IN 2004 IBM WAS STRUGGLING with its notebook and desktop unit because of a bloated structure and high costs, and Lenovo was a happy Chinese manufacturer with plenty of cash and anxious for and acquisition and expansion abroad.
It seemed a perfect marriage. IBM got rid of a division that was struggling for a fair amount of cash and gained a foothold on the Chinese market. Lenovo got western knowhow and a source of revenues other than the Chinese market. Five years later, Lenovo is more dependent than ever on the Chinese market and the company is struggling in the same markets that IBM was struggling in before. What happened? Is it a bad thing?
What happened is that a regional company tried to become a global company with cash alone. It never works. To become a global company you have to have a global mindset, a global strategy and fine tune it with the local trends and demands. There is nothing more cliché in the business world as this dictum but nothing is as hard to implement as a global policy. Ask McDonalds how it had difficulties in India or Coca-Cola in some places in South America and they will tell you how different consumers’ habits and preferences can be from place to place.
When Lenovo acquired IBM’s PC business, it could tackle one element of the problems plaguing it, that is, costs. IBM always had a top-level structure and with the consumer market moving from $1,000 to $400 PCs, and from $1,500 to $500 notebooks, IBM was having problems.
The other part of the problem that both companies were unprepared to deal with were market trends. All in all it was a good partnership but it lacked the secret sauce that would make Lenovo a bigger threat to the other competitors. The market was moving toward low costs and diversification. Lenovo had no knowledge of the global market and IBM was not really known for cheap and sexy products. IBM was known for its high product quality, service levels and prices. That might work for corporate clients but it is not a good recipe for growth in the consumer market.
Now Lenovo is gaining market share in one of the fastest growing markets of the world, China, and trying to be more customer-focused. This is not bad at all. Not only this will provide Lenovo with a safety net which will allow it to sustain losses in markets abroad, this is a vast market that it knows well and is growing very fast. Because of this, Lenovo’s results will be even more tied to the Chinese market.
But Lenovo did not reverse to a regional company. It finally learned that lesson about colors that Ford learned about a hundred years ago, is developing products such as the IdeaPad, and is also trying to get into the mobile phone market, with mixed results at least so far. It is aiming to have products that are cheap, consumer oriented and in line with the current market trends.
Will it be successful? This depends mostly on how it will deal with its costs, how well it will adapt to market trends and how well it will build its brand. But what is really clear is that Dell, HP and Acer will have a tougher competitor in the years ahead. S|A