In 1984, the Third Plenary Session of the 12th Central Committee of the Communist Party of China passed the "Decision of the Central Committee of the Communist Party of China on Economic System Reform," marking the beginning of comprehensive economic reform in Chinese cities. This year also marked the birth of the modern corporate system in China, with many now well-known Chinese companies emerging on the scene, including Lenovo (LNVGY).

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At that time, Liu Chuanzhi, who was still a researcher at the Institute of Computing Technology of the Chinese Academy of Sciences, along with ten colleagues, decided to create China's own computer brand—Lenovo. Thus, this future global information technology giant began its entrepreneurial journey.

Lenovo Group has been established for 39 years and is one of the few Chinese companies that truly practices globalization. Currently, 90% of its products are sold overseas, and it has established production and research and development bases in more than 30 countries worldwide, with business operations covering over 180 countries and regions. Yuanqing Yang, Chairman and CEO of Lenovo Group, once stated that "Global sourcing + Local delivering" is the key to Lenovo's success as a global enterprise.

How did Lenovo build a global organization, culture, and business system? How did it achieve balance and synergy between its domestic and overseas operations? How was "Global sourcing + Local delivering" specifically implemented? The answers to these questions are also the experiences that Chinese companies at the current stage urgently need to explore on their journey towards globalization.

Lenovo: Consecutively Crossing New Horizons

Throughout its 39-year history, globalization has been a recurring theme for Lenovo. From its inception in 1984, when it started as a contract manufacturer for international brands, to gradually evolving into the world's top international brand for PC shipments, Lenovo's journey has been marked by significant milestones.

1984-1993: Starting with OEM and Distribution

In its early years, Lenovo served as an agent and distributor for multinational brands like IBM, HP, and SUN in the Chinese market. In 1985, Lenovo developed a unique Hanka（Chinese character card or "汉卡") that could translate English operating systems into Chinese, along with personal computers that featured one-click internet access.

1994-2003: Emerging on the International Stage

In 1994, Lenovo went public in Hong Kong, making its debut on the international financial stage. By 1999, Lenovo held the top spot in PC sales in the Asia-Pacific region with an 8.5% market share. In 2002, Lenovo organized the globally recognized technology event, LEGEND WORLD 2002, marking its significant progress in product technology on the global stage.

2004-2009: Shifting from Enterprise to Consumer Focus

Recognizing the growing consumer market for PCs, Lenovo shifted its focus from serving large enterprise clients to global consumer business and retail markets. In 2004, Lenovo became a global partner of the International Olympic Committee and acquired IBM's PC business, entering the Italian and other European markets. Following the merger, Lenovo became the world's third-largest PC manufacturer with USD 13 billion in annual sales. In 2007, Lenovo attempted to acquire Dutch company Packard Bell to expand its presence in the European market but was unsuccessful.

2010-2012: Transition to Mobile Internet

Following the global financial crisis, Lenovo shifted its primary goal to achieving quality global growth and gradually built a strong global presence. In 2010, Lenovo entered the mobile internet market by launching the LePhone in China. In January 2011, Lenovo and NEC established NEC Lenovo Japan Group, and in June, Lenovo acquired the German PC brand Medion. In September, Lenovo formed a joint venture with ODM manufacturer Compal Electronics. In 2012, Lenovo acquired Brazil's largest consumer electronics manufacturer, Digibras Participacoes SA, and the U.S. software technology company Stoneware.

2013-Present: Diversification and Pursuit of New Growth

After establishing a comprehensive global electronics supply chain, Lenovo shifted its focus to diversifying its business further. In January 2014, amidst the rise of mobile internet, Lenovo acquired Motorola Mobility for USD 2.9 billion. In September of the same year, Lenovo acquired IBM's x86 server business, enhancing its business portfolio. In 2017, Lenovo acquired the PC business of Japan's Fujitsu, strengthening its presence in the Japanese market. Since 2018, Lenovo has maintained its position as the global leader in the PC market for five consecutive years.

Engaging in International Collaboration to Forge a PC Brand

In 2001, Lenovo introduced its corporate vision of "High-Tech Lenovo, Service-Oriented Lenovo, Global Lenovo," setting the tone for its global business journey. This vision signaled that Lenovo could not solely rely on the domestic market but aimed to establish international brand influence. In April 2003, due to the fact that the original brand name "Legend" had already been registered in multiple countries, Lenovo officially launched its new English logo "Lenovo," preparing for globalization.

On March 26, 2004, Lenovo became a global partner of the International Olympic Committee (referred to as "TOP Partner"), taking a significant step towards building a global brand. Lenovo hoped to leverage the resources of the Olympics to achieve international brand influence, following the strategy of "first establishing an Olympic platform, then pursuing globalization." As a TOP Partner, Lenovo Group exclusively provided desktops, laptops, servers, printers, and other computer technology equipment to the Organizing Committees and Olympic delegations from over 200 countries and regions for the 2006 Turin Winter Olympics and the 2008 Beijing Olympics. Lenovo also provided financial and technical support.

The Olympic Games contributed to Lenovo's brand strength in two ways. Firstly, the Olympics brought in substantial traffic, significantly increasing Lenovo's global visibility. In the United States, Lenovo's brand recognition increased to 49% after becoming a TOP Partner, reaching 55% in the UK, 64% in Germany, and 72% in Japan. In China, in 2005, Lenovo's desktop computers had a first mention rate of 59% and a reputation score of 58%, while laptop mention rate and reputation score were 46% and 42%, respectively.

On the other hand, Lenovo leveraged its TOP partner status to facilitate collaborations with other TOP partner enterprises. As a TOP partner, Lenovo established partnerships with global giants such as Visa, the world's largest payment card company, NBC Universal, a subsidiary of General Electric, and Coca-Cola in various strategic, branding, technological, and marketing aspects.

However, Lenovo also recognized that brand recognition does not equate to performance; the key to improving performance lies in product quality and consumer trust. To achieve this, Lenovo accelerated the acquisition of premium assets and brands overseas starting in 2004. In 2004, Lenovo Group acquired IBM's global PC business, ThinkPad, for a total of USD 1.25 billion, including USD 650 million in cash and USD 600 million worth of Lenovo stock. Following the acquisition, IBM held approximately 18.5% of Lenovo's shares, and Stephen Ward, a senior vice president at IBM, joined Lenovo Group as the new CEO, with Yuanqing Yang assuming the role of Chairman of the company.

The acquisition of ThinkPad marked Lenovo's foray into seeking deep international expansion and strategic partnerships. It combined IBM's technological leadership with Lenovo's established sales network in the Chinese market while using ThinkPad to penetrate the high-end PC market in Europe and the United States. In 2005, ThinkPad laptops achieved their highest end-user shipment volumes in 13 years, with a year-on-year growth rate of 42% in the fourth quarter.

Building a Global Supply Chain to Enhance Global Influence

After acquiring various renowned assets abroad, including PCs and servers, Lenovo entered local markets through these acquisition projects, establishing a global supply chain to increase product localization.

In 2009, Lenovo formulated a "Two-Fist" strategy aimed at both the Chinese and overseas markets. The "Left Fist" referred to maintaining its leadership position in the Chinese market, sustaining the profitability of relationship-oriented businesses. The "Right Fist" represented a vigorous expansion into emerging markets and transaction-oriented businesses, replicating the successful "Dual Mode" strategy from China (capturing both individual and retail customers, as well as key customers in government and enterprises).

Currently, Lenovo operates more than 30 production facilities globally, spanning countries such as China, Argentina, Brazil, India, Mexico, Japan, and the United States. They manufacture a range of electronic products, including personal computers, smart devices, mobile phones, and servers. There are conservatively estimated to be over 45 production lines, with a total workforce of nearly ten thousand employees and a total production value exceeding USD 3 billion. Lenovo's global supply chain, research and development, and service network cover 145 signed countries along the "Belt and Road" initiative.

Taking Lenovo's flagship product, the ThinkPad X1 Carbon laptop, as an example, out of its 129 key components, the battery, keyboard, and interfaces are sourced from China, the memory comes from South Korea, the processor originates from Malaysia, critical components on the motherboard are from France and Vietnam, and the operating system is from the United States. This product is developed in Japan, designed in the United States, manufactured in China, and sold and serviced globally, making it a truly globalized product. In the 2022 Gartner Global Supply Chain Top 25, Lenovo Group was ranked ninth globally and first in Asia, making it the only high-tech manufacturing company from China to make it onto the list.

Lenovo's global supply chain has also facilitated its entry into the mid-to-high-end market segments. In 2022, Lenovo established a factory in Hungary, which is the latest addition and a crucial component of Lenovo's layout along the "Belt and Road" initiative. It is also one of Lenovo's largest global production facilities, primarily providing server infrastructure, storage systems, and high-end PC workstations to customers in Europe, the Middle East, and Africa.

Relying on its global supply chain system, Lenovo seized opportunities during crises. During the COVID-19 pandemic in 2020, when production at its Wuhan industrial base came to a halt, Lenovo's domestic smartphone production was severely affected. To compensate for this, Lenovo promptly initiated production at its overseas factories to meet the capacity demand. Leveraging the "Global Resources, Local Delivery" business model, Lenovo not only remained operational throughout the pandemic but also capitalized on the increased demand for PCs, resulting in an 18% year-on-year revenue growth in 2021.

Implementing Localization Strategy to Enhance Consumer Recognition

As a global enterprise, "integration" is a crucial element that binds Lenovo together and enables efficient coordination between its domestic and international operations. Integration is reflected in various aspects of Lenovo's business.

After the acquisition of IBM's PC business in 2004, Yuanqing Yang, Chairman of Lenovo's Board of Directors, led a team to meet with local IBM executives in different countries to introduce Lenovo's cultural style and its approach to the respective markets. This was done to retain the core talent from the original IBM team. Following the acquisition, Lenovo was able to employ IBM business line managers in both the Chinese and global markets.

In terms of local talent recruitment, Lenovo actively seeks to hire outstanding local professionals. As globalization progresses, Lenovo continuously adjusts its executive compensation and position systems to align with global standards. In the United States, Lenovo adopted the strategy of "local managers managing local markets" and appointed Stephen Ward, a former Senior Vice President and General Manager of the IBM PC Division, as the CEO of Lenovo. Key positions within the company, such as the Global Chief Operating Officer, were also filled by former IBM executives. In Europe, Lenovo established strategic centers in Italy and Germany and a shared service center in Slovakia, with a strong emphasis on hiring local employees for both regional executives and staff. In 2013, Lenovo officially adopted English as the company's official language to facilitate collaboration among its various branches worldwide.

Regarding production localization, Lenovo places a significant emphasis on local manufacturing. In 2013, Lenovo established a manufacturing plant in North Carolina, USA, to fulfill orders from the U.S. government and customized enterprise orders. This initiative aimed to convey the concept of "Made in the USA" during the sales process, thereby enhancing customer recognition. In Japan, Lenovo operates three factories responsible for the production of NEC computers, Fujitsu computers, and ThinkPad laptops. The joint venture factory with NEC in Mizuho began producing ThinkPad laptops for the Japanese market in 2015 and expanded to assemble desktop personal computers in 2020, according to enterprise orders.

In terms of marketing localization, Lenovo targets the mainstream consumer groups in each region, utilizing market-specific intellectual properties (IP) and themes for its campaigns. In a marketing case in the United States, Lenovo designed the Coca-Cola logo and Winnie the Pooh imagery on the laptop covers, offering them in limited quantities, which resonated with consumers. Lenovo also sponsored the National Football League (NFL) in the United States to engage with the younger generation of sports enthusiasts and promote the Yoga hybrid tablet.

During its initial expansion into the Japanese market, Lenovo chose former soccer star Hidetoshi Nakata as a brand ambassador, which proved to be highly effective. Marketing localization has allowed Lenovo to translate global brand recognition into local sales volume, and since 2018, it has consecutively ranked as the top global PC market leader in terms of shipments and market share for five years.

Hidden Challenges Behind Globalization: Increased Investment in Innovation as a New Opportunity

Through acquisitions of global assets, Lenovo has continually improved and extended its supply chain, making it a truly global technology company. However, Lenovo has faced its fair share of challenges along the way.

After the acquisition of IBM's PC business in 2004, Lenovo encountered several serious crises. Initially, Lenovo's supply chain was not mature, leading to significantly longer delivery times compared to other PC manufacturers in the industry. While Dell could deliver in a matter of days, Lenovo often required weeks or even months. In terms of team management, salaries for IBM PC division employees in the United States were much higher than those of their Chinese counterparts, leading to internal talent challenges. The acquisition of IBM's PC business came at a cost of USD 1.25 billion for Lenovo, while the company's market capitalization at that time was only USD 1.7 billion, with cash reserves of just USD 400 million. From various perspectives, this was a monumental acquisition that could have caused significant shocks and financial crises for Lenovo.

In 2014, the acquisition of Motorola Mobility failed to help Lenovo smoothly enter the booming mobile internet market, and it did not yield the expected positive financial results. Instead, Lenovo incurred losses for three consecutive years, witnessed a significant decline in market share in the mobile business sector, and ultimately had to withdraw from the Chinese smartphone market.

Furthermore, Lenovo faced public relations crises due to allegations of dual pricing standards domestically and abroad. In 2021, some media outlets accused Lenovo of employing discriminatory pricing policies towards domestic consumers, claiming that ThinkPad products with the same specifications were priced CNY 10,000 higher in China than abroad. In the same year, Lenovo's research and development investment only accounted for 2.75% of total revenue, which was one of the reasons cited by critics for its lack of core technology.

In recent years, Lenovo's performance has been negatively affected by the sluggish global PC market. It not only faces competition from rivals like Apple and Dell but also grapples with declining demand, decreased profits, and inventory buildup. According to the latest financial reports, Lenovo's revenue in the first quarter of 2023 was USD 12.9 billion, a 24% year-on-year decrease, marking the fourth consecutive quarter of declining revenue. Moreover, 2023 marked the first annual profit decline since 2019. According to Canalys data, Lenovo's share in the global PC market dropped by 2.9% to 21.5% in the second quarter of 2023 compared to the same period last year.

In the high-end PC market, Lenovo constantly faces pressure from competitors like Apple. In a similar market environment, Apple achieved strong growth in the global PC market with its independently developed M1 chip and MacBook series computers. In the second quarter of 2023, Apple's share in the global PC market rose to 8.5%, an increase of 1.7 percentage points from the same period the previous year. For Lenovo to regain its prominence in the global PC market and maintain its "throne," sustained investment in independent innovation will be a necessary path forward.

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