'Made in China' but with a global outlook

Groups of twentysomethings are staring into their laptops chatting to clients, while other casually-dressed staff mill around the modern atrium building, which is about the size of a football pitch.

Corporate slogans such as "work hard, live art" and "happiness" don the walls of the glass-covered room while an impressive blue sculpture adds a taste of culture to the working environment.

The scene is reminiscent of the headquarters of some of the multinationals that invested in the Republic over the past two decades.

From the "employee of the month" photographs hanging on the wall to the subsidised lunches in the staff cafeteria, Lenovo's massive Beijing headquarters makes a statement about the Chinese electronics firm's global ambitions.

These ambitions are now attracting international attention following Lenovo's agreement in December to acquire the personal computer unit of IBM for $1.75 billion (€1.34 billion).

The mammoth deal, which must still be sanctioned by US regulators and the government, would create the world's third biggest computer company, with combined annual revenues worth in excess of $12 billion.

Lenovo is just one of scores of Chinese firms that are seeking to make the jump from a low-cost supplier to the Chinese market to becoming an international brand.

TCL, the television manufacturer, was the first big Chinese firm to acquire abroad with the purchase of the French company Thomson, a deal that made TCL the biggest manufacturer of colour televisions in the world.

It was followed quickly by Shanghai Automotive Industry Corporation's $500 million deal to buy almost 50 per cent of the South Korean truck company Ssang Yong Motor - and it is rumoured that the firm will go on to acquire a stake in MG Rover.

Straszheim Global Advisors, a US consultancy which focuses on China, estimates that Chinese companies bought $7 billion worth of foreign assets in 2004 and are forecasting a spending spree worth $14 billion this year.

Lenovo is the biggest example yet of China's march toward international recognition and its decision since it was founded 21 years ago to copy the youthful and casual yet ruthlessly efficient model in the US technology industry should help it on its mission to become one of world's biggest brands. A glimpse inside its sparkling headquarters in Beijing's biggest technology park highlights an energetic culture.

"When I first came to Lenovo, I thought it was going to be like any other Chinese firm," says Ms Lina Dai, a tour guide from Lenovo's corporate communications department, who studied for a masters degree in Leeds University in Britain.

"But I found the work culture here is more like that of a western company. This makes it a popular place to work for young Chinese. The average age is just 27."

But a young and dynamic corporate culture - Lenovo's chief executive, Mr Yang Yuanqing, is only 41 - is only half the battle.

A previous attempt by Lenovo to make inroads in international markets under the brand name Legend failed to attract significant sales and the global PC business is ruthlessly competitive.

This fact was highlighted by recently released financial accounts by IBM that show its computer division has lost almost a billion dollars over the past three years. So how will the IBM deal help Lenovo?

"In China, Lenovo is a huge brand name. It has a market share of 28-29 per cent and is the biggest technology company," says Mr Milko Van Duijl, vice president of IBM's European personal computer division. "But outside China, they still mostly sell motherboards and chipsets."

The acquisition will enable Lenovo to use the IBM brand for at least five years, while making a transition to the Lenovo brand name in the European and US marketplace. Crucially, Lenovo has decided to retain IBM's management in the PC division and will move its headquarters to New York following the deal.

"It is a huge transition for them and they made the decision as they have limited knowledge outside China," says Mr Van Duijl, who will develop Lenovo's European expansion strategy.

A lack of international management experience is one of the key problems Chinese firms face when trying to expand successfully overseas.

"Chinese firms have a long way to go on management and most have never been exposed to the world's best business practices," says Mr Michael J Luo, vice chairman and director of Paclantic, a clothing company based in Beijing.

"Chinese firms are more chaotic and less structured than foreign firms and this is apparent when they try to expand overseas,where there are different philosophies and management techniques."

Mr Luo, a Chinese national who studied in the US before returning to set up Paclantic in 1994, was influenced by his experience in the US and chose to set up a clothing firm that relies on its brand rather than low-cost manufacturing techniques.

Paclantic contracts out its manufacturing to other firms and originally built a business model around creating brand loyalty at the upper end of the Chinese children's clothing sector. It recently licensed the Garfield brand for use in China and now exports 20 per cent of its products overseas to markets in Europe and the US.

"When I was living in the US, I saw how Nike built its brand and realised I didn't have to build my business the traditional way. I had a vision which was not about building factories but about introducing new techniques and technology and, most importantly, building brands."

Paclantic is now distributing 10 million pieces of clothing every year and is currently seeking to expand into new European markets. It also uses a state-of-the-art IT system to manage its franchise and distribution network throughout China.

Mr Luo is typical of a new generation of Chinese entrepreneur, many of whom have been educated abroad, and bring their knowledge of western business techniques to bear on their Chinese companies.

His firm has also been boosted by the involvement of Taiwanese and US investment. So is he confident that China can create the next Microsoft?

"Ten years from now, hopefully there will be some Chinese brands with global appeal," he says. "But we will have to do something unique, like Samsung or Sony. We have to be much better than the competition."

This will be the key challenge for Lenovo, which will inherit a PC business from IBM that is haemorrhaging cash and under severe price competition from low cost operations such as Dell.

"We are working on a long-term branding strategy," says Mr Cyrus Kanga, a spokesman for Lenovo. "The new Lenovo is committed to bringing high-quality, innovative products that leverage leading technology to the global market."

Lenovo will hope its global ambitions bear fruit by 2008, when it will be the main technology sponsor for the Beijing Olympics. If it is successful, then the popularity of the "Made in China" tag could be transformed for a host of other Chinese firms.