Yang Yuanqing and Stephen Ward have an interesting few months ahead of them. Not only are they managing the creation of what Ward calls the “first ever Chinese company to become multinational,” but they are also looking to placate the U.S. government, which has raised concerns about a deal that will see the U.S. company that popularized the PC sell off this business to Lenovo Group Ltd., a company with close ties to the Chinese government.
The two executives also have some hard selling to do to IBM Corp. customers who may not be comfortable with the new arrangement. A recent Merrill Lynch survey of 100 chief information officers found that among those who are currently IBM customers, 45 per cent plan to consider switching PC vendors as a result of the Lenovo-IBM deal.
If the US$1.75 billion acquisition is completed in the second quarter of this year as expected, Ward will assume the title of chief executive officer (CEO) of the new company and Yang, Lenovo’s current president and CEO, will become chairman of Lenovo’s board of directors.
Ward and Yang took a few minutes on Monday to speak with IDG News Service during IBM’s PartnerWorld conference in Las Vegas.
IDGNS: What is the number one issue for you right now? Are you focused on logistical issues or strategy issues or political issues?
Stephen Ward: The first things we’ve spent time on are our customers, our partners and our employees. And we took a very clear assignment for each one of us: retain our customers. Yuanqing has met with our PC division business partners in China — because that’s a different channel than what (Lenovo used) — to make sure that they understand what our relationship will be with them. We’ve met with customers around the world to go through what the strategy is.
The second piece is employees. Both selecting individuals, putting together the plans of how we’ll motivate people, and then meeting with (them). We have literally met with every person in the company in kick-off meetings, sales meetings, or joint sales meetings.
We have 90 people from Lenovo and (the PC division) at this meeting — that’s five times more than we would normally have — to make sure we’re communicating with partners. So the first strategy is to make sure we maintain our partners, maintain our customers, maintain our employees. And that has worked extremely well.
I think we’re up to 24 customers now that not only we’ve retained, but that say they want to do press releases, that they’ve made the decision to go with us. And you know how hard it is for customers to do press releases.
That’s the first piece. The second piece is the development of the strategy and the strategy going forward. Lenovo had a very strong strategy in making the decision to do the acquisition. Now what we’re doing (is determining) ‘How do we go make that strategy work?’
The third thing is culture. We spend a lot of time discussing how to bring the cultures together and take advantage of both sides.
Yang Yuanqing: There is another thing before strategy and culture that we have. We have to close this deal and separate the PC business from IBM and integrate with Lenovo’s business, so we have a lot of work to do there.
IDGNS: So what is the biggest problem that you’re facing? Is it the U.S. government?
Ward: The biggest problem that we’re facing, by far, is communications. We’re communicating like crazy. There are so many people who are just so interested. I have literally met with 100 CEOs on this topic. And I could spend all my time just meeting with customers, as could Yuanqing. That’s the biggest problem we’re facing. There’s a thirst to know what we are doing. And it’s sorting out which of that thirst is generating business and which of that thirst is people who want to understand how to do business in China.
And then the second piece is, there’s a lot of work to do: moving employees to buildings and getting new ID (identification) badges, and changing our e-mail from “@us.ibm.com” to “@lenovo.com.” It’s just work.
IDGNS: In Lenovo’s recent filings there was a comment about moving employees to geographies where it is more cost-effective to have them. How many employees are going to be moving and where?
Yang: We don’t have a big plan to move too many people from China to the U.S. or from the U.S. to China. Ward: We have 10,000 employees in the PC division. Already, before we announced this merger, 4,000 of them were in China. All of our desktop manufacturing is in China today. We have the ability to do some moves in China that Lenovo can pick up, and there are some jobs that are being filled in the United States or Europe as we separate from IBM. So we’ll have some situations where someone might be in one job today, and we’ll move them to a different job. They may become an accountant because of a finance background. But that’s sort of a person by person thing.
Our strategy right now is a strategy that says research and development should be done where smart people are, same as it is in most companies now. That’s why Intel has research in Israel as well as having research in China and the United States. We’ll do the same with our centres in Beijing; Yamato, Japan; and Raleigh, (North Carolina).
Sales has to be done where you can talk to business partners and manufacture, and supply chain should be where the supply chain is, and we’ve already moved that there now.
But I think over time this is a business where you have to constantly look for how you can do things much more efficiently.
IDGNS: Lenovo has tried and failed to expand into new areas before. This is a really big step, becoming a global business. What makes you think you will be any more successful this time?
Yang: I think the new company should focus on the desktop, but we can try new things in the Chinese market. If we can be successful in other areas, we can take them worldwide — for example, the printer and mobile phone business. We want to incubate these businesses in China.
Ward: You should think of us as being unique in that we have three incubation centres. Our biggest one by far is China; we also have an incubation centre in Japan. And then, of course, what we do in the U.S. in large accounts.
Before this deal closes, the product line from IBM will expand. We already have the IBM products in China, so that is not an expansion market there. We don’t have the Lenovo products outside of China.
IDGNS: So will we be seeing Lenovo-branded printers and mobile phones in the United States, then?
Ward: You will see Lenovo-branded products in the United States. We haven’t decided which ones, but you will definitely see Lenovo-branded PCs and laptops, as well as IBM ThinkPad branded products in the United States.
IDGNS: Is there a plan to consolidate manufacturing in China?
Ward: It turns out that we’re growing and growing very well, so we have manufacturing plants that we need. Lenovo builds all of its desktops and has just begun to build notebooks. We build all of our notebooks and so we need the manufacturing capacity. In fact, I expect to see us grow our manufacturing capacity. What you will see us consolidate is our procurement and the supply chain of our partners.