Lenovo’s European Dream


ACCORDING to the latest report on the global PC industry, released by two market research institutions – IDC and Gartner – China’s Lenovo Group took 16.7 percent of the global market in the second quarter of 2013, overtaking Hewlett-Packard to become the world’s largest personal computer producer. Lenovo has achieved this result two years in advance of the expectations of Gianfranco Lanci, president of Lenovo EMEA (Europe, Middle East and Africa).

From France to Europe as a Whole

Lenovo divides its target market into four regions: China, North America, EMEA, and Asia-Pacific/Latin America. Among them, Europe is the largest PC market in the world. Lenovo, therefore, has established its general office in Paris for this mature market, covering 15 countries. Lenovo’s general office is the base for its European sales.

In the spring of 2006, Yang Yuanqing, current chief executive officer of Lenovo, visited Europe to explore the European market. A salesman in his earlier career, Yang has promoted his “dual business model” strategy there, which proved a great success in the Chinese market.

The “dual business model” refers to a relationship model that serves large-enterprise customers, and a transaction model to serve individual consumers as well as small and medium-size businesses. In the Chinese market Yang relies on this strategy to outshine its strongest rival – Dell. When Yang took his “dual business model” to Europe, he won support from then Lenovo CEO William J. Amelio, who also invited Yang to get directly involved in the management work for the European market.

However, it has not been easy to promote this “dual business model” in the global market. Issues such as transport, language, safety standard and exchange rates need to be considered in every step of the production cycle, from research and development to manufacturing, sales and after-sales service. It is much more complicated than dealing with the national market, and demands enhanced capacity for back-end support and cooperation. Because of such difficulties, Dell and IBM do not expend too much energy on transactional consumers; Lenovo, however, sees huge opportunities in this segment.

Under the leadership and efforts of Yang Yuanqing, the “dual business model” has gradually expanded to markets in France and other European countries. According to November 2007 statistics, Lenovo’s global sales in the transactional segment increased by 16.9 percent in 2006. Turnover growth for the first quarter of the 2007 fiscal year even hit 90 percent year-on-year.

Localized Operations

By the end of 2011, Lenovo had established over 40 offices in Europe, with their staff members close to 3,000. In terms of products, Lenovo is already competitive with leading players in the European market. At the 2012 International Consumer Electronics Show, particularly, its YOGA tablet and other new products won praise from analysts and media.

Gianfranco Lanci, who was appointed president of Lenovo EMEA in April 2012, has expressed confidence in the company’s Europe operations, based on its steady growth there over the past years and the sound team it has established.

As one of the few Chinese companies to have gained firm footing in the international market, Lenovo has chosen a path “less traveled.” Different from most Chinese companies, who prefer sending Chinese employees to overseas offices, Lenovo relies on localized operations. This means Lenovo employs local talent with experience in the local market. It has insisted on this strategy from the very first day it marched into foreign markets. The experience accumulated in this practice well prepared Lenovo for its foray into the European market.

Today’s Lenovo is no longer the green hand that first tapped the global market by acquiring IBM’s PC business. Its 18 EMEA managers all have intensive experience with local markets, and most of them are Europeans.

The same situation prevails in many Lenovo offices in Europe. For example, Lenovo’s European Operations Center in Bratislava, capital of Slovakia, has over 600 employees from 19 different countries, of whom only one is Chinese.

In Essen, the sixth largest city in Germany, the headquarters of Medion AG, which Lenovo acquired in 2011, has 1,000 staff members who are almost all European. To ensure independent management and operation of Medion AG, Lenovo has not sent any Chinese employee there.

“Lenovo profoundly understands the difference between the Chinese market and the European market, so we prefer to attract local talent,” says Qiao Jian, senior vice-president in charge of human resources at the Lenovo Group. Such enterprise culture impresses Francois Bornibus, vice-president and Chief Operating Officer (COO) of Lenovo EMEA. He says this is quite different from Nokia where he worked before, which might send a Finn to run the Spanish market.

In the international market Lenovo follows the traditional wisdom of “when in Rome, do as the Romans do.” This allows it to accumulate great treasure troves in human resources. Lenovo is thus able to strengthen its advantages in the commercial PC market, while at the same time moving into the Europe consumer PC market, which demands greater attention to local features and differences.

Opening New Fronts

Lenovo is now the world’s largest PC producer. “This is a summit a Chinese company has achieved through competitiveness and years of dedicated efforts in a completely open hi-tech market. The feat not only helps build the Lenovo brand, but also boosts all Chinese brands,” Yang Yuanqing commented.

Indeed, Lenovo benefits in multiple aspects. The core of the PC industry is to achieve large-scale operations and lower costs. Becoming No. 1 in the world means peaking in terms of scale, which in turn helps Lenovo better control costs. Moreover, getting to the top also gives Lenovo more bargaining power in the industrial chain.

However, there is a different viewpoint wherein the PC industry regards itself as a sunset industry, as the thinning of profits has become an undeniable reality. With operating systems and chips all controlled by other companies, PC manufacturers can only gain a meager profit. This is why some people think that the reputation of being the largest PC vendor in the world has little practical significance.

In fact, Lenovo managers are already aware of this. Their efforts to increase profits are not only limited to the PC field. In August 2013, Lenovo announced cooperation with EMC, a storage server company in the U.S. and a former partner of Dell. According to the market research company Bernstein, even for the most basic server the gross profit margin stands at about 13 percent, which is equivalent to the highest level in the PC industry. And the profit rate of more sophisticated servers might reach 20 percent. For a company whose profit rate is little more than half that figure, the server business is quite attractive.

However, it won’t be easy for Lenovo to enter the server market. Hewlett-Packard, IBM and Dell already control three fourths of the market share. But any company that already shows success in combining its dream of going global and an ability to increase profits, deserves an opportunity to prove itself.


XU JIANHUA is a reporter with China Quality Daily.