Lenovo is Chinese. Why aren't they sanctioned?

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

Views: 750,469

Keywords: Lenovo, Huawei, China, spectrum, business, internationalization, culture, company culture, CCP, Chinese government, state-owned, chinese academy of sciences, IBM, thinkpad, Motorola, moto, spying, spy, hacked, banned, sanctioned, sanctions

Id: 5g7WrTuL5AQ

Length: 15min 50sec (950 seconds)

Published: Wed May 03 2023