That’s probably why Mary Ma is so eager to dispel any worries about the possibility of massive layoffs at the IBM unit acquired by Lenovo. Ma, Lenovo’s 52-year-old CFO, says the company believes “the best way is to increase the productivity of existing staff.” Indeed, the first major merger between a U.S. company and a Chinese company is a strategic union making the best use of the strengths of East and West. Lenovo has placed former IBM executives in key positions in the new organization. Stephen M. Ward Jr., former head of the PC unit, is the CEO. Yang Yuanqing, formerly Lenovo’s CEO, is the new chairman. Robert Cones, former CFO of IBM’s PC unit, was named group financial controller of the merged company, reporting to Ma. The 30-member executive staff is split down the middle, half Lenovo and half IBM. Even more telling, Lenovo’s headquarters will be in New York, only a few miles from onetime parent IBM.
Judging from the example of Lenovo, Chinese commercial companies prefer to buy assets — and customers — that can be plugged into their own operations, minimizing culture clashes and the need for painful adjustments. In the cases of TCL and Lenovo, both of the companies they acquired had long ago outsourced manufacturing to Asia. TCL, for instance, closed some of Thomson’s factories in Mexico and moved production to existing facilities in China.
Personnel issues have been somewhat more challenging for the Chinese. Before buying the PC unit, “we had a really long debate about whether we would manage them on our own or create a joint management team,” says Ma. There were many skeptics, not only at Lenovo but also among its advisers. After long hours of discussions, Lenovo decided it was buying not only technology assets but also management expertise. The IBMers were welcomed into the fold.
For Chinese companies aiming to sell overseas, a foreign acquisition will be their first major foray into markets outside the mainland. That’s why they are seeking targets that offer strong brand identity for Americans and Europeans. Appliance-maker Haier’s bid for Maytag, although ultimately abandoned in August, hints at what’s to come. Chinese companies see plenty of opportunity in snapping up neglected or ailing brands that have established sales and distribution networks.
But for now, many Chinese technology companies are trying a different tactic to gain a foothold in foreign markets. “We’re sending our employees overseas to set up subsidiaries and open sales offices so they can go to the customers directly,” says Wei Zaisheng, CFO of ZTE, China’s second-largest telecom-equipment manufacturer. (Huawei is the largest.) Increasingly, both companies are competing with U.S. networking giant Cisco, France’s Alcatel, and Canada’s Nortel. Last year, international sales accounted for less than a third of total revenue for ZTE. In 2006, Wei says, international sales are likely to exceed domestic sales.
Eventually, the Chinese may cast off tentative tactics and try to buy their way into world markets. Some may already be window-shopping. “We welcome any opportunity for acquisition,” says Wei. “We’ll look at companies with sales-channel expertise.”