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Fri, Dec 10, 2004 - Page 12 News List

China climbing the corporate ladder


Lenovo's acquisition of a business that iconic computer maker IBM pioneered declares China's desire for a place alongside the global corporate elite more loudly than ever before.

Judging from the whistles and cheers of Chinese reporters at a press conference on the deal, the new affiliation with the IBM brand should send a strong message from the government to its people.

But the biggest step yet in a multibillion-dollar expansion that already includes automobiles, TVs and telecommunications will require more than China's burgeoning financial might to succeed.

Even a brand as powerful as IBM is a dicey proposition in a business as fickle and fragmented as personal computers. Despite the industry's relative youth, the leadership baton has changed hands several times in less than a decade, and the current market leader, Dell Inc, holds just a 16 percent share of the business.

The US$1.75 billion agreement announced on Wednesday between IBM and Lenovo Group Ltd (聯想集團) is the latest in a string of prominent deals over the past two years. Among these, China Netcom paid US$1 billion for a subsidiary of US telecom giant Global Crossing Ltd; Shanghai Automotive Industrial Corp acquired South Korea's No. 4 automaker, Ssangyong Motor Co; and electronics maker TCL Corp gained control of US television brand RCA when it merged with France's Thomson SA after buying German TV maker Schneider Electronics GmbH.

"It's a signpost, and a really prominent one, on what's the next phase for China, which is China moving outwards," said Bob Broadfoot of the Political and Economic Risk Consultancy in Hong Kong.

"China's desire is to really become one of the major international players and be as self-contained as possible," he said. "Why should a Lenovo be dependent on foreign technology when it can own it?"

But China is still largely a source of low-cost manufacturing for foreign companies.

Its leaders -- both political and corporate -- clearly want to develop their own brand names and technology for both the prestige and the fatter profits they can bring.

A booming economy and growing markets give China's corporations an edge in striking deals with foreign firms, Broadfoot said.

An element of that might have been at play in IBM's thinking. Instead of selling its PC business outright, the Armonk, NY-based company is taking an 18.9 percent stake in the combined company, giving it a potentially lucrative alliance with Lenovo in a fast-growing Chinese market.

In return, Lenovo gets ownership of the well-regarded ThinkPad and ThinkCentre computer brands, and the rights to keep using the IBM name for five years.

"They're very ambitious but also quite pragmatic in the sense that they want to buy brands," said Duncan Clark, managing director of the Beijing-based consulting firm BDA China Ltd.

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