Group Assignment - China #4 - Lenovo

Copenhagen Business School 26092011

Lenovo assignment

The Company in its Historical and International Setting

BSc in International Business

China 4

Danni G Gregersen

Finn Jannik Schmidt

Maria Rahamaumlgi

Mohammad Umar G Gulzar

Morten-Bo Paulsen

Lenovo 26092011

2 CBS - The Company in its Historical and International Setting BSc International Business

Abstract

The first objective of this paper is to give an overview of Chinese capitalism and its

development Furthermore the paper aims to explain how Lenovo became a market leader

and to which extend this was due to the development of the Chinese capitalism Moreover it

identifies Schumpeterian ldquocreative responsesrdquo and points out how these give reasons for

Lenovorsquos survival and growth in a competitive global market

Chinese capitalism has moved since its induction by Xiaopingrsquos reforms in 1978 from degree

four on McCrawrsquos scale of government intervention towards degree three The down-rating in

government intervention reflects the movement from a communist society towards a market-

based economy which can also be reflected in Lenovorsquos history

The reforms and the movement have among other things had a great impact on Lenovo

becoming a market leader Finally the paper shows how the Chinese capitalism has moved

through various phases of government intervention and how the placement on McCrawrsquos

scale has to be adjusted throughout this progress

Lenovo 26092011


Contents

Abstract 2

Introduction 4

Background 5

Chinarsquos history in short and a clear definition of Chinese capitalism 5

Communism 5

Xiaoping 5

Theory 6

McCrawrsquos Scale 6

Schumpeter ndash the entreprenuer 7

The present nature of Chinese capitalism 7

Lenovo ndash into a market leader through adaptive and creative reponses 11

Introduction 11

From domestic distributor to global manufacturer 11

Schumpeterian responses ndash creative and adaptive 13

Chinese movement through various degrees 18

Important bdquoSchumpeterian decisionsldquo 18

Lenovo reflects the Chinese variation of capitalism 21

Conclusion 22

Schumpeterian 23

China and Lenovo 24

Literature List 25

Web articles 25

Lenovo 26092011


Introduction

The financial crisis has hit the Western capitalist economies very hard and most of these find

themselves now in economic depressions However this tremendous crisis has not been

able to shock the Chinese economy which has still an extremely high annual growth rate

China continues to grow already to the second largest economy of the world in 2010 after

USA

What makes China especially interesting is the fact that the country has been able to

combine their communistic political conviction and change the economy from a closed plan

economy into an economy with more and more capitalistic characteristics What is more the

communistic roots give Chinese capitalism a number of benefits compared to old capitalistic

countries For example the fact that Chinese managements are able to make decision faster

as they are less tied to the shareholders However the Chinese rise is not over On average

the income level in China is increasing but this hides an increasing inequality between the

rural and the urban areas China has over four times Americarsquos population it only has to

produce a quarter of Americarsquos output per head to exceed Americarsquos total output and it has

been estimated that by 2016 the Chinese economy will surpass the US economy and

thereby become the biggest economy in the world China is an emerging economy and is

therefore an interesting country that is likely to change the world order in the future At least

a lot of economists talks about the economic power moving to the east

It is interesting to look at the Chinese variation of capitalism because it is so contrary to the

Western capitalism A common Western belief is that a free market political freedom and

limited power of the state are the best combination to secure growth However the Chinese

variation of capitalism has shown that the Western belief is not necessarily the only answer

It is also interesting to see how Chinese companies act in the Chinese variation of capitalism

where many of the worldrsquos biggest multinational enterprises (MNEs) have now emerged

This paper shows what characterizes the present nature of the Chinese capitalism and

illustrates where on a McCrawrsquos scale between ldquolaissez-fairerdquo with minimal state intervention

and ldquothorough state management and decision-making for the whole economyrdquo the current

Chinese economy is placed It also examines the fact that China has moved through various

degrees throughout the history Later on this paper turns its focus to Lenovo and describes

how Lenovo became a market leader by 1997 only six years after its first computer was

manufactured In this context it is interesting to look at the possible creative and adaptive

responses according to Joseph Schumpeter made by Lenovo Furthermore this paper

looks at how these ldquoSchumpeterian decisionsrdquo secured Lenovorsquos growth and survival in an

Lenovo 26092011


ever changing and extremely competitive industry In the end the paper combines the

development of Lenovo and reflects it to the development of the Chinese capitalism

Background

Chinarsquos history in short and a clear definition of Chinese capitalism

Communism

After establishing the Peoplersquos Republic of China in 1949 Mao Zedong managed to organise

the administration and rebuild the economy that had suffered from decades of war in just five

years The new state nationalised the countryrsquos banking system and brought all currency and

credit under centralised control It regulated prices and boosted government revenues by

collecting agricultural taxes By the mid-1950s the communists had rebuilt and expanded the

countryrsquos railroad and highway systems boosted agricultural and industrial production to

their pre-war levels and brought Chinarsquos industry and commerce under direct state control

After the land reform agricultural collectives were reorganized into enormous communes

where wages were calculated according to the principle bdquoto each according to his needsrdquo and

side-line production was banned Procurement prices were too low to cover the production

costs and ceilings were set on the amount of grain that producers could keep for

consumption Over-ambiguous targets and thus falsified production figures let the officials

live in an unreal world of production increases The Great Leap Forward had become a giant

step backwards

By the 1960 the situation had come so serious that Mao had to step side-lines By then

large areas of China were in famine people were exhausted and GDP had declined about

one-third For the next several years agricultural and industrial production returned to normal

levels and labour productivity began to rise

Mao reasserted his power in 1966 and started to bdquoput China back on trackldquo Universities and

schools were closed intellectuals were harassed and any sign of capitalism was enough to

condemn someone as a foe of the Communist Party By 1969 the country was back in

anarchy and the economy was again going downwards

Xiaoping

Chinarsquos next leader Deng Xiaoping who replaced Mao after his death in 1976 started

quickly reforming the country Communes were broken up and replaced with leasing

systems state procurement prices were raised and the Communist Party China (CPC) left

many prices of agricultural goods to be dictated by the market Farmers were allowed to

Lenovo 26092011


produce on their own and sell the surplus on the newly freed markets to retain any profits

they might earn which gave them an incentive to produce more efficiently so by the end of

the decade the production had grown by roughly 30 per cent Deng also attacked Chinarsquos

food shortages by encouraging families to adopt the one-child policy

Along with the changes in the countryside China started to open up to the rest of the world

Four special economic zones were created which attracted foreign investors with tax

incentives foreign exchange provisions and a lack of regulation By the late 1980s the

government began to open the doors even more aggressively by giving foreign investors

more control of factories long-term land leases and permitting dual exchange rate In 1984

the state applied the dual-price system also to many other industrial products By 1988 both

industrial and agricultural production had reached to new heights with the first one

increasing a fifth annually although state budget continued to support loss-making SOEs In

1989 the government proved the ability to keep its economy under control with wide-scale

retrenchment which saved the country from inflationary spiral Due to the reforms foreign

direct investment to China rose to $112 billion by 1992 two and a half fold increase

compared to the previous year Along the way however the ldquorectificationrdquo program

unleashed a violent series of political events by which the Chinese Communist Party

signalled that despite the liberalising reforms it had no intention of letting loose the reins of

control

With these reforms Chinese communism was in gradual transformation to Chinese

capitalism

Theory

In this section of the paper we describe the theories which create the foundation of the

paper The paper mainly consists of two important theories McCrawrsquos scale and

Schumpeterrsquos entreprenuer theory The two theories are briefly described in the following

McCrawrsquos Scale

McCrawrsquos scale is a scale of four degrees (McCraw 1997)

1 Laissez faire with minimal state intervention

2 frequent uncoordinated state intervention in a mostly free market

3 systematic state guidance of private decision-making

4 through state management and decision-making for the whole economy

Lenovo 26092011


This scale can be used in order to analyze a countryrsquos nature of capitalism at a certain time

The fourth degree is a plan economy where supply and demand are not controlling

production Instead the production is guided by the state This degree is for instance where

a communist state would be placed At the other end of the scale is the ldquolaissez-fairerdquo degree

where the state intervention is at its minimal On this degree it is supply and demand that

control the market In between we have ldquofrequent but uncoordinated intervention in a mostly

free marketrdquo This is the degree most capitalist countries have Furthermore there is the

ldquosystematic state guidancerdquo left In this degree the state plays a big role but supply and

demand still control many markets State ownership is normal in this degree In this paper we

have used this scale in order to analyze the present nature of Chinese capitalism

Schumpeter ndash the entreprenuer

Joseph Schumpeter (1883-1950) presented a theory which suggested that the entreprenuer

plays a big role in the economic development (Joseph Schumpeter 1947) The entreprenuer

creates both adaptive responses and creative responses The creative reponses causes

bdquocreative destructionldquo as it destroys the way certain things used to be done until then in a

certain industry The creative response can not be predicted and is something that creates

new pratices outside the existing practices of the industry

Schumpeter acknowledges the inventer innovator etc however Schumpeter favours the

entreprenuer who actually gets things done Hence Schumpeter was much more interested

in the one who commercialized a product not in the one who invented it An example is the

steam engine which was invented in the 16th century but not commercialized until the early

18th century Until an idea is commercialized it does not matter in an economic perspective

It is worth mentioning that according to Schumpeter it is essential that the entreprenuer has

motivations for doing what heshe does The ability to retain profits is very important in this

context

The present nature of Chinese capitalism

Looking at the present nature of capitalism China must be seen as a state in transition and

the current situation is difficult to define After the harsh reign of Mao Zedong (1949-1976)

the country started its transition in 1978 when Deng implemented the first reforms ldquoand [it]

received a decisive push from 1992 onwardsrdquo1 with the reforms of the 1990s

1 httpwwwinternationalviewpointorgspipphparticle1519 22092011

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The implementation of capitalism by a communist party into a communist system is

compulsorily a difficult process The CPC has often been stuck between maintaining

communist values and keeping up the implementation of capitalism This contradiction might

get clearer by a concrete example The Chinese president said in the National Peoplersquos

Congress that the priorities now are promoting equality in education opportunities adopting

progressive employment policies narrowing income gaps and building social security

networks9 Promoting capitalist reforms and keeping up the extraordinary growth brings

does not allow these priorities though and increasing inequality between the benefitting

developed urban areas and the underprivileged rural regions is one of the consequences this

growth has Urging further reforms and heading the country towards being more capitalistic

is clear evidence that ldquoChinarsquos communists have long since given up on true communismrdquo2

The reforms have promoted privatization Foreign Direct Investment private property and

many more capitalist characteristics most of these are only advantageous for the already

developed emerging cities along the Chinese coast To give an example of an achievement

reached by the reforms the Chinese private sector now accounts for approximately 70 of

gross domestic product3 today However the country is only midway through the process

and there are more reforms likely to be made For instance ldquothe capital markets and

securities markets still are underdeveloped because 70 of shares of almost all listed

companies are not tradablerdquo3 The fact that ldquoan experimental program was announced to

make the non-tradable shares tradablerdquo3 illustrates that the CPC also intends to implement

further liberal capitalist characteristics into the Chinese type of capitalism besides trying to

decrease inequality which underlines the contradiction Participating in the global trade made

China join the WTO in 2001 which has enforced China to become more liberal and

capitalistic in terms of their tariffs quotas and licensing requirements The Communist Party

China makes use of any measures in order to preserve the economic upward movement and

ensure the social stability

The Chinese history with long periods of war and the Japanese occupation are still in the

peoplersquos minds which reason the thankfulness for the stability that the CPC has brought the

Chinese in the last decades Hence stability is Chinarsquos highest valued ldquocommodityrdquo and has

had a great influence on the development of Chinese capitalism and thereby also explains

the capitalist environment today For instance the fact that China has pegged their currency

the Yuan to the American dollar and are not willing to let it float which would adjust its value

can be explained by the importance the CPC see in keeping up the economic stability In his

2 httpwwwspiegeldeinternational0151844255200html 22092011gt

3 httpwwwbusinessweekcommagazinecontent05_34b3948478htm 22092011

Lenovo 26092011


report for the American Congress the American economist Wayne M Morrison mentions

ldquoChina continues to ldquomanipulaterdquo its currency in order to give its exporters an unfair trade

advantagerdquo4 An adjustment of their currency would disable the Chinese from keeping their

exports at the current level The increasing exports have earned China the title of the worldrsquos

largest exporter5 and are essential for their economic growth Decreasing exports would

affect the growth rate which then would threaten the countryrsquos stability This shows how the

fear of instability impacts the Chinese decision-making and thereby the present capitalist

environment

Furthermore the influence the growing regional disparity has on the governmentsrsquo decision-

making are another evidence that proves the valuation of stability ldquoBetween 1990 and 2005

Chinarsquos Gini coefficient rose from 0257 to 0447rdquo6 seriously endangering the social stability

in China However as ldquothe countryrsquos phenomenal growth and increasing global heft are

based on a steady [hellip] transition to capitalismrdquo7 and a slowdown or even stagnation of the

countryrsquos growth rate would mean an even greater threat for the countryrsquos stability ldquothe

Communist Party was not willing to slow down growth to address inequality or to leave the

balance purely to market forcesrdquo8 This shows again the huge interest the CPC and the

Peoplersquos Republic of China has in the countryrsquos stability and how it influences important

political decision-making The current growth rate is to a great extend caused by the

capitalist reforms and the slow liberalisation of the Chinese economy This process of

transition will stop at some point though The Chinese are aware that they find themselves in

times of transition and the current growth rate will not last forever which is why Chinarsquos

president promised at the National Peoplersquos Congress (NPC) to ldquofocus more on sustainable

development than rapid economic growthrdquo9

Although the Communist Party China builds up a Chinese capitalism upon a communist

system and embeds many capitalist characteristics in it the state still intervenes a lot to

regulate and control the market The CPC is extremely focussed on keeping the role of the

directive actor They give the pace of moving from a plan economy towards a market-based

economy and the only liberalise the economy to the degree they think is best The state- 4 httpwwwfasorgsgpcrsrowRL32165pdf 22092011

5 httpwwwindependentcouknewsbusinessnewschina-overtakes-germany-to-become-largest-exporter-

1864052html 23092011 6 httpslearncbsdkpluginfilephp55824mod_resourcecontent1JWT20in20Chinapdf p7 2092011

7 httpwwweconomistcomnode12333103 22092011

8httpslearncbsdkpluginfilephp55822mod_resourcecontent1Capitalism20with20Socialist20Chara

cteristicspdf p14 20092011 9 httpnewsbbccouk2hiasia-pacific6456959stm 22092011

Lenovo 26092011


owned enterprises that emerged under Maorsquos communist regime and that were characterized

as inefficient over-staffed and not profit-driven have become more efficient less indebted

and through implementation of managers much more profit-driven Nevertheless just as

back at Maorsquos times the CPC uses them as state tools to keep the economy on track

Despite the fact that China has still a lot of government intervention they achieved to enter

the WTO in 200110The entry in the WTO was a push towards more liberalization With the

entry in the WTO China clearly signalised their global orientation and adapting to

international agreements signalised the increasingly important role China is going to play in

the global economy Joining the WTO and adapting to the international rules of exchange

China is facing the global competition now much more than before and the CPC has had to

engage privatization of the SOEs to increase their competitiveness so that the Chinese

economy has been able to maintain their extraordinary growth rate

The present Chinese capitalist environment is very difficult to place on the McCrawrsquos scale of

government intervention On the one hand China is still a communist one-party state

governed by a party which intervenes in the economy to regulate and control the market

According to these facts thorough state management guides China and the state has the

power of decision-making for the whole economy which would mean the Chinese capitalism

had to be placed on the scale at degree 4 However on the other hand the CPC has

dropped most of their communist ideals and keeps transmitting the country by various

reforms into a market-based capitalism Presently the Chinese capitalism fulfils most of the

criteria that characterize capitalism such as labour as a commodity private property a

financial system and a currency The government promotes privatization and makes itself

dependant of international laws which is clear evidence for a decrease in government

intervention The transition towards a common market for example through a reform in the

banking sector which is likely to occur soon keeps moving the Chinese economy towards

capitalism with a systematic state guidance of private decision-making McCrawrsquos degree

number 3 Nevertheless the degree of liberalization is still under complete control of the

CPC and the economy is only as free as the party intends it to be Theoretically the

Communist Party China could rapidly decrease the degree to which the economy is

liberalized change laws and abolish the law that allows for example the property rights

which ensure a capitalist economy This is of course not very likely to happen but it is

important to point out that the whole Chinese capitalist system originates from the

governmentrsquos reforms and guidance Although these reforms have been pushed through and

the Chinese capitalism is more and more liberalized and taken towards a free market-based

10

httpwwwwtoorgenglishnews_epres01_epr243_ehtm 23092011

Lenovo 26092011


economy political freedom is still not given and probably will not be in the close future which

is why China is currently placed on the McCrawrsquos scale of government intervention between

degree 4 and 3 Due to decreasing government intervention it is moving towards degree 3

though Without political freedom which would guarantee economic freedom property rights

and allow competition of law the Chinese capitalism cannot move any further than degree 3

on McCrawrsquos scale

Lenovo ndash into a market leader through adaptive and creative

reponses

Introduction

There are many reasons why Lenovo has become one of the most dominant market leaders

in China as well as in the rest of the world One of the most important events in the Lenovorsquos

corporate history was the acquisition of the IBM personal Computing Division in 2005 which

enabled the company to become a competitive computer manufacture both domestically and

internationally Furthermore throughout Lenovorsquos history the state has been a major

stockholder in the company ndash and like other Chinese State supported enterprises ndash the

Chinese government has supported and protected Lenovo by indirect subsidiaries and

policies which made Lenovo capable of maintaining its dominance When analyzing how

Lenovo managed to develop its organization in a nation that has been marked by serious

economic and politic instability it is important to understand the entrepreneurial spirit that

has driven the company throughout its history Innovation and technological development

have been the core factors that contributed to the strong positioning of the Lenovo Group

Limited as being one of the pioneers in the global computer industry These different

strategic initiatives are somehow all exemplifies for different responses that Lenovo has

made in order survive the demanding IT-industry which is strongly affected by both the

globalization and liberalization of the Chinese market along with the very special type of

capitalism that characterizes the Chinese economy

From domestic distributor to global manufacturer

To start with Lenovo was owned by Legend Holdings Limited until 1994 when it was listed

on the Stock Exchange of Hong Kong11 In March 2011 57 of Lenovo was owned by

public shareholders 42 by Legend Holdings Ltd and 1 by the directors12 The

11

httpsorbis2bvdepcomesc-weblibcbsdk8443version-2011912Reportservsp_parentcontext=ipaddressampseqnr=0ampcontext=1KAS6ZIZH2PLQ81amp_cid=72 2009-11 12

httpwwwlenovocomwwlenovoshareholdinghtml 2020-11

Lenovo 26092011


companyrsquos previous state ownership has implicitly contributed to Lenovorsquos success given the

advantage Lenovo has gained in the domestic market due to the one party-system that has

favoured strong domestic enterprises Although the Chinese government targeted the PC

industry as a national priority in the 1980rsquos Lenovo was not among those companies

selected by the government to be nurtured as the foundation of Chinarsquos future PC industry

Therefore Lenovo was not a State-Owned Enterprise (SOE) in its true sense given that it

did not directly receive state support eg Lenovo did not receive a licence to produce PCs

until 199113 Despite the fact that Lenovo was not considered an ldquoordinaryrdquo SOE it still relied

on its parentrsquos the Institute of Computing Technology (ICT) labs for the Research and

Development which it could use free of charge Lenovorsquos first production was developed at

ICT whom also facilitated Lenovorsquos first production experience by loaning their personnel

during the process ICT with its links to the government through the CAS supported Lenovo

in its early survival and thus the Chinese state played a significant role in the companyrsquos

early maintenance and growth

As Lenovo made its first Personal Computer under its own brand name in 1991 the

company suddenly became more important in the eyes of the government In 1994 the

company was celebrating its one millionth PC built14 In the same year it was revealed that

domestic computer companies such as Lenovo were going to be protected under a new

policy which was announced by the Chinese ministry of Electronics Lenovo was included in

Chinas ninth Five Year Plan - from 1996 to 2000 - as a key entity to be supported by

government policies15 During the ninth Five Year Plan China invested over $12 billion in the

909 Project which is the most expensive government effort for developing an advanced

semiconductor industry in China16 As a result of the government intervention Lenovo also

received an amount of the subsidy and eventually became the Chinese market leader in

1997 even surpassing IBM The latter was one of the main reasons for IBM to sell its PC

division to Lenovo The fact that Lenovo was able to grow with the indirect support of the

Chinese government reflects the special kind of capitalism that exist in the Chinese

economy Lenovo was operating on a free global market and at the same time enjoying the

beneficial protectionism and subsidies provided by the communist government The

13

httpsiteebrarycomesc-weblibcbsdklibkbhnhhdocDetailactiondocID=10178095 page 284 2109-11 14

httpgogalegroupcomesc-weblibcbsdkpsretrievedosgHitCountType=Noneampsort=RELEVANCEampinPS=trueampprodId=GVRLampuserGroupName=cbsamptabID=T003ampsearchId=R1ampresultListType=RESULT_LISTampcontentSegment=ampsearchType=BasicSearchFormampcurrentPosition=1ampcontentSet=GALE|CX3483800057ampampdocId=GALE|CX3483800057ampdocType=GALEamprole= page 210 21092011

16 httpcitationallacademiccommetap_mla_apa_research_citation16903pages169033p169033-

19php page 19 21092011

Lenovo 26092011


legislation also provided the legal framework that would eventually make the acquisition of

IBM possible The law stated that foreign companies who wanted access to China could

only do so by cooperating with a Chinese company This rule was implemented so ensure

that Chinese companies gained eg know-how on technology

Lenovorsquos success started gradually in 1987 when the company expanded its activities to

distribution first for AST (the leading foreign brand in China at that time) and later adding

Hewlett-Packard Toshiba and IBM to its list17 Chuanzh the former CEO even went to the

extent of saying that ldquoOur earliest and best teacher was Hewlett-Packerrdquo18 What Chuanzh

wanted to empathize was that multinational companies such as HP were not only a source of

revenue for Lenovo but also a source of learning By distributing foreign-made PCs Lenovo

learned how to organize sales channels and merchandise PCs on a competitive market

Thus Lenovo began to comprehend its Chinese customers and the PC purchasing habits

making this a key for its dominance in the market for the upcoming years

The demand for computer technology became pervasive during the Third Industrial

Revolution which naturally benefited all computer manufactures around the world A lot of

Chinese industries had not yet reached the industrialization level of the western world

however the IT-industry is an exception The Chinese IT-industry plays a great part in the

Third Industrial Revolution where the immense increase in volume of international trade

investment and finance frequently has been centred in China In addition one could

therefore argue that Lenovo came on the right time with its first PC in 1991 in the exact same

period of history where demand for computer technology increased explaining its enormous

success both in the domestic and international market Lenovo already had a wide network

of distributors at that time and gained great insight in the Chinese consumption pattern

which gave them a huge advantage compared to their strongest competitors Thus it is

necessary to stress the importance of the Third Industrial Revolution as it created a market

Lenovo knew how to profit from by using its competitive advantages

Schumpeterian responses ndash creative and adaptive

The various Schumpeterian responses that have been made in Lenovorsquos corporate history

enable us to explain how Lenovo became one of the market leaders in the IT-industry The

17

httpsiteebrarycomesc-weblibcbsdklibkbhnhhdocDetailactiondocID=10178095 page 284 19092011 18


Lenovo 26092011


Lenovo Group Limitedrsquos corporate history really exemplifies very well how Schumpeterrsquos

theory can be put into practice

Lenovo has in many ways been a pioneering brand which has played an important role in

the development of the global computer industry as we know it today Technological

development massive investment in RampD comprehensive channels of distribution

aggressive advertising increasing efficiency and economies of scale are some of the most

important characteristics describing Lenovorsquos history Some of these initiatives certainly

changed the computer industry while others were implemented in order to adapt to the

changing market conditions When Lenovo produced its first PC in 1991 and vertically

integrated new activities in their value chain they gained several second-mover advantages

from its close cooperation with IBM

In 1997 the Legend Group signed a landmark agreement with computer-giant Microsoft to

install Windows 95 in its products19 One could argue that this agreement in fact was a sign

of adaptive response as Microsoft were first-movers in the invention of computer operating

systems and by incorporating this popular product the Legend Group could add significant

value to their products The Chinese computer industry was not able to develop its own

computer software and was therefore encouraged to adapt the standards of operating

systems that had been invented in the United States By joining hands with the pioneering

Microsoft Corp the Legend Group could benefit from the second-mover advantages and

focus on their own strengths which primarily include the development and assembling of

Personal Computers

The fact that Lenovo distributed IBMrsquos and HPrsquos products on the Chinese market meant that

the company had both developed a valuable know-how and an effective channel of

distribution In many ways Lenovo had to adapt to the current computer industry where big

businesses like HP and IBM already had set the standards of computer manufacturing The

fact that IBM invented its first computer in 1981 meant that Lenovo could use a lot of the

knowledge from IBM they had gained before in their computer manufacture The adaptive

response that Lenovo had to make would eventually create several opportunities for the

company to influence the entire industry Thus their continuous cooperation with IBM

positioned them as a trustworthy brand and they benefited a lot from the goodwill that IBM

had among the Chinese consumers This cooperation culminated in December 2004 where

Lenovo announced that they had completed the acquisition of IBMrsquos PC division for the

19

httpglobalfactivacomesc-weblibcbsdkaaref=scmp000020011003dt3j00qchamppp=1ampfcpil=enampnapc=Sampsa_from= 18092011

Lenovo 26092011


amount of $175 billion (including $500 million in assumed liabilities) (Quelch Knoop and

Carin 2006) IBM most likely saw this deal with Lenovo as an opportunity to create stronger

relations with the Chinese government from which they hoped to benefit from in the long-

term As part of the deal Lenovo gained the right to use the IBM logo on its products for five

years along with permanently acquiring the IBM ThinkPad and ThinkCenter desktop brands

20 In return Lenovo promised not to compete with IBMrsquos services and consulting groups

Moreover Lenovo also had access to IBMrsquos 30000-member enterprise sales team and on-

going support from partner and channel management programs in 138 countries (Quelch

Knoop and Carin 2006) The IBM brand was associated with great credibility and the fact that

Lenovorsquos products contained components manufactured by IBM was considered a great

addition of value among the consumers The acquisition also allowed Lenovo to expand its

global activities and with the sponsorship of the Olympics in both Turin and Beijing Lenovo

became extremely popular on the global market The public visibility that Lenovo achieved

through its advertising during the Olympics turned out to be very valuable in the attempt to

market their products world-wide Thus Lenovo managed to achieve a market share of 96

in Russia by the beginning of 2011

For Lenovo the acquisition of IBMs PC business meant the rise as a global player in a key

industry Lenovo was not a well-known brand outside Asia until this acquisition which

allowed the new enlarged company to build a new brand name using IBMrsquos legacy All this

together enabled the company to move quickly into the international marketplace making it a

reliable computer manufacture internationally Through IBM Lenovo gained access to the

worldwide PC market and their annual revenue quickly rose to more than $12 billion In

September 2005 the company underwent a management restructuring that integrated the

original Lenovo and former IBM organization Lenovorsquos top jobs went to executives around

the world resembling the companyrsquos new international composition and scope21

In order to distinguish Lenovorsquos success from its competitors it is important to acknowledge

the creative responses made by IBM which Lenovo could then further develop and imitate In

terms of creative response IBM introduced its pioneering ThinkPad product in 1992 which

was the first step towards several creative responses that would determine which elements

computers would contain in the future The first creative response was the integration of CD-

ROM drives in the ThinkPad the first time a PC manufacturer did so in a notebook This kind

of creative response without doubt changed the technological standards of computer

20 httpwwwchinadailycomcnbizchina2011-0905content_13617052htm 19092011

Lenovo 26092011


manufacturers as every competitor now had to adapt to this new innovative response in

order to survive in the growing IT-industry The beginning of 2000 another new element was

integrated in the new ThinkPad I Series which was a built-in wireless network22 This was

truly a ground-breaking invention and once again changed the expectations among

consumers towards computer products Both the CD-ROM drive and the built-in wireless

network are now common components that consumers take for granted This might not have

been the case if IBM had not integrated these elements in their notebooks After the

acquisition of IBMrsquos PC division Lenovo experienced huge success in their continuous

development of their flagship the ThinkPad Thereby the ThinkPad provided Lenovo with

possible future responses Lenovo was now in charge of assembling the entire product and

developing new technologies Lenovo could then distribute the products under its own brand

with the option of using the IBM brand on the IBM Think-family products and in the overall

advertising as long as the two brand where not separated

The Chinese manufacture industry is well known for its ability to imitate existing products

which Lenovo is a great example for As already mentioned Lenovo imitated a lot of its

activities from IBM Whether imitation is entrepreneurial spirit must be discussed According

to Schumpeter the imitator is not a real entrepreneur as he does not cause economic

growth However Schumpeter misses to define a very important role the imitator plays in

terms of economic growth Producing a product does not create economic growth The

imitation of a certain product allows the market to grow and forces new innovation and

technology for the competitors to stay competitive Looking at Lenovo you can clearly see

how the company has evolved since its establishment by copying and buying otherrsquos ideas

and thereby growing to a market leader This example clearly shows that an imitator should

be considered as an entrepreneur as he is essential for economic growth

Lenovo made another creative response by analyzing the consumer market and

implementing segmentation into their production This creative response took the Chinese

computer industry from phase two in phase three according to the Three Phases of

Marketing The segmentation of the Chinese market was due to a very thorough and

comprehensive market research by Lenovo asking over 4000 customers face-to-face about

their preferences The Lenovo organization learned that consumers predicted decreased

innovation and quality while services and support would be outsourced overseas The

response to these challenges was to build up Lenovo as a strong master brand and at the

same time boost the ThinkPad product brand The number of product categories had to be

Lenovo 26092011


decided and they were two business models to follow The first model prioritized supply chain

efficiencies in order to create economies of scale which was commonly used by such

producers as Dell and Acer The other business model was the one that focused on selling

product innovation which was carried out by both IBM and Apple In order to differentiate its

products from competitors such as Apple Lenovo was endeavored to combine quality

innovation and efficiency in their products as they did not consider quality and cheap

production as contradictory The efficient network base in China together with a great global

infrastructure enabled Lenovo to add both values to their already well-reputed brand To

complete this strategy Lenovo was planning to launch new products along with a three

phase advertising plan From May to September 2005 the company ran a worldwide

advertising campaign with the agenda of maintaining the ThinkPadrsquos sales volume Lenovo

wanted to preserve its goodwill after the acquisition by ensuring that very little had changed

since they purchased the IBM PC division The second phase was part of the unique

sponsorship at the Olympics from which the Lenovo group had achieved a very significant

advertising platform At the Turin Olympics Opening Ceremony on February 10 2006

Lenovo ran a campaign with the headline ldquoThinkPad unleashedrdquo which was expected to

reach at least 27 million viewers The last phase of the advertising plan was based on the

concept of innovation as the company would take advantage of the strength of the ThinkPad

product and transfer its values to the superior Lenovo Brand If you look at the huge success

Lenovo has achieved by adapting and imitating the industry it is hard to question its strategic

decisions Being able to benefit from first-movers and having the strength and courage to

stimulate and develop your own strengths in order to achieve global success is without

doubt great entrepreneurial spirit although Schumpeter might disagree

Another example of adaptive response has recently occurred Liu Chuanzhi current CEO of

Lenovo revealed that the group was planning to include the assembling of smart phones into

their production process23 This is a move that has most likely been encouraged by the great

hype that the smart phones had provoked and in order to keep pace with the IT-industry

Lenovo has been either compelled or inspired to extend its assortment In any case this

product extension exemplifies how the technological development within the industry can

create incentives for companies to imitate first-moverrsquos creative responses Lenovo has

adapted to the growing market for smart phones by introducing smart phones in their

assembly line

23

httpwwwchinadailycomcncndy2011-0909content_13654548htm

Lenovo 26092011


Chinese movement through various degrees

Since Xiaoping became the leader of the country in 1976 China has taken many steps

towards economic freedom which makes it difficult to determine a certain point in time where

Chinese communism became Chinese capitalism The steps towards capitalism have been

initialized as the communism practiced by Mao Zedong has proven to be an unsustainable

way to rein a country Chinese capitalism is certainly very different to the capitalism we are

usually confronted with due to the historic and present communist background China is still

a communist country and the Communist party is extremely focused on keeping its control

Applying McCrawrsquos scale to a communist economy would be rather pointless because

government intervention is usually at a maximum level However with the reforms towards a

more liberal economy the scale is very useful do determine the extent of freedom the

country has gained Therefore the more reforms were made regarding the Chinese economy

the closer it moved to phase three on McCrawrsquos scale - systematic state guidance of private

decision making Although China has been able to be considered economically at least partly

capitalistic for a while now China adopted property law one of the key pillars of capitalism

which state Citizens lawful private property is inviolable as late as in 2007 That shows that

China has managed to establish a different form of capitalism which only partly coincides

with the traditional Western one

Important bdquoSchumpeterian decisionsldquo

Profit driven enterprises are more likely to make ldquoSchumpeterianrdquo entrepreneurial decision

that will secure their survival over a long-term perspective Lenovo is a profit based

enterprise established due to an institutional spin-off and the company is run by professional

managers and entrepreneurs Lenovo has been forced to try to achieve the highest profit

possible in order to survive Therefore the ldquoSchumpeterianrdquo entrepreneurial decisions made

by Lenovo should be analyzed in order to gain a better understanding of Lenovo

If Lenovo had not made the ldquoSchumpeterianrdquo decision in 1991 to move from salesdistribution

to manufacture of personal computers Lenovo might not be where they are today This was

an adaptive response as they reacted to the change in environment an increasing demand

for personal computers by starting their own production In the 1990s the 3rd Industrial

Revolution was already occurring in the developed countries the demand for consumers

rapidly increased in both the public and the private sector The state was about to lift the

protection of the Chinese computer industry and expose it to foreign competition This meant

that Lenovorsquos business with sales and distribution was suddenly superfluous because foreign

Lenovo 26092011


companies now could penetrate the Chinese market without a partnership with Lenovo

Therefore Lenovo decided to move into the manufacture of computers under its separate

brand Lenovo was able to do this because of the extensive technological know-how it had

gained from working with HP AST Toshiba etc ndash the company knew how to produce a

computer and it possessed the required distribution network Through their distribution

system in China Lenovo had also absorbed what demand and preferences the different

customers had and they knew marketing practices very well Therefore they were well suited

to enter the PC market Additionally Lenovo had through their sales and distribution

channels generated revenues and accumulated capital which made this step financially

possible for Lenovo

When looking at the significance of Lenovorsquos corporate history one could argue that the

company was the computer manufacturer that took the Chinese computer industry by

segmenting their products from phase 2 to 3 in model of The Three Phases of Marketing

Earlier the Chinese computer market was widely based on unification and mass production

The Chinese market was seen as a whole Lenovo started to segment the customers into

different groups and developed special products for each of these groups Lenovorsquos

segmentation consisted of many segments examples are the banking segment the SME

segment the big business segment the individual consumer segments (with different

segments underneath) etc This revolutionized the Chinese computer market and

competitors had to follow this change in order to survive There was no bridge back to

previous production pattern which is why this move should be considered as creative

destruction This also led to Lenovo spending millions of dollars on RampD on consumer

demands and habits Lenovo sees and essential aspect in understanding their consumers

well as it allows the company to attack certain consumer groups and develop products that

cover their demand In the year 2000 Lenovo won the Intel PC Innovation Award for their

innovative home oriented PC product designs which proofs Lenovo to be an extremely

consumer orientated company24

Lenovo made another ldquoSchumpeterianrdquo decision when they shifted their focus towards

manufacturing leading technological products instead of low-costs computer products The

foreign competitors did not prioritize the Chinese market in the 1990s due to the relatively

small PC market Hence foreign competitors were not represented by their best products in

the Chinese market and foreign products were more expensive than Chinese computers

(Tsui Bian and Leonard 2006) Due to Chinarsquos growth rates the income level raised and

Lenovo 26092011


increased the wealth in Chinarsquos middle class which created a new much stronger consumer

market for high-quality products By 2002 the Chinese PC market was worth $ 10 billion the

3rd largest PC market behind the United States and Japan25 Lenovo realized this change

and moved into this emerging consumer market Being a first-mover in this respect gained

Lenovo huge advantages to their competitors This increasingly strong domestic market was

as lucrative as expected and enabled Lenovo to compete with their global competitorrsquos

quality products All they needed now to become a global player were global distribution

channels transnational production facilities and a good brand

With the acquisition of IBMrsquos Personal Computer Division Lenovo had gained the distribution

channels the transnational production facilities and the good and reliable brand This

acquisition can be considered as a ldquoSchumpeterianrdquo decision that was fundamental to the

companyrsquos survival and future growth According to Schumpeter any entrepreneur must have

a motivation or driving power that explains his entrepreneurial activity This motivation can

also be detected in Lenovorsquos entrepreneurial activity As Lenovo is a profit driven enterprise it

is determined to constantly seek maximization in profits willing to secure its survival If a

private enterprise stops seeking profit maximization it will lose its competitiveness Losing its

competitiveness means for a firm that it is not far from struggling with its existence Lenovorsquos

acquisition of IBMrsquos Personal Computer Division is clearly driven by profit motivation and the

wish to expand beyond borders By the acquisition of IBM Lenovo gained further

technological know-how and expertise (Lenovo also gained 10000 employees of which 60

already were located in China26) Moreover Lenovo also gained a global brand global

distribution network and overseas facilities the basis for Lenovorsquos development into a global

player By 2011 Lenovo had gained a market share of 12 of the global PC market27 The

acquisition once again was fundamental for Lenovorsquos expansion to the global market and

their ability to compete with other global players in the IT-industry Hence the importance of

this adaptive response must be underlined as it had a great impact in Lenovorsquos growth and

survival as a computer producing company

25 httpgogalegroupcomesc-

weblibcbsdkpsretrievedosgHitCountType=Noneampsort=RELEVANCEampinPS=trueampprodId=GVRLampuserGroup

Name=cbsamptabID=T003ampsearchId=R1ampresultListType=RESULT_LISTampcontentSegment=ampsearchType=BasicSearc

hFormampcurrentPosition=1ampcontentSet=GALE|CX3483800057ampampdocId=GALE|CX3483800057ampdocType=GALEamp

role=

26 httpglobalfactivacomesc-weblibcbsdkhadefaultaspx 19092011

27 httpwwwchinadailycomcncndy2011-0909content_13654548html 19092011

Lenovo 26092011


Lenovo reflects the Chinese variation of capitalism

Generally Lenovo has reflected the Chinese variation of capitalism throughout the last three

decades Maorsquos death in 1976 and the takeover by Confucianism influenced Deng Xiaoping

changed Chinarsquos course from communism towards the Chinese type of capitalism Several

changes in Lenovorsquos history reflect the reforms enforced by Deng Xiaoping

Lenovo as a spin-off enterprise from ICT reflects the political decisions of the early 1980s

made by Maorsquos successor Deng Xiaoping of moving China from a plan economy towards a

common market Deng Xiaoping was in favor of the Confucians idea of bottom-up changes

which exactly is what Lenovo reflects Liu and ten other scientists took advantage of the

governmentrsquos interest in commercializing ideas and creating sustainable enterprises based

on capitalist foundations This meant for Lenovo that they were in the start by principle was

allowed to fail The scientists had a new motivation for establishing enterprises having the

right to retain profits a fundamental part of a capitalist economy This entrepreneurial

motivation is essential in a capitalist economy ndash also according to Schumpeter (as mentioned

earlier in this paper) This start of Lenovo reflects the early variation of Chinese capitalism

where supply and demand were the main drivers towards a common market

Lenovorsquos vertical integration into the manufacturing of PCs reflects the governmental target

to create domestically competitive PC manufacturers in China Moving into manufacturing in

a more open Chinese economy enabled Lenovo to capture technology from foreign PC

manufacturers and apply this knowledge to their own production The Ministry of Electronic

Industry wanted Chinese enterprises to capture foreign technology so they could imitate it

Simply by gaining this knowledge about technology Chinese company would then be able to

profit from being second-movers (Tsui Bian and Leonard 2006) Lenovo is an explicitly good

example of a company gaining second-mover advantages and in this respect definitely

reflects the Chinese capitalism By reducing tariffs on imported PCs in 1992 (Tsui Bian and

Leonard 2006) Lenovo was exposed to foreign competition and this competition clearly has

benefitted Lenovo when you look at the company today in terms of the present position in the

PC industry It could be argued that a major reason for Lenovorsquos survival during the early

competition is also due to a major government subsidy from the 9th Five Year Plan from

1996-2000 (Tsui Bian and Leonard 2006) In a time where liberalization was still being

introduced and the level of competition in China Lenovo has been able to develop a

sustainable competitiveness and has risen to a strong global player This development

reflects the movement of enterprises in the Chinese capitalism at that time very well

Lenovo 26092011


Furthermore Lenovo reflects the Chinese capitalism as it is a company that has profited

from government support to a great extend The Chinese government wanted large

enterprises that are able to set up a mass production and thereby produce much cheaper

and efficient Lenovo received support from the government through protectionism and

subsidies This reflects Chinese capitalism in a period of liberalization and the governmentrsquos

idea to support the growth of ldquoimportantrdquo industries wherefore China enforced the ldquopicking

the winnersrdquo approach The CPC was simply supporting the industries they considered

important and likely to make good profits in the future in order to create ldquonational championsrdquo

Another importance the government saw in growing companies was to secure Chinarsquos most

important commodity ndash stability First Lenovo was supported to become a domestic

champion Later on it became a global player by the acquisition of IBMrsquos PC division which

once again secured the companyrsquos growth and stability Furthermore a Multi National

Enterprise (MNE) like Lenovo is more likely to contribute positively to the countryrsquos balance

of payments A surplus in the trade balance makes it easier for the state to control the

currency and avoid inflation which is of supreme importance for the countryrsquos stability Thus

the strife for stability is deeply rooted in the Chinese capitalism and is clearly seen in the

government support given to Lenovo

Lenovorsquos acquisition of IBM in 2005 reflects the decrease of regulation and lowered barriers

for trade and foreign direct investment that were a consequence of China becoming a

member of the WTO in 2001 Entering the WTO China also obviously wanted their economy

to become more integrated in the global trade and businesses to act more globally Lenovorsquos

acquisition of IBM clearly reflects Chinarsquos lowered barriers for FDI as they attracted IBM to

enter the Chinese market a few years before Earlier Chinese companies were not able to

make big outward FDIs maybe because it created pressure on the currency Yuan But the

entrance required less regulation of various Chinese protectionist apparatus and gave

Lenovo the opportunity to acquire foreign companies The acquisition of IBM thereby reflects

the capitalism at that time

Conclusion

Analysing the present nature of capitalism in China it quickly turnes out that the countryrsquos

history has had a great impact on the Chinese capitalism as we see it today China has been

in transition since the first reform in 1978 from a static communist plan economy towards a

market-based capitalist economy The various reforms first in the 1980s then 1990s and

later in the next wave until today explain the development of Chinese capitalism The

Chinese capitalism has emerged out of a communist party and reasoned by the countryrsquos

Lenovo 26092011


history is very much influenced by the valuation given to ldquostabilityrdquo in China In the last

decades Chinese capitalism has shown how various types of capitalism can succeed when

competing on the global market Participating in the global trade symbolized by the entry in

the WTO in 2001 has enforced a further liberalization of the Chinese capitalist economy

The communist Party China (CPC) is still the only active party in the government However it

has dropped most of its communist ideals and keeps implementing capitalist characteristics

which is why the Chinese capitalism is placed between degree 3 and 4 of government

intervention on the scale of McCraw It has moved through various phases in terms of

starting its capitalist existence at degree 4 on McCrawrsquos scale and with continuously

decreasing government intervention moving towards degree 3

In conclusion the fact that Lenovo was able to become domestic market leader was mainly a

result of the well-established network of distributors the successful vertical integration of the

manufacture link and the beneficial know-how acquired from IBM By imitating the

fundamental assembling procedure combined with the advantage of the integrated channels

of distribution Lenovo managed to position its brand that combined efficiency with

innovation When looking at Chinese capitalism in relation to the corporate history of Lenovo

the role of the one-party system played a crucial role by stabilizing the recently formed

company The governmental promotions of Lenovo together with the Chinese IT-industry

experiencing Third Industrial Revolution both were decisive factors in the global success that

the company eventually achieved

The Schumpeterian theory proves how different types of responses are decisive when it

comes to competing in the global market place These responses all took place in a business

environment influenced by the special type of capitalism that characterizes the Chinese

economy As part of The Third Industrial Revolution the evolving Chinese economy provided

a huge increase in domestic demand from which Lenovo was able to display its potential

Conclusively this was realized as a result of all the adaptive responses that Lenovo was

making in order to carry on the legacy of IBM

Schumpeterian

Several rdquoSchumpeterianrdquo decisions have been made throughout Lenovorsquos history which

secured the companyrsquos growth and survival By moving from distribution and sales into

manufacturing of PCs Lenovo made an important ldquoSchumpeterianrdquo decision that secured that

Lenovo would not be superfluous in the future due to reforms towards a common market

Likewise when they went from low-cost computers to the more lucrative high-end products it

also secured growth through a first-mover advantage in the new domestic consumer market

Lenovo 26092011


created by the new Chinese middle-class that is developing by the process of urbanization

Once again Lenovo made and important ldquoSchumpeterianrdquo decision when it acquired IBMrsquos

personal computer division which turned Lenovo into a global player instead of only a

domestic one This acquisition secured future growth through new technology and know-

how a good brand global distribution channels and global production facilities

China and Lenovo

The development of Lenovo reflects the development of the Chinese capitalism in different

ways Lenovo was an institutional spin-off provoked by governmentrsquos wish to establish more

profit-driven enterprises The entrepreneurs had an incentive to establish these enterprises

as they were allowed able to retain profits ndash a fundamental element in capitalism The

government emphasized the vertical integration made by China into the manufacturing of

PCs The state wanted to create big domestic players in ldquoimportantrdquo industries able to reach

economies of scale The state wished more economies of scale because such are more

competitive which was of great importance willing to compete with the increasing

competition through foreign competitors entering the Chinese market Hence this move by

Lenovo reflects the Chinese capitalism at that time By using a ldquopicking the winnersrdquo strategy

the Chinese state supported these ldquoimportantrdquo industries both directly and indirectly This is

also a clear element of the Chinese capitalism of the latest decades Although China is

moving towards a more capitalist economy with a more liberal market the state still

intervenes a lot to control and guide the economy

Finally the acquisition of IBM reflects a movement of the Chinese capitalism into more

openness triggered by the entrance into WTO The entrance provided Chinese companies

with less regulatory and cleared the path for outward FDI The IBM acquisition was a symbol

of a more international Chinese capitalism

Lenovo 26092011


Literature List

McCraw Thomas K (1997) Creating Modern Capitalism How Entrepreneurs Companies and

Countries Triumphed in Three Industrial Revolutions Harvard University Press

Tsui Anne S Bian Tanjie C Leonard (2006) Chinarsquos Domestic Private Firms Armonk M E

Sharpe

Quelch John amp Knoop Carin-Isabel (2006)rdquoLenovo Building a Global Brandrdquo Harvard

Business School October 19 Harvard HBS Premier Case Collection

Joseph Schumpeter The Creative Response in Economic History The Journal of Economic

History vol VII Nov 1947 no 2

Web articles

httpwwwinternationalviewpointorgspipphparticle1519 22092011

httpwwwspiegeldeinternational0151844255200html 22092011gt

httpwwwbusinessweekcommagazinecontent05_34b3948478htm 22092011

httpwwwfasorgsgpcrsrowRL32165pdf 22092011

httpwwwindependentcouknewsbusinessnewschina-overtakes-germany-to-become-largest-exporter-1864052html 23092011

httpslearncbsdkpluginfilephp55824mod_resourcecontent1JWT20in20Chinapdf p7 2092011

httpwwweconomistcomnode12333103 22092011

httpslearncbsdkpluginfilephp55822mod_resourcecontent1Capitalism20with20Socialist20Characteristicspdf p14 20092011

httpnewsbbccouk2hiasia-pacific6456959stm 22092011


httpsorbis2bvdepcomesc-weblibcbsdk8443version-

2011912Reportservsp_parentcontext=ipaddressampseqnr=0ampcontext=1KAS6ZIZH2PLQ81amp_

cid=72 2009-11


httpsiteebrarycomesc-weblibcbsdklibkbhnhhdocDetailactiondocID=10178095 page

284 2109-11

httpcitationallacademiccommetap_mla_apa_research_citation16903pages169033p16

9033-19php page 19 21092011


284 19092011

httpgogalegroupcomesc-

weblibcbsdkpsretrievedosgHitCountType=Noneampsort=RELEVANCEampinPS=trueampprodId=

GVRLampuserGroupName=cbsamptabID=T003ampsearchId=R1ampresultListType=RESULT_LISTampcon

tentSegment=ampsearchType=BasicSearchFormampcurrentPosition=1ampcontentSet=GALE|CX3483

800057ampampdocId=GALE|CX3483800057ampdocType=GALEamprole= page 210 19092011



httpwwwchinadailycomcnbizchina2011-0905content_13617052htm 19092011

httpglobalfactivacomesc-weblibcbsdkhadefaultaspx 19092011

httpwwwchinadailycomcncndy2011-0909content_13654548html 19092011

httpwwweconomistcomblogsdailychart201109global-economic-dominance 09092011

Lenovo 26092011


Abstract

The first objective of this paper is to give an overview of Chinese capitalism and its

development Furthermore the paper aims to explain how Lenovo became a market leader

and to which extend this was due to the development of the Chinese capitalism Moreover it

identifies Schumpeterian ldquocreative responsesrdquo and points out how these give reasons for

Lenovorsquos survival and growth in a competitive global market

Chinese capitalism has moved since its induction by Xiaopingrsquos reforms in 1978 from degree

four on McCrawrsquos scale of government intervention towards degree three The down-rating in

government intervention reflects the movement from a communist society towards a market-

based economy which can also be reflected in Lenovorsquos history

The reforms and the movement have among other things had a great impact on Lenovo

becoming a market leader Finally the paper shows how the Chinese capitalism has moved

through various phases of government intervention and how the placement on McCrawrsquos

scale has to be adjusted throughout this progress

Lenovo 26092011


Contents

Abstract 2

Introduction 4

Background 5


Communism 5

Xiaoping 5

Theory 6





Introduction 11






Conclusion 22

Schumpeterian 23

China and Lenovo 24

Literature List 25

Web articles 25

Lenovo 26092011


Introduction





USA





























Lenovo 26092011




Background


Communism














step backwards









Xiaoping





Lenovo 26092011




















control


capitalism

Theory




McCrawrsquos Scale






Lenovo 26092011


























context







Lenovo 26092011





































Lenovo 26092011









environment


























Lenovo 26092011




































10


Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011


Contents

Abstract 2

Introduction 4

Background 5


Communism 5

Xiaoping 5

Theory 6





Introduction 11






Conclusion 22

Schumpeterian 23

China and Lenovo 24

Literature List 25

Web articles 25

Lenovo 26092011


Introduction





USA





























Lenovo 26092011




Background


Communism














step backwards









Xiaoping





Lenovo 26092011




















control


capitalism

Theory




McCrawrsquos Scale






Lenovo 26092011


























context







Lenovo 26092011





































Lenovo 26092011









environment


























Lenovo 26092011




































10


Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011


Introduction





USA





























Lenovo 26092011




Background


Communism














step backwards









Xiaoping





Lenovo 26092011




















control


capitalism

Theory




McCrawrsquos Scale






Lenovo 26092011


























context







Lenovo 26092011





































Lenovo 26092011









environment


























Lenovo 26092011




































10


Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011




Background


Communism














step backwards









Xiaoping





Lenovo 26092011




















control


capitalism

Theory




McCrawrsquos Scale






Lenovo 26092011


























context







Lenovo 26092011





































Lenovo 26092011









environment


























Lenovo 26092011




































10


Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011




















control


capitalism

Theory




McCrawrsquos Scale






Lenovo 26092011


























context







Lenovo 26092011





































Lenovo 26092011









environment


























Lenovo 26092011




































10


Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011


























context







Lenovo 26092011





































Lenovo 26092011









environment


























Lenovo 26092011




































10


Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011





































Lenovo 26092011









environment


























Lenovo 26092011




































10


Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011









environment


























Lenovo 26092011




































10


Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011




































10


Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011









reponses

Introduction






















11



Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011































13




19php page 19 21092011

Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011































17



Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011






















Personal Computers












19


Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011



































Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011



































Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011

































assembly line

23


Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011



































Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011











possible for Lenovo
























Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011

































role=



Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011



































Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011





























Conclusion







Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011





























Schumpeterian







Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011







China and Lenovo



















Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Lenovo 26092011


Literature List




Sharpe





Web articles













cid=72 2009-11



284 2109-11


9033-19php page 19 21092011


284 19092011












Group Assignment - China #4 - Lenovo

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Transcript of Group Assignment - China #4 - Lenovo