Lenovo Americas unit hints at growing east-west split

Lenovo's formation of a new Americas unit suggests a growing rift between its Chinese and western operations, which could lead to managerial discord over the next two years.

PUBLISHED : Tuesday, 19 February, 2013, 9:10am
UPDATED : Tuesday, 19 February, 2013, 9:10am

I don’t know if anyone else out there has noticed this, but a recent string of events is pointing to a growing rift between PC giant Lenovo’s (0992.HK) North American-based operations and its home base in China, in what could be a good or bad thing depending on how the situation develops. The nascent rift was on display recently with media reports that the company was forming a new and highly autonomous Americas unit to strengthen its North and South American operations. 

Longtime Lenovo watchers will probably recognise that this split has its historical roots with the company’s 2005 landmark purchase of IBM’s (NYSE: IBM) PC assets, which transformed Lenovo from a Chinese to a global company. As part of that deal, Lenovo inherited a massive IBM operation in the US state of North Carolina, which has continued to serve as one of its major global operations to this day.

There's not a lot of detail in the latest media reports beyond the fact that Lenovo has confirmed the establishment of a separate Americas unit which will formally be launched on April 1 and will be headed by Gerry Smith, head of North American operations. The formation of a regional unit with this degree of autonomy will be a new experiment for Lenovo, which previously made all of its major decisions out of Beijing.

I'm fairly certain this new Americas operation will be based at the old IBM PC headquarters in North Carolina, and that the new unit will be increasingly independent of the company's global headquarters in Beijing where CEO Yang Yuanqing runs the show.

The somewhat unusual move follows another one last month that also hints at a growing split between Lenovo's China headquarters and its US operations. In that earlier move, Lenovo said it was moving its Think line of computers that it inherited from IBM into a separate unit that would become its premium product. As part of that move, the company announced that its Think operations would be based out of the US. Meantime, strategy involving the more mid- to lower-end Lenovo name would continue to come out of China.

I previously said that move looked smart, since the former IBM team in the US was more familiar with developing and selling a premium product, which is what IBM's PC brand was before it sold the business. I continue to think that strategy looks like a good one; but when combined with this latest news of establishment of an Americas unit, this division of brands between China and the US does look like part of a new but potentially problematic rift within the company.

I said above that this rift could potentially be a good thing or a bad one, depending on how it develops. If the US operation can really succeed in positioning Think as a premium brand, it could really help the company diversify from its current position as a largely lower- to mid-tier brand. But if things go badly, I could also see the new Americas unit increasingly asserting its independence in defiance of Beijing, which could lead to major managerial discord.

It's still too early to say how things will go, and whether this growing rift will even develop into a major issue for the company. I was certainly thinking positively after the earlier Think announcement, but this latest formation of an independent Americas unit looks a bit more worrisome to me. A clearer picture will probably emerge over the next year, as Lenovo tries to reconcile differences between its eastern and western roots.

Bottom line: Lenovo's formation of a new Americas unit hints at a growing rift between its Chinese and western operations, which could lead to managerial discord over the next two years.

To read more commentaries from Doug Young, visit youngchinabiz.com