Why Lenovo buys Motorola – Strategy and Tactics

Why Lenovo buys Motorola – Strategy and Tactics

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I am sure that if the title of this material sounded like “Strategy and Tactics Lenovo mobile devices”, many would pass, slipped his eyes and immediately forgotten. Word Motorola attracts attention and encourages open material, perhaps in this lies the answer to the question posed in the title.

 Popularity of these brands is incommensurable, history Lenovo has several decades, while Motorola pioneered the mobile phone market, as, indeed, and telecommunications. Once it was difficult to imagine that the Chinese company will buy a computer manufacturing division IBM, but it happened. No shock causes and what other Chinese manufacturers acquire European companies with history and experience enough to remember Volvo or watch manufacture Corum. These are the areas where consumers are sensitive to the quality of products, which, in their opinion, stems both from the technology and the country of origin. Curiously, the largest auto show Chinese Volvo owners and their management are hiding in the closed part of the stand, do not go out in public. They do not seek publicity. In Lenovo is another story, which can be considered something unique, something to pave the way for other Chinese manufacturers. This material – not only and not so much a story about Lenovo, as the analysis of the way against the backdrop of a changing world. This is largely a description of the way in which the largest Chinese manufacturers went, and what it will bring us in the foreseeable future. Together we remember the recent history of China, visited the largest factory Lenovo, which made smartphones and tablets, learn about plans to return to the market Motorola line in different countries. On the way we will need to get into the company’s laboratory, as well as measures to become parties to the component suppliers. But once again I remind you, this story was not only about Lenovo – it’s about China business and the modern world. About the people who move the world and change it.

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Contents:

  1. The Cultural Revolution, Mao’s legacy, the Red Guards
  2. Testing standards laptops and other devices in the Lenovo
  3. Wuhan – Lenovo largest factory for smartphones and tablets
  4. What to do with Lenovo Motorola – the second coming

The Cultural Revolution, Mao’s legacy, the Red Guards

China mistakenly called superpower rival the U.S. and a country that defies the imagination. This statement erroneously everything except the fact that China – a country that breaks the representation in all areas. Understand this country without the knowledge of its history is not possible, and try to talk about it briefly will not work. For our story about Chinese companies can not do without the context in which they grew up, the conditions in which there are, and then we can get closer to the highly conditional understanding of their actions.

That each of us knows about China? The first and obvious – the Chinese very much, more than a billion people. To be precise, according to recent data, about 1.35 billion. In 2011 alone, the number of urban residents exceeded those for rural, it is an excellent demonstration of how the economy develops in post-industrial society of the city always have a greater number of residents. China to this level has not yet reached, and is unlikely to reach the same development of European cities in the coming decades.

China’s huge population – it is a miracle and a curse at the same time. Due to the large number of residents born myths about China and the people who inhabit it, for example, said that luxury products are in high demand, as the Chinese are rich. This is partly true, since 2005 the number of dollar billionaires in China has grown from two to sixty-four, and in the Credit Suisse report even states that 6% of the world population with incomes of more than $ 50 million is attributable to China. Amazing and implicitly makes transfer these figures to the whole population. This would be the first mistake that most people – China is very different because of the huge population and the percentage number of millionaires and billionaires is not as high, although in absolute numbers it is impressive. In late 2011, China introduced new standards for assessing poverty, poor people began to consider with an income of 2,300 yuan a year (spending about $ 1 a day). Up to this point below the poverty line deemed almost twice smaller size – 1270 yuan. In that year, the number of beggars instantly increased – from 26 to 128 million people. A striking figure, which is surprising. But it’s official statistics, independent economists say that China may have about 300-320 million people living in extreme poverty (1.5 dollar per day).

How to Fold a quarter of the country living in extreme poverty, and a small number of very rich people? This situation is very polar, it is difficult to imagine, both in Russia and in other countries – the difference in the standard of living in China striking. The state thus has invested considerable resources in the modernization of production, housing and education. Given the tax base, in China there are no problems with investments in certain areas – but to invest immediately in every direction the country is not capable, it is not enough resources. Education is one of the key areas, and then China puts tremendous effort. But without much success, despite the huge number of students, including students. China’s domestic market is original and not similar to Western markets. Gap between cities and villages is enormous. If possible Europeanized city, the village remained typical Chinese wilderness, which changes very slowly and modernized. You can talk about the fact that the country is divided into two worlds that coexist peacefully. From a business perspective it is indeed two different markets that would be a mistake to consider one and the same measure by measure. Unable to start the western campaign and expect that it will be effective for all parts of China, as they are very different from each other.

The origins of successful advertising approach for China lie in the past, namely in the Cultural Revolution. It began with the filing of the Communist Party Chairman Mao Zedong and actually marked the worst years in the history of the state. Cultural revolution in China can be considered a kind of witch-hunt, and this role could come as an illiterate villager, and university professor. Intelligentsia was named one of the class enemies, and young learners, students began to physically destroy their teachers. They were called the Red Guards;According to various estimates, the closure of educational institutions in 1966 has created an army of 50 million Red Guards. And if the previous year they did not allow themselves to kill their victims, but now they can do it, and the police and army did nothing, moreover, helped choose victims and do not interfere with the will of the masses. Red Guards could break into people’s homes, and if they found literature that was harmful, it could kill the hosts. It was believed that life only need to know quotation of Chairman Mao, they were in the 4-volume. Allowed by other authors, but the list was small, for example, is a favorite writer Mao – Lu Xun. Also doing a favor for the specialized literature. But in the decade of the Cultural Revolution in China could effectively destroy not only intellectuals but also notable artists in various fields, clergy – anyone who represented something of yourself. The Red Guards also ended badly – all of them were exiled to the village, many died there.

It was then replaced tatzupaos literature, a kind of martial folks who hung out in the cities. They could not pluck any wrote this piece denounced the vices of the other person. And the first time the leaflets read with great pleasure getting to know them them something new about their neighbors. Rip a piece meant to sign his own death warrant. In 1975, the Constitution of the PRC even introduced a guaranteed right to express their thoughts through tatzupaos, but in 1980 a de facto ban them. It is curious that the format of such leaflets stronger in people’s perceptions, and advertising has migrated to this side.

In China today, there is no big-character posters, flyers replace its companies. The most successful companies are releasing them on every occasion, and in large quantities, focusing on different groups of consumers. Leaflet with the product by a certain date, a leaflet describing the situation in the world and showing the product. Such a diversity of inexpensive but effective advertising I have not seen anywhere in the world. Notice how actively uses this format in China Lenovo.

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History Lenovo – is largely the story of modern China. The official birth of the world leader in the production of computers began with a small room at the Chinese Academy of Sciences in 1984. Then the company was engaged in the adaptation of computers to the hieroglyphics and PC shipments in China. Legend Group name appeared only in 1986, when it turned out that the business has already taken place.

In the Legend Group actively supplying computers to China and saw major flaws brands, it was necessary to offer low-cost PCs that could afford to different people. For many, buying a PC was not fun, the parents took it as an opportunity for a child to enter the next level, get an education and get a good place in society, to ensure their old age. Traditionally in China, invested in training a lot of money on the education of the child amassed decades. Let me quote a famous contemporary writer Yu Hua, who described the current problems of education:

“As always in China, with beautiful figures rooted problems. To increase the enrollment of students, universities took commercial banks jumbo loans, which can not be returned. Tuition fees increased for ten years 25-50 times, that is ten times greater than incomes. Per student leaves the average citizen income for 4.2 years and the average peasant for 13.6 years. Every year about a million graduates can not find work. But we need to repay loans. In 2009, the number of enrollments for the first time in 32 years has decreased. Some children from poor families to understand that the University will not improve their chances in life. “

In 90 years, computers were expensive in the Legend offered them for half or even a third of the cost. Began to produce their models constantly expanded business. It is possible that the quality Lenovo computers could not compete with devices from DELL, IBM and other companies, but on their side was the availability of both the price and if possible get a computer anywhere in the country.

In the photograph before you protagonist Lenovo – this is the usual cardboard box. Then back in the Legend Group ordered boxes from a very strong board, the competitors had a different approach, they focused on the developed markets, and there cardboard boxes was very thin. One thing – deliver their goods to major cities is quite another – when you need to sell it on a motorcycle in the rain in a small village. Boxes large companies sprawling, to bring goods was difficult. And this, at first glance, insignificant fact, played a role. Cheap, convenient in the delivery – all this made computers Legend popular in the domestic market. By the way, in small shops, and today you will find a box of art Lenovo, which are used for other purposes.

Going beyond China, primarily in the Asian region, the company has used exactly the same developments and has achieved great success in the 90s. It was also decided to update the brand – think of a name that corresponds to the update of the company. The solution was simple and quite successful – Le (from Legend), Novo (updated), that is, in fact, it was updated Legend. And so it happened, the company began to grow rapidly. In 2005, the company even buys PC division from IBM, which many perceive as fiction. But it was part of a plan on how to increase their sales and production. However, let’s move on a bit of history to that allocated the company allowed her to develop.

Testing standards laptops and other devices in the Lenovo

Legend Company did not differ in any particular approach to testing products which it manufactured – the usual local manufacturer who tried to create devices with acceptable performance and price. The first breakthrough in the culture of the company was working with IBM, as a contract manufacturer Lenovo had to meet western standards. Nothing exceptional in this story is not, in those years in China for cheap labor force came to global corporations, they set their own rules of the game. Foundations of Chinese industry were laid it was then, as there were the first winners in this endless race. Enumerating known brands today, it’s hard to tell who has never produced anything in China – Apple makes almost all the factories Foxconn, Samsung and even posted in China part of production, despite the preferences in the home country. Country producing the overwhelming majority of electronics worldwide plant – is China. But this does not mean that China has access to the technology that is inside devices – this assembly plants, but not research centers.

For Chinese enterprises lack of marriage in the assembly of devices coming to the fore. On this depends the profit of every company that is not in the tens of percent, which is the strength of 3-5 per cent, depending on the device type. Huge competition between those who collect these devices on the market keeps the price low, they are the same, plus or minus. And the winner is the one who organizes better business processes, does not allow the company to lose money on marriage.

In most cases, trying to shift the marriage to the one who created the component that caused the problem. For example, the plant cost for phones collected in the quality control process of the output turns out that one of the resistors does not work. What happens next?Entire batch is checked if the mass problem, the supplier must pay all resistors work for remaking boards and also pay a penalty. But then begins a long and hard negotiation process. Get money directly, as a rule, it is difficult. They give in the form of discounts on future purchases resistors, replace defective parts and so on. For contract manufacturers is always lost profits, and sometimes direct losses. As a response to this threat in companies assembling devices having very sophisticated quality control system.

Quality control – it’s not just empty words, it is money companies and achieving a certain level of production, each company begins to amplify this trend. The more you produce, the more you have quality control. The turning point for handset manufacturers can be considered production more than half a million vehicles a year, then, in principle, there is a need for quality control.

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Organized quality control at several levels. At the initial stage, a paper work – all component suppliers are divided into several levels.Supplier first level, is a company with a guaranteed quality, relatively high cost, the carrier’s maximum liability for its components.Typically, this world-famous manufacturers and major local players. Suppliers second level, it is most local companies who produce similar components, but they are cheaper, not inferior in quality to world standards. These providers are also responsible for the quality. Further, the third level is often isolated as a rule, it is potentially of interest include all providers, and it is only the local companies. They have a few special requirements, one of the main – this turnover growth prospects. That is, at the minimum price the manufacturer wants to receive guarantees the possibility to increase the volume of orders and maintain the quality. Risks when dealing with suppliers are maximal in all aspects, so the major manufacturers are very careful in choosing them.

In most situations, when a large Western company places an order for production at Chinese factory, it is separately specified in the contract who is a supplier of components and what characteristics they have. Under such contracts clearly prescribed conditions, for example, a manufacturer can not replace the first-tier suppliers to second without prior notification and approval by the customer.

Remember the story that provoked heated discussion a few years ago, when in the air, at a press conference, fired up the laptop from Dell. Was installed inside the battery from Sony, it actually exploded. As a provider of Sony component had to be responsible for it, but no penalties on the results was not. The reason is that the battery is fully compatible with Sony those characteristics that were ordered by Dell. Including temperature tolerances. History is amazing for its matches – in the process of creating a laptop in Dell changed the status of the hard drive, he came into contact with the battery. As a result, when working in warm places and started local overheating of the battery, which eventually could explode. Why not contract manufacturer saw this? Why Dell released a product on the market? It is not marriage battery, this design flaw. The answer is simple – a contract manufacturer has not spent enough stringent tests on the quality of the final product, as a result, all the losses fell on the shoulders Dell. No one except the company was not to blame – the savings on quality control, testing hard led to tangible losses and the impact on the company’s image. Avoid this by creating a multi-stage quality control is a must for today’s businesses.

In a little obsessed with Lenovo laptops as it started while working with IBM, when the company demanded for corporate ThinkPad device maximum quality. As a result, laboratories acquire their greater and greater number of test stands, and then began to think of engineers and their tests. If the industry accepted to spend about three dozen tests, the Lenovo them spend more than 40 and more aggressive conditions – it has become part of the corporate DNA. Not immune from flaws any product, but Lenovo trying to reduce their number to a minimum. Crazy strength test, which is carried out within the walls of the testing labs have become an interesting phenomenon – in some ways they are similar to other companies, something not.

To begin with, the primary quality control components does not differ from other companies – x-ray shows the structure of components, they are tested in different settings before to put on the production line. And multistage control components – first they are checked prior to purchase, form the list of requirements. Then check each purchase – check goes to the plant, which will use these components. Prior to this, they are checked in R & D-centers where the product was created.

Assembled product is also subject to various tests here Lenovo operates differential approach. After visiting laboratories many think that the test shown apply to all products of the company, without exception. This is not so. Most stringent tests are more expensive products with a long life cycle. Inexpensive devices for testing softer, they are at the level of the industry, but do not exceed the general requirements. For example, conventional laptops are fewer tests than the device under the brand ThinkPad, and the tablets of this brand are also not such a hard test as laptops.

Many manufacturers muhlyuyut in their tests – used ideal conditions for testing devices, such as computers. In Lenovo believe that measure the noise level in the laptop at rest (screensaver Windows) can not – it is important to understand how the device behaves under load and when the heats. In such “trifles” different culture and different production companies.

Here is another example from the history of the market and Lenovo. When Intel moved its processors on 32nm process technology, they have passed all the tests in the laboratory, but six months later, many consumers began to complain of unexpected reboot computers.The error occurred not once, but tests artificially recreate the life of two months (ie, could not catch it). In the industry everyone knows that if the device is not broken in the first two months, it will work in the future, the process failures in the coming months is minimal. In Lenovo since decided that they increase the testing laboratories and emulate 6 months of work, to avoid such problems in the future.

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In Lenovo is correctly show their strengths – quality control in the company at a very high level. For some, though not all the products he simply draconian. And these products show us as flagships for example, it may be ThinkPad. With regard to phones and tablets are no additional requirements the company does not, she lives within the market and is no different from other manufacturers. So you should not experience ThinkPad portable to other devices and to extend to all what the company does. The latter did not talk about it directly, but it is created by many and erroneous opinion.

Of interesting details – Lenovo laptops adore corporate users not only because it is the heirs of IBM, but also because of their build quality as much as possible – they are tested, including for compliance with MIL-810G, which establishes the U.S. Department of Defense. Many companies often talk about conformity to the standard MIL, modestly keeping in mind that it is the previous version, which is not relevant for a long time. But this is another ploy.

In the world there is one place where there are only laptops Lenovo, is the International Space Station. Is this recognition of the quality of the product? Sure, yeah.

In climate chambers of laptops are tested in temperatures ranging from -40 to +60 degrees Celsius. For comparison, the usual mediocre manufacturer conducts these tests in the range of -20 to +45 degrees. So more likely to pass these tests, and in most cases this is enough for the average user. In the history of Lenovo is an example where increased requirements to tests ThinkPad concelebrated the company in good stead. Becoming a partner of the Olympic Games, the company had to put laptops in the coming winter games and did it.A few days before the games suddenly became clear that many computers will be outdoors – from morning to night, and the average temperature outside was about 25 degrees. Failures were not, everything went well. This demonstration that excessive testing was useful in this case played a role.

How to understand what products have passed draconian tests and which are not? Think it’s worth the cost to build on – device high price segments, as well as designed for corporate use are the maximum possible test. Simpler device, usually guided by a good price / quality ratio, as a consequence, they do not get the maximum test. But they are often not needed at all for an amount that demonstrates an entire industry. But the presence of quality control displays manufacturer to another level. In normal life, I do not see the factory without quality control, as serious players. This is a problem at the level of consciousness and business processes, sooner or later they will lose large amounts of money, as the production will face a marriage that will not be able to control and catch.

Wuhan – Lenovo largest factory for smartphones and tablets

In 2013, Lenovo has sold about 50 million smartphones and tablets 9 million, while the factory in Wuhan opened in late October, began to produce the device at the end of the year and did not affect the situation. The first plant of the company has no prospects for growth due to natural constraints, it is located in the south of China. Its production capacity smartphones – about 10 million pieces per year.

It is not necessary to study higher mathematics to understand that 80 percent of smartphone Lenovo were born not in the factories of the company. This is the normal approach, as Lenovo did not have sufficient capacity and to place orders for other factories. Construction of a factory in Wuhan had several objectives: first – to provide their own power, so the maximum amount of production will be approximately 100 million smartphones. In 2014, the factory can produce about 20-30 million smartphones. Add to this 10 million in an old factory and get 30-40 million. Ie, orders for foreign factories will still prevail.

The reason is quite obvious – the factory in Wuhan will work primarily on foreign markets, to produce the most significant for the company model. If you form it in business terms, it is beneficial for its own production of models with high added value.

The cost of construction of the plant and its equipment – about $ 200 million. Across the road, the Chinese government has erected a hostel for factory, they now live about 3000 people, they work in a factory.

Since production is not loaded, then the work is only in two shifts – each lasting 8:00, the morning starts at 8.30, there is one break for lunch in 30 minutes, also a 10-minute break. The second shift starts at 15 hours. Some workers overlap between shifts, but most do not.

Salary for this production at the usual line worker makes about 2,000 yuan (roughly is about 10 000 rubles). For large manufacturers is the starting salary level, which requires the government of the PRC. Wuhan choice as a place for the factory due to several reasons, one of them – the cost of labor. In Shenchzhene and other developed centers began to be observed shortage of quality labor force, as a result, plants compete for workers – their monthly salary is the average of 2600-2800 yuan, grew even more in some places. This directly affects the cost of production and cost of the product as a consequence.

Partly this can be explained as a high percentage of contract production at other plants – in Lenovo is not required to pay their workers, they pay production. Smaller manufacturers underestimate the wage of his workers, but this is only their economy and their problems.

It turns out that the factory in Wuhan can not be profitable in the manufacture of all types of smartphones – low and medium model is not very profitable. But the factory, on the other hand, should not be idle and it must load a bit. Tactics Lenovo is not bad – the company is ready to produce a model for other companies (feel the irony?), But more importantly, that those 15 SMT-lines that are in the factory will produce the board for most of their own devices. That is the most expensive operation to create boards for smartphones will take place within the company, and contract manufacturers are already getting ready motherboard and components, assemble the final device.Cheap labor. Plus, Lenovo will avoid problems with quality control in other enterprises – collecting fees independently, Lenovo will be in control and their quality. Lenovo also ready to collect fees for other companies, that is the wrong place orders. Very pragmatic approach that can work – it is focused on the current demand and also forms the makings for growth in the future, creating a cushion of safety for the company’s growth.

Geography Wuhan is that the city is located in the center of the country, the development of roads here – ready devices can be delivered at short notice to anywhere. So that the location does not really matter in this case.

Unfortunately, the factory did not give themselves to visit assembly plants, gave the watch only typical laboratory. This is a normal production at current plants other major manufacturers. Fresh, good, but nothing special to see in it failed.

By saving on the cost of production workers here exactly the same as in an old factory. In the coming years, the company has no plans to open another production, and it is logical.

Of the approach that I’ve seen in a factory, we can assume that the company in 2014-2015 will make a top priority of the transition segment of smartphones in the 200-300 dollars in higher price segments, keeping sales in an already open segments. That is, the company will try to create devices with high margins and compete with Samsung, Sony, HTC, which she avoided up to this point. And then the company needed a new brand and it Motorola.

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