How Global Are Global Companies?

A few weeks ago it was reported that {complink 9284|Lenovo Group Ltd.} has displaced {complink 1544|Dell Inc.} as the No. 2 worldwide PC manufacturer, and is closing in on top-ranked {complink 2376|Hewlett-Packard Co.}. 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.

9 comments on “How Global Are Global Companies?

  1. arenasolutions
    December 7, 2011

    I sort of wonder how much longer “global company” will be a differentiator anyway. Even small companies and individuals are doing more and more business overseas, as the internet makes geographic barriers much less important. 

  2. AnalyzeThis
    December 7, 2011

    This is a little nitpicky, but Lenovo isn't exactly a “Chinese company.” I mean, they were founded in Hong Kong and a big part of the reason they're as big as they are is because of the IBM PC acquisition, as you mentioned.

    It perhaps isn't the best example.

    I'm not surprised Lenovo is ahead of Dell because — for one thing — Lenovo's laptops are very successful and people tend to buy new laptops at a faster rate than desktops, which is something Dell obviously does well selling.

  3. Barbara Jorgensen
    December 7, 2011

    Thanks for breaking out those revenue figures. They were eye-opening. The global companies I am most familiar with, Arrow and Avnet, have been able to balance their revenue by thirds, with equal shares in all regions, depending on how each market is doing. They are selling someone's elses branded products–Intel, AMD etc.,–rather than the end-product (HP, Lenovo). Not sure if that makes a difference, just a thought…

  4. Daniel
    December 8, 2011

    For Lenova, China is a home market for them and I think government is also promoting Chinese products. More over due to high population market is also very big. I don’t think the case is same foe Dell and HP. Both are US companies and they have to struggle well to find a market in China.

  5. jbond
    December 9, 2011

    It would not surprise me if Lenovo hit #1 by the end of 2012. HP seemed to shoot themselves in the foot and Dell has been losing significant ground lately. I believe many companies have “home field” advantage as long as their product meets peoples needs. Regardless of global sales, many consumers would rather buy something thats “local”.

  6. bolaji ojo
    December 9, 2011

    Jbond, Hewlett-Packard certainly scored a goal against itself with the wrangling over whether it should exit the PC market recently. While the company was publicly holding what should have been an internal debate on its future in the PC business, enterprises were actively looking for other vendors and Lenovo fits the bill. One of the things Lenovo has going for it is the old but still very valuable association with IBM. When many people in the West think about Lenovo, they remember it bought IBM's PC division and so, the Chinese company's business can't “be that bad.” Right? Yes.

  7. jbond
    December 9, 2011

    I would completely agree with you Bolaji, in fact when I was buying my most recent laptop this spring I had only a few options that fit my bill without going over what I wanted to spend. I ended up going with another HP since I could get the much larger screen and features for a cheaper price. In fact I had completely forgotten that Lenovo took over IBM's business since it had been almost 6 years since that happened. I think IBM's ties definitely help Lenovo when it comes to the West.

  8. prabhakar_deosthali
    December 10, 2011

    In developing countries like India and China a majority of desktop purchases are unbranded locally assembled products. Not the case with Laptops though!. In spite of this if Lenovo has made it to top it is not because it is more local than Global for the Chinese people but its products are reasonalbly priced compared to HP and Dell. Even here in India when I purchase a laptop for my daughter , I weighed all the options -HP, Dell, Sony, Acer  before arriving at the decision to buy Lenovo because of the beteer price/performance ratio and ofcourse the IBM name-tag in its background.

  9. Kunmi
    December 31, 2011

    It is tempting to think of Lenovo as the next PC to buy but why is it that it does not appear popular or widely accepted among the end users?

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