The need for innovation is the big challenge facing Chinese firms

PUBLISHED : Monday, 17 February, 2014, 3:05am
UPDATED : Monday, 17 February, 2014, 3:05am

Despite China's phenomenal economic rise, it still does not have the kind of global brands that other great economies have produced.

Where are the Apple, Toyota and Samsung of China? Lenovo, the computer giant, is one of the few mainland companies that has a shot at global recognition. It clearly has the ambition. Its US$2.3 billion acquisition of IBM's low-end server business and US$2.9 billion purchase of Motorola Mobility from Google late last month show it is a company in a hurry to move up to the top of the food chain in the global information technology industry.

With the Motorola acquisition, it aims to compete directly with Samsung and Apple in the smartphone business. Despite having 90 per cent of its smartphone sales on the mainland, it wants to expand overseas. Meanwhile, despite being low-end, the server business from IBM still has strong demand and will generate a steady cash flow.

None of these means success is guaranteed. Far from it. The weekend after the acquisitions were announced, shareholders duly punished the company with a 16 per cent plunge in share price. Motorola Mobility was a money-losing business under Google, which was more than happy to get rid of it. It may have the software, patents and designs that Lenovo hopes for, but the Chinese computer giant still needs to integrate the business. Mergers and acquisitions often fail during the execution phase.

But the company is not a complete novice. Its acquisition of IBM's personal computer business in 2005 was a success despite some initial hiccups.

As for the low-end server business, it shows Lenovo, like most mainland companies, still prefers to make money off the tried and tested rather than competing at state-of-the-art level with the big hi-tech giants overseas.

Lenovo wants to compete on sales with the global brands. The bigger challenge is to take on the innovation front.