Lenovo used to look so good. The Chinese computer maker’s acquisition of IBM’s personal computer division was once held up as the shining example of how Chinese firms should conduct their overseas M&A. In hindsight, however, it seems that the acquisition was only impressive in what it didn’t do. Lenovo, despite significant state ownership, did not cause a diplomatic ruckus. It let IBM keep some ownership in the new venture, and didn’t attempt to transfer all positions either back to China or pass overseas top management positions over to unqualified but well-connected mainlanders who would work for lower salaries. The firm looked like a global competitor; at one point, Lenovo had more employees overseas than Dell. But today, Lenovo’s foreign ventures are paying the price for all-too-typical state-owned enterprise mistakes. The big one was its decision to waive its right to use the IBM brand three years early, a decision akin to buying a Rolls Royce, ripping off the hood ornament, and trying to resell it as a Volkswagen. At the time, Lenovo CEO Bill Amelio justified the decision by saying that the new unified brand "could serve as a rallying cry for the whole company!" This reads like a script handed to him from hamfisted mainland marketing propagandists, particularly as it appears to confuse employee morale with customer appeal. Today the firm announced its third consecutive quarterly loss. Most of the losses are coming from overseas divisions, which are higher than expected. Lenovo blames the economic downturn, and says it will refocus on its domestic market, where it plans to tap rural markets via subsidies for rural consumer purchases of home electronics. In short, Lenovo now looks like yet another SOE that can’t compete without handouts from Beijing. Unfortunately, Lenovo can’t rely on the domestic market either. For one thing, the whole idea that poor people desperately need home computers is a popular canard propagated by computer manufacturers. For the other, Lenovo’s loss of face overseas will likely cost it back home.
However, things at home are looking up. Today more good news for the macroeconomy; power production is up for the second month in a row. Most of China’s power output goes to its highly inefficient factories, so more power production means more consumption means more economic activity. However, a return to high factory production means a return to high factory pollution, but here as well there is good news – or perhaps just news. China is now signaling flexibility on climate change negotiations. China’s original position was: We will do nothing and developing countries will cut their emissions by 40% by 2020. Today, it seems China is willing to give the West a break on the 40% in exchange for another rub on the technology transfer magic lamp. However, it’s unclear whether this means that China would be willing to accept caps on its own emissions. If it won’t, it means China is offering the world’s polluters the opportunity to continue polluting in exchange for the technology China needs to build a cleantech national champion.
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