From the IBM PC Division to LenovoFrédéric RaesCountry General ManagerLenovo Belgium Luxembourg: From the IBM PC Division to Lenovo Frédéric Raes Country General Manager Lenovo Belgium Luxembourg


Slide2: Please Note: Many ideas and opinions contained in this presentation are personal and are not to be considered as official statements from Lenovo.


Agenda: Agenda Lenovo : who are we ? The history of Legend The making of the IBM-Lenovo deal Why ? Success factors for the New Lenovo The merge and the deployment of New Lenovo in 67 countries Managing the cultural gap 1st year achievements Lenovo in BeLux Plans and expectations for 2006 and beyond New management style and mindset China, Europe, Belgium, Etc.


Lenovo – who are we ?: Lenovo – who are we ? The 3rd largest manufacturer of PCs worldwide according to iSuppli Dell = 17,3% of worldwide market share HP = 15,5% Lenovo = 7,4% Acer = 4,5% Fujitsu-Siemens = 3,7% The makers of the ThinkPad


Lenovo Group and IBM PC Division in 2004: Lenovo Group and IBM PC Division in 2004 Lenovo Group Ltd. Founded 1984 FY04: Revenue, $3B Net Profit, $135M 10,000 employees #1 market share in China for 7 years (27% market share, source: IDC) #1 IT company in China Small Business and Consumer market strength Market capitalization: approx. $2.6B IBM PC Division Established in 1981, created the PC $9B 2003 Revenue 9,500 employees #2 in WW commercial notebooks Leader in enterprise PC design and business productivity Enterprise and Mid-market strength ThinkPad notebooks have won over 1,000 industry awards 100-million PCs shipped


Slide6: A Perfect Fit Between Complementary Organizations Premium Global PC Brand Most-recognized technology brand globally Enterprise/Mid-market Expertise Leader in business productivity & lowest total cost of ownership Notebook Leadership Leading-technology enhanced notebook product offering #1 IT Brand in China Most recognized technology brand in China Consumer/Small Business Expertise Differentiated consumer/small business and extensive retail network Efficient Operational Platform Low cost infrastructure and manufacturing scale Global Sales, Financing, Fulfillment and Service Network Global sales network with financing, fulfillment and service support


The Legend Behind Lenovo: The Legend Behind Lenovo


Slide8: Legend in 1984 Founding members: 11 researchers Initial investment: RMB 200,000 (US$ 25,000) Over 10,000 employees Lenovo before IBM acquisition Revenue 2003: HK$ 23.2 Bn (US$ 3 Bn) From Legend to Lenovo: 1984 to 2005


The early days of a TECHNOLOGY company: The early days of a TECHNOLOGY company Founded in Beijing in 1984 The New Technology Developer Inc. is founded by the Chinese Academy of Sciences 1985: distributes PCs from IBM – 1987: distributes AST PCs and HP PC’s and printers 1987: successful roll out of the Legend Chinese-character card 1988: Chinese-character card gets National Science Technology Progress Award 1988: Starts selling products and services to large corporate & public clients in China. Hong Kong branch in 1988 Legend could not get license to manufacture their own PC in China Problems in Hong Kong: visa, language, clothes, cost of living, salaries But Hong Kong = window to the world – learn about the business world Joint ventures – become sole distributor of AST products in China  AST #1 in China Acquires Quantum Design -> starts making motherboards  will become #5 worldwide


The crisis of the mid-90s: The crisis of the mid-90s 3. Legend starts making PCs in 1989 Las Vegas 1988: decision to make a high-performance, high-quality PC, and to present it 4 months later in Hanover – where they sell tens of thousands in 4 days 1990: license is granted to manufacture PCs and Legend establishes a strong distribution channel for Legend and imported brands 1993: Legend Science and Technology Park opens in Huiyang (Guangdong) The mid-90s crisis 1992: 70% of PCs sold in China are from Chinese manufacturers but Beijing and Washington enter a bi-lateral negotiations  duties on PC imports fall 50%  20% American-branded PCs can compete on price, and in 1993 take 67% of the market Legend’s react by adjusting costs, but also strategy and decision making Integrate technology, supply/manufacturing and marketing in decision-making Tailor machines to the needs of the Chinese users better than US competitors can Establish a separate, loyal distribution network, with a strong partnership


Growing to the Top: Growing to the Top 1994: listed on Hong Kong Stock Exchange 1995: 1st Legend Server young PC users name Legend their favourite national PC brand 1996: 1st Legend notebook 1997: market leader in China, now strongly profitable 1998: introduction of a modern IT system based on SAP 1999: 1st Internet PC (1-touch internet access) 2000: becomes one of the constituent stocks of the Hang Seng Index Business Week ranks Legend 8th on list of global IT companies 2001: joint venture with AOL for consumer interactive service business in China 2002: enters the mobile handset and the IT management consultancy businesses 2003: Legend becomes 2004: becomes an Olympic Partner


Slide12: Lenovo is a Top Olympic Partner Lenovo is a Top Sponsor to the Olympic Winter Games in Turin and the Olympic Games in Beijing Computing Equipment Provider to both Turin Olympics and Beijing Olympics Top Sponsorship buys certain rights e.g. Use of logos Hospitality provisions Access to National Olympic Committees and athletes


Reasons behind Legend’s success: Reasons behind Legend’s success Lowest costs in the industry, best inventory management, but that is far from all Strategy of being both the cheaper and the faster = 1st to recognise the potential of the Home PC market in China = 1st to build manufacturing capacity to benefit from greater economies of scale = constantly introduced new product generations  taking advantage of component cost reductions faster and never giving competitors a break Disciplined execution of the channel policy, that created a very strong and loyal channel Decision not to copy competitors from USA / Taiwan, but to win in China by developing the ability to beat competitors with products better tailored for local users Synergies between the 4 divisions (research, PC, telephony, internet)  products with more functionalities, more performant and easier to use Very strong partnerships with Intel, Microsoft, IBM, HP, Texas Instrument  learn Ability to deal with shareholders: Chinese leader  transparency and governance model


1999: the Tianxi (the Internet PC): 1999: the Tianxi (the Internet PC) Legend was first to spot the emergence of a home market for PCs: the spoiled “little emperors” were becoming teenagers – But Chinese families needed a lot of hand-holding 1995: 1st Home PC for with strong multimedia functions + training classes for families By 1999 Legend has developed a clear vision how to enter the Chinese Internet market Use the Internet to drive the sale of PCs and new hardware products Use its commanding position in the PC market to dominate the Internet Legend launches the Tianxi, with “one-touch-to-the-Net” and a large promotion campaign Hardware buttons to launch most internet and user support functions Strong partnership with China Telecom  ready to connect in 2000 towns Digital pen to help writing Chinese-character e-mails Later additions: Legend’s easy-to-use web portal Notebook and Pocket PC versions, with single dial up country-wide


Food for thought: Food for thought Success came despite a very unfavourable political and economic environment The immediate impact of the US invasion was dramatic and several local manufacturers disappeared but in retrospect most of the reasons behind Legend’s success can be traced back to the reforms that have followed the disastrous year 1993 Foreign competitors underestimated Legend’s strategy and strength and failed to react until it was too late because they did not understand what Legend was doing Not only Legend did win, but also the Chinese consumer who got better products at better prices, foreign firms could not dump second-class products into China any more Legend’s successes and its constant media attention changed the perception of Chinese consumers that foreign products are more reliable and of a higher quality.


Quality – Part of Lenovo’s Heritage: Quality – Part of Lenovo’s Heritage Legend Commercial Kaitian6800, Intel Innovative PC Award, 2002 Legend Consumer Tianlin9220, Intel Innovative PC Award, 2002 NGPC：Winner of Germany IF, 2002 Legend Consumer Tianjiao, Best multimedia desktop by HK HIGH TECH, 2002 Legend Consumer Tianjiao E, 3rd Chinese Enterprise “Product Innovation” Sliver Medal, 2003 Legend Consumer Fengxing, China Design Award of 1st HK Asian Most Influential Design Contest Legend Mobile ZhaoyangE360, Japan Int’l ID Grand Award——“G-mark” , 2003 Legend Commercial Yangtian M6000, Intel Innovative PC Award, 2003 Legend Consumer TianjiaoA, Golden award of China Product Innovative Design, 2002


Slide17: Legend / Lenovo is a High-tech High-innovation High-quality Company


The Making of the New Lenovo: The Making of the New Lenovo


Why ?: Why ? No future for the PC Division within IBM Bringing corporate margins down Infrastructure costs Had stopped devices <500$ (PDA, thin clients) PC = commodity versus IBM = value and services addressing complexity PCs require economies of scale IBM PCD + Lenovo  a top global player with volumes to compete Complementarity, no redundancy Legend wanted to be global IBM wanted to have a strong partner to keep access to PCs Power of the ThinkPad brand


The Making of the IBM-Lenovo Deal: The Making of the IBM-Lenovo Deal Summer 2002: IBM CFO John Joyce goes to China in hopes of selling the company's ailing PC unit to Legend. But IBM PCD had lost nearly $400M the previous year  Legend refuses. 18 months later: Lenovo is now hungry to become a global player and IBM has radically restructured the PCD. Costs have been slashed, much of manufacturing is now outsourced. IBM also seeks a bid from private equity giant Texas Pacific Group to put pressure on Lenovo. April 2004: Legend’s board + consultants from McKinsey and Goldman Sachs, conclude that if Lenovo can recruit IBM's top execs to help manage the company, the merger can succeed. Summer 2004: during secret talks in N.C.: Yang and Palmisano agree to make it more than just a simple sale of assets: both companies will form a strategic alliance. December 2004: between the 2 bids (Lenovo & Texas Pacific) Palmisano chooses Lenovo: IBM will sell Lenovo PCs via its sales force and distribution network, will provide services and financing for Lenovo PCs and will allow Lenovo to use the IBM name for 5 years, Lenovo, still partly owned by the Academy of Sciences, will be a help to IBM in China.


Transaction Summary: Lenovo acquires IBM PC operations IBM: ownership stake, long-term alliances with the new Lenovo in sales, services and financing Ownership Chinese Academy of Sciences Employees’ Shareholding Society 35% The new Lenovo Lenovo Group Ltd. (HKSE Listed) 46% Lenovo Holdings Transaction Summary 65% Texas Pacific Group General Atlantic Newbridge Capital


Implementing the deal: Implementing the deal Chairman = Yang Yuanqing (ex-CEO of Lenovo) CEO = Stephen M. Ward (ex-head of IBM's PCD). Headquarters are near IBM's outside New York. The 30-member executive staff is split down the middle. December 2004 to April 2005: mixed project teams sides work on the fast start to avoid disruptions, New Lenovo will begin with 3 separate business units: China PCs, China cell phones, and international operations (= former IBM PCD) But then will quickly integrate all supply-chain operations. Project is run as 3 parallel 4-month efforts Carve out from IBM IBM proceedings without PCD Lenovo proceedings without IBM with project teams Per function (sales, finance, administration, order management, etc.) By region and country 2 waves (large countries 1st of May, smaller countries 1st of August)


New Lenovo Executive Team: New Lenovo Executive Team Jun Liu, COO Lenovo China Deep Advani, CMO and Acting Corporate Strategy Fran O’Sullivan, COO Lenovo International Ravi Marwaha, Worldwide Sales Scott Smith, AG Milko Van Duijl, EMEA George He, Corporate Research & Technology Andrew Sotiropoulous, AP Shaopeng Chen, China Peter Hortensius Worldwide Development Mark Enzweiler VP, Worldwide Business Partner Sales


The New Lenovo on May 1st, 2005: The New Lenovo on May 1st, 2005 New York RTP Beijing ● Principal Operations ● Research Centers ● Sales Headquarters ● Manufacturing Centers Japan


Achieved in 1st year of new Lenovo: Achieved in 1st year of new Lenovo Launched Lenovo in 65+ countries, with no disruption in deliveries and support Retained a huge majority of our customer base Delivered on promise of continuity in product strategy, quality, design, roadmap Established 2 innovation centres (Raleigh (NC) and Beijing) Retained 98% of our employees; launched cultural gap reduction programme Delivered 2 profitable quarters, with ex-IBM PCD profitable Increased customer satisfaction, becoming #1 for mobiles (TBR) Introduced new products including the very successful X41T tablet convertible Increased operational efficiencies by combining the Think and Lenovo divisions Gained share globally despite absence from consumer segment in Europe, NA. Gained share in the 4 key emerging countries: China, India, Brazil, Russia Doubled the revenues of the mobile telephony division


Lenovo’s 6-point plan for increased competitiveness: IBM Most recognised global IT brand Reputation of quality Leader in Laptop technology Leader in business productivity lenovo Most recognised IT brand in China Reputation of quality Leader in consumer / small business Low cost infrastructure and manufacturing scale Lenovo’s 6-point plan for increased competitiveness Cost and expense competitiveness Product line expansion Brand development and demand generation Sales model and sales execution Investment in emerging markets Integration of businesses


Lenovo in Belgium and Luxembourg: Lenovo in Belgium and Luxembourg Lenovo (Belgium) sprl / bvba Lenovo (Belgium) Luxembourg Branch About 20 people – sales team working mostly in home office Main responsibility: sales, channel management, marketing and communications Order desk and administration: Greenock (Scotland) Product marketing + www.Lenovo.com: Basingstoke (England) Warranty, Technical Support: IBM + 2nd level support: Greenock Finance and accounting: Singapore Human Resources: Budapest European HQ’s: Paris


The Values of Lenovo Group, Inc.: The Values of Lenovo Group, Inc. Customers Innovation Integrity Dedication to every client’s success Innovation that matters – for our company and for the world Trust and personal responsibility in all relationships Serving customers Innovative and “can do” spirit Accuracy and truth-seeking Trustworthiness and integrity


Managing the Cultural Gap – Early Stories: Managing the Cultural Gap – Early Stories Findings: the cultural gap is huge and it’s hard to predict when glitches will pop up The Chinese don't tolerate being late for meetings, while IBMers are often late. When Yang, Ma, and eight other Lenovo execs landed at John F. Kennedy International Airport in New York for their first planning meetings, nobody met them. Not good: In China, visitors are greeted and taken to their hotels in limos. Yang brought it up at a meeting, and Steve said, 'We'll fix that."‘ Initially, Yang favoured dual headquarters, U.S. and China. It was a point of national pride. Ward disagreed, saying there should be a single one, in New York. After a couple of days, Yang came around: "Steve made a lot of sense, putting headquarters in New York tells our global customers that we're a global company." Immediate decisions after deal was signed Educate project members on each other’s culture Declare English Lenovo's official language. Appoint Ward as Lenovo's CEO, Yang Yuanquin as Chairman


From the Lenovo Intranet – On the Cultural Gap: From the Lenovo Intranet – On the Cultural Gap On running cross-cultural meetings: Equal opportunity conversation: be sure to engage everyone in the room. Seating arrangemen: avoid having Westerners on one side and Chinese on other. Poor seating arrangement can create negative perceptions + inhibit comprehension. Pause: take frequent breaks during presentations to ensure comprehension and give time to formulate an answer. Name names: use nametags + when meeting the people for first time, reference people by their full names, not just "Going back to Bill's point..." Be prompt: many US meetings start 10/15 minutes late. Most Asian cultures are very prompt. If the meeting is scheduled for 10 a.m., begin at 10 a.m. Speak slowly Highlight the main points Repeat the main points with different words Avoid large meetings: challenging for non-natives: they move fast, people talk over each other, individuals are afraid to ask questions for fear of looking stupid. Send written recap: after meetings, send a note to summarise key points and decisions: individuals studying English have better reading comprehension. Use visuals


The World seen by Lenovo (from China): The World seen by Lenovo (from China) China Other emerging countries India Brazil Russia Middle East Mature countries North America Western Europe


China, Europe, Belgium, etc.: China, Europe, Belgium, etc. China as a competitor Manufacturing – technology & innovation – reservoir of young, talented people Costs – drive to achieve – speed of execution – learning skills - quality It is worse for the South Available capital Chinese product invasions – Local companies can’t compete – Western companies less and less China as a consumer market Distribution challenge – distances, cultures  local partners EU’s strategies to compete Low costs capabilities – focus on services (but India ?) – skills and education Ability to execute and be flexible - SOX


Future Success Factors for New Lenovo: Future Success Factors for New Lenovo Compete successfully against Dell, HP and new entrants Create strong image of quality and innovation outside China Build more economies of scale and purchase power, gain share Become the leader in fast growing (= emerging) regions Successfully enter Consumer market in NA, EMEA Protect and keep developing successful IBM brands ThinkPad, ThinkCentre Combine two cultures into a single company Reduce structural costs outside China So far, so good – future will tell


Management Styles: Management Styles So far, Chinese management keen to learn set clarity drive change more than to be hands on Speed of change and drive to achieve – in 7 months: Global organisations – fully mixed Drive to emerging countries Supply chain Reputation of management style = clarity of directions Lenovo is empowerment and delegation - not typical ?


Pride at working for such a company : Pride at working for such a company Past record of achievements Leaders’ ability, dedication and vision Capacity to learn, adapt and execute Values Contribution to Chinese history in the making