The chairman of Lenovo, the world’s number four PC maker, shared Chinese revolution-spirited slogans and the unlikely story of his company’s growth out of a government-managed economy in a motivational speech to Chinese small business owners on Friday.
Liu Chuanzhi, one of 11 former government researchers who founded the predecessor to Lenovo in 1984, recalled how the company fought through trade barriers, high component prices and domination by foreign brands in a talk that highlighted how fast China’s economy has grown in the last three decades.
“In 1993 almost the whole market was foreign-branded computers,” Liu said at the forum for small and medium businesses in Hangzhou, a scenic city in eastern China.
Lenovo faced tough odds even though its founders were from the Chinese Academy of Sciences, a Chinese state-controlled institute for national research projects. The academy gave the company founding capital of 200,000 yuan, or about US$30,000 today. That sum, far from enough, would not have been enough to buy three computers in China in the 1980s, Liu said. Things only grew worse when the company was scammed out of two-thirds of the money, he said.
“When we came out, we not only lacked funds but also had no idea what to do,” Liu said.
Lenovo, formerly called Legend Group, was founded early in China’s process of market economic reforms and had to work in a tightly regulated environment. China tried to protect domestic PC makers in the 1980s by charging a massive 200 percent tariff on foreign computers, said Liu.
“The result of this protection was that foreign computers were very difficult to get into China and could only be smuggled, but China also could not make its own computers very well,” he said. The low quality of components such as hard drives in China also hindered the company, he said. Lenovo’s first PC did not reach the market until 1990.
Lenovo struggled with low margins even as it built market share against foreign brands like IBM and Compaq in the 1990s. Government regulation also continued to slow the industry’s growth. Chinese residents had to register with the government to become Internet users even late in the decade, said Liu.
Lenovo’s global presence gained a huge boost when it bought IBM’s PC unit in 2005. The company’s sales in developed markets have since slumped in the global economic recession and it has restructured to bring its focus back to China and other emerging markets. Lenovo today is the top PC vendor in China.
To succeed like Lenovo, companies must “love to battle, know how to battle, and conduct campaigns with order,” Liu said, using language reminiscent of “The Art of War,” an ancient Chinese book on military strategy by Sun Tzu.
Liu also emphasized the importance of company culture, describing Lenovo’s as an example. “Make the company’s interests the top priority, seek truth in forging ahead, take the people as the base,” Liu said.
Chinese president Hu Jintao has promoted the slogan “take the people as the base” as a part of socialist theory. Liu attended a Chinese military college in the 1960s and worked on a Chinese farm during the Cultural Revolution, a chaotic period when many graduates were sent to the countryside for re-education.