The Lenovo Juggernaut Rolls on Unabated

June 10, 2014

Dr Pikay Richardson

Chinese personal-computer maker Lenovo Group is looking to acquisition to fuel further growth. The company has great ambitions, and cash to fund its plans. Will it be able to balance innovation and efficiency?

Lenovo recently concluded two deals worth collectively about $5bn. The company has acquired IBM’s low-end server business for $2.3bn and from Google, Motorola Mobility handset operations for $2.9bn. Both were seen as Lenovo’s efforts to diversify beyond PCs into other faster growing areas of the computer industry.

Growing through acquisitions

Lenovo’s foray into other business segments was not entirely surprising. Having beaten HP to become the world’s largest PC maker by shipments, it has been looking for new sources of growth, mainly in smart phones and servers and storage systems. “We will continue to use acquisitions as a means to grow”, Lenovo Chief Executive Yang Yuanqing said after a shareholders meeting in Hong Kong. “Wherever there is a good opportunity, we will grasp it”.

The company has great ambitions, and an extra cash store to match. After paying $4.7bn, it still has $2bn on hand, according to Wang Wai Ming, Lenovo’s chief financial officer. What is more, the current low-interest environment provides opportunity to raise further funds, which Lenovo is considering, according to Mr Wang.

Lenovo’s strong corporate governance regime

Investor confidence is high. On 21st May, Lenovo announced its full-year results in Hong Kong where it has been listed since 1994. Its revenues were 14% higher than the year before, at $38.7bn, while pre-tax profits topped over $1bn for the first time in its history, up 27% on the year before. But this is only part of what is causing the investor euphoria. The other is that, Lenovo unusually for a Chinese Company, claims a strong corporate governance regime, as well as consistently delivering predictable returns.

Lenovo’s ability to turn around the controversial $2.9bn purchase of Motorola Mobility has been questioned. The pioneer mobile phone has fallen on hard times, but Mr Yang has responded to skepticism by saying that he was confident his company will be able to turn around the unprofitable business in four to six quarters, based on a strategy of increasing economies of scale rather than trimming staff.

From losers to treasures

“We have a good track record of turning around money-losing businesses into treasure”, he said, pointing to Lenovo’s first foray into foreign markets when it bought IBM’s loss-making PC business in 2005. Few believed then that an obscure Chinese company could save a Western premium brand, but this is precisely what Lenovo has done. Yang went on “Lenovo is the best company in the world when it comes to balancing innovation and efficiency.”

Whether or not this claim is sustainable is more a matter of “wait and see”.


Alibaba’s Jack Ma goes down the Bill Gates charitable route

May 5, 2014

Alibaba’s Jack Ma and the company’s co-founder Joseph Tsai are following the path taken by Bill Gates and Warren Buffett in creating a philanthropic trust.

An article entitled China’s Carnegie in The Economist, [May 3rd, 2014. P12] outlined this further example of creative capitalism.

The article traces the philanthropic ‘conversion’ of business pioneers and wealth generators from the days of Andrew Carnegie to today’s Jack Ma who has recently [April 2014] announced the formation of a $3 billion trust.

A cynical view of giving

The Economist is suspicious of altruism if a self-interested explanation comes to hand. It tests the ethical orientation of Ma’s actions and implicitly those of Bill Gates by suggesting that a cynical view that might be ‘straight out of a Silicon Valley public relations play-book ahead of Alibaba’s expected public offering this year which could value the company at $150 billion.’ Regardless of such imputed motivation, the initiative could add impetus to China’s efforts at environmental sustainability.

The Gates Foundation

Bill Gates and Warren Buffet have been leaders in a movement for the wealthiest capitalists to pledge sizable proportions of their assets for charitable purposes. The Gates foundation is admirably led by Biil and Melinda Gates.

From Silicon Valley to Shanghai

The movement has spread into other parts of the world including India. Jack Ma is overcoming reluctance of the wealthiest Chinese entrepreneurs to reveal their wealth as the country develops its new mixed socialist/capitalist political economy.


African Entrepreneurs suffer from venture capital shortage

February 14, 2014

African EntrepreneursLocal Entrepreneurs in Africa are disadvantaged by a lack of venture capital

In an article for Computer World, [November 2013] journalist Rebecca Wanjiku suggests several factors that may be contributing to a shortage of funds for new technology start-ups. There is no parallel with the vibrant venture capital hubs such as Silicon Valley in America or the University spin-off science pars flourishing in Cambridge [American or English versions].

The perceived challenges of businesses operating in Africa as well as the higher costs of due diligence and inexperience of the investors and entrepreneurs in the region have all worked to dampen the growth of venture capital funding for tech start-ups and mid-level businesses on the continent, according to industry insiders.
Local start-ups have held discussions and wondered whether their lack of success in raising big money had racial overtones. Companies run by whites seem to be luckier in securing funds. The problem, however, seems to be more about the perception of inexperience and a lack of contacts than race.
“I don’t think it’s about being white or black, it’s about your network; highly networked Kenyans have an easier time too,” added Erik Hersman, founder of the iHub Nairobi, a co-working space for techies.
“Innovative early stage ventures with the potential to yield high social and environmental impact and requiring less than $500,000 in financing remain the most difficult segment of the SME pipeline to reach,” said Ben White, founder of VC4Africa. VC4Africa is an online portal that brings together 13,000 entrepreneurs, VCs and angel investors interested in Africa. It was kicked off at the annual congress of the African Venture Capital Association in Dakar, Senegal, in 2007. Last year, VC4Africa start-ups secured $80,000 in funding while companies seeking expansion secured an average of $237,000 in funding.
VC4Africa works with entrepreneurs in 40 African countries but the number of start-ups and growing companies seeking funding outstrips the available capital. The lack of in-country funding mechanisms and lack of tech-specific financial facilities from the public sector most likely means that the problems will persist.

Leadership challenges

Leadership challenges abound. The contrast with the developments emerging in China, is stark. A similar sense of the availability of entrepreneurial venture backing is reported in India.


The execution of Jang Song-thaek, and the limits of The Great Man theory of leadership

December 14, 2013


The Great man theory of leadership has been gradually eroded by recognition of the ultimate dilemmas of absolute power

The execution of Jang Song-thaek in North Korea this week [December 2013] has been presented outside the state as evidence of the ultimate power vested in its absolute ruler, Kim Jong Un. This assumes that the newly appointed ‘great leader’ acted without being influenced by anyone else. This is generally assumed as the action of someone with absolute power

As The Telegraph put it

In making this very public display of ruthlessness Kim Jong-un probably had three objectives. Firstly, [sic] nobody in North Korea can doubt now that he, and he alone, is in charge. Nor can anybody doubt that he is utterly ruthless in removing absolutely anybody who might, in the colourful language of the indictment, “dream different dreams”.
Secondly, Kim Jong-un has told his country – and the world – that not only Jang the man, but also the vision that he stood for, has been purged. Jang Song-thaek seems to have argued for a less closed North Korea, one that embraced trade and encouraged inward investment.
Thirdly, this is a slap in the face for China. China is often described as North Korea’s only ally but with every nuclear test and every provocative missile launch the relationship has become more strained. After North Korea’s third nuclear test in February China recalibrated its policy to North Korea.

The contradiction

Kim has acted decisively to ‘crush’ his enemy, as recommended by Machiavelli. I always felt this advice requires careful positioning in its historical context. Anyway, the leader who has to crush his enemy can hardly be the great all-powerful leader who is feared but not hated. It seems more like the leader beleaguered by forces internal and external to his regime.

Little wonder that ‘Great man’ theories of leadership are gradually drifting out of fashion.


Glaxo takes hit in China, but these are global dilemmas for Big Pharma

August 6, 2013

Glaxo Smith Kline faces a serious scandal for its business practices in China. There are serious implications for the entire global pharmaceutical industry

Some years ago, I wrote of the dilemmas facing Glaxo as its then chief sought to address criticisms of the gap between corporate actions and its rhetoric of corporate social responsibility. The entire pharmaceutical industry has been a favourite target on the internet under the cover-all term Big Pharma, as long-term profits were threatened, and speed-to-market pressures increased. Various unpleasant and often illegal practices were revealed.

The $400 million scam

Glaxo Smith Kline [GSK] is currently [July 2013] the centre of another scandal through its operations in China. The company is accused of a $400 million scam involving bribing doctors. Eighteen Glaxo employees have been arrested in China. The Chinese authorities claim a network of 700 people has been involved.

The issues are those facing the global giants known collectively as Big Pharma. The current story has a depressingly familiar tone. Last year [2012] Glaxo Smith Kline was hit with a $3bn fine for mis-selling drugs in the US. To date, the city has taken a relaxed view on the affair. Analyst Nils Pratley disagrees, offering three reasons:

First, reputation matters to drug companies and to Glaxo chief Andrew Witty who has been on a clean-up campaign during his five years in charge. After [last year’s fine] Witty said he was dealing with “echoes of the past” and announced his determination that such events would never happen again.

Nobody should doubt his sincerity but the Chinese allegations, if they are proved, would represent a serious failure of management. As far one can tell, GSK put in audit controls that it thought were sufficient for China; it may have been bamboozled by a sophisticated internal scam that was hard to spot without access to private bank accounts and emails. But that would be an explanation of failure, and won’t help GSK on the image front. Witty the unwitting is poor branding when you are dealing with governments around the world.

Second, GSK will probably have to rethink its entire model of doing business in China and other “high risk” countries. That signals disruption ahead as internal compliance controls are overhauled yet again.

[Eventually] in China, GSK will have to arrive at a working arrangement with a central government that appears to have a twofold agenda of running an anti-corruption drive and getting more funding into its dysfunctional healthcare system. Greater opportunity for GSK could emerge from the mess [through lower costs but greater volumes of sale and a better-regulated market.} But, to judge by the current aggressive rhetoric in China, the road to that position could be very long indeed. The story is still developing, but the City looks to be underplaying it.

I have long argued that the ‘pipeline’ model of innovation long-accepted by Big Pharma is in need of rethinking. It is based on a belief that success requires a pipeline of massive proportions through which vast numbers of candidates proceed in a Darwinian series of tests. Commercial pressures have ramped up the size and speed of operations. The temptation to ignore corporate social responsibilities is strong, regardless of the rhetoric and the establishment of CSR departments. Sir Andrew faces a host of leadership dilemmas.

July 2014

China continues legal proceedings

See Feldman, S. (2013) Trouble in the middle, oxford: Routledge for a broader analysis. http://blogs.wsj.com/chinarealtime/2013/08/01/eight-questions-steven-feldman-trouble-in-the-middle/
Accessed, July 12th 2014

August 2014

China jails Peter Humphrey for illegal transactions

http://www.bbc.co.uk/news/world-asia-28712420


Why business students like the Alibaba case and Jack Ma

March 23, 2013

Jack Ma wikipediaWhen Asian business students are asked to write about leadership, one of their favourite topics is the Chinese telecommunications giant Alibaba, and its dynamic leader Jack Ma

This is hardly surprising. The company has grown through the vision and enterprise of its founder. Already a host of corporate stories are developing around him and his giant baby, recently valued at 35 billion dollars.

The Jack Ma story

Jack Ma fits the profile of the creative entrepreneur. His decisions are imaginative. He describes his leadership journey in vivid anecdotes which suggests that he has a well-developed transformational style. An English teacher and graduate of Hangzhou, Mr Ma became a skilled web site builder, one of the first in China.

When he was thinking about going international he looked for a corporate name that worked in Chinese but which also had global connotations. Once when in America, someone mentioned the story of Ali-Baba to him, and he thought he had found what he was looking for. He tested his idea quickly and locally, as found there was surprising recognition of the story from the Arabian Knights, and the magic password Open Sesame which opened up a cave full of treasures.. Yes, my company could be remembered for opening up a place full of treasures, he thought. Ali-Baba had brought prosperity to his village.

He listed the new name slightly differently, noticing that it was also effective when written in Chinese characters.

A sprawling conglomerate

Alibaba, founded in 1999, was to grow into the largest private corporation in China. It was described by Bloomberg Business Week as a sprawling conglomerate of web-based companies. The largest elements are Taobao and the Alibaba group. The former is a Chinese version of E-Bay and was to become market leader in e-commerce in China

Its Business relationship with Yahoo has been controversial. Alibaba grew and prospered under its founder-leader, Yahoo struggled to compete in its more global business.

Time to quit says Jack Ma

Recently, the founder has decided to hand over the leadership to a senior executive Jonathan Lu in advance of an anticipated initial public share offering which is being predicted to match that of Facebook [or more, as Facebook's shares have dipped this year]. The South China Post stated:

The announcement came a few days after Alibaba, which Ma founded in 1999, announced a sweeping restructuring that will divide the group into 25 business units under the direction of two committees, one for strategy and the other for operations. In an e-mail sent to Alibaba’s more than 24,000 employees worldwide on January 15, Ma said he decided to relinquish his position as chief executive because the company had people who “are better equipped to manage and lead an internet ecosystem like ours”.

Ma described how he realised years ago that he was not suited to be a traditional chief executive of a big firm. He said that “at 48 I am no longer ‘young’ for the internet business”. What he aims to be is “a good partner to more capable colleagues”, which he intends to accomplish by continuing his role as executive chairman.

Ma described the restructuring as “the most difficult reorganisation” in Alibaba’s history. But it is a bet to stay competitive in the mainland’s fast-growing e-commerce market. JP Morgan has estimated this market to be worth US$436 billion in 2015. The move fuelled speculation that Ma was laying the groundwork for Alibaba’s initial public offering, which the company has denied.

What happens next?

Predictions are generally favourable. I agree with The Economist [March 23rd 2013] which noted that while the future is promising “…there is nothing inevitable about Alibaba’s future fortunes”. I urge students of leadership to do a little ‘map testing’ before accepting that newspaper’s casual SWOT analysis: [1] that Alibaba could overreach itself; that [2] it would face the risk that ‘foreign governments will clamp down’ and [3] face an internal threat because ” The Communist Party is bound to be jealous of an outfit that has so much data on Chinese citizens.”

I’m afraid that piece of analysis would have not obtained a particular high grade, if it had been supplied in a student assignment on Alibaba’s prospects.


Holy Smoke: The symbolic nature of voting processes

March 17, 2013

Pope FrancisThe election of Pope Francis illustrates the symbolic nature of the voting process deployed by the Catholic Church in the selection and election of its spiritual leader. But how different is it to the practices of decision making found in many other Organizations?

In a papal election the symbolism is evident. The conclave of Cardinals assembles in Rome from around the world and its members are prepared for their elective duties. Through dress, location and traditional rituals they are reminded of their sacred duties. The process combines periods of prayer, periods of intense discussion cut off from the ears and eyes of the world. The votes are recorded anonymously, each Cardinal adding a single name to a simple voting slip. these are scrutinized to assess if the required majority has been reached. In either case the slips are ritually burned to provide one of the most famous of signs, the smoke emerging over the Sistine chapel, black for an inconclusive result, white for the awaited news that a new Pope has been elected. [Incidentally, the chemicals now used to achieve the dark and white plumes are pretty noxious...]

Unique and Universal

The ceremony is unique. Yet I suggest it has near-universal aspects which can be noticed in leaders appointments elsewhere. This week, for example, election results were announced in The Falkland Islands and in China.

More symbolism in voting

In each case there was a heavily symbolic component. The Falklands have remained disputed territory between Britain and Argentina which the ‘Thatcher war’ did little to resolve. In the Falklands referendum-type vote, , 98.8% voted to remain British. Three votes were cast against. In China, the electorate voting for President Xi returned an almost identical 98.86%. I will spare you lengthy political analysis. There was one point I found interesting made my commentators in each. On the Falklands, a spokesperson said the result was good because a 100% vote might have seemed suspicious. A Chinese blogger said it was Xi himself for reasons of modesty returned the one vote against, not wanting it be seen as voting for himself.

My unreasonable view of voting

Like many citizens around the world, I value the symbolism of participating in voting. But part of me carries a suspicion that many ballots are more about symbolic process through which a contested election appears to be ‘the will of the people’. Too often, the voting conceals the power behind the ballot box, for example in the choice of candidates or voting procedures. This applies to decisions of corporate boards as much as to those made in the election of a parliamentary representative or a President.


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