by CIO Staff

Lenovo Shut Out of US State Dept. Laptop Deal for Being a “Chinese Company”

May 26, 20064 mins
IT Leadership

Rep. Frank Wolf played the China card this week, and for him it proved to be a winning hand.

The Virginia Republican objected to a proposal that the U.S. State Department would purchase 16,000 computers made by Lenovo Group, on the grounds that using machines made by a Chinese company in a classified government network posed a security risk.

Despite being approved earlier by a Treasury Deparment committee, the new investigation killed the deal and the US$13 million Lenovo would have gotten for the equipment. But the question remains: Is Lenovo a Chinese company, and what does that mean?

National pride can be a powerful, but usually unsustainable force exerted on consumers. In the 1980s, “Buy American” may have sold a lot of bumper stickers, but it didn’t sell enough cars to keep Japanese automakers from becoming dominant players in the U.S. market. My father refused to buy Mitsubishi Digital Electronics America products because they once made Zero fighters, and other consumers won’t buy Mercedes or Volkswagen thanks to the legacy of Adolf Hitler and his ilk, but overall, people vote with their wallets, and trade wins out over ideology.

To 1.4 billion Chinese citizens, at least those who know what a computer is, Lenovo is a Chinese company. The bulk of the company’s facilities and employees are located in China. In China, its Chinese name, “Lian Xiang,” never changed, even when it switched from being Legend Computer to its current form. As the nation’s top PC maker, its brand identity is strong, and when occasional pangs of nationalism come into play, it is chosen over foreign rivals for being a domestic manufacturer. So on this side of the Pacific, there’s no doubt Lenovo is Chinese.

The current confusion resulted after Lenovo bought IBM’s PC division just over a year ago. The company hired a foreign chief executive officer (CEO), Bill Amelio, to replace its previous foreign CEO, Stephen Ward. An ex-Dell Computer guy replaced an ex-IBM guy, and both are foreigners, so no big sea change there. Throughout, Yang Yuanqing of China has served as the company’s chairman.

One befuddling aspect of Lenovo seems to be its “headquarters.” The company moved its executive headquarters to the United States after it bought the IBM PC unit. The U.S. headquarters was initially in Purchase, N.Y., though now it is moving to Raleigh, N.C. A company fact sheet, however, says that principal operations are in both Raleigh and Beijing. That’s a heck of a commute for Amelio any way you cut it.

The company is incorporated in Hong Kong, and went public on the Stock Exchange of Hong Kong in February 1994. It also has had an American Depository Receipts listing on the New York Stock Exchange since March 2000.

Hong Kong has been part of China again for nine years now. So is Lenovo a Hong Kong company, a U.S. company, a Chinese company, all or none of the above? In this part of the world, being incorporated in Hong Kong no more establishes ties to the former British colony or to China than does a California sailor who registers his boat in Wilmington, Del.

What’s being lost in all this discussion is that Lenovo has wised up to the way international business is conducted. Toyota Motor got smart in the 1990s, and started hiring Americans to build cars in America for other Americans to buy. Lenovo just learned that lesson a lot faster.

Rep. Wolf is probably ultimately right that Lenovo is a Chinese company, in the same sense that McDonald’s is an American company. The burger giant is always quick to point out that when antiglobalization or anti-American protesters damage one of its restaurants, it’s a local owner and local employees who are hurt. That’s true, except that it’s the American company that ultimately receives the franchise payments.

The best indicator of the company’s loyalties and origins is its own corporate culture. And while many Lenovo employees will be dining on Big Macs for lunch, the majority are probably eating Chinese food.

-Steven Schwankert, IDG News Service

For related news coverage, read Rough Q4 Leaves Lenovo Swimming in Red Ink and U.S. Dept. of State Limits Use of Lenovo PCs.

Check out our CIO News Alerts and Tech Informer pages for more updated news coverage.