Just west of the Bird's Nest, that architectural jewel of the 2008 Summer Games in Beijing, rises an electronics district of Olympic proportions. It's called Zhongguancun, and if you need a computer or smartphone or camera or any other digital device when in China's capital, this is the place to go. Hundreds of mostly compact stores crowd the complex's dozen glass towers as tightly as commuters on the subway at rush hour. It's like a year-round Consumer Electronics Show, with every major brand, from Apple to HP to Dell to Sony, vying for attention and sales.
But one brand is nearly ubiquitous: Lenovo. In the U.S., we think a couple of Starbucks located a block apart is overkill. Here in Beijing's high-tech mecca, the Chinese computer maker doesn't have three stores or even three dozen: Lenovo has 100 stores in just this one shopping area. Some are so close together you can walk out of one store and see two more, one to the left, beyond the street vendors cooking pork on portable grills, and another straight ahead, just past the sea of parked bikes. The bigger Lenovo locations offer the gamut of products--laptops, desktops, netbooks, notebooks, tablets, smartphones--while the smaller ones cater to niches, say, small-business owners or young consumers. Outside the Zhongguancun towers, a Times Square-size digital screen continually plays the company's ads. A third of the computers sold in the district are Lenovos, roughly approximating its market share in the whole of China, where it is by far the No. 1 seller of PCs. Its network of 15,000-plus stores reaches into the most remote of villages. That's almost as many locations as Starbucks has in the entire world--and roughly 14,700 more stores than Apple has.
For the past two years, Lenovo has been the fastest-growing company in the PC industry. In the third quarter of 2011, it sold a record 13.5% of PCs worldwide, leapfrogging Dell and Acer to seize the No. 2 spot. (Only HP sells more.) Dominating China has much to do with Lenovo's success; the rising supereconomy became the world's largest PC market this year. "If you wanted a company to maximize the current world economic condition, you'd design one very similar to this," says Silicon Valley-based tech analyst Rob Enderle. "There's no other company like it."
"This is Lenovo's moment," says Lenovo CEO Yang Yuanqing, 47, a former salesman who once delivered computers by bicycle and is now China's highest-paid chief executive. (His 2011 salary: $12 million.) Yang calls Lenovo's strategy "protect and attack," three words you hear repeatedly at the company's headquarters in Beijing and its offices in Raleigh, North Carolina, where Yang spends a third of his time. Lenovo seeks to protect its core business--the China and enterprise (large-scale commercial and public-sector) markets, which generated about 70% of its $21 billion in revenue last year. On the attack side, he's pumping Lenovo's profits--$273 million in 2010--into emerging markets, new product categories (tablets, smartphones, smart TVs), and, of course, the U.S.
Ask the average American to name top Chinese brands and the list usually starts and stops with Tsingtao beer. As Lenovo CMO David Roman--formerly of Apple and HP--says, "The business is ahead of the brand." Stateside, Lenovo is best known as the outfit that came out of nowhere to buy IBM's PC division and ThinkPad brand in 2005. Which is why in 2011, Lenovo launched its largest-ever branding campaign, aiming to become the first global consumer brand to emerge from China.
Lenovo is a company the likes of which we've never seen. It is a product of Communist China (the government still owns 36% of its parent, Legend Holdings); it is heavily influenced by the democratized West; it boasts an international workforce of 27,000 employees and customers in more than 160 countries. But the story of Lenovo's rise is also a parable for Chinese business: In just 30 years, an enterprise launched in the Beijing equivalent of a garage--by a founder who endured forced relocation and admits he bungled his early attempts at business--has blossomed at a pace no one predicted. Lenovo is redefining "Made in China," producing the industry's highest-quality machines; it ranked No. 1 in the 2011 Computer Reliability Report, ahead of Apple and HP. And the company's culture skillfully blends an Eastern way of thinking with the best of Western business, demonstrating innovation and nimbleness that would impress--and unnerve--the most skeptical Silicon Valley digerati.
A few miles north of the Zhongguancun shops, on the top floor of a gleaming Beijing tower, Lenovo founder Liu Chuanzhi meets me in September at Legend Holdings' offices. We sit across from each other in an elegant conference room, at a long table arranged as if heads of state were negotiating a treaty (four place settings on each side, complete with teacups and water glasses). Liu, who is 67 but seems older, is short, with wire-frame glasses and a pensive manner. Rotating my business card in his fingers, he listens intently, both to the questions I pose in English and to his interpreter's translation. He chooses his words carefully, letting them out in a low, raspy stream. "Chinese people know Americans or the United States more than vice versa," he nods at one point. "Much more."
He's known to Lenovo employees as Chairman Liu, or simply the Chairman, an honorific that echoes that of another Chinese leader, Mao Zedong. Throughout his homeland, Liu commands respect akin to Henry Ford or Sam Walton in the U.S., and his journey reflects the evolution of his country. After graduating from a military college in 1968, he was assigned by the government to be a researcher for the Ministry of Defense. "It was impossible for most Chinese to do what they wanted," he recalls. "China, in those old days, was dominated by class struggle."
That same year, the Cultural Revolution upended his life. Mao sent young graduates like Liu, the son of a banker, to be "reeducated" in the countryside. For two years, he worked on state-owned farms and lived in a shared, wood-frame tent. In the summer, the mercury soared past 100 degrees, but the mental anguish and fears for the future were worse than the heat. "We might end up there for the rest of our lives," he says. "I felt that the hope for myself and for the whole of China was very slim."
After Mao declared the end of the Cultural Revolution, Liu was allowed to leave the countryside. He was assigned to the Chinese Academy of Sciences, a government research institute in Beijing. He felt fortunate not to be consigned to a factory but still felt caged--"There was no shifting jobs," he says--until an unexpected door opened in the early 1980s. With Mao dead and Deng Xiaoping in power, the academy's president was encouraged to find ways to help the economy. He made a visit to IBM--prophetic, it would turn out--where he saw how R&D fueled growth. Upon his return to Beijing, he encouraged his staff to turn their research into businesses. Liu, then 40, says he felt like "a person who has experienced starvation and suddenly you're presented with steak."
In China, some jobs are called iron rice bowls; they'll always provide enough for you to eat, but they're utilitarian and unfulfilling. Liu flung his iron rice bowl away. In 1984, he and 10 colleagues, armed with 200,000 RMB (about $25,000) from the academy, started the Chinese Academy of Sciences Computer Technology Research Institute New Technology Development Co. The name was as cumbersome as the group was clueless about business; none had studied or even read a book about it. Based in a cramped guard shack on the outskirts of Beijing, the company--which changed its name to Legend and in 2004 to Lenovo--developed a Chinese-character card that made foreign PCs accessible to Chinese-language users. Most firms formed in the early days of China's liberalization were state controlled, but Liu negotiated some independence for Legend. He forged a partnership with the U.S. company AST, which became China's top-selling brand. But even as he was building relationships with multinationals, Liu says he had to deploy "local smarts" to survive in the chaos of China's emerging semicapitalism, including buying foreign currency on the black market to purchase parts. Then, in 1990, despite misgivings from AST, he launched a Legend-branded PC. Business flourished--until the government changed its rules again.
In 1991, Chinese tariffs on foreign computers were lowered, eventually spawning an influx of competitors. Liu's company stumbled, losing money for the first time. His health faltered and he wound up in the hospital, where his managers visited his bedside and discussed how to save the company. The answer, Liu decided, was to reorganize its PC business and put one of those managers, a 29-year-old named Yang Yuanqing, in charge. Yang, who goes by the nickname YY, is tall and bespectacled, with a reserved smile and side-parted straight black hair. He's a child of the Cultural Revolution; like Liu, Yang's parents, both surgeons, were dispatched to work as rural laborers. Yang had to cook meals for his siblings over a coal fire. After he graduated from college, he joined what would later become Lenovo as a salesman. "I sold the product and then had to install everything," he says. "I had to pick up the machine from the warehouse to test it and used a bicycle to deliver it. I had to collect the money myself. And if a customer had a problem, I became the service people."
We're at Lenovo's headquarters, a Beijing campus where serene pools of water separate the office buildings. Other than the young guard manning the entrance, who looks as humorless as those stationed around Tiananmen Square, the vibe inside feels cheery and collegiate. Young employees are everywhere, hanging out in the lobby's tea cafe, holding a dance practice (soundtrack: Lady Gaga) ahead of China's National Day celebrations, and dining in the boisterous cafeteria, where the scheduled lunch hour encourages bonding.
When Yang took over the PC unit, he focused on speed, inspired by what he saw at Lenovo's more-experienced foreign partners. In 1996, Lenovo was the first in China to offer a Pentium-powered machine--at a lower price than the competition was asking for slower PCs.
"Our orders, um, how you say--" Yang says, turning to Lawrence Yu, his executive assistant, who graduated from Harvard Business School.
"Surge," Yu says.
"Yes, surge," Yang says, smiling.
As the PC giants released a comparable product in China, Lenovo moved on to the next-generation chip.
Another surge. And on it went. "There's no way they can catch up," he recalls, punctuating his accented but nearly fluent English with his trademark laugh--a subtle heh-heh that often coincides with his tweaking the competition. By 1997, Lenovo was China's top-selling PC maker, a position it still holds.
Chairman Liu had long dreamed of building a global company. So, in 2005, Lenovo paid $1.75 billion for IBM's PC business, a stunning move that the Chinese media described as a snake swallowing an elephant. Acquiring an American icon made Liu something of a national hero in China. But it also created a corporate marriage of immense complexity that, initially, did not go well. IBM's PC unit had $10 billion in revenue, but it was losing money. Lenovo was profitable but generated less than a third as much revenue and was run by executives who didn't speak English and had zero multinational experience. (Not to mention the cultural chasm: Liu used to insist that late arrivals to a meeting stand in the corner, a punishment he imposed even on himself.) Deciding that Westerners were better equipped to take their creation to the next level, Liu and Yang stepped back, handing the CEO title first to IBM vet Steve Ward and then to former Dell exec Bill Amelio. The experiment floundered. The Americans couldn't bridge the culture gap with Beijing, and during four difficult years of cost cutting, morale plunged. Then the 2008 financial crisis devastated Lenovo's enterprise business. The company posted a $226 million loss, its biggest ever.
So, in 2009, Yang and Liu reclaimed their previous roles, and Yang launched his protect-and-attack strategy to forge a return to profitability. The key to success, says Yang, remains speed, which takes many forms. Lenovo is slashing the delivery time to Dubai from eight weeks to four, thanks to a new, well-placed distribution center. Its LePhone A60, Lenovo's new smartphone in China, took less than six months to develop, half the typical cycle. And the company is keeping as little as five weeks of inventory on hand so that stores can pivot based on sales. "You cannot tolerate high inventory," Yang says, flashing his authoritarian side.
Speed is highly valued in Lenovo's decision-making process as well. Two years ago, Yang streamlined the company's senior leadership team from more than two dozen members to nine. "They've reduced the number of approvals needed to make a change," says Ezra Gottheil, a senior analyst with TBR. "That closes the decision cycle."
Although the leaders are based in six different cities on three continents, they meet at least bimonthly to review the business, typically spending three or four days together in a key market, visiting local stores and listening to partners, customers, and employees. While the goal is to align big-picture goals, the team also seeks quick action. After a visit to India, Lenovo boosted its marketing and overhauled store displays throughout the country. Market share promptly shot up.
The emphasis on speed at Lenovo is particularly compelling because it's twinned with a deliberate effort to slow other things down. Upon his return as chairman, Liu emphasized a concept called fu pan. It means "replaying the chess board." The idea is to examine your every move to improve the next time. Lenovo trains its managers in fu pan, which can entail short reviews of an incident from that workday or a far more in-depth process. "I'm going to do one about this interview," Anjani Bhargava, an executive director in organizational development, tells me. "I want to go over what I said." Adds CFO Wong Wai Ming: "The most dangerous thing is to be successful. You then think every decision is the right one. That's why you have to review what you do."
One Sunday morning in September, Yang takes the stage in a ballroom at the Ritz-Carlton Hotel in San Francisco for an annual gathering of Lenovo's top 100 executives from around the globe. Nearly all, including Yang, wear red San Francisco 49ers T-shirts. (After the morning session, the group is headed to the 49ers-Dallas Cowboys game.) Yang, normally low-key, sounds like a coach giving a pep talk: Dell has no clear strategy! HP's future is anybody's call! "We must attack the market without hesitation!" he exclaims. "Right, team?"
"Yes!!!!" the Lenovo execs roar.
The resounding chorus reflects an intense, even militaristic camaraderie that has taken root in the past two years. Company unity has always been a priority for Chairman Liu; in the early days, he bought a pig farm to ensure that employees would have food in hard times. But maintaining that ethos has been a challenge since the IBM purchase, especially as Lenovo's ranks diversified. The execs in San Francisco represent 14 nationalities. Conversations spring up in a half-dozen languages. Two of the newest top managers hail from Germany and Japan, thanks to Lenovo's acquisitions of PC makers Medion and NEC. Another much-ballyhooed hire comes from Italy; following a secret meeting in China last summer, Yang persuaded longtime rival Gianfranco Lanci, who had left his post as CEO of Acer, to be a Lenovo consultant.
Yang recognizes that integrating non-Chinese perspectives and talents is critical to Lenovo's success. (Blending East and West even happens in his family: One of his sons attends school in Beijing, the other in Raleigh.) That's why the exec team is going to the 49ers game and later holding an Iron Chef-style team-cooking contest.
Non-Chinese talent is crucial to their marketing plans. "The brand is definitely the most important area," says Yang, who oversaw Lenovo's first-ever advertising effort; his team spelled out the company name in the office windows because they couldn't afford a billboard.
Enter David Roman, whom Yang successfully recruited as CMO in 2010. Roman earned a reputation as a stellar marketer at Apple and then at HP, where he oversaw its "The Computer Is Personal Again" campaign, Advertising Age's top campaign in 2006. "There are going to be global brands from outside the U.S. and Europe, and China is going to have a number of those," says Roman. "The opportunity to be in the driver's seat for maybe the first one is very compelling."
At Lenovo, his challenge isn't changing consumers' perception of a brand. It's introducing a brand and having it resonate. Last spring, for its first-ever global branding campaign, Lenovo selected Saatchi & Saatchi's concept: "For Those Who Do." The slogan brings to mind Nike's "Just Do It." Just as Nike emphasized what athletes could do in its shoes, Roman says, Lenovo is spotlighting how people use its computers--"do machines," in the campaign's parlance. When we meet in Lenovo's North Carolina office in July, Roman is typically blunt. "Lenovo hasn't been a marketing company," he says. "Its heritage is as a production and distribution company." He pulls out his laptop and plays a few new TV ads for me. One is shot from the herky-jerky perspective of a dirt-bike rider who has strapped a Lenovo laptop to his handlebars. Roman says he's targeting young creatives with a voracious appetite for the latest technology; irreverence is a key ingredient. One slogan in the campaign's social-media push--but not on TV--is "Get off your mental ass." Some employees in Raleigh have taken to wearing T-shirts adorned with the phrase. "I personally don't like it," Roman says. But he knows he's not the intended audience. Plus, he notes, "good marketing tends to be quite divisive."
To engage consumers, Lenovo is taking other creative risks as well. For the "Do" launch, Roman's team turned a Japanese train terminal into what looks like a giant Lenovo laptop, with commuters entering and exiting across the image of a keyboard. In Israel, it wrapped a building on a busy thoroughfare with a Lenovo ad. In Indonesia, its billboard was a Lenovo-branded climbing wall that "doers" could scale. In Mexico, it created an online series profiling "doers."
At this year's Fashion's Night Out during New York Fashion Week, Lenovo hosted a computer lounge at Saks Fifth Avenue. Sandwiched between Tory Burch's wares and Elie Tahari's was Lenovo's IdeaPad U300, its debut "ultra-book," a new category of superlight, superthin laptops. It's the company's most stylish machine yet, and it's designed to appeal to women. The exterior is muted orange, its texture soft to the touch, like leather. Closed, the laptop looks like a book.
Lenovo has even launched a pilot program at the London department store Harrods. "We know women influence around 80% of consumer electronics purchases," says Lenovo marketing manager Tracey Trachta. So far, Harrods sales are ahead of projections. "You have a different mentality in a department store," says Trachta. "There's more of a chance for an emotional connection with the brand."
Some people do have a connection with the ThinkPad, the best-selling laptop of all time. But most don't identify it with Lenovo. "I'm still surprised to be in a meeting where I ask somebody what they have, and they say, 'I have an IBM laptop,'" says analyst Enderle. Last March, before the "Do" campaign, Lenovo ranked 10th among PC brands that U.S. consumers were considering. By July, it was 7th. Still, says Roman, awareness doesn't translate into sales until you crack the top three. Which is his target.
Ironically, the one country where "For Those Who Do" doesn't translate is China. "'Do' is actually looked at as the opposite of planning and thinking," Roman says. "It's negative. 'Do' is the manual labor." That inconvenient snag didn't stop the campaign from rolling out everywhere but China. There, the brand needs no introduction, and the "Do" campaign is nowhere to be seen. Lenovo has stuck with the Chinese phrase Lian Xiang, which conveys the message it always has: roughly translated, "imagination."
On weekdays in Yi County, 85 miles southwest of Beijing in Hebei Province, kids drop by the Lenovo store after school to watch Disney shows on a PC. At night, families gather on the sidewalk outside the store to watch a movie on a monitor that Lenovo mandates for just such community activities. Last night's feature: Kung Fu Panda. "They bring their own chairs," store owner Li Yingchao tells me. "Movies cost 40 or 50 RMB [$6 to $7] here, so this is better. It's free."
Yi is no Beijing. It has about 550,000 residents--more than Cleveland but in Lenovo's lowest tier in China. The company's store here has a gleaming white marble floor and an assortment of laptops and desktops. One wall displays Lenovo's history, emphasizing its Chinese lineage. The storefront is the nicest in a dusty commercial district; goods spill onto the sidewalk from nearby shops, and at the corner, old people huddle around a carboard box, playing cards. Here, the name Lenovo means something--many things, including progress and pride.
When I first met Yang, he told me: "You should visit a very small city. Apple, they said they want to challenge us, but it is only in first-tier or second-tier cities." Heh-heh. "You cannot find an Apple store in a small city or town. You cannot find a Dell or HP. But when you go to rural areas, you can find Lenovo everywhere."
So after Yi, I go 20 miles farther, past fields of corn and the occasional herd of roadside sheep, to Da Longhua (population: 12,000). The only apples in this village are sold at the local market, which pops up at a crossroads every five days. Lenovo advertises with a character painted on the concrete wall of a junkyard and has a shop on the side of a two-lane highway. None of the five PCs on the shelves has a price tag. Gao Hua, who runs the shop, says one isn't necessary. His customers all know and trust him. They buy their food at the crossroads market, and they buy their computers from him. The week I visited, Gao had sold all-in-one desktops to three families on market day. "They sit down and ask, 'What do you suggest?'" Gao says. "Five minutes, it sells."
The rural market holds huge growth opportunities for Lenovo, which already posts annual China revenue north of $10 billion. More than half of China's 1.3 billion residents live outside the cities, and the country's rapid economic growth is gradually reaching them--as is broadband access. The majority of Lenovo's Chinese outlets are in rural areas, poised to sell computers to the millions who have never owned them. Today it's their first PC, tomorrow their first tablet or smartphone. And Lenovo expects this pattern will repeat itself in other emerging markets; China is a test lab where it can try out tactics and strategies before rolling them out in other countries including India, where it has more than 700 stores. The rural stores offer Lenovo's most affordable desktops. Priced at less than $500, they come preloaded with applications to help farmers price their crops and with features such as one-button instant messaging to simplify tasks for first-time computer users.
One of the more popular Lenovo products in rural China is the wedding computer. Rural families will often pool their money to buy a bride and groom their first PC. The wedding computer comes in red, which Chinese consider to be the luckiest color.
Gao delivers many of these PCs in his silver Nissan SUV, and as he bounces down the road, the big red box holding the wedding computer seems almost to jump with joy. It's emblazoned with a big red Chinese character: xi, which means "double happiness." The word couldn't be more appropriate, although it's hard to know who will be happier--the couple that receives that PC or Lenovo, which made and sold it.