Lenovo continues investments abroad, much like China itself.

14 Feb

According to the BBC, Chinese company Lenovo experienced a drop in its share price of up to 15% at one point during February 4th (BBC News 2014). This follows big movements by Lenovo in the technology industry, acquiring Motorola Mobility, the mobile phone brand and a new purchase from IBM, continuing their close link with the American multinational company. This considerable change in confidence in Lenovo is due to the combined cost of those investments hitting the $5.21 Billion mark, with many speculators believing Lenovo’s investments to be unprofitable.

These investments into big American brands is no venture into the unknown for Lenovo. It follows their recent trend of concealing their Chinese origins behind big well known multinationals that the mass western market love to both purchase from, and be advertised to. Although the mentioned investments are the biggest in Lenovo’s history, this trend began back in 2005 when the company purchased IBM for $1.25 Billion (Xiaoyan 2012) to gain a major foothold in the US PC market.

The speculators are unsure about the recent investments, but this is nothing new for Lenovo who also came under fire for their purchase of IBM back in 2005, a buy into a company that hadn’t made any profits for 3 and a half years (Tighe, M 2012). Like China’s recent economic decisions, Lenovo are unconventional and experimental with their movements, and for now they have generally been rewarded, becoming the world’s biggest PC manufacturer back in 2012 (BBC News* 2014). This indicator can be compared with China’s movements as an entire nation, where in January 2014 it overtook the US as the world’s largest goods trader. (BBC News** 2014)

China’s experiments, after the Chinese Communist Revolution of 1949, included the nation putting all of its efforts towards reform in its economy. This was done instead of focusing on political reform, as is normally to be expected. After its economy grew rapidly, averaging around 10% annual growth, they realised they needed to increase competition for their state owned industries and started to open up to global trade with a scheme called periodisation. This led to a further explosion of growth, and increased both the productivity and efficiency of their state owned firms as they contested and learned from their new Western competitors.

Why is this majorly important to China? Lenovo originated as a project facilitated and funded by the Chinese Government through their division, the Chinese Academy of Sciences. On November 1st 1984, 10 engineers with 200,000 Yuan, provided by the Chinese Government via the above division, were instructed to innovate under the name Lenovo (Lenovo 2013). 30 years later at 32%, according to Bloomberg, the majority shareholder in Lenovo is now Legend Holdings Ltd (Tighe, M 2012). These holdings are owned in the majority by again the Chinese Academy of Sciences which is still a division of the Chinese Government. If share prices fall in Lenovo, the Chinese Government will take some form of notice whether it be minor or not.

It is not unusual for Chinese companies to be publicly owned by the state. Statistics from NBS show that between the years 1949-1980 state ownership in the retail industry increased from 6.9% to 85.4%, a figure that would be out of place in more western cultures.

Other strategies for Lenovo to seem more appealing to US customers include using well known American stars to endorse their products. They recently acquired US actor and star of sitcom Two and a Half Men Ashton Kutcher, and US basketball superstar Kobe Bryant, to promote the brand around the world. Lenovo have also moved into global sponsorship to become more globally aware, sponsoring the recent 2008 Beijing Olympics, and even designing the Olympic torch for that year. Though, with the Chinese Government part owning Lenovo, it could be argued that they were funding the Olympics with money the Government would have provided anyway, just under a separate guise to improve economic performance of one of their biggest brands. There are also rumours that Lenovo isn’t finished with its investments and is considering a bid for Sony’s VAIO brand in the near future (Murai, R 2014), though there has been no comment from Lenovo on the story. It could also be further argued that these developments by Lenovo, with advertising and branding, is a similar move to that of China as a whole nation. The country is moving forward and trying to attract more and more foreign firms into their country to aid their further growth.

Lenovo aren’t the only Chinese company investing heavily in companies across the borders. As a high proportion of Chinese firms are still state owned, these firms expanding outside of China is a signal of the nation’s growing prosperity and ambition. China believe that they’re doing well and can stretch their economic arms into other industries and economies. Other recent Chinese investments include the $2.64 Billion buyout of US entertainment giant AMC Entertainment, Smithfield Foods the biggest pork producer in the US for $7 Billion and China Investment Corp has repeatedly purchased considerable shares in banking giant Morgan Stanley, both in 2007 and 2009, for a combined $6.7 Billion (Yellin, T 2013). These investments by the China Investment Corp, the country’s sovereign wealth fund, are not only in the US. They recently also purchased a 10% share in the UK’s airports, including Heathrow, Stansted and Southampton (BBC News*** 2012).

Lenovo perhaps were the initial experiment for China in terms of testing the global market waters. They began to experience success, and this has paved the way for China to allow its firms to trade far more freely. Whether these firms are growing too quickly, much like China itself as a country, is yet to be seen. Although, China’s growth can be compared with Lenovo’s recent purchases of those 2 arguably ailing commodities, Motorola and IBM, for its highest sum in its history, with the markets giving some indication of caution and falling confidence in this particular Chinese experiment. One thing that remains is that Lenovo is now an established force in the global electronics market and one not afraid of further challenges, as the Chinese nation comparisons look set to continue.

Word count: 1028

Bibliography:

BBC News (2014) BBC News Business, Lenovo Shares Drop 15% on Strategy Concerns. Available from: http://www.bbc.co.uk/news/business-26028266 [Accessed 12 February 2014]

BBC News* (2014) BBC NEWS Business, Google to own 6% stake in Chinese PC maker Lenovo. Available from: http://www.bbc.co.uk/news/business-26079021 [Accessed 12 February 2014]

BBC News** (2014) BBC News Business, China ‘overtakes’ US as world’s largest goods trader. Available from: http://www.bbc.co.uk/news/business-25678415 [Accessed 12 February 2014]

BBC News*** (2012) BBC News Business, China fund buys 10% stake in London’s Heathrow Airport. Available from: http://www.bbc.co.uk/news/business-20163907 [Accessed 12 February 2014]

Lenovo (2013) Lenovo, Company History. Available from: http://www.lenovo.com/lenovo/au/en/history.html [Accessed 12 February 2014]

Murai, R (2014) Reuters, Sony, Lenovo in talks on possible PC business alliance: report. Available from: http://www.reuters.com/article/2014/02/01/us-sony-lenovo-idUSBREA1007120140201 [Accessed 14 February 2014]

Tighe, M (2014) Bloomberg, Lenovo CEO Reshapes Chinese PC with Deal Spree. Available from: http://www.bloomberg.com/news/2014-01-30/lenovo-ceo-bids-to-remake-chinese-pc-maker-with-5-billion-spree.html [Accessed 12 February 2014]

Xiaoyan, Z (2012) People’s Daily Online, Lenovo on top of the PC world. Available from: http://english.peopledaily.com.cn/90778/8025110.html [Accessed 12 February 2014]

Yellin, T (2013) CNN Money, Chinese acquisitions of U.S. companies. Available from: http://money.cnn.com/interactive/economy/chinese-acquisitions-us-companies/ [Accessed 12 February 2014]

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