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Last Updated: Wednesday, 8 December, 2004, 14:53 GMT
Lenovo: The making of a legend?
Mary Hennock
BBC News business reporter

Lenovo chairman Liu Chuanzhi shakes hands with John Joyce, IBM senior vice president
Liu Chuanzhi (left) has steered Lenovo from the start

Until it rebranded itself last year, Chinese computer firm Lenovo called itself simply Legend.

Although its name - and its bosses - have trumpeted the scale of the firm's ambitions from the start, its decision to buy IBM's pioneering personal computer business remains breath-taking.

"Our unwavering goal has been to create a truly international enterprise," said chairman and co-founder Liu Chuanzhi, announcing the $1.75bn (900m) deal which will create the world's third-biggest PC maker.

The deal brings together IBM's 5.5% share of the global PC market and Lenovo's 2.2%. Their combined businesses had worldwide sales of $12bn in 2003.

Campus beginnings

Eleven scientists started Lenovo on a Beijing campus in 1984 as a distributor of foreign brands - including IBM, and Hewlett Packard.

They invested a total of 200,000 yuan ($24,000; 12,500).

Lenovo PCs on display in Beijing
Lenovo is China's biggest PC seller, with 27% of the market

Lenovo presentations still show its first office, a small hut reminiscent of HP's humble birth in a shed.

Since then, it has grown into the biggest seller of PCs in China, with 27% domestic market share, according to analysts International Data Corp (IDC).

Lenovo's rise is "one of the biggest and earliest success stories of the Chinese IT industry", says Ted Dean, joint managing director of Beijing-based consultancy BDA China.

Smart strategy

It all the more striking because foreign firms dominate the Chinese market in most top-end IT sectors, particularly wireless networks, he says.

Year to March 2004
Sales: HK$23bn ($2.3bn; 1.5bn)
Profits: HK$1.5bn; ($193m; 100m)
Source: Lenovo

Lenovo's transformation into the biggest player in China's PC market hinged on three strategies.

First, it started off as a distributor and built up distribution networks ahead of marketing its own goods.

Second, it benefited early on from central government determination to nurture a strong IT sector by supporting links between academia and industry.

Founded in 1984, Beijing Legend started manufacturing motherboards in 1989 as well as providing systems integration for large government clients.

The first Legend branded PC rolled off the production line in 1990.

Third, it listed its Hong Kong arm on the stock market early on - 1994 - and was able three years later to wrap Beijing Legend's assets into the Hong Kong listed company to tap international investors.

Its shares moved onto Hong Kong's main Hang Seng index in 2000 and it also has a New York listing.

Brand awareness

Lenovo has always said it was out to build a huge brand but it has moved fast since rebranding itself Lenovo in 2003 "to lay the groundwork for its expansion in the overseas market".

At that time, there were rumours of regional deals in Malaysia or Singapore.

But the firm is no stranger to dealing with big US brands - it scrapped a tie-up with Time Warner after deciding against focusing on internet portals.

It picked Lenovo as its contender for worldwide household word to solve trade mark registration troubles when the Legend name turned out to be too widespread.

In another brand-conscious move, it sponsors the International Olympic Committee. Chief executive Yang Yuanqing, who will become chairman when the deal is completed, put on running shoes to carry the Athens 2004 Olympic flame.

Such smart branding shows how far Lenovo has come, but it will need plenty of savvy to make the deal succeed.

Trouble ahead?

One reason Lenovo is looking to expand abroad is that times are tough at home. Falling PC prices have squeezed margins and it faces brisk competition from international rivals, particularly Dell.

"The PC business is a very competitive business which has gotten tougher for Legend," says Mr Dean.

Lenovo cannot take its home market for granted and will "need to continue to consolidate here", he says.

Lenovo is not the first Chinese firm to move beyond its home market by buying up struggling operations from an international brand, but its deal is the biggest and boldest so far.

Chinese ambitions

Last year, mobile handset and TV maker TCL did deals with two French firms, Alcatel and Thomson Electronics.

Alcatel put its handsets into a joint venture with TCL, effectively exiting the sector, while the alliance with Thomson gave TCL access to the US market leading RCA brand of TV sets.

Internet backbone maker Huawei stepped on Cisco's toes in the US market, which it says was the true reason for litigation launched by the US giant.

Consumer goods makers Haier has succeeded in selling its own brand fridges in Wal-Mart stores, rather than rebranded ones.

Chinese firms are no longer content to be thought of as excellent contract manufacturers. They are looking for ways to become household names abroad.

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