Lenovo returns to its Chinese roots (Feature)

By Andreas Landwehr Feb 6, 2009, 8:06 GMT

   Beijing - Four years after taking over IBM's personal computer division, computer maker Lenovo Group Ltd has been driven back to its Chinese roots by the global economic downturn.

   High-flying dreams of international expansion by the world's fourth-largest computer maker were severely dampened as Lenovo announced losses of 96.7 million dollars for the October-to-December quarter and announced a return to its old Chinese management team that built up the company.

   Liu Chuanzi, Lenovo's 65-year-old founder, is returning to the helm as chairman while 44-year-old Yang Yuanying is replacing luckless former Dell manager Bill Amelio as chief executive.

   The American's contract expired after three years, and Yang had taken over as chairman in 2005 from Liu, who started Lenovo's predecessor company, Legend, in 1984.

   The changes heralded a shift in Lenovo's business strategy toward the Chinese market, where business is still going strong. 'Greater China' - consisting of mainland China, Hong Kong and Taiwan - contributes 45 per cent of Lenovo's earnings.

   'At this important time, we want to pay particular attention to our China business, as it represents the foundation of our global business and growth strategy,' Liu said in a statement.

   Apart from China, the company plans to focus on markets in Russia, India and Brazil and refocus on consumers, away from the corporate market.

   Lenovo has been hit especially hard by the world downturn as many overseas clients are companies that started cutting costs by slashing spending on information technology.

   Furthermore, the personal computer maker announced restructuring measures, including laying off 2,500 people, or 11 per cent of its workforce internationally. Only China is to be spared the job cuts.

   China remained Lenovo's strongest market. While global sales fell by 20 per cent in the third quarter, its China sales dropped by 1 per cent - despite an overall 7-per-cent drop in PC sales in China.

   Lenovo's market share in its home market inched up by 1.8 per cent to 30.5 per cent.

   Lenovo wants to defend its position in the United States and Europe but must not lose ground in China, its most important market, warned Liu, who also chairs Legend Holding, which owns Lenovo.

   The Chinese company's international outlook is less rosy. Since taking over IBM, Lenovo dropped to fourth in the rankings of the world's largest computer makers behind Dell Inc, Hewlett-Packard Co and Taiwan's Acer Inc, which overtook Lenovo by attracting cost-conscious consumers with its cheap, small netbooks.

   Instead of launching similarly innovative products, Lenovo has been busy - probably more so than expected - to internationally promote its brand and merge two substantially different company cultures.

   Lenovo still operates out of two headquarters - one in Beijing and one in Raleigh, North Carolina, the former site of IBM.

   The financial crisis shattered Lenovo's dreams of an international rise and demands a return to the company's core competencies.

   'Lenovo is the leading PC maker in China,' Yang said. 'We grew our success in China and developed our strategies for the international market from there.'

   Yang said he remained convinced that, equipped with those special abilities, Lenovo could also grow in these difficult times in China and in emerging markets.