal computer business, we spent 8 years integrating and deploying a set of digital cornerstones throughout Lenovo's entire value chain of "R & D, production, supply, marketing and service". It not only supports Lenovo's global system to achieve scale, efficiency and synergy, but also helps us to realize the transformation from a hardware product provider to a solution and service provider. Today, we use our own digital and intelligent practical experience and capabilities to empower the transformation of various industries, and to enable "Made in China" and Chinese brands to move to the high-end of the global industrial chain.
And ESG corporate social value constitutes Lenovo's soft power, helping Lenovo win more respect in a complex and changeable environment. As an enterprise listed in Hong Kong in the 1990s, we already have a governance foundation that is in line with international standards. In the process of globalization, Lenovo has also formed a truly international and diversified board of directors and executive team, adopting a highly standardized and transparent corporate governance and management structure. No matter where we go, Lenovo regards compliance as the lifeline of the enterprise, conducts business in an honest and upright manner, and respects the local market's laws, regulations and cultural customs. And the concept of sustainable development ensures that Lenovo provides innovative and high-quality green products in every global market, contributes social value through public welfare practices, respects and supports vulnerable groups, and embraces talents from all over the world with an inclusive mind.
It can be said that digitalization makes Lenovo move faster, and ESG makes Lenovo move more steadily. The two bases provide a solid support, allowing us to avoid many hidden risks and challenges.
The journey to success is like a long flight with thousands of miles to cover, and it takes years of hard work and dedication. The 20-year journey of going global has not only reshaped Lenovo from the inside out, but also forged Lenovo's proud core competitiveness; and these core competencies have also helped Lenovo through the economic cycle and accelerate towards a higher-level and higher-quality globalization.
Here, I would like to emphasize particularly that the foundation for the growth and expansion of Chinese enterprises in the global market must be rooted in China. Looking back at the past 20 years, Lenovo is not only an external expansion but also an internal empowerment. Approximately 80% of our manufacturing, 70% of our R & D personnel, and 60% of our employees are located in the China headquarters. By deeply cultivating the overseas market, we can more effectively integrate global resources, achieve a strong feedback to the domestic market, and thereby inject new vitality into the country's economic prosperity and development. Such an overseas expansion path is precisely the meaning of China's expansion of high-level opening-up to the outside world.
While we are excited about the achievements of this wave of Chinese enterprises going global, we should also clearly see that at this moment, the world is at a critical juncture where the global trade pattern, the industrial chain and value chain reconstruction, and the technological revolution wave converge. The internal and external environment can be said to be full of challenges.
As Chinese enterprises, "going out" is an effective path for us to explore overseas markets and enhance the competitiveness of enterprises. However, simply "going out" is not enough; we also need to accelerate "going in" and "going up". Then, specifically, how can we achieve such a goal? Based on Lenovo's 20-year global experience, I have three suggestions.
The first suggestion is to attach importance to building a globally renowned brand through localized product innovation. Nowadays, global consumers are no longer limited to buying traditional brands, but are more willing to try and explore new brands and pay for better products and services. This means that Chinese brands are expected to usher in a more vigorous development space in the overseas market with more competitive products and services. The core of building brand power is product innovation, and product innovation must be based on the exploration of local consumer needs. It must not only be of good quality and reasonable price, but also of excellent quality. Only in this way can we gain the trust and recognition of consumers in different markets around the world.
The second suggestion is to attach importance to building a resilient supply chain by being close to the local market. Currently, the global supply chain is beginning to show a new trend of fragility, variability, and complexity. For Chinese enterprises, only by crossing from