A few weeks ago it was reported that Lenovo Group Ltd. (Hong Kong: 992) has displaced Dell Inc. as the No. 2 worldwide PC manufacturer, and is closing in on top-ranked Hewlett-Packard Co. (NYSE: HPQ). Lenovo's PC unit shipments grew by 14.5 percent in the third quarter of 2011, compared to HP's 5.9 percent growth rate and Dell's 1.3 percent.
As I was reading the various analyst reports and press coverage about this story, I was looking for some insight on why Lenovo had achieved such status. The jump to second place seemed like a big deal, considering Lenovo was in fourth place at the beginning of the year. So there must be some significant underlying reason.
Was it better performance, lower cost, sleeker design? Did the company excel in marketing, technology, or IT? Maybe it was something the competition was doing wrong? I'm thinking HP's premature announcement this summer that the company would exit the PC business may have contributed. Perhaps, but the primary reason appears to be much more basic.
"Lenovo continues to capitalize on strong demand for PCs in its home market of China," according to Matthew Wilkins, principal analyst for computer platforms research for IHS iSuppli. "This is putting Lenovo in a position to contend with HP for market leadership."
Indeed, Lenovo is a Chinese company. It was founded in Hong Kong in 1988 and is now headquartered in Beijing. The company has research operations in Shanghai, Shenzhen, Xiamen, and Chengdu, as well as in the US and Japan. It manufactures in China, the US, India, and Mexico. The company bought IBM's personal computer division in 2005.
The implication is that Lenovo has an advantage in China simply because it is Chinese. Despite the fact that it operates globally, Lenovo remains heavily dependent on its home market. Its fiscal 2011 annual report states that 46 percent of sales for the year came from China. That's nearly $10 billion.
So what about Dell and HP? The common perception is that these multibillion-dollar companies are "global" and equally at home in the Americas, Europe, and Asia, with revenue more or less equally distributed around the world.
Not quite. According to HP's 2011 annual report, sales in Asia/Pacific, which includes China, accounted for just 18 percent of total revenue. US revenue was nearly twice that figure. If half of HP's Asia/Pac 2011 revenue came from China, it would be about $7.6 billion. Granted, it's a big number, but still about $2.3 billion less than Lenovo's China revenue.
Dell's 2011 annual report tells a similar story. The company reported that just 12.3 percent of total revenue came from BRIC countries (Brazil, Russia, India, and China) in 2011. Dell's US sales were about 52 percent. If half of the BRIC figure were revenue from China, it would be about $4 billion. Again, a big number, but less than half of Lenovo's China revenue.
The message is clear: Home country advantage trumps global presence nearly every time. And companies that tout themselves as being "global" are in many cases not. Typically, global companies' management and boards of directors are from their home countries, and their business culture reflects the culture of their home countries. They may have success selling overseas, but they are not really embraced as local companies in foreign lands.
This wouldn't be such a big deal if the three big markets of the world -- North America, Europe, and Asia -- were all chugging along equally well. But clearly they are not. As a consequence, I wouldn't be surprised if Lenovo displaces HP in 2012 as the top PC company in the world, based on the growth of its PC sales in China.
This isn't unique to the PC business. It's replicated across many markets. So if the expectation is that the 21st century belongs to Asia, and specifically to China, then maybe it's worth thinking about how your company can become a bit more "global" in the true sense of the word.