A Bite Out of Big Blue

IBM is finally out of the PC business. Though that may have come as no surprise to those who understood that this particular sector was hardly the computer giant's main source of income, what has made headlines is the buyer: China's biggest PC maker, Lenovo. Big Red, as Lenovo is now known thanks to its purchase of Big Blue's PC arm, snapped up the business for $1.75 billion, in what is by far the biggest and boldest overseas acquisition to date by a Chinese corporation. IBM stands to gain too: Big Blue will take an 18.9 percent stake in the new Lenovo for at least three years, which will help the U.S. firm gain access to China's booming tech market. NEWSWEEK's Melinda Liu sat down with Lenovo CEO Yang Yuanqing to discuss the challenges ahead--including the company's move to New York. Excerpts:

LIU: You'll be chairman of the new Lenovo, which has now acquired thousands of American employees. How will you bridge the culture gap and make them feel at home working for a Chinese company partly owned by your country's government?

YANG: I aim to tell them Lenovo is not just a Chinese company but a global company. So the headquarters will be in New York and Stephen Ward--an IBM senior vice president--will be CEO. I'll also tell them there are many similarities between our two companies. We pay great attention to our employees. Customers are our priority. At the same time we'll pay more attention to innovation. Of course, because of our different cultural backgrounds, contradictions might arise. How can we resolve them? I once gave three catchphrases to our Chinese workers and now I offer them to our American employees as well: be frank and honest, respect one another, compromise. If we implement these we'll have no problems.

What brand will you take to the world market?

Under the agreement, we can use the IBM logo for five years and the "Think" trademark forever. This is very important to our new company, to help us through the transition period. People who don't know much about our brand can continue to use the IBM brand. At the same time we can build a new brand.

How can you convince IBM customers that Lenovo will maintain quality control and customer service? Let me stress our attention to continuing IBM's customer service and warranty coverage. For a long time in the future Lenovo and IBM will be strategic partners. We're not just buying the brand name.

In China, Lenovo computers are popular in government and education circles. How important to the Chinese PC market is having good connections? Do you count on having many state-owned enterprises and government offices as customers?

Sure, the government is a very important customer of ours. What company doesn't want good relations with its customers? One reason IBM wanted to make a deal with Lenovo is that they wanted to take advantage of Lenovo's good customer relations.

Many ordinary Chinese heralded the IBM purchase as an achievement for the entire country. Did senior government officials congratulate you? Did President Hu Jintao phone to say, "Good job"?

Nobody that high up. But many government officials did call. I can reveal to you that the cooperation between Lenovo and IBM was approved by top government authorities--the premier and a few vice premiers all signed off on it.

Are you a member of the Chinese Communist Party?

Yes I am.

When did you join?

In 1997 or 1998. I was a businessman first and then I joined.

How do you reconcile your business persona and your Communist Party persona? Some people say ideology is dead in China.

Let's not talk politics, OK?

It's awkward for you...

Some people from IBM are Republicans and some are Democrats but nobody asks who's a Republican or Democrat. Lenovo is a market-oriented company. Our priority is to make the company successful. Don't mention politics.

Are you ready for the big move to New York?

I don't know if I'll like staying there or not. But I'll try my best to get used to life in the United States.

What do you like or dislike most about being in the United States?

What I like most is being with Americans. But I'm still trying to get used to American food.

Why should this deal succeed when so many acquisitions in the computer industry have failed? Both IBM and Lenovo are losing market share; Lenovo has had the third-worst-performing stock on Hong Kong's Hang Seng Index.

I want you to pass a message to [Dell chairman] Michael Dell. He's the one who's been saying there's never been a successful computer-industry acquisition. Tell him Dell was successful because, on the one hand, it had a good business model and high productivity. On the other hand, it rose up when other giants were sleeping. So I hope Dell won't make the same mistake. Now you're faced with a strong and competitive rival--a rival that will have not only the same level of productivity as youbut much more innovation and a high-quality brand.

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