Financial Daily from THE HINDU group of publications
Saturday, Apr 29, 2006
Columns - E-Dimension
A snake-eat-elephant story
Cáng Lóng Wò Hu. Chinese Pinyin for `hidden dragons, crouching tiger,' as Haiwang Yuan translates on http://chineseculture.about.com. "You think you lost your horse? Who knows, he may bring a whole herd back to you someday," reads another, among the many proverbs on the site.
Was l'affaire Lenovo just that? `A cautionary tale,' writes Ling Zhijun in The Lenovo Affair, from Wiley (www.wiley.com). A snake-eats-elephant story, he warns.
The book is the result of `unusual access to the company' granted to the author, who is currently Senior Editor at the People's Daily. Translated by Martha Avery, the legend of Lenovo has Liu Chuanzhi as `the main figure' for, he managed to `marry unique advantages of the communist system with specific features of the capitalist system'.
As a result, Lenovo is `the third-largest computer company in the world, with $13 billion in sales,' even as "the Chinese Government still owns controlling interest in the company." It is no coincidence, therefore, that a day before the Chinese President, Mr Hu Jintao, visited Microsoft Corp last week, Lenovo announced `a plan to buy $1.2 billion in Microsoft Windows software in the next year,' as www.bizjournals.com reported on April 18.
A blow to the Western plot
Lenovo buying out IBM-PC was unique in Chinese commercial history, notes the intro. `More significant than the dollar value' was the `powerful blow' that the deal dealt to what was being perceived by many as `the plot by global Western enterprises to gulp up a large share of the Chinese market.' Leaving aside the discussion whether the `plot' was real or imaginary, let us get to know Liu, the hero, acclaimed as `the godfather of China's information industries'. He had started Lenovo in 1984, after having worked for long in the Computer Sciences Institute.
"The computer industry in China began in 1956," informs the intro. On August 25 that year, four research institutes were established, to focus on technology, semiconductors, automatic control, and electronics. "The first batch of 45 Chinese computer scientists... were just students," selected from the `automatic control' departments of three universities of Qinghua, Shanghai Jiaotong and Peking. They were sent `one by one' to the Soviet Union `to see what computers looked like'. Their first computer was called 103 and it did 30 calculations per second."
`Number 104' was China's first mainframe computer, paraded in Tiananmen on October 1, 1959, the tenth anniversary of the founding of the PRC (People's Republic of China). The machine used 8,000 vacuum tubes, and became one of China's `secret weapons' deployed in a variety of tasks ranging from weather forecasting to bomb making.
"In summer, researchers had to bring in quantities of ice cubes and keep fans blowing. If all the fans were blowing at once, they could keep the mainframe cool enough the computer operated in this fashion for around 20 years."
Liu had studied in the Xi'an Military Electronic Engineering Institute. "This school specialised in atom bombs and guided missiles." Since Liu's `political views were insufficiently clean,' he was assigned to study radar. As an 18-year-old, Liu began to learn the art of compromise, after seeing that the Party liked those whose mouths were slow but hands were fast.
"He learned how to get along with people he did not like. He learned to do things with enthusiasm that in fact he detested."
Knowledge from captured radars
Such as, "bring in captured American radar systems, disassemble them and use the knowledge to devise ways to improve China's military radar systems," and then work in a commune planting rice seedlings. Feeling secure after the first atom bomb in 1964 and satellite in 1970, China decided to protect its intellectuals, especially as a reaction to the West's blockade of exporting advanced technology to China.
Liu entered the Computer Institute, Zhongguanccun, that was to become `China's high-tech zone'. Back in the 1970s, though, the institute had a military name `Jing Troop #116'. No commercial applications were ever considered then. Number 104 had been followed by 109 in 1964, capable of performing 60,000 calculations every second. Number 111, born in 1971, was China's first integrated circuit computer.
`Project 757' that came up then had a `mighty' goal: Of putting together more than 20,000 logic components, "distributed over two floors of a building." 757 was "the final song in the history of computer development in the interests of the military in China."
On October 20, 1984 something significant happened. Zhongnanhai, the governing seat of power in China, passed a decree titled `Decisions Regarding Reform of the Economic System'. It conceded that `rampant egalitarianism is destroying the productive capacity of society'. More important, `it released energies that had been held back for years' by saying: "We want to encourage more and more people, wave by wave, to move towards wealth."
First, sweep the floor
Three days earlier was held `the first conference in the Guard Post' the meeting to set up the company that was to become Lenovo. Venue was "a small building of 20 square metres that had two rooms" in front of the Computer Institute compound. "In China, such small one-storey buildings in front of a compound served as guard posts." Eleven people attended, the full staff of the company, and `all were members of the Computing and Technology Research Institute,' prepared to have `one foot each on two different boats'.
Ling describes the first plenary session held at the Guard Post: "The room was bare, except for the dust. The first decision of the meeting, therefore, was to sweep the floor. It was then decided to move in some chairs and tables and, after this was done, everyone sat down... The entire staff could be seated on three benches. There was no ceremony associated with this meeting; there wasn't anyone announcing that this was the start of the company." Yet, as Zhang Zuxiang, one of the founders put it, "That was the moment."
Officially, however, November 1, 1984 is `date of the founding of Lianziang' because papers requesting the establishment of the company were sent to the authorities on that date. The company received `three key rights' "the right to control its own finances, the right to hire and fire people, and the right to make policy decisions about operations."
Those were still days when anyone involved in business had a bad reputation, recounts the author. "Any cultivated, talented person was presumed to be a scientist. The first scholars who took the plunge into business were forced to do it in desperation."
Year 1984 was when IBM introduced its first portable computer, "the IBM Portable PC, weighing 30 pounds," as www.pc.ibm.com informs. Across the world, with an initial capital outlay of only RMB200,000 ($25,000), was launched "the New Technology Developer Inc. (the predecessor of the Legend Group) funded by the Chinese Academy of Sciences."
Sweet at both ends
Almost two decades later, when the Committee on Foreign Investments in the US was formally investigating into Lianxiang's proposal to acquire IBM-PC, the Big Blue made promises such as forbidding any employee of Lianxiang from entering IBM's research facilities, and not giving the Chinese company a list of IBM's customers in the US Government.
Watching `the developments with complex emotions', some were sarcastic: "They said that the components of IBM-PCs were mostly made in China anyway, and that the only way Chinese could use IBM notebooks in a military application was to throw them out of airplanes onto the heads of enemy soldiers."
The US' approval came in March 2005; it imposed no restrictions as feared. English became the official language of New Lianxiang. `You can't expect both ends of a sugarcane are as sweet,' says an ancient Chinese proverb. Was Lenovo an exception?
"Liu Chuanzhi and Lianxiang are a part of the mechanism that has changed China's thinking about its relationship with the world," observes Ling. "Their role as agents of change will now pass on to others, including those who find themselves playing a part in the unfolding drama of globalisation."
Right read before May Day!
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