Tian Yi and Zhu Shenshen/Shanghai Daily news

The mega-deal between Lenovo and IBM earlier this month may have freed the American computer giant from its costly personal systems division, while creating a formidable challenge for China's top computer company.
Lenovo spent US$1.75 billion to acquire IBM's PC business in hopes of expanding its global presence. But as investment bank JP Morgan found out in a recent report, the acquisition was "a bold but highly risky move."
According to the report, IBM's personal systems division has frequently dipped into the red. Although the division has shown some impressive profit recovery in recent quarters, it consistently hovers around the break-even mark.
The market situation may change for the better sometime in the future, many people think. But even if the Lenovo-IBM deal eventually creates a much-anticipated synergy in a few years, Lenovo will have difficulty in quickly solving two thorny issues: lowering manufacturing costs and retaining IBM employees.
IBM PC's solution providers are already pushing Lenovo for low-price PCs. The best way for Lenovo to reduce costs would be to move IBM's global manufacturing facilities to China. Unfortunately, Lenovo does not have enough factory capacity for that purpose.
Insufficient production capabilities aside, Lenovo and IBM may disagree on pricing strategies. Customers favor the aggressive pricing strategies of Dell and HP over IBM's industrial strength and information technology-friendly message. Customers naturally want to see cheaper IBM-branded PC products after the Lenovo acquisition.
However, Stephen Ward, the new operation's CEO-to-be, made it clear in an interview with CRN two weeks ago that Lenovo will not give on price.
"We (at IBM) have generated growth at very competitive price points, but ones that are, frankly, above our competitors because we build a better product. I do not see us changing that," Ward said.
That could differ with the vision of Yang Yuanqing, Lenovo's current CEO and future chairman.
At this stage, it is impossible to fathom how the two leaders would compromise on pricing strategies.
Another big problem for Lenovo is how to retain IBM's incumbent staff. IBM's PC business employs roughly 10,000 people, including about 2,300 in the United States. The rest are either in China or other parts of the world.
Generally speaking, IBM's employees outside China earn much more than Lenovo employees. Take the Netherlands for instance. According to Fei Yiwen, who earned his PhD in economics at Erasmus University Rotterdam, the salary level for IBM PC employees is at least two to three times higher than that of their Lenovo counterparts.
"The best way to keep these people calm is by making sure everything remains the same as it used to be for a certain period of time," said Rui Mingjie, professor and chairman of the Department of Industrial Economics in School of Management, Fudan University.
This is no easy job. Why should Chinese staff earn less than their international colleagues in the same country, such as in the Netherlands, now that IBM's PC business has become part of Lenovo enterprise?
Despite the difficulties in lowering manufacturing costs and reshuffling management, Lenovo has yet to face the worst possible scenario - the costly acquisition may well deliver into the hands of Dell and HP, the top two global PC vendors followed by IBM and Lenovo.
IBM's traditional customers, loyal to the company's culture and concept, may be reluctant to place orders with Lenovo, although the latter will be allowed to use the IBM name for some time.
Those customers probably will turn to Dell and HP.
"When a giant falls, it leaves a clearing in the forest," said Roger Kay, an analyst at IDC Corp.
Other bad news for Lenovo-IBM is an estimated slower growth rate of the global PC market.
IDC forecasts that worldwide PC shipment will grow by 10.1 percent to 195.1 million in 2005, compared with 14.5 percent this year.
In a lackluster year, it is the few top players who get the most market shares. In the PC industry, the global leaders are clearly Dell and HP.
Dell held the No. 1 position in global PC sales with a 16 percent market share in the first nine months this year, followed by HP with 14 percent and IBM with 5 percent. Lenovo trailed far behind with 2 percent, according to Garnter Inc.
"The PC market has emerged as a two horse race for leadership between HP and Dell," HP said in a statement after the acquisition.
After the deal, Lenovo-IBM will become the world's third biggest PC vendor. But it won't be a piece of cake for the new operation to expand sales or even keep IBM's myriad old customers in an increasingly competitive market.