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Little-Known PC Maker Is Legend in the Making

Technology: China's No. 1 computer firm seems poised for expansion beyond its borders, but it has chosen a cautious global strategy.

September 02, 2001|TYLER MARSHALL | TIMES STAFF WRITER

BEIJING — His youthful looks, easy manner and the company ID dangling from his neck all give Yang Yuangqing the image of a promising foot soldier in China's march toward a free market economy.

Only the introduction identifies him as a general.

At 36, Yang is president and chief executive of Legend Holdings Ltd., China's premier high-tech company and one its most remarkable commercial successes. Much like Yang himself, Legend has a deceptively low profile despite its near-vertical growth.

Although its sales jumped by nearly 60% last year to $3.5 billion--enough to make it the Asia-Pacific region's biggest personal computer maker outside Japan--Legend is what some in the industry call the biggest computer company no one outside China has ever heard of.

With a fairy-tale history, a commanding market share in China, one of the world's largest and fastest-growing personal computer markets, and a future that points to only more growth, Legend seems to be a global player in the making.

Not yet, Yang cautioned.

"We have to take a very cautious, prudent attitude toward a global strategy," Yang said in a recent interview at Legend's gleaming steel-and-glass headquarters building in Beijing's northern Haidian district. "We won't take bold actions in overseas markets before we're ready."

Legend's first tentative effort to sell computers outside China--a pilot project this year to market about 10,000 Taiwan-made notebook computers in Europe--is brushed off by Yang as a minor experiment and dismissed by other executives as little more than a market study.

That language is conspicuously restrained for a company that has out-gunned and out-hustled the likes of IBM Corp., Hewlett-Packard Co. and Compaq Computer Corp. in its home market in a way that few other Chinese companies have managed to deal with global competitors. Legend is convinced it outpaced its U.S. counterparts by using superior marketing, better customer awareness and more thorough after-sales service--traditional American strengths, making the feat all the more remarkable.

A little-known bit player when China opened the doors of its computer market to foreign competition nine years ago, Legend today is No. 1, commanding about 30% of China's personal computer market--more than its top four competitors combined. Analysts following China's industrial growth predict Legend will be tough for anyone to catch.

"A poster child for modern Chinese industry," summed up Duncan Clark, managing director of BDA (China) Ltd., a Beijing-based consultancy that tracks China's high-tech industry. "They've done very well."

Legend's formula--using aggressive pricing and a competitive edge in packaging and marketing to sell existing technology--is not unlike the strategy employed by Michael Dell in the 1990s to conquer an important share of the U.S. personal computer market. In an interview with Times editors and reporters, Dell cited Legend as a dangerous competitor.

Legend's success flows in part from the savvy and vision of its principal and founder, 57-year-old Liu Chuanzhi, but also from the accidents of history that have left the company strong but riddled with contradictions.

Among those contradictions:

* Legend's roots are in research. It was founded in 1984 by 11 scientists from the Chinese Academy of Sciences, yet it has little of its own proprietary technology and counts on strong distribution, marketing and sales skills for its edge. Only now, after becoming a market leader, does Legend see development of its own technology as a top priority.

"We need to have it," Yang said.

* The company ultimately thrived because initially it was judged weaker than its Chinese competitors. It was forced to operate without the protection and spoon-feeding the Chinese government gave to so-called national champion enterprises.

* Legend competes with major foreign producers, yet it also remains a major distributor in China for some of them, including Hewlett-Packard and Toshiba Corp. To prevent conflict of interest, Legend's distribution arm, Digital China Holdings Ltd., was spun off last year and is listed on the Hong Kong Stock Exchange as a separate company.

* It remains a state-owned enterprise (Legend's parent company, Legend Group Holdings Co., is 65% owned by the Chinese Academy of Sciences), whose young president quotes from China's economic blueprint, the 10th Five-Year Plan, yet adjusts quickly to customer needs and collaborates with industry leaders such as Intel Corp., Microsoft Corp., and National Semiconductor.

In June, Legend established a $200-million joint venture with AOL Time Warner Inc. in a deal that appears to offer strong benefits to both parties. It gives America Online an opening inthe world's fastest-growing Internet market and strengthens Legend's efforts to bundle quality Internet content with its computers. Initially, AOL is expected to help spruce up Legend's own 18-month-old Internet portal, FM365.com, an effort that has drawn lukewarm reviews.

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