Welcome to Managing Asia.
Here in China, Liu Chuanzhi is a giant, a pioneer in China's rise as an economic powerhouse,
a national hero who built this, Lenovo, China's first global company.
We're here in Beijing for a special interview with Liu Chuanzhi Chairman of Legend
Holdings.
Visionary.
Humble.
A legend in his own right.
Liu Chuanzhi built up Lenovo, now the world's biggest PC maker and one of the biggest success
stories to emerge from China.
As I grew my business into a global brand, the pursuit of greatness became my main motivation.
Winning CNBC's Lifetime Achievement Award at this year's Asia Business Leaders Awards,
Liu has become an icon of entrepreneurship, a champion of Chinese capitalism.
When I first started work, it was at the end of the cultural revolution, but I was restricted
by the institutional setup in China.
I wasn't able to do anything, so I felt really helpless at the time.
In 1984, when the government decided to move to a market economy, it put an end to the
class war and struggle.
I felt the time for new hope had arrived.
I really wanted to make something and create more value in my life.
Liu started Lenovo - then called Legend Computer - in 1984 from a guardhouse in Beijing.
One of the most important things you did when you were 40-years-old, working as a researcher for the
Chinese Academy of Sciences was that you borrowed some 25 thousand dollars from the institute.
You insisted right from the start, they had no say in management decision making and that
was a bold move in those days.
Why was that important to you?
Before I was 40 years old, I was not able to do what I wanted.
So I really wanted to discover my own capabilities.
I was more concerned about showing my management abilities.
Therefore what I asked for was power in decision-making, the allocation of finances and management
of human resources.
These were the top priorities when managing the business.
This bold independence gave Liu and his researchers space to maneuver and innovate.
We had a technique that set us apart - that was to program globally imported PCs with
a module to read and write Chinese characters.
With this, we managed to help more Chinese people use the PC.
Then we worked hard to become an agent for HP and IBM.
After we achieved this, we wanted to make our own PCs, by developing our own mainboards
and CPUs.
Liu also built up his team, and a close bond with Yang Yuanqing - Lenovo's current CEO
- that would last for decades to come.
But it was the landmark acquisition of IBM's PC business that pushed Lenovo into the global
leagues; the 1.75 billion dollar deal that became a turning point for China's tech industry.
Yang's argument to the board was that if our business were restricted to the Chinese market,
we might face stagnation and die off.
I was on the same page with Yang.
So acquiring IBM's PC unit was a very great opportunity for us as it pushed us to go global.
We reaped the benefits, and as the Chinese saying goes, "Wealth is achieved by taking risks”.
After the deal, you gave up the Chairman role and allowed an international team led by an
American CEO to take over.
But not all went well.
Lenovo lost market share and swung into the red.
You returned in 2009 to take back control of the company.
Looking back, what was the most important lesson you learnt about cultural integration?
Cultural conflict is inevitable, but it is important NOT to politicize it and make it
into a clan war.
At that time, the management was led by an American.
Yang and him were divergent in their vision for the company.
Yang told me his perspective and I of course agreed with him.
The American CEO told his perspective to the rest of the board, who were also Americans,
and the nature of their interaction led them to agree with him.
This would easily create a split in perspectives from both sides.
It was dangerous and my job was to resolve that.
Frankly speaking, Yang was right.
In my opinion, the American was rather myopic in his vision for the company.
At that time, the computer industry was experiencing a transformation, from enterprises buying
computers to consumers purchasing them.
Enterprises were growing slower than consumers.
As the Thinkpad was more for enterprises, we needed to introduce a new product line
for consumers and this required great investment - from innovation to marketing to the IT system.
Such innovation would require funds from profits and this posed a problem for the CEO.
From a shareholder point of view, I felt that the CEO was unwilling to make this investment,
thus affecting business development.
So you were forced to come in to save the company?
Yes. If I hadn't come back as Chairman, the other shareholders would not have agreed to Yang
Yuanqing becoming CEO again.
I think Yang had the ability to resolve the problem.
The shareholders had more trust in me due to my track record and so they wanted me to
resume my duties as a Chairman before they agreed to Yang returning as CEO.
Together with Yang Yuanqing, you restored the "Lenovo way" of doing business.
Lenovo quickly returned to profitability.
Today, it's overtaken HP, Dell and Acer to become the world's biggest PC maker.
What exactly is the secret behind the "Lenovo way" of doing things?
To put it simply, there are three factors.
First, we have to form a team, set a strategy and lead the team.
I helped Yang to form a good team.
There were four international members and four Chinese members, and I came up with roles
and responsibilities that allowed them to work and get along well together.
This was what I did for Yang.
Second, I helped to build what I thought was a more appropriate corporate culture.
At that point in time, I thought the most important thing was to deliver on promises.
At that time, the employees were very casual about what they said.
Promises were taken lightly.
I felt that was bad for the company's fighting spirit.
I hoped that the company would be one that was precise, almost military-like, that delivered
on promises.
Only then could we fight together.
So more performance driven?
Yes, but not entirely profit-driven.
When we do anything, we should follow the rules we set out for ourselves, including
being punctual for meetings.
This goes beyond making profits.
The Americans were not punctual in meetings?
Yes, indeed.
We had a shareholder who was very busy and was frequently late.
When I became Chairman, I sent out a notice to all shareholders asking for opinions if
it was to be allowed for those who were busier to turn up late for meetings.
All of the shareholders thought that even those who were busy should not be late.
With this understanding, I decided that those who were late should be punished.
So when I became the Chairman, no one was late again.
Lenovo is taking the lead at a time when global sales for PC are declining.
Are you seeing any signs of stabilisation?
What's your outlook for the PC industry?
The total pie is declining, but Lenovo's share is still increasing.
Hence, the decline in our profits is not obvious.
I believe the PC industry will continue to shrink in the future.
So Lenovo is already innovating and blazing new trails.
What kind of new trails?
Around 2010, Lenovo spent a lot of resources on developing the smartphone business.
However, over the past five to six years, it hasn't been that successful.
The apparent failure could be because it made hundreds of models a year to satisfy the demands
of the telcos.
But this resulted in lower end smartphones.
Lenovo only adjusted its strategy recently.
After acquiring Motorola, we've been making higher quality smartphones, launching about
one or two models a year.
After using the smartphones myself, I find the quality has improved remarkably.
Apart from big data and the server business, we are also going into more organic technological
partnerships with companies in health, IT, and food industries.
I believe with Yang's determined personality and his constant adjustments to his goals,
there is still a great chance.
So you can repeat the same success in pcs with smartphones?
I believe so.
I have great hopes that in the next two years, the international smartphone business will
turn around and make profits.
I hope that Yang would broaden his horizons and seek breakthroughs in the mobile phone
business, and not just follow the conventions of the smartphone industry.
Look at Alibaba.
It was previously an e-commerce business, yet it made a name for itself in financial
services.
With the right strategy, planning and support of strong big data insights, it is possible
to make such a big change.
TV manufacturers in China used to produce just hardware.
Now, they're making software as well, and bundling entertainment content for consumers.
So, I encourage Lenovo's management and the new board to widen their horizons to achieve
breakthroughs.
Stay with us.
After the break, we ask Liu Chuanzhi, Chairman of Legend Holdings whether he's concerned
about the slowdown in china.
Of course we have our concerns.
Managing asia will be right back.