China a vital factor in IBM's global integration plan

In the past years, IBM has been working to transform itself into a globally integrated company. China, together with India, has been a key element in this strategy. The result: in the second quarter, IBM's China revenue grew by about 30 percent year-on-year, compared with the global average of 9 percent. In an exclusive interview, D.C. Chien, CEO of IBM Greater China Group, talks with China Daily's You Nuo and Liu Baijia about China's role in this transformation and IBM's China strategy in general.

Q: IBM last year announced it would move its global procurement center to Shenzhen, showing the increasing importance it places on the Chinese market. In your transformation into a globally integrated company, how does IBM define the role of China?

A: In the early 1990s, Lou Gerstner, former chairman and CEO of IBM, started a transformation inside IBM. Our consensus is that the present transformation is even more significant than the one in the 1990s.

The reason is that in the early 1990s, IBM was facing many difficulties. Many wanted to see how Gerstner would restructure IBM's business to put it back in shape.

But in the past two to three years, IBM has done quite well. When your business is smooth, making significant changes is more challenging.

If you look at the global integration, knowledge workforces in countries like China and India are changing the industry. When IBM was founded, it did what many Chinese companies are doing now: although IBM was called a multinational, its primary base was the US, doing manufacturing and research there, and then selling products in the international market. That was Phase I.

After World War II, many countries turned more protectionist. So in IBM Japan, you would see a mini-IBM. Unlike Phase I, research and development, manufacturing, sales and support functions were conducted (outside the US).

In the third wave, the changes are even bigger. Now, if you go to IBM Japan, you will see human resource functions are conducted in Manila, finance and accounting in Kuala Lumpur, and procurement in Shenzhen.

In this context, what's the role of China? I think this includes two aspects.

First, it's whether we can continue to deliver better value to customers. With China's economic growth, it's regarded as a center for innovation and services in IBM, so we were the first foreign company to establish a research center here in 1995 and then a development center, where we have 3,000 people, one of the largest in IBM. This targets high-end services, not just for the purpose of cheap labor.

As a globally integrated company, we also support foreign customers from here with the talent resources available in China. At the end of the first half (of this year), half of our staff in China served domestic customers and the other half worked for global missions.

Q: What are your plans in this process?

A: When we sold our PC business to Lenovo in 2005, many people began to watch how IBM would make its own transformation and wanted to learn from it.

I think IBM can help Chinese companies transform themselves. Many Chinese enterprises have grown big here and now want to go overseas, like Huawei and Lenovo. We can contribute to their development: for Huawei, we helped it define a global financial system and with Lenovo, we helped in its global IT system.

After China's WTO accession in 2001, many domestic companies accelerated their pace of development to fend off international competitors entering China.

Even in the government sector, be it the efforts to create a harmonious society or narrowing the rural-urban gap, IT can play an important role. For example, in Xuanwu District of Nanjing, different government agencies ran different computer systems. All platforms have now been combined. An application that used to take six days now needs just one.

IBM had a very large data center network and the 3,900 servers in it cover a space as large as tens of soccer fields. Recently we launched a green data center initiative and used energy-efficient and virtualization technologies. So at present, we just have some 30 such servers and save huge amounts of electricity. If a similar plan is executed in China, the saving can be huge.

I went to Dalian two weeks ago and IBM South Korea brought 150 of their customers to the city as well. When multinationals come to China, IBM also hopes to play a role in their development in China and provide know-how to them.

Q: Apart from transforming into a globally integrated company, is IBM aiming to become a nationally integrated company so that your resources go to locations with the best workforces rather than establishing mini-IBMs everywhere?

A: In China, we look at the issue in several perspectives. First, we must get as close to our customers as possible. Large cities like Beijing, Shanghai, Guangzhou, and Shenzhen account for 45 percent of the total IT spending in the country, but what I often ask myself and my colleagues is: do you have 55 percent of our business from regions outside the large cities? So, besides increasing our presence in industrial sectors, IBM China is also trying to extend our reach.

The second aspect is that we set up different functions, depending on the advantages of talents in certain regions, such as application centers in Dalian and Chengdu.

Another area we are looking at is how to bring our image and products to 300 cities outside the current 26 branches. This year, we opened a channel university as we found many of our partners need management know-how.

(China Daily 10/10/2007 page15)