Thursday, October 4, 2012

Lenovo Prove: Outsourcing is Not the Only Way (Updated)

The article below discusses Lenovo, the world's No. 2 personal-computer maker's entry into PC manufacturing in North Carolina next year.

Lenovo is not outsourcing its manufacturing as is done by other vendors (see July article Lenovo Prove: Outsourcing is Not the Only Way)

The July article discusses how Lenovo has been successful manufacturing in house. It is a good way to avoid the commodity PC price squeeze.

Lenovo Chief Technology Officer says the strategy is playing a key role in the development of new products. "If you look at the industry trends, most innovations for" PCs, smartphones, tablets and smart TVs are "related to innovation of key components—display, battery and storage," he said. "Differentiation of key parts is so important. So we started investing more…and working very closely with key parts suppliers" for things like bigger and thinner touch screens."


Lenovo to Set Up PC Plant in U.S.
By JURO OSAWA   October 2, 2012, 12:57 a.m. ET

Chinese computer-maker Lenovo Group Ltd. will start manufacturing PCs in North Carolina next year. Company executives said the effort, starting with only a few million dollars and just over 100 workers, will be the beginning of something bigger, rather than a one-time made-in-America publicity effort.

The world's No. 2 personal-computer maker says the PC production line now being built at a facility in Whitsett, N.C., will allow the company to become more responsive to U.S. corporate clients' demand for flexible supplies and product customization. Although the cost of U.S. production will be higher compared with overseas production, an added benefit will be to raise Lenovo's profile in the U.S., where it ranks fourth in market share by shipment.

"Us having a [production] facility here in a home country is a differentiator that people will value," said Lenovo North America President David Schmoock. He said the incentive for the move is similar to companies taking steps to become more environmentally sustainable. "Being green is not necessarily the lowest-cost option for a lot of companies, but you do it because your customers and partners value you being green."

While the investment is tiny for Lenovo, whose revenue was nearly $30 billion in the most recent fiscal year, it is a symbolic move for the company that rose to international prominence when it bought the PC business of International Business Machines Corp. in 2005. And with its new production line in North Carolina, Lenovo will stand apart from its U.S. rivals—No. 1 PC maker Hewlett-Packard Co., HPQ -3.09%Dell Inc. DELL +0.58%and Apple Inc. AAPL +0.32%—which no longer make personal computers in the U.S.

Lenovo executives said the new production line isn't a temporary publicity stunt. "I believe this is the first of many steps to increase our production capability," Mr. Schmoock said. "I'm very, very bullish about what I can get out of this facility."

Gerry Smith, Lenovo's head of global supply chain, said the decision to set up a production site in the U.S. is in line with the company's broader strategy of localizing its production in major markets as much as possible.

"Now we are big enough in the U.S. to justify this move," he said.

The move also comes as political rhetoric against Chinese companies heats up in the U.S. Last week, President Barack Obama prevented a company owned by two Chinese nationals from acquiring four wind-farm projects in Oregon, saying that those sites are all within or near restricted airspace. Mitt Romney, Mr. Obama's Republican rival in November's presidential election, also has taken a harsh tone against China.

Critics of China have focused on national security, industrial spying and job losses. Chinese telecommunications suppliers Huawei Technologies Co. and ZTE Corp. 000063.SZ +5.48%are being investigated by the U.S. House of Representatives Intelligence Committee over whether their gear could be used to spy on the U.S.

Mr. Schmoock said the decision to introduce a production line in the U.S. isn't a response to the political climate. Lenovo's customers already know that Lenovo is a "truly global" company, he said. "I don't think there's any negative perception we have to overcome."

Lenovo manufactures close to half of the computers it sells, far more than its U.S. rivals. Currently, the PCs that Lenovo sells in the U.S. are produced at the company's Mexican or Chinese factories.

Despite owning the well-regarded ThinkPad brand and having a solid presence in the U.S. market for PCs used in offices and schools, Lenovo has yet to become a major brand for general consumers in the U.S. Its global market share in PCs is about 15% but its U.S. market share is 8%, running fourth behind Hewlett-Packard, Dell and Apple, according to research firm IDC.

The new production line will be located near the company's U.S. headquarters outside of Raleigh, N.C. Unemployment in the area has remained stubbornly high, with the jobless rate in the county at 10% compared with the national rate of 8.1%. The factory isn't far from the site of the last Dell PC factory in the U.S., which closed in 2010.
—Ben Worthen contributed to this article.

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