00:01 Chinese tech companies are not having a
00:04 great time abroad Lately from Tick Tock
00:06 to Huawei and Alibaba to tencent none of
00:09 them seem to be able to catch a break
00:10 none except Lenovo Lenovo is the clear
00:13 market leader in PCS worldwide it
00:16 continues to do well in countries like
00:17 the US and India that are generally very
00:20 skeptical of Chinese devices and it is
00:23 especially successful with Enterprise
00:24 and government clients with their think
00:26 line of products while Huawei phones
00:29 entering the US basically kick-started
00:31 our whole current trade War Lenovo has
00:33 been the third largest phone vendor in
00:35 the country for a while now with its
00:37 Motorola brand and since 2014 when
00:40 Lenovo bought IBM's server business to
00:43 the company has been a major player in
00:45 this space as well serving clients from
00:47 a large companies to even governments
00:49 around the whole world Lenovo even
00:52 successfully bought the two iconic
00:54 American businesses that to a large
00:56 degree invented the modern mobile phone
00:58 and the modern PC and they also bought
01:01 other it firms as well all without much
01:03 fanfare can you imagine xiaomi buying
01:06 Dell's PC business or maybe Huawei
01:08 buying hp's server business these days
01:10 that just wouldn't fly but that's
01:12 basically what Lenovo did and nobody
01:14 except for the hardest hardliners seem
01:17 to have cared Lenovo is treated by
01:19 everyone from Regulators to Consumers as
01:21 if it was different from all the other
01:23 Chinese Tech firms and to a pretty
01:25 substantial degree it really is from a
01:28 unique unlikely history to a very
01:30 different management style and product
01:32 strategy Lenovo represents a path to
01:34 internationalization that is unique all
01:36 over the world but especially unlike
01:38 anything else that we've seen from any
01:40 other major Chinese player and Pierce
01:43 that they got there
01:49 this video was sponsored by nebula while
01:52 today Lenovo is kind of a unicorn its
01:55 origin story is actually a fairly
01:57 classic one for its industry the company
01:59 was founded in 1984 in Beijing even
02:02 earlier than its compatriots like ZTE
02:04 Huawei the BBK group or xiaomi because
02:07 no real private technology industry even
02:09 existed in the country prior to lenovo's
02:11 founding all 11 of the company's
02:13 original employees and their founding
02:15 Capital came from the Chinese Academy of
02:17 Sciences which was and still is a large
02:20 state-run research organization which
02:22 meant that what we know of Lenovo today
02:24 was initially actually called the
02:27 Chinese Academy of a Sciences computer
02:29 technology Research Institute new
02:31 technology development company that's a
02:33 mouthful after a few years of limited
02:35 success with importing Electronics like
02:37 TVs the company found success with
02:39 manufacturing PCS in the 1990s and with
02:42 attaching for example a self-developed
02:44 circuit boards that allowed their
02:46 machines to type Chinese characters
02:47 smoothly for the first time ever
02:49 including predictive character choices
02:51 and all today typing Chinese characters
02:53 just requires a little bit of software
02:55 but back then a dedicated piece of
02:57 Hardware was needed which understandably
02:59 gave Lenovo a huge boost initially and
03:02 another innovation of theirs was a
03:04 computer called tianchi this machine had
03:06 a single button that would automatically
03:08 connect to the internet and open up a
03:10 web browser Lenovo set up a special deal
03:13 with China Telecom that handled all the
03:15 setup and bundle to do Services
03:16 automatically with the machine which
03:18 radically simplified the process of
03:20 getting online the TNG became China's
03:23 most popular PC by 2000 with over a
03:26 million units sold that year alone in
03:28 other words the company had a deep
03:30 understanding of the unique needs of
03:32 Chinese consumers and developed
03:34 innovative solutions for them and this
03:36 meant that Lenovo not only survived the
03:38 country's Electronics Market being
03:40 opened up to foreign competition in the
03:42 late 80s unlike most of their time
03:44 domestic competitors but actually became
03:46 the clear market leader in the country
03:48 overall by 1996 as well despite all the
03:52 competition again this is a classic
03:53 story of domestic Innovation and great
03:55 localization run by a well-run business
03:58 but what happened Beyond just the
04:00 founding story was actually completely
04:02 outside of the typical Playbook first
04:04 Lenovo went public on the Hong Kong
04:06 Stock Exchange already in 1994 in a
04:09 completely uncharacteristic move most
04:12 big Chinese Hardware companies like
04:13 Huawei or the BBK group have refused to
04:16 go public altogether While others that
04:18 do like xiaomi have only really done so
04:20 once they were much much larger Lenovo
04:23 was still tiny at their IPO and only
04:25 raised 30 million USD for contrast
04:28 xiaomi raised about 3 billion at their
04:31 IPO they spent that from very early on
04:33 Lenovo was a public company whose
04:35 finances and operations were constantly
04:37 examined by investors from all over the
04:40 world this kind of exposure really
04:42 shapes company culture and second
04:44 probably changed its name from this word
04:46 salad to First Legend and then later
04:49 Lenovo in English and so with a vaguely
04:52 International sounding brand long
04:54 experience with International investors
04:56 and the domestic Market largely
04:58 conquered as well the firm decided it
05:00 was finally time to expand abroad other
05:03 Chinese technology companies typically
05:04 do this by basically exporting their
05:06 existing products under their existing
05:08 Brands but Lenovo in 2004 was presented
05:11 with an incredible opportunity that put
05:13 them on a whole different path IBM had
05:17 just decided to get rid of its iconic PC
05:19 business margins on PCS were low as
05:22 Microsoft and Intel completely
05:24 standardized the market and competition
05:26 was tough scale is typically King in
05:28 these commodity markets but IBM was
05:31 smaller than some of its competitors so
05:33 their business was in a difficult spot
05:35 combining with Lenovo would give them
05:37 more scale and the iconic ThinkPad Brand
05:39 Plus the extensive relationships of IBM
05:42 were a huge attraction to Lenovo who was
05:45 trying to internationalize so this was
05:47 an exciting match for both the only
05:49 problem was that ipm's PC division was
05:52 three times the size of Lenovo in terms
05:55 of Revenue so the industry back then was
05:57 pretty baffled by what they saw as a
05:59 snake swallowing up an elephant that's a
06:02 reference from The Little Prince in case
06:04 you missed it anyway IBM wanted to get
06:06 rid of this business so bad that they
06:07 agreed to both a low price and some
06:10 Financial engineering tricks that meant
06:12 that the deal went through and created
06:14 this completely wild corporate structure
06:16 the IBM business had 10 000 employees
06:19 which was more than Lenovo had and most
06:21 of them were located in North Carolina
06:23 Lenovo very much wanted to keep its
06:26 operations running so the company ended
06:27 up with basically two Global
06:29 headquarters and ex-ibm people often
06:32 running the whole show in fact an
06:34 American IBM executive became the CEO of
06:37 the combined entity lenovo's Chief
06:39 marketing officer who built up its
06:41 Global brand until recently was an
06:43 American who worked at Apple Nvidia and
06:45 HP before the company's Global Marketing
06:47 and PR is primarily run out of London
06:50 and the US even today hence why I bet
06:52 most people even today don't know that
06:54 this is technically a Chinese company
06:56 product development to this day
06:58 continues to be split between various
07:00 countries as well and even lenovo's
07:02 leadership team and board of directors
07:04 includes lots of international
07:05 Executives too compare that to the
07:07 leadership teams of firms like Huawei
07:09 for example where basically every
07:11 decision maker is Chinese and the
07:13 difference is pretty clear to see now
07:15 Lenovo veteran Yang Yuan Ching did
07:17 become the CEO of the combined entity
07:20 eventually but it is clear that this
07:21 acquisition turned Lenovo into a wildly
07:24 different organization than most of its
07:26 peers basically every report that I
07:28 could find appraises lenovo's management
07:30 to the High Heavens for managing this
07:32 deal and for creating an environment
07:33 where people around the world feel
07:35 welcome which is a very rare thing
07:37 indeed for these huge multinational
07:39 mergers and the company has done great
07:42 ever since from 2005 to today the
07:44 company went from seven percent to over
07:47 24 market share in PCS and it is now the
07:50 clear market leader worldwide so given
07:53 the success of this acquisition and
07:55 seeing how good they were at running a
07:57 decentralized organization they chose to
07:59 continue in the same path going forward
08:01 they most famously bought IBM's x86
08:04 server business in 2014 which basically
08:07 builds and sells servers to Big firms
08:10 with Intel and AMD chips they bought the
08:12 Motorola phone business from Google that
08:14 same Year too and they also made a few
08:16 other smaller Acquisitions as well like
08:18 buying Germany's median buying Brazil's
08:21 digibros acquiring a majority stake in
08:23 Japan's Fujitsu client Computing
08:25 Division and so on and with each of
08:27 these Acquisitions the company became
08:29 more decentralized and more Global to
08:32 the point where today China only makes
08:34 up about a quarter of lenovo's sales
08:36 actually even in China the company's
08:38 products are often sold using English
08:40 language brand names like Moto or Legion
08:43 so even to Chinese consumers all these
08:45 products feel vaguely International
08:47 rather than extremely domestic today
08:49 Lenovo is by far the most global
08:52 technology firm out there with
08:54 Motorola's headquarters in Chicago still
08:56 up and running North Carolina still
08:58 hosting at least six big Lenovo campuses
09:00 Brazil the company's largest full Market
09:02 to date hosting a big production
09:04 facility and so on that is unique not
09:07 just for China but for firms from
09:09 anywhere in the world because most firms
09:11 tend to concentrate power geographically
09:13 much more than that so that's how Lenovo
09:16 works but beside just the operations
09:18 it's also interesting to look at who
09:19 actually owns the company and here the
09:22 picture is actually a little bit
09:23 complicated as well of course initially
09:25 the Chinese Academy of Sciences and by
09:27 extension the Chinese government plus
09:29 early employees were the company's major
09:31 shareholders but this has changed with
09:34 time today CEO young ching and his
09:37 Holdings make up about 6.3 percent of
09:40 the shares while Legend Holdings which
09:42 represents the other Legacy owners is is
09:44 still its largest shareholder at 35.7
09:48 percent and then from there on it's a
09:50 mix of shareholders from all over the
09:52 world including China Legend if you
09:54 remember is the old name of Lenovo and
09:57 in fact the Chinese names of the two
09:58 entities are still the same this is now
10:01 a holding company that beside owning
10:03 Lenovo shares also has a wildly diverse
10:06 set of investments from agriculture
10:08 companies that grow fruit to an online
10:10 payment service provider an airline a
10:12 private bank that they bought from
10:14 Luxembourg and so on my understanding is
10:17 that this is basically lenovo's founder
10:19 Leo changer using his money and
10:21 relationships to make smart Investments
10:23 which looking at the share price has
10:26 basically not worked anyway this firm is
10:28 also publicly listed on the stock market
10:30 and so we know that it still has the
10:32 Chinese Academy of Sciences as its
10:34 largest investor at 29 also looking
10:37 through their company's website it is
10:39 pretty clear that Legend and holdings
10:40 views its Mission as the general
10:42 Improvement of China's econ economy with
10:45 their texts overwhelmingly aligning
10:47 themselves with the government's
10:48 development goals in other words around
10:50 42 percent of lenovo's ownership is tied
10:53 to its original owners and its current
10:55 CEO of which at least 10 is a directly
10:58 attributable to a state-owned entity
11:01 while the rest is basically a mix of
11:03 global and mostly private Capital all
11:06 the shares have equal voting rights as
11:08 far as I can tell and so while Hong Kong
11:09 laws still apply to the company the
11:12 general ownership structure of the
11:13 company is more decentralized than that
11:15 of most Chinese companies now beside the
11:18 unique ownership and operation structure
11:19 another reason for why the company is
11:21 more easily accepted around the world is
11:23 that it is structurally not particularly
11:25 well set up to do something nefarious
11:27 Lenovo is basically a systems integrator
11:30 from PCS to servers to phones all of the
11:33 stuff that they sell is made of
11:34 notoriously standardized components
11:36 which system administrators and even
11:38 just hobbyists can easily understand and
11:41 manage plus they run very standardized
11:43 software as as well any competent person
11:45 can just reinstall the whole operating
11:47 system on something like a PC and even
11:49 on phones butofo basically just chips as
11:52 close to stock Android as anyone else
11:54 with basically no Lenovo specific cloud
11:56 services or apps of course any
11:59 technology could theoretically create
12:01 security issues but compared to Huawei
12:03 for example whose machines operate
12:05 literal Telecom networks handling data
12:07 flows with completely custom Hardware
12:09 software and custom chips as well it is
12:12 clear that a ThinkPad or a Motorola
12:14 phone are just nowhere near the best
12:16 vectors for an attack and indeed I
12:19 couldn't find any credible allegations
12:21 of a Lenovo product doing something
12:23 nefarious that came with any sort of
12:25 proof I mean there are some claims like
12:27 how apparently some ad software that was
12:29 pre-installed on some PCS sent some data
12:32 back to China but I mean you could just
12:34 reinstall Windows if that was somehow a
12:36 spy story plus there is a single person
12:39 from the US military who claims that
12:41 their Lenovo machine had a quote encrypt
12:43 to the chip on their motherboards
12:46 sending data back home but without any
12:48 sort of explanation or proof which makes
12:50 the claim a little bit hard to draw any
12:52 conclusions from in other words Lenovo
12:54 basically just assembles standard
12:55 third-party hardware and slaps standard
12:58 third-party software on top which makes
13:00 their technology stack super transparent
13:02 and just a way less of a worry than that
13:04 of most other companies now this focus
13:06 on just being a systems integrator meant
13:09 that Lenovo has grown more slowly than
13:11 some of its domestic Rivals like Huawei
13:13 and that their profitability has been
13:15 much weaker as well as they have fewer
13:17 unique technologies that they could
13:19 charge a premium for even xiaomi with
13:22 its low Hardware margins has way better
13:24 profitability as they can use at their
13:26 software and their ecosystem magic for
13:28 monetization unlike Lenovo but the
13:31 upside I guess is that in an
13:33 increasingly polarized world where
13:34 political factors are just as important
13:37 to business success as anything else
13:38 lenovo's slower more diplomatic and more
13:42 decentralized model might be a winning
13:43 for a Chinese firm to internationalize
13:46 anyway when I worked for Oppo in China I
13:48 heard this typical debate about whether
13:50 huawei's approach to
13:51 internationalization and to running a
13:53 business was a better one or that of
13:55 Lenovo because these were kind of seen
13:57 as the two extremes on a spectrum and
13:59 most other companies were trying to
14:01 model their internationalization
14:03 strategy on either one or the other so I
14:05 made a whole video explaining how these
14:07 two extremes are different and where
14:09 each has its strengths and weaknesses
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