Above: Lenovo Group Chairman and CEO Yang Yuanqing has led the PC maker to growth in profits and market share as it develops new products. Below left: The company's offices near Raleigh, North Carolina. Below right: The Beijing guard shack where Lenovo was founded in 1984. Nacho Doce / Reuters

Zhang Yuwei / China Daily

Provoded to China Daily

Lenovo has relied on innovation and careful brand management to become a world leader in PC production while expanding into tablets, smartphones and new markets, China Daily's Zhang Yuwei reports from North Carolina.

On an office wall in North Carolina's tech-focused Research Triangle, the success story of Lenovo Group Ltd is told in a photo timeline bedecked with milestones, starting with the founding, in a concrete-block Beijing guard shack, of what has become the world's No 2 maker of personal computers.

Started in 1984 by a group of Chinese engineers with about $25,000, Lenovo might seem an unlikely power in the global PC business, where long-established Western brands dominate. It's the top seller in Japan, Germany and three other of the seven biggest PC markets.

A slogan conveys the company's roll-up-your-sleeves ethos: "Lenovo: For those who do".

It ranks 370th on Fortune magazine's latest list of the biggest companies in the world, and had $30 billion in sales last year, a presence in about 60 countries and a worldwide work force of 29,000 including more than 2,000 in North Carolina. The Lenovo complex in Morrisville, near Raleigh-Durham, serves North American customers and is a co-headquarters with the corporate campus in Beijing.

David Roman, chief marketing officer, calls Lenovo "a global company with Chinese roots". It has shown that it can catch up to well-known global brands, he said.

"Keeping up with the pace" is the biggest challenge, Roman said. "Right now as a company, we've actually grown faster than our brand."

With 9 percent of the North American market for PCs, Lenovo lacks the level of consumer awareness that it enjoys in China, where its market share is almost 37 percent.

Liu Chuanzhi, who led the group of Lenovo founders, said that as an industry newcomer his company took inspiration from Silicon Valley heavyweight Hewlett-Packard Co.

Liu, who was the company chairman until November 2011, once referred to H-P as the "earliest and best teacher" for Lenovo. For more than 10 years, it distributed the California firm's products in China.

In last year's July-September quarter, Lenovo passed H-P in shipments to become the No 1 PC maker for the first time, according to tech industry research firm Gartner Inc. Lenovo expanded its PC market share to 15.7 percent, just ahead of H-P's 15.5 percent.

H-P regained the top spot in the following quarter, but Lenovo is close behind.

This week, the Hong Kong-listed company reported net income of nearly $205 million from its fiscal third quarter, which ended Dec 31. That was 34 percent higher from the profit in the same period a year earlier and was propelled by strong PC sales in a market that is otherwise shrinking due to consumers' shift to smartphones, tablets and other devices.

Shipments of Lenovo PCs rose 8.2 percent from the fiscal third quarter of 2011, while those of H-P and US-based Dell Inc fell 0.6 percent and 20.8 percent, respectively.

Lenovo's quarterly revenue was up almost 12 percent, to $9.4 billion. China accounted for 43 percent ($4.1 billion) of sales while 14 percent came from North America ($1.3 billion). That represented revenue increases in the two markets of 17 percent and 8 percent, respectively, from a year earlier.

The company shipped 9.4 million phones, including 9 million smartphones, from October through December - more than double the number from the same period of 2011. In China, where it is the second-biggest seller of smartphones, the company posted its first quarterly profit in that business.

Lenovo has pushed into other smartphone markets including India, Indonesia, the Philippines, Russia and Vietnam. In its latest earnings report the company said initial market response there has been "encouraging".

"Lenovo has not only achieved record revenue, profit and global PC market share last quarter, but also our smartphone and tablet businesses have delivered hyper growth. Even more, our worldwide tablet and China smartphone businesses have become profitable," Chairman and CEO Yang Yuanqing said in a statement accompanying the earnings report.

Lenovo, he added, has "laid a solid foundation" for a "PC-plus" marketplace.

The company has restructured its divisions "to elevate our diversified business and drive it to the next level", Yang said. "We are confident we can win through differentiation and will be the innovation leader in the PC-plus era."

Deals, innovation, new markets

Deals have helped Lenovo expand internationally in recent years. In early January, it concluded its $148 million cash-and-stock purchase of Brazilian PC and device maker CCE. In 2011, the company acquired German electronics company Medion AG for $738 million, doubling Lenovo's share of the German PC market. It also spent $450 million in a manufacturing joint venture with NEC Corp, becoming the biggest PC maker in Japan.

"PC-plus" is also the name of the company's strategy for augmenting its core business with tablets, smartphones and other consumer gadgets while it pushes into workstations and servers for companies.

In North America, particularly the United States, a key goal is raising awareness of the Lenovo brand.

Gerry Smith, Lenovo's president for North America, said the number of US retailers that carry Lenovo products in 2012 soared to 4,000, up from just 400 in 2009.

"It's very clear we need to be the market leader in the PC-plus era not just PCs but all the devices across the industry," he said. "That's our mission and the strategic goal of our company."

For now, the strategy is limited to tablets and small notebooks. Smartphones won't be added to the company's US product roster until brand recognition has been raised, Smith said.

A number of Chinese companies have tapped international markets for expansion in the past decade, fueled by China's continued economic growth. Lenovo is aiming even higher - to become a truly global company.

It made headlines by acquiring the PC business of US-based International Business Machines Corp for about $1.75 billion in 2005.

Liu, one of the founders, recalled that a deal was considered "unthinkable" when meetings began between Lenovo and IBM. But it turned out to be impeccable timing: IBM was shifting away from personal computing and toward providing software and services to companies, while Lenovo was looking for a way into the PC business.

Yang, the chairman and CEO, who worked his way up from the sales job he took in 1989, spearheaded the IBM deal.

Liu, who is 20 years older, describes Yang, 48, as "a man who moves forward, takes risks and aims to innovate" - a "global CEO with a global vision" that he imparts to managers.

Lenovo insiders who were engaged in the Lenovo-IBM negotiations have plenty of stories about that time.

Scott Wang, a Lenovo marketing executive who came to the Raleigh co-headquarters two years ago, recalled frequent visits by a group of Westerners - he later learned they were from IBM - for boardroom meetings in Beijing that led to the deal.

Inside the company, the talks with IBM were referred to as Project V, and few knew - or could have guessed - the details.

Wang, who served a translator at meetings between Yang and IBM executives, had been moved to a different function just a few months after being hired.

"I thought I was going to lose my job," he said.

As it turned out, Wang's skills were being applied to the task of helping Lenovo managers develop a global outlook. That included having employees speak English, with the CEO taking the lead.

Yang at the time barely spoke English but knew that having bilingual management was crucial in his efforts to take Lenovo to the next level. After the IBM deal was completed, Yang moved his family to North Carolina, closing the gap geographically and culturally with the company's new home away from home.

Last year, the CEO chose to give $3 million from his own bonus to 10,000 junior employees for helping the company earn record profits. Receptionists, production-line workers and assistants each received about 2,000 yuan ($314).

Yang was born in a different culture, but those who work for him say he's a savvy global manager. Most of Lenovo's senior managers come from outside China and regard the man they call "YY" as one who encourages innovation and makes himself available to talk about new ideas.

Roman, the Australian marketing chief, is a former executive of Apple Inc and H-P. He joined Lenovo in early 2010 when the company was No 4 in the world's PC industry. He is one of 10 members - representing seven nationalities - of Lenovo's executive committee. Overall, the global management team consists of 140 managers. Members of the committee, spread around the world, travel 50 percent to 70 percent of the time each month for meetings in Lenovo's various locations.

David Hill, a vice-president, is the design leader for all of the company's commercial products including its signature ThinkPad line of laptops. He said Yang is highly visible around the Raleigh-area offices.

"He always asks about new designs and is interested and intrigued. He is very different."

As he shows visitors around the ThinkPad development lab in Morrisville, Hill said Yang stops by frequently, often for hours, to check on progress. Hill is enthusiastic as he presents the history of ThinkPad products, starting with the first, from 1992, a PC whose design was based on a Japanese bento box.

Leonardo da Vinci's observation that "simplicity is the ultimate sophistication" inspired ThinkPad designers, Hill said. They consider the basic-black look throughout the product lineup "sexy".

"Our theory is, if we have something that works, we don't want to change that, we want to keep it. But we want to continually search for new and better ways to do certain things," he said.

A common refrain from Lenovo executives is the need to stay positive in tackling challenges.

"The biggest challenge is really us. If we can stay humble and hungry and continue to lead with innovation, which is in our DNA, and continue to have this commitment culture, we will continue to win," said Dilip Bhatia, general manager of the ThinkPad business unit.

Eight years ago, the tech industry was rife with speculation over the IBM deal. The direct move into a high-profile US industry was highly unusual for a Chinese company, and many close to the sector questioned whether Lenovo could manage the business and maintain the momentum IBM had established.

Peter Hortensius, president of Lenovo's product group, was on the team that negotiated the 2005 deal.

"When we did the deal, there was definitely a prevailing concern among the US employees, who wondered if all the good jobs were going to China, and the China team was having the reverse concern," he recalled.

"The teams weren't certain of what exactly the other team had skills in and how they would act. But as they began to get to know each other, they realized by working together they actually made the business bigger, which means more opportunity for everybody."

The biggest difference between the companies, according to Hortensius, was that "in IBM, PCs were just a business, but in Lenovo, PCs are the business".

"They are our focus and what we need to be successful at," he added.

Steve Kleynhans, a vice-president at Gartner, said some people worried that the strong ThinkPad brand would be weakened or even disappear once Lenovo took over.

"To Lenovo's credit, it didn't happen. In fact, I would say the ThinkPad brand itself is actually stronger over the past seven years," he said.

Protecting, attacking, winning

Smith, the company's North America president, said CEO Yang's global strategy separates Lenovo from its competitors. The strategy has a name, "protect and attack", and Lenovo employees cite it frequently.

The two-pronged approach aims to shield the two huge profit centers - commercial PC sales and the China market - while Lenovo moves into new markets with new products.

"This focus on building the brand and becoming a relevant consumer brand globally is a key to our future growth," Smith said.

One market Lenovo is "attacking" is service to small and medium-size business, or SMBs. In the North American SMB space, "we had relatively little share, relatively little presence, so we made a very conscious decision that we're going to invest in this market," said Jay Parker, general manager for the company's consumer and SMB operations.

Lenovo's global journey also aligns with globalization itself. At the time of the IBM deal, outbound investment involving the two countries was very one-sided, with a far larger presence by US companies in China than by Chinese firms in the US.

"'Going global' in the context of direct investment has two stages - consummating the investment and integrating the offshore operations while preserving and growing the goodwill of the business acquired," said Brian Beglin, co-managing partner in the Beijing office of US-based law firm Bingham McCutchen LLP.

He said its global strategy has been crucial for Lenovo.

"Success requires a deep and prolonged in-market commitment of the investor's best managers and the full attention and support of the parent's executive suite," Beglin said.

As other PC makers have pulled manufacturing out of the US, Lenovo is going the other way. The company plans to create more than 100 jobs in the manufacturing of Think-branded notebooks and desktop PCs, tablets, engineering workstations and servers for business, government and education customers at a separate facility in Whitsett, North Carolina.

"We can provide significant value to our customers by bringing manufacturing back to the US. If delighted customers buy more products, we could create more jobs in North Carolina," said Tom Looney, Lenovo's North America general manager, who is responsible for relationship business for the enterprise and all public sector segments.

North Carolina Governor Bev Perdue called the move by Lenovo "a tremendous vote of confidence in the great skills and productivity" of her state's work force.

"The decision by Lenovo - done without public incentives - clearly demonstrates that North Carolina is an attractive place for leading global businesses to locate and expand," she said.

The Think line in 2012 added the X1 Carbon, an ultra-light, carbon-fiber PC, and the ThinkPad Tablet 2, which runs Microsoft's Windows 8 operating system, to mark the brand's 20th anniversary.

"In this industry, to have a brand that endures for 20 years is a long time," marketing chief Roman said. "It has established somewhat of a unique position in the industry for its reliability, for the quality of engineering, and for the excellence of its design."

The innovation emphasis comes down to the tiniest of details, said design chief Hill.

"We are always working on the next one, even before a new product ships," he said. "Always trying to make it thinner, lighter and better."

Contact the writer atyuweizhang@chinadailyusa.com