Episode Thirty-Four: The Global Scale of Credit

Working with Global Companies with the Benefit of Local Knowledge

[Credit is] based on the data, based on the numbers, based on financials.
 

We spoke with Lei Chen, Chief Credit Officer at Lenovo Group who discussed managing trade credit and supply chains on a global scale, the impact of COVID-19 and the importance of culture in business.

(Please note that this podcast was recorded remotely.)

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The Power of Data Podcast

Episode 34: The Global Scale of Credit

Guest: Lei Chen, Chief Credit Officer, Lenovo
Interviewer: Sam Tidswell-Norrish, International CMO, Dun & Bradstreet

Sam 00:00
Hi, welcome back to The Power of Data Podcast with Dun and Bradstreet. I'm Sam and I'm joined today by Lei Chen, the Chief Credit Officer of Lenovo, Lei welcome, Xiao Jian, Tao, ni n Gaussian.

Lei 00:13
Thank you very much, Sam. It's my great pleasure to talk with you and also share how we look at the power of data. And Dun and Bradstreet, it's more than decades of long-term partner of Lenovo and we're very happy to work with you and your company, so it's my pleasure.

Sam 00:29
And we're delighted. This is actually the first podcast I've done between, not even just Singapore where you’re based, but between London and Asia. So this is a day of many firsts. I've also spoken Mandarin for the first time, I can't speak anymore. But as you and I were talking before we started recording, English is the professional language of Lenovo, and you've been at Lenovo for 14 years. Looking through and talking to you about your past, you've been all over the world. You've been in Beijing, you've been in Slovakia, you've been in Singapore. Can you tell our listeners a little bit about your career to date?

Lei 01:05
Yeah, and I believe Lenovo really shows how Chinese company originally from China then grows as a global company operated in more than 160 countries. So currently I'm Chief Credit Officer of Lenovo Group. I took this position since 2012. So I manage the global Lenovo worldwide credit. I relocated from Beijing to Singapore. Before that, I was the Credit Director for Lenovo emerging market since 2010 to 2012, located in Beijing to handle the credit for the emerging market. At that time, Lenovo will divided by two market groups; one is for emerging market and another is for the metro market, basically, emerging market are all the developing countries, China, Russia, Brazil, Latin America, Middle East, Southeast Asia, those countries, a lot of opportunity. But, of course from a risk management perspective, a lot of challenges. Before that, I was at Lenovo EMEA, Europe, Middle East Africa Credit Manager, so I spent three years in Bratislava where Lenovo had Operation Center in Slovakia. So I was relocated to there in 2007. So I was the first Chinese manager there to work with my colleague from Slovakia and France, Scotland, you know, around, nine nations. So it was a very good experience as for me, International. So plus all my experiences in Lenovo, you know, it's really exciting, really exciting because you work with people from different countries with different cultures. But they have a same Lenovo culture, the same way to do the business, same way to fulfill our jobs. So it's really exciting. So that's why I keep working Lenovo for 16 years, not just 14.

Sam 02:49
Lenovo is one of the great Chinese companies and I’ve been reading up on Lenovo’s history, it's incredible. It's only a little bit older than I am, to date myself. It was done in the 1980s but it's the world's largest personal computer, end to end company. When I say end to end, for the listeners that's designed, develop, manufacture, distribute and sell. It's acquired some of the coolest companies on the planet. It's acquired businesses from IBM. It's acquired businesses from Google, all sorts, Fujitsu, I think I read about. So tell us a little bit about the company and the journey you've been on.

Lei 03:25
Okay, Lenovo was founded in 1984 in China. We started the name with Legend, not Lenovo. And I believe we start with a 200,000 RMB with our capital. At the very beginning, we distribute pieces and all the IT related. Then in the 1980s or early 90s we start our own brand, Legend, and start to manufacture our own brand and became number one in China, maybe 1996. And then you know, a big step of Lenovo was in 2003, we change our brand in the name of our brand from Legend to Lenovo. The reason we change our English name, you know, Legend is quite popular in English, so we realized in a lot of countries it's already registered as a trademark. So we created a word Lenovo. You know, the first two words of a legend and the Novo is innovation, finding innovation. So we created a new word.

You can see at that time, actually, we already prepare to go outside of China, go abroad. So a big step was in 2005, we acquired IBM PC division, and become a global company. And that time I believe, when Lenovo just acquired IBM PC division, the total market share was only 7%. Globally, totally. And we were number three or number four in the world, but we became number one market share in 2013. So after around eight years of acquisition, we triple our revenue, and our market share today I believe 24% market share globally. Also our profits increase more than three times, so it was a very successful acquisition. After that, then to 2011 we acquired NEC PC and in 2017 Fujitsu PC in Japan, but we keep the brand, so now actually, if you will tell me in which country Lenovo have a biggest market share, I can tell you the two countries are homeland, China, and Japan. In both countries, we have more than 40% market share. So this is for the PC, and we acquired Motorola Mobility, mobile phones from Google, in 2015. This was also a step into the mobile business, and we successfully actually, can this business to break even. And meanwhile, we also acquired IBM x86 servers to build the foundation of our digital data center business. Now both mobile phone and data center business become an important part of the Lenovo’s strategy to build up our three S strategy, Smart Internet of Things, Smart Infrastructure, Smart Verticals. So this is where we are. Now, Lenovo basically have a two business group. One is called IBG, international devices group, basically, you know, it's including laptop, desktop, tablet and mobile phones, all those devices. IT related devices belong to the IBG group. Another group is the DCT, data center group, server, storage, a hyper scale, all such kind of intelligent IT infrastructure things. Actually, everybody know Lenovo is number one for PC, but actually in the hyperscale supercomputing, we are also number one in the world. You know for the top 500 supercomputers, the quickest computers, 174 are build and, sold by Lenovo, and also it covers more than 14 markets. So this is where we are, as you just mentioned, yes, we provide end to end solutions. From the manufacturer, distribution for everything, not just for PC, also for the servers, the data centers, for all kinds of devices. And our target will be to be a system solution provider. So integrated solution for customers smart solution, because we believe that our customers not just need the hardware or simple software, they need that integrated solution, smart solution. So we build our competence for Lenovo to become a solution provide: services, software, hardware, total solution to our customers.

Sam 07:32
It's really useful to hear a bit more about the strategic details and listening to you talk about the smart IoT, smart infrastructure and smart verticals, but it's really illuminating. You're already one of the biggest organizations in the world in the spaces you operate. What's your ultimate business objective as a firm, what does success look like for you and in five years’ time?

Lei 07:52
Our mission is very clear. We will become the leader and the enabler of the internet digital transformation. Now the world will be translated from the traditional commercial, or the consumer side, from you know, traditional work or intelligent work with, you know, 5g with a Big Data with all kinds of things. So Lenovo, our mission, want to be a leader, and enabler for such kind of intelligent transformation, by providing the Smart IoT things, Smart Internet of Things, Smart Infrastructure, Smart Vertical solutions to our customers,

Sam 08:26
Your customers have come to rely on you and it's all about being a leader. And leadership is a paramount importance at a time like this. And you know, I'd be remiss not to make mention of the macro situation we're faced with at the moment with COVID-19. Lenovo has a duty to its customers, its customers who rely on Lenovo infrastructure. What have been the key priorities for you guys, as you work your way through this situation. How are you keeping your business continuity plans in place and making sure that you deliver for those that trust and rely on?

Lei 08:57
You're absolutely right. This is the, currently the top priority of a whole company. Our strategy is to go back to basics and prepare for the future. What is back to basics? So, the first priority is to protect our employee, protect the people, you know, keep safe and keep healthy. You know without employees we are nothing, yeah. So we rely on our employees and this is our priority one. Another, exactly, customers. Protect our customers and especially to capture the customer needs demanding. Actually, for our industry, for the PCs, we find the customer demand increased due to the COVID-19 spread due to the lockdown, because, one, more people need the work from home or study from home. So they don't just need one laptop they need two or three laptop and the desktop is a machine to empower your efficiency. It's a working machine is not like a smartphone, smartphone is a machine for entertainment. That's okay, but if you want to work from home I believe, laptop will be more efficient. So that's why we find out our demand for our customers in this quarter actually increased, so you're absolutely right how can we support our customers, this is essential. So, we need to ensure our supplies and our deliveries, our service, our logistics, everything, not to be interrupted.

Actually, we are I believe, one of the Chinese companies who captured the 100 percent, resumed 100 percent capacity, for a manufacturer well, we are the earliest well, even for our factory in Wuhan, now is 100 percent capacity already. So yeah, we in such capacity to manufacture capacity, then we can fulfill our customers. So this is what we call the basics because as a company basically is to fulfill customers' demand. The third basic things, related to my function, is to protect our cash flow. Protect our cash flow, that means we should collect on time, and also reduce non-essential expense, reduce capex. Now all the capex are under review of a co-controller, they are priorities. We suspend all unnecessary spending and all the travel also are canceled, and also the new hiring suspended, and also for corporate, our annual merit, and the promotion, will be suspended for next year. So basically, we also tighten control our expense and know our expense and to improve the efficiency. So this is back to the basics, to support our customers. Because to be honest, I believe you know, currently nobody can say, the country lockdown whether or not the situation will get better in June or in next quarter. Nobody, nobody can give certain answers. It depends on how the global pandemic contained and whether we can have a vaccine, when can we have the vaccine. But we do see the new opportunities so we need to also find out the new opportunities. Because companies realize they should work remotely. So that's not just demand of laptop, also servers, also cloud computing, all kinds of things. And also more the commercial, I believe all commercial demand will come after the COVID-19, that's to transform their company, to digitalization and the intelligences. So I believe there will be opportunities after COVID-19. But first we need to ensure we will survive. To reinvest, we will not lose our cash and our customers, our manufacturer capacities, then prepare for the opportunity. I can give you an example, in Japan, Ministry of Education in Japan, they have a plan to give each Primary School students a laptop. It used to be a three-year project. So that means from this year to 2024. Now, I believe probably in order to stimulate the economy, they have speeded this project to one and a half year, so the additional budget to the schools. That means for our customers, I need to double or even triple their credit limit. So it's very exciting for credit, we have a new business but also challenging if we double a credit limit for one distributor, even if it’s our big distributor.

Sam 13:14
Totally right and for our listeners, many of our listeners are business owners or run businesses. And this will come as a surprise to them. Trade credit is critically important in highly competitive technology and hardware spaces. And never has it been I think so important is now when your customers are not conducting business face to face, everything has moved digital, it’s probably the start of a substantial shift in trends, and therefore your clients customers are going to be seeking credit on a much more regular basis. I actually read that 95% of Lenovo revenue is sold with credit. That's a huge number and it makes your job super important in the company. So can you tell us a little bit about how your credit strategy, you think it's going to adapt through COVID-19?

Lei 14:01
Yeah, and, you know, this is industry practice and you know, not just in Lenovo, also for our peer companies, in the IT, in the PC industry, it's a standard practice of sell to the distributor, sell to customer by open credit, even for the emerging market. If you don't do this way you will have no opportunity, nobody will buy your product. That's the challenge we are facing. And for the credit strategy, and our always strategy, not just during the COVID-19, you know, credit is half size and half art. It's based on the data, based on the numbers, based on financials. And also, in another half, is also based on like experiences, based on how do you know your customers, you know your partnership with your customers. So our credit strategy is always to support Lenovo business as much as possible, as meanwhile to protect Lenovo's credit risks/ Because PC industry actually is not a high margin industry. If you look at the Lenovo financial statement, our gross margin is only 16%. So we cannot afford big loss of bad debt write off. In another hand, the industry is about open credit, so we cannot have too tighten credit policies, we lose the opportunity. So that means we need to build up good end to end process to cover our 20,000 customers, to make your strategy work. Because the strategy is in one hand, to support a business, another hand, protect risk, but how we need a methodology. So I believe the foundation is a strong methodology.

The good thing is that, when we acquired IBM PC, actually, we started to build up our first version of a global credit operation methodology, since 2006. So now is already 14 years, they have a very mature credit methodology and a credit team to manage the global credit. We have a team not just Chinese, we have team globally in United States and also I have a couple of team members in UK as well, and in Russia, in India, in Middle East, Brazil, Argentina, in all such important countries and regions. We have a credit manager, experienced credit managers, they don't just look at the numbers, the data from the financials, they also regular surveys to our customers to do a due diligence check to check how things go, yeah, to check their inventories, warehouses. Also, we rely on the global partner like a Dun and Bradstreet, and also some other you know, data agencies, to provide the data center to our customers, especially like the US Japan, Europe, and in China, we like to have the automatically data when we want the data, we push a button and we have the data to do that and advice. This is how we handle it, because overall Lenovo credit we only have less than 48 people. This is 48 analysts and credit managers, so we need automatic process, automatic powerful tools to handle almost 20,000 customers.

Sam 17:03
You're so right. If you think about it, you may have customers who have really strong businesses. But if their distributors don't have such strong finances, they can really put the risk level pretty high. And then the role of data becomes so, so important and you want real time data ultimately. Dun and Bradstreet has some incredible API enabled products library plus that help ensure that you're getting the data, as you say, at the press of a button. And the question here really is, as technology evolves, and new sources of data become available, how do you see this influencing the way trade credit is managed? What do you think the impact on the wider profession is gonna be where there's an abundance of multi layered data available at the touch of a button?

Lei 17:47
Actually, you know, you're right, especially for our distributors, a lot of our customer distributors, you know, they don't have much fixed assets. Compared with the credit limit we offer to them, their net worth is relatively low. Sometimes even not enough to cover the credit. So how can we ensure our credit limit, our credit exposure? I believe the real time data is important, but real time data is not something like the financials. It's a, for example, customer's inventory, their account receivable what they have, their account payables to Lenovo, how their profitability is? Yeah. So that's why I mentioned that we have credit managers on site to do the regular, regular, due diligence check with our customers, to visit customers in regular basis, to understand how they're being, what's going on, we're going on what happened on the ground. So that means, we collect a lot of real data ourselves and then compare with the data from the Bureau Report, Dun and Bradstreet Bureau Report, then we can make an analysis to which level we are comfortable about the offer credit to them. Actually, we also use that data to convince the credit insurance company to offer more credit to them, because sometimes insurance companies they are more conservative. So if their limits are not enough to support our business, actually, we can share some data with them, to convince, they don't need to worry, especially for the distributors. And this is critical, I believe, we must have people on the ground to understand what happened, to have a real time data. Also in case something's going wrong, and the local credit manager can work with our sales team, our finance team, our legal team, to take quick action, no need to go to Singapore, go to Beijing, go to headquarter, then decide what to do. So this is all, you know, this is my experience, you know, how can I manage the creditors.

Sam 19:40
And you talk about having people on the ground? How important is it also, I mean, Lenovo there's a huge global business as we've spoken about, and Dun and Bradstreet also a big global business. How important is it being partnered with a global firm that matches your cross-border operations for your strategy?

Lei 19:57
That’s a very a good question. Actually, you know, one of our core competency is that, we have a global sourcing and a local delivery. Global sourcing, I believe also including to work with global partners like Dun and Bradstreet. This is important for Lenovo to choose a partner, not just for Credit Bureau Report. Also, for example, when I choose a credit insurance partner, I also choose the top global insurers, because I don't want to sign up multiple insurance policies with different insurers in different regions, it will be very difficult for me to handle it. I can tell you now, I handle the credit insurance with only two people. I handle the Credit Bureau Report with only one people, that's a reason, you know, I prefer the global company and like Dun and Bradstreet, because it will improve your efficiency a lot. Also for our cash management, we also choose several tier one global, tier one bankers, international banks, to handle our account. That's why, you know, Lenovo Treasury team, you know, to make the cash, I think, also thirty something. Singapore to manage 50 billion business of cash, only 30 people. So based on my experience, with Dun and Bradstreet, and that is a real advantage of a global, you know, companies, because you can help me. But as I just mentioned, locally, we also need local knowledge, like our global credit insurance company, they have local underwriter, underwriting teams to understand, Dun and Bradstreet, you also have local partners. Yeah. So this is really important for us. We also have a local credit manager. So I believe that global sourcing and local delivery, that's how I choose partners for the credit data and credit insurance.

Sam 21:43
Absolutely, I'm delighted to hear you say that Lei, because one of the things we've always prided ourselves on and Dun and Bradstreet is being truly global. In fact the loan data and acquire data from every single corner of the earth by local delivery, you know, you be able to pick up the phone and Time to Andrew Wu, our Greater China CEO is a really important relationship, new ones the nominee phones I think can deliver. One of the things I'd love to ask, and I have the ability, the privilege to ask you these sorts of questions through Corona and the economic stoppage, what advice would you give business owners and business leaders? What kind of guidance could you give?

Lei 22:21
I don't think it will be some guidance, maybe just share some of my stuff. The first is, as I mentioned, the back to the basics, to protect your company. Only keep the essential, only keep the essential spending, and also definitely fulfill your customers, retain your customers. Otherwise, if you insult your customer in current crisis, and then, when it'll start, then your customer will leave you definitely, because without customer, no company can survive.

Second thing that I also noticed because we are on our supply chain, some of the customers are want the longer payment term to Lenovo or whatever, but I don't think you know, too squeezed the working capital and liquidity of whole supply chain will work. Because if for example, on the retailer, the BP come to Lenovo, say I cannot pay you because the lockdown so I have to pay you one month later, then Lenovo go to the our supplier, sorry because our customer cannot pay then I cannot pay you, this will only make things worse. So I don't recommend actually to squeeze the liquidity for the whole supply chain. Actually I hope though that, you know, all the partners stick together to resolve the issue, to find a solution, resolve the issue, and share the cost, share the burden. This is what we are doing. We doing with our customers, with our distributors and retailers. We sit down with them to understand their difficulties. Also we share with them our difficulties, because now all the companies face the pressure of liquidity, the same as an Lenovo. We also have a pressure on liquidity, so we don't have a luxury to say Okay, everybody, all the partner, all the BPs, you can pay me 30 days later, no, we don't have a luxury of cash to do that. But we do sit down together with our channels, with our BPs to find out solution case by case, and to discuss how we resolve the issue, how if there is an additional funding cost and how we share it, we also introduced some banks to help us. So I believe now because this COVID-19 pandemic, first is a global thing, second, is not just for one industry for every industry. So it's a very, very complicated. Yeah, I feel even more complicated than 2008-2009 financial crisis. So I believe the right way is not to squeeze others, squeeze your suppliers, but sit down to their find a solution. This is my suggestion.

Sam 24:42
I completely agree. I think the collaborative approach has to be adopted. And the difference between 2008 and now, 2008, was through mismanagement of risk and there were definitely people to blame. This is something that was far less avoidable and is impacting everyone equally, which I think lends itself to being a much more collaborative environment, find a solution. And ask you for your advice for businesses, one of the questions I always like to ask people on the podcast is really who they draw their inspiration from. And at Lenovo, you've got some wonderful leaders. I know you've got some incredible board members, you work very closely. I know with Mr. Yang, your ranking your Chief Executive and Chairman, who is some of the people in your world and your career who inspired you to be the best leader you can be?

Lei 25:29
This is a very good question. And actually, I'm the second Chief Credit Officer of Lenovo, the people who inspire me was my previous boss, first Chief Credit Officer of Lenovo, and now he's the data center group, CFO for Lenovo group, James Loh. And when I took my first non-Chinese job, as an Asia Pacific credit manager, he was my boss. He give me ideas, you know, how to manage the multinational companies, how to work with it, because he worked for IBM, at that time, to be honest, I didn't have much experiences, how to handle, you know, different culture, handle the different way of doing work and how to make things done, but the way people like it, he gave me a lot of insight. Because at the very beginning in the very beginning of your careers when you just step for example as a Chinese manager to manage the business outside of China, it's quite important somebody guide you, as your tutor and your mentor to teach you how to do the things, not just the hard skill, more important, the soft skills, the cultural things. Actually, Lenovo there are very good practice, you know, there are tutor and also the mentors for each level to teach you and to give advices, especially about such soft skills. This is critical for the career development, I believe, for all the managers, no matter what level have the managers, it's critical. Yeah.

Sam 26:54
I'm a total subscriber to that. One of my favorite quotes is by an English physicist and mathematician for the Isaac Newton, he said “If I have seen further is by standing upon the shoulders of giants”, and I think you're absolutely right, learning from the monsters that have gone before us is so, so important.

Lei, Thank you. It's been a real pleasure talking to you today for our listeners to put into scale. Lenovo is for Dun and Bradstreet, the perfect client. It's a truly global business. It's a pioneer. It's one of China's greatest businesses. It's a company with 10s of thousands, I think 60-70,000 employees around the world and over 160 different countries it's serving people. It really reflects some of our core principles as a global firm that wants to enable faster, quicker and more efficient, more accurate, more trustworthy business and Lei your particular role at your company is critical and it's a real pleasure to help me your job a little bit easier. So huge. Thanks. Thank you for today. It's been great to talk to you in Singapore. Have a good afternoon and we look forward to talking soon.

Lei 27:59
You are most welcome, it's my pleasure to also talk with you. And as I just mentioned at the beginning, Dun and Bradstreet are really a truly partner of Lenovo, and stay healthy, stay safe.

Sam 28:11
And you, look after yourself, your family.

Lei 28:14
Thank you.