The Yin, the Yang, and the Bang-Bang

Somewhere in East Wangjing

Watching people from Star Group prepare for a pitch

0931 hrs.

On the morning after the 40-story bonfire that turned Beijing’s nearly finished Mandarin Oriental Hotel and Television Cultural Center (TVCC) (known locally as “the boot” for its shape) into a smoking, twisted hulk, speculation and accusation continue about the cause. Many suggest that errant fireworks are to blame. As the building was owned by one of China’s most powerful state-owned entities, China Central Television, the investigation into the fire and the report on its causes will undoubtedly become a political football, so we may never know what truly happened.

Shooting Yourself in “the Boot”

If fireworks were a contributing factor, the Chinese government will face a dilemma. If it does nothing, it risks the continued (and growing, as the nation grows more prosperous) sequence of tragedies large and small that accompany the use of pyrotechnics and high explosives by the inexperienced and inebriated.

If, on the other hand, the government takes the logical step of restricting the manufacture, distribution, sale, and use of fireworks, it risks widespread popular discontent (fireworks are not only a cultural mainstay, they are arguably more of a national icon than the flag) and the decimation of a large seasonal industry.

In short, the entire issue places the two imperatives that guide Chinese policy making at odds with each other: the Confucian obligation for the ruler to act as parent to the nation on the one hand, and the growing importance of continued popular support as China’s polity evolves on the other.

Between the economic downturn that is putting an estimated 20 million people out of work and the political sensitivity of key historic milestones in 2009, sustaining popular support is going to be a particular challenge this year.

As such, I do not expect a major crackdown on fireworks. Instead, I think the government will take what will amount to token action to restrict fireworks that in scope and enforcement will amount to just enough to avert a major calamity.

Rantings of a Pyrophobe

All of which is a pity. If there was ever any issue on which the government should behave in loco parentis, this is it.

For some perspective, this is what I wrote about the fireworks issue two years ago (and pardon me in advance for the rant):

Xinhua is reporting that fireworks in Beijing have killed one person and injured 270 over the Chinese New Year.

You see, this is where I start to have a serious problem with moral relativism. You say it is part of China’s culture to set off fireworks and has been for a thousand years. I say it’s wrong.

I say look at the pollution and litter caused by fireworks.

At the factory explosions that level entire city blocks.

At the fires that destroy homes and lives.

And, of course, the toll of dead and injured.

Fireworks are made of gunpowder. Gunpowder was created to kill people and break things. Fireworks are an accidental, incidental application of the material.

For a little perspective on what we’re talking about, police in Beijing confiscated 560 million illegal fireworks this year. At an average of, say, one gram of high explosive per, that’s about 1.3 million pounds of TNT. To put this into perspective, a fully-loaded B-52 Stratofortress bomber carries 51 500-lb Mk-82 Snake Eye bombs. That means that just the illegal fireworks confiscated in Beijing would fill 50 B-52 bombers. And that’s not even taking into consideration the 380,000 crates of fireworks sold legally, which at (I’m guessing) 10 lbs per crate, would fill another 150 heavy bombers.

Allowing millions of pounds of high explosives into the hands of people who have neither training nor the understanding of pyrotechnics to handle them safely seems to me a pretty straightforward example of a really bad idea.

In any culture.

None of this means that fireworks have to go away. It just means that the handling of fireworks above a certain (very small) size would need to be left in the hands of well-trained, licensed, and insured technicians.

I suspect we will get there eventually. The only question is how many people must suffer in the meantime.


Wire services are now reporting that the culprits were actually a “professional” fireworks company from Hunan province who were hired by CCTV to set off the pyrotechnics. See my point above about “well-trained, licensed” technicians.

As opposed, say, to those with a little guanxi and just enough competence to make them dangerous.

The Lenovo Retreat

n the Hutong

Dreaming of summer

1920 hrs.

Jason Dean at The Wall Street Journal is reporting that Lenovo has replaced CEO Bill Amelio with Chairman Yang Yuanqing, and that co-founder Liu Chuanzhi is returning from his pasture to resume a seat on the board. They’re also upping senior VP Rory Read to the new role of Chief Operating Officer and President, and the company has decided to re-focus itself on it’s home market, China.

Bring on the Empty Horses

The announcement poses more questions than it answers.

We do not know what Mr. Read’s duties will be in his new position, so we cannot assess to what extent the promotion was made to tap his talent, and to what extent there were other political or perceptual considerations involved.

We do not know to what extent this is a sign that Lenovo failed to effectively integrate the IBM PC division, to integrate the executive teams, and to meld its product lines, and to unite the cultures of the two companies. Lenovo has kept up a veritable sunshine pump of positive messages about how smooth the integration process was, and have effectively kept any discouraging words from sneaking out.

And we do not know the significance of Mr. Liu’s return to the board, what forces brought him back, or what value he is expected to bring.

M&A is not a Global Marketing Strategy

At the same time, there are already lessons to be learned from the Lenovo-IBM saga. Purely from the perspective of marketing strategy, there are three that pop up immediately.

First and most important, as Chinese companies look to expand beyond the borders of the People’s Republic, they should now see that mergers and acquisitions are no substitute for a global marketing plan. I am not certain what Lenovo thought it was buying when it purchased the IBM PC business, but if Lenovo thought it was purchasing a market position, it was wrong.

What the IBM purchase did give Lenovo was instant capacity to sell its products around the world, and to that extent the merger made sense. But that capacity only had value as long as it had world-class plans, products, leadership and support. Facing a rampant Apple, a resurgent Hewlett-Packard, and a humbled but determined Dell, Lenovo also needed forceful, and, focused, and capable leadership to turn the unified team into a winner against powerful competitors.

Winning against vigorous and entrenched competition is tough enough. Having to do so while integrating two strong and linguistically distinct corporate cultures must have added a maddening level of complexity to an already brutal challenge.

The World is Way Too Much

Second, trying to take on the entire world at once was ambitious in the extreme. Keep in mind that before the merger, the Lenovo team was struggling with its market toe-holds outside of China, and the IBM team was struggling to profit from its global market. A more modest approach was in order.

Rather than seeing this as Lenovo’s opportunity to “globalize,” the company’s leadership might have been better off thinking of the merger as an opportunity to “internationalize” (a favored term among Chinese companies looking to expand beyond Greater China), focusing on a smaller number of markets where the combined company was strongest. (In fact, Dean’s article in today’s WSJ suggests the company will be doing just that going forward.)

After a merger of this magnitude, customers and employees in each market around the world expect the new company to spend a lot of time and effort explaining what the merger will mean to them. Who is Lenovo now? What is our vision for our company, our product, and our customer? And why should you, customer/retailer/employee/whomever, care?

Making that challenge even more complicated, each market has a different set of perceptions and expectations that need to be addressed, meaning that the effort has to be unique to each market.

It is hard to say whether Lenovo undertook that effort. But even if it did, doing it all at once in dozens of markets around the world would have overtaxed even the most capable, most tightly integrated marketing and communications teams in the world.

We’re an American Brand

Third, the August 2005 decision to dump the “IBM” brand from products sold outside of China – five years before Lenovo was obliged to do so and mere months after the deal was finalized – will likely go down as one of the great mistakes in the history of brand management. The decision was made public in buried lede in an FT piece by Mure Dickie:

The focus on [ThinkPad and ThinkCenter] product lines marks a decision to play down use of the IBM brand for products made by the US company’s former unit, even though Lenovo acquired the right to use the IBM name for five years.

More than a few analysts praised Lenovo’s move to cast off the IBM moniker. As Bruce Einhorn of BusinessWeek reported in February of 2006:

It’s a smart gamble for Lenovo, some analysts say. Using IBM’s well-knwn Think brand has been helpful, but it won’t do in the long run. ‘The Band-Aid has to come off at some time,’ says Samir Bhavnanii, principal analyst at San Diego-based PC consultancy Current Analysis. ‘They need to establish the Lenovo brand and start thinking about their computer company as Lenovo, not IBM.’ According to Bhavanani, this is the only way Lenovo will be able to break into the big leagues. ‘If they want to compete as a global brand with Samsung, Dell, and HP, they need to get people to start thinking of Lenovo as Lenovo.'”

I do not disagree with the larger gist of the statement, but as I argued in August 2005, the problem was timing. (Apologies for the long quote and the fact that I was fasting and a little irritable at the time, but I think I phrased it fairly well and I wanted to convey my incredulousness at the time.)

As regulars here will recall, the primary reason I was a supporter of Lenovo’s IBM purchase (from Lenovo’s standpoint – it was a no-brainer for IBM) was that Lenovo was going to have an opportunity to leverage the IBM brand for five years while it built credibility with customers. Anyone with just a little business sense knows that’s worth something.

In fact, it’s worth a lot. According to the August 1 edition of BusinessWeek and InterBrand, the value of the IBM brand – the third most valuable brand in the world behind Coca-Cola and Microsoft – is US$53,376,000,000.00. My point back in December was that Lenovo wasn’t buying a money-losing business for its $1.7 billion in hard currency, it was renting a highly usable $53 billion brand asset for a mere $350 million a year.

But Lenovo, under the expert guidance of Chairman Mr. Yang Yuancheng, apparently feels that not only do customers not need a transition, but Lenovo is unable to utilize a $53 billion asset to their benefit, an asset that they paid cash for and an asset that, arguably, was about the only useful thing they took from the deal.

Is the use of the brand “Think” worth that kind of money? I’m sure it’s worth something, but I’m not sure it’s worth $1.7 billion. And due to some stupid decision making at Lenovo, that’s all the company is getting for its cash.

If I were a Lenovo shareholder, I’d be screaming. Five years usage of a $53 billion asset tossed into the garbage? In the U.S., that would be grounds for an uprising at the next general meeting, and grounds to question the competence of management, and any auditing firm with a conscience would require a write-off of those assets as a one-time charge against earnings.

The burning question is “why?” I’d suggest one or more of the following reasons:

1. Lenovo leadership just doesn’t understand the esteem the IBM brand retains worldwide. Entirely possible since I’m not sure the Chinese side of the Lenovo house much understands the market outside of China.

2. Lenovo has no clue how to use the IBM brand. Also possible because they didn’t know how to use the “Legend” brand, and they did a poor job building the Lenovo brand in countries where they lacked explicit government support and fawning-lapdog media endorsement.

3. Lenovo is ignoring it’s advertising and PR agencies on a) the value of the brand, and b) how to use it. Having worked with Lenovo in an agency relationship and walked away when they weren’t listening to either us or our competitors, I’d say this is a pretty real possibility. Salesmen and Engineers rank highly at Lenovo. Marketers do not.

4. Lenovo’s advertising and PR agencies are incompetent and not pointing this out to Lenovo, or are terrified to do so because they think they’ll get sacked for talking back. Also possible, because who knows where Lenovo is actually getting assistance these days.

5. Somebody really high in the Lenovo organization genuinely believes that the Lenovo brand means more to businesses and consumers outside of the PRC than what it really does, which is “Made in China by a Chinese Company – Beware.”

Take your pick. I have my prejudices.

I genuinely hope Lenovo’s management reconsiders. If they don’t, I hope they’re prepared for the consequences, which they quite clearly appear to have underestimated. If nothing else, they will have screwed themselves out of the biggest asset they got from IBM.

As I said, a mite harsh, but it makes the point. Had Lenovo ejected the IBM brand and followed it with a massive global effort to drive awareness, positive perception, credibility, and trust of the Lenovo brand in its place, discarding the IBM brand would have been a ballsy move. But both at the time and now in hindsight, that decision paints an unflattering picture of decision making at the top of the company.

Whither Points the Finger

Thus far the global economy and no less than two non-Chinese CEOs (Amelio follows his predecessor, Stephen Ward, out the door: Ward lasted just over seven months) have shared the implicit blame for Lenovo’s fortunes. The latter have paid with their jobs.

In the coming months, however, the media and analysts will begin to turn their forensic attentions to the man who, in the words of author Ling Zhijun in The Lenovo Affair, “played a decisive role in the acquisition” of IBM-PC in the face of “serious” opposition from members of Lenovo’s board: Yang Yuagqing.

It is instructive to remember that Lenovo co-founder and then-Chairman Liu Chuanzhi stepped aside after the merger, leaving the task of merging and running the combined company to Yang and Ward. In that light, it is even more interesting that he is coming back now. To those of us fond of the ancient and honored practice of reading tea leaves here in Beijing, the implications are compelling.

If I were a betting man, I would wager that there is a debate taking place behind closed doors at Lenovo headquarters in Beijing and in government offices around the capital about whether or not the IBM acquisition was the right call, whether it was handled well, and where the blame lies for its mishandling.

Make no mistake: the next few months will be critical for Lenovo, and they will be the deciding factor in Yang Yuanqing’s career with the company. His task will not be easy, and he will be second-guessed at every step.

I, for one, wish him luck. He will need all the help he can get.

Five Reasons Obama Will Go Slow on China

Starbucks Guomao 1

I thought this was a work day

1133 hrs.

Now that America’s new president is settling into the Oval Office and a few of his key cabinet appointments have been confirmed, some folks here in Beijing are starting to wonder when Obama is going to start making changes to America’s policies toward China.

Don’t hold your breath. For a number of reasons, you should not expect significant changes in the China-US relationship in the near term.

1. New Kids in Town: Obama hit the ground running, but the velocity of initiatives coming first out of the transition team and now the White House belies the complexity of getting a new administration into place. It will be months before all of the President’s appointees are in their offices and operating smoothly with their own teams. Meantime, the West Wing is focused on building momentum on the problems worrying the American people, and sustaining the bipartisan sentiment in the Capital.

2. China was not a Campaign Issue: For a host of reasons, China was not a major issue in the Presidential campaign, allowing Obama a flexibility on China enjoyed by no other president in the past two decades. Able to take a pragmatic rather than ideological approach to US-China relations (Inaugural remarks notwithstanding), the administration can allow its approach to China to be dictated by the role it needs China to play in addressing its more pressing economic, security, and diplomatic challenges.

3. Better Things to Do: Team Obama has plenty of urgent issues on its plate: the financial crisis, the economy, the stimulus program, a new economic system, Iraq, Afghanistan, calming the Middle East, terrorism, and repairing the rift in trans-Atlantic relations wrought by eight years of neo-conservative unilateralism, just to name a few. American policy toward the PRC will be dictated by these issues more than any other factor, meaning that China will be approached once the administration is moving toward solutions on those issues.

4. No Ambassador: There is as yet no U.S. ambassador to China, and to my knowledge the President has named no candidate for the role. Given the extensive approval and briefing process, we probably won’t see Obama’s ambassador presenting his credentials before April, and perhaps not until May. Work will continue at the embassy, but significant new initiatives in the relationship will likely wait for the new ambassador

5. Getting to Know You: Like a couple of fighters sizing each other up in the ring, Hu Jintao, Barack Obama, and their respective administrations are watching each other carefully, making initial contacts, and learning enough about the other side to understand the basis on which the relationship will proceed. This is as it should be. It is no exaggeration to call the Sino-US relationship “the most important bilateral dialogue in the world today,” and as such improving those ties and the fruits thereof demands deliberate care, not headlong haste.

I would bet on six months before we see a significant initiative, and a year before we see state visits. Obama and Hu may well have an initial sit down at a major global conference, but short of that, relations will likely be status-quo ante in the near future.

Recently a diplomat asked me who I thought would be the first senior administration official to visit China. My money is on Defense Secretary Robert Gates. As a carryover from the previous administration, he would be the ideal messenger to talk about how the new team plans to take a more multilateral, inclusive approach to global security than its predecessor, and would signal recognition of the growing role China is and should be playing in addressing piracy, terrorism, nuclear proliferation, and a host of other issues.