Companies
Chinese checkers: How PC maker Lenovo stayed safe
Summary
- Many Chinese electronics companies and apps have faced scrutiny since the Galwan clashes in 2020. The list includes TikTok, Xiaomi and Vivo. But, Lenovo managed to do better. Was a charm offensive at play?
New Delhi: On 29 June 2020, two weeks after Indian and Chinese troops brutally clashed at the Galwan Valley, India’s ministry of electronics and IT said it was pulling the plug on 58 Chinese apps operational in the country. Among them was TikTok—the short-form video app was hugely popular back then, with over 200 million users in India. A detailed statement explained the move: The ministry had received complaints about misuse; the apps were “stealing and surreptitiously transmitting users’ data in an unauthorized manner to servers which have locations outside India".
In the years that followed, more Chinese companies came under scrutiny.
The Enforcement Directorate, the agency which fights economic crimes, seized over ₹5,500 crore worth of Xiaomi India’s assets after a probe found that the smartphone maker made illegal remittances to foreign entities while showing them as royalty payments. The agency also alleged that Vivo, another Chinese mobile handset maker, siphoned off ₹70,000 crore from India under the guise of imports. And earlier this year, some China backed fintech firms were searched as part of a money laundering case.
In the middle of all this, one Chinese electronics company with sizable operations in India managed to stay safe and below-the-radar: Lenovo. It didn’t find itself in the law’s crosshairs.
What did Lenovo do that Xiaomi and Vivo did not?
Before we answer, let’s look at Lenovo’s history and its current operations, in India and across the world.
Idea in a dusty room
In a dusty room in Beijing, in 1984, Liu Chuanzhi and 10 other researchers from the Institute of Computing Technology of the Chinese Academy of Sciences founded a company called Legend. Chuanzhi, according to Legend Holding’s website, graduated from the People’s Liberation Army Institute of Telecommunication Engineering in 1966. He went on to become a representative of “the 16th and 17th National Congress of the Chinese Communist Party and of the 9th, 10th and 11th National People’s Congress of China". Chuanzhi is today the honorary chairman of Legend Holdings.
The personal computer (PC) division came to be called Lenovo and listed in Hong Kong in 1994. By 1997, Lenovo became the No. 1 PC maker in China by market share.
The company now operates in over 180 markets. Headquartered both in Beijing and North Carolina, US, the group’s leadership team is dispersed across locations. It has made large acquisitions in the US—IBM’s Thinkpad business in 2005; the X86 server businesses in 2014 and Motorola devices business from Google in 2014. Over the last decade, the Lenovo group grew from about $20 billion in revenue to over $59 billion in 2023.
India is part of the company’s Asia Pacific operations, which contributes about 19% to global revenue. India has over 1,700 employees; globally, Lenovo employs 69,500. In 2023-24, the company generated revenue of ₹10,847 crore with a profit of ₹100 crore. Today, its three manufacturing sites in the country produce 6.5 million devices, including PCs, phones and tablets.
‘We pay our taxes’
Chinese companies, for decades, have tried a charm offensive strategy in India. In May 2010, The Economic Times reported that Huawei, a telecom equipment major, was nudging its Chinese staff to Indianize their names. “Chen Tian Siang, a top consultant with Huawei India, introduces himself as Chetan Chen; Ling Yong Xu, a top management executive, is Deepak to his Indian colleagues; Liu Fang, a senior executive with its networks division, goes by the name Deepika Fang," the report stated.
Lenovo had a more straightforward idea: Good compliance.
Amid increasing geopolitical conflict, the group has been open to scrutiny from foreign governments, Shailendra Katyal, the managing director of Lenovo India Pvt Limited, told Mint.
“We pass the highest level of scrutiny across markets, not just in India. Federal governments still buy from us, whether it is the US, Japan or Korea. We have one-third of the supercomputer market share, which means research universities in Europe and North America (critical from a security point of view) use our supercomputers," he said.
Katyal added that the company has been a good citizen. “We pay taxes regularly. There’s never been a security incident related to Lenovo, whether in India or globally."
Analysts tend to agree with this view. Bharath Shenoy, principal analyst at advisory and research firm IDC India, said that Lenovo has been in the India PC business since 2005. With time, came trust. “Over the years, they have been well accepted not just by global enterprises, Indian enterprises and small and medium businesses, but have also fulfilled several government orders in the past," he said. “Close to two decades of operations, existing relationships in the ecosystem, and also the intent to invest in India might have helped Lenovo weather the storm better compared to others," he added.
Make or break
Invest in India implies local manufacturing. While Chinese smartphone companies under the Indian government’s scrutiny also locally manufacture, either directly or through third parties, they have been a bit late in the game.
A senior industry executive from a Chinese phone brand, who didn’t want to be identified, said that the allegations of funds being siphoned and tax evasion emerged because some companies simply didn’t want to comply with Indian laws. They started to manufacture locally only after the government’s import substitution measures—high customs duties on the import of finished products and components—kicked in since 2014. Vivo India, for instance, started assembling its devices in India, from its Greater Noida facility, only in 2015.
“The Chinese brands had cornered the Indian market, driven local brands out of business by undercutting the market," the executive said, which alarmed both industry bodies and the government.
This was not the case with Lenovo’s operations.
The company has been making PCs in India since 2005 after it acquired IBM’s facility in Puducherry. Over the years, it has added products to local manufacturing and recently engaged Dixon Technologies to make laptops and tablets. In September this year, the company announced that it will begin making artificial intelligence (AI) servers locally—AI servers are designed to support generative AI computing.
“Lenovo has a higher percentage of locally assembled notebooks compared to most of its competition," said IDC’s Shenoy. “Lenovo has been consistently increasing its locally assembled notebook mix and thereby reducing its dependency on imports."
Lenovo is currently the No.2 in India’s PC market with a 17.3% share of the 4.5 million units shipped in the September quarter, as per IDC. It trails HP, which leads with 29% share and is ahead of Dell and Acer who have 14.6% share each.
Meanwhile, analysts think that making AI servers will be a big deal, going forward. William Li, a senior analyst from Counterpoint Research, said that establishing AI server manufacturing in India strengthens Lenovo’s position in the Indian market, and can possibly avoid US-China trade tensions while aligning with the global trend of supply chain diversification. “In addition, this move supports the Indian government’s Make in India initiatives, enabling Lenovo to secure favourable policies for business development in the country," he added.
Global, not Chinese
An important facet of staying under-the-radar is how Lenovo is perceived in different circles. The group, on the whole, does not want to be known solely as Chinese-owned or operated. In its history page, on the websites of different countries, Lenovo likes to mention its IBM association upfront, one that makes it look more multinational.
“Lenovo’s story begins in a dusty room in Beijing in 1984, the same year IBM launched its first ‘portable’ computer, the IBM Portable PC, weighing a hefty 30lbs (13.60kg). The history of the two companies became intertwined over the coming years," the history page states.
A former senior executive in the India office, who didn’t want to be identified, said that the mandate was clear—the company had to be known for its global operating style and outlook. This also reflected in the profile of the executives it chose to hire.
“The executives representing Lenovo were rarely from China; they would be either local or global talent. For instance, if Lenovo operated in Europe, its leadership team would be from the region," the executive said.
Nonetheless, this strategy isn’t unique to Lenovo. Xiaomi, for instance, had Indians leading their domestic operation. But some smartphone brands did have Chinese nationals across operations, in leadership, manufacturing and distribution. In December 2023, the Enforcement Directorate arrested Hong Xuquan, the interim CEO of Vivo and a Chinese national, in connection with the agency’s probe into alleged money laundering.
Katyal, who has been the India managing director at Lenovo since 2021, and part of the group since 2011, clarified that the company goes by meritocracy—“best person for the job irrespective of the citizenship"— across markets. “It is truly merit driven. And yeah, you’ll have enough Indians in many places," he said.
Katyal’s boss, for instance, is Indian—Amar Babu, the president of Lenovo Asia Pacific. While Babu has been with Lenovo for 17 years, he is of American vintage, having been the country manager of chipmaker Intel in India, between 1999 and 2007.
Vocal for components
While Lenovo has stayed safe from investigations and the bad press smartphone makers and Chinese apps received, the military standoff post Galwan, and subsequent policies, did impact its business.
India’s policies on foreign investments changed. The country amended its rules for foreign direct investments, especially those coming in from countries that shared a land border. In addition, India revised its public procurement norms in July 2020. Bidders from countries that share a border now needed additional clearance in the form of a pre-registration with the department for promotion of industry and internal trade (DPIIT). The move impacted pretty much all major Chinese vendors and companies.
Lenovo regularly bagged large contracts for supplying laptops or tablets from central or state governments. Post July 2020, this business dried up. “Since government contracts didn’t come to Lenovo, they went to HP, Dell or Acer, which also led to its sales declining in 2022 and 2023," IDC’s Shenoy said.
Lenovo’s India revenue slipped 12% in 2022-23 and 14% in 2023-24.
Katyal told Mint that presently, Lenovo was unable to participate in any of the government tenders even though it has been compliant with category 1 requirement of the preferential market access (PMA) policy. PMA states that a minimum of 50% of the components used in making a product should be made in India. Component manufacturing is India’s next goal, post its success with electronics assembly.
The company began making motherboards used in PCs and laptops from its Puducherry manufacturing plant earlier this year, in addition to sourcing other components locally, meeting the criteria.
“We’ve done whatever the government has asked for. We’ve applied for a fresh application, which is still pending approval. We continue to make representations to allow us to participate in government tenders," Katyal said.
India and China have begun engaging in diplomatic talks to de-escalate border tensions and this gives hope to Chinese companies.
In the meantime, Lenovo, in its representations to the government, is stressing on the value it can create by deepening its operations and creating a supply-chain for component manufacturing.
“We can help build global scale, not just India for India, but India for the world," Katyal said. “And if we’re bringing in our top 10 supply chain partners into India, it should have an impact for us as well—in terms of our corporate reputation," he added.
