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March 1982, Lemon Technology Santa Monica Headquarters.

Suning sat in the conference room, looking at the world map on the wall.

Red thumbtacks are densely packed in the United States, Europe, and Japan, but in mainland China, it's still a blank spot.

There was a knock on the door.

"Enter."

Strategy Director Lisa and Legal Director Robert walked in, each carrying a thick folder.

"Boss, the feasibility report for entering the Chinese mainland market is finished." Lisa placed the document on the table.

Suning turns to the first page.

"Get straight to the point."

“Okay.” Lisa cleared her throat. “Currently, the mainland is undergoing reform and opening up, and there is a great demand for computer technology. However, their industrial base is weak and their independent research and development capabilities are limited. Imported computers are too expensive; an IBM machine costs tens of thousands of dollars, which is equivalent to several years' profit for a factory.”

"So where is our opportunity?" Su Ning asked.

“We can license mainland companies to produce older Lemon computer models—such as the Lemon 2 and 3,” Lisa said, pointing to the data in the report. “These technologies are outdated for us, but they are perfect for them. The price can be kept very low, around $800 to $1,000 per unit.”

Robert chimed in, “It’s legally feasible. We own the complete intellectual property rights to all models, and licensed production is perfectly legal. Moreover, there’s the ‘Sino-Foreign Joint Venture Law’ in mainland China, so we can establish a joint venture factory and negotiate a 51% controlling stake.”

Suning tapped his fingers on the table: "But technology transfer... won't it create future competitors?"

“Boss, I’ve analyzed it,” Lisa said confidently. “We’re transferring technology that’s ten years old. The Lemon 12 is already widespread, and the 13 is under development. By the time mainland companies have fully mastered these technologies, we’ll already be two or three generations ahead.”

“Moreover,” Robert added, “licensing agreements can include restrictive clauses. For example, the products produced can only be sold in the domestic market or exported only to developing countries, and cannot enter the European and American markets to compete with us.”

Suning thought for a few minutes.

"Call Engineer Zhang over."

Mr. Zhang, now the head of the hardware department at Lemon Technology, arrived at the meeting room in five minutes.

"Boss, are you looking for me?"

"Mr. Zhang, if we package the technology for lemon types 2 and 3 and license it to mainland companies for production, are there any technical difficulties?"

After thinking for a moment, Engineer Zhang said, "There's almost no difficulty. These technologies are already very mature, and the drawings, processes, and parts lists are readily available. The main chip is the MOS 6502, which is readily available on the market and can also be imported into mainland China. Most of the other parts should be able to be produced domestically."

"Can they replicate it completely?"

“Complete replication might be a bit difficult, but achieving 80% of the performance is no problem.” Engineer Zhang said professionally, “But boss, why license these old technologies? We can just sell the Lemon 12 directly.”

“Price,” Suning said, “The Lemon 12 type costs five thousand US dollars, which is unaffordable in mainland China. But if we authorize them to produce the Lemon 2 type, the cost can be reduced to less than five hundred US dollars, and the selling price can be eight hundred. At this price, schools, small businesses, and government agencies can afford it.”

Zhang understood: "Use low-end products to capture the market?"

“Yes.” Su Ning stood up. “And it’s not just about capturing the market. There are a billion people in mainland China. Even if only one in a thousand buys a computer, that’s a million units. If we take a $100 licensing fee from each unit, that’s a hundred million. More importantly—”

He walked to the world map and pointed to Asia: "We can make the mainland our production base, produce these low-end computers, and then sell them to Southeast Asia, Africa, and Latin America. It would be too costly for us to do it ourselves in these markets, but if we do it in the mainland, the cost can be reduced by half."

Everyone in the conference room understood.

This is a grand strategy.

Using outdated technology to gain access to new markets can also help you defeat competitors...

If the Lemon 2 produced in mainland China sells for $800, who would still buy an IBM machine that costs over $10,000?
……

Two months later, in Beijing, the newly established China Electronics Technology Import & Export Corporation.

There were seven or eight people in the conference room, all of whom were cadres and technical experts from the mainland electronics industry.

Suning, along with Lisa, Engineer Zhang, and a translator, sat opposite them.

"Mr. Gan, welcome to China." The meeting was chaired by Vice President Wang from the electronics industry department. He was in his fifties, wearing a Zhongshan suit, and spoke very politely. "We are very interested in Lemon Computer's technology."

“You’re too kind, Mr. Wang,” Suning said through a translator. “We also value the Chinese market. What we’re bringing this time is the complete technology licensing package for the Lemon 2 and 3 computers.”

Engineer Zhang turned on the demo unit—a Lemon 3 model—and demonstrated it on the spot.

The experts from the mainland gathered around to look, their eyes lighting up.

"This graphical interface...is really advanced!"

"The running speed is also good."

"It's much faster than what we developed in our lab."

Wang asked, "Mr. Gan, what conditions are needed if we want to produce this kind of computer?"

Lisa handed over the proposal: "It mainly consists of three parts. First, the technology licensing fee. For each unit produced, we will charge 15% of the selling price as a licensing fee."

“15%...that’s a bit high,” the financial expert next to Minister Wang whispered.

“But this is a complete technology package,” Lisa explained. “It includes all the design drawings, manufacturing processes, and software source code. You don’t need to develop it from scratch; you can start production directly.”

Wang Bu nodded: "And the second one?"

"Secondly, key components," said Engineer Zhang. "You may not be able to produce core components like CPUs, memory chips, and floppy disk drives yet. You need to import them from abroad, but we can provide procurement channels."

What percentage of the cost is this?

"It accounts for about 40% of the total cost of the machine," Zhang estimated. "But as your industrial level improves, it can be gradually localized in the future."

"Third," Suning himself said, "market segmentation. Products manufactured in mainland China can be freely sold within the mainland. However, if they are to be exported, they can only be exported to markets we designate—mainly developing countries. The European, American, and Japanese markets will still be handled by Lemon Technology itself."

Wang and his colleague exchanged glances.

This condition is actually quite reasonable.

The mainland urgently needs computer technology, and it would take at least five years to develop it independently.

Five years from now, who knows how much the world will have developed.

While directly importing technology requires paying licensing fees, it can immediately close the gap.

“Mr. Gan,” said Director Wang, “we agree to the plan in principle. But the specific details still need to be negotiated.”

“Of course,” Su Ning smiled. “We can talk about it slowly.”

……

The negotiations took place at the Diaoyutai State Guesthouse for the next three days.

First, the percentage of licensing fees.

Director Li, the mainland negotiator, said, "Mr. Gan, 15% is too high. We've calculated that if we maintain this percentage, the profit per computer will be very thin. Could we lower it to 10%?"

Lisa, standing nearby, responded, "Director Li, we provide a complete technology package, including subsequent technical support and upgrades. 15% is the industry standard price."

“But our market is huge.” Director Li was very skilled at negotiation. “There are a billion people in the mainland, and in the future, we may need several million computers. With small profits but quick turnover, you won’t lose money in terms of total volume.”

Suning thought for a moment and said, "How about this, tiered pricing. The first 100,000 units will be 15%. From 100,000 to 500,000 units, it will be 12%. And after 500,000 units, it will be 10%."

The mainland team quickly performed the calculations.

If we can really sell 500,000 units, even with a 10% commission, it would still be a huge income.

Moreover, with larger quantities, the cost per unit decreases, and profit margins emerge.

"Okay." Wang finally made the decision, and was pleasantly surprised by Suning's straightforwardness. "Let's use tiered pricing."

Second, the procurement of key components.

Mr. Zhang listed the items: "CPU, memory chips, and floppy disk drives—these three must be purchased from our designated suppliers. We can guarantee that the price will not exceed the market price."

"Why must we buy from a designated supplier?" asked Lao Chen, the technical expert. "Can't we find our own channels?"

“Sure, but quality must be guaranteed.” Engineer Zhang was very direct. “If substandard parts are used and the computer malfunctions, it will damage Lemon’s brand reputation. So we have to be strict.”

Old Chen nodded in understanding: "Is there a timetable for the localization of these parts?"

“Yes,” Suning replied. “We plan to help establish CPU and memory chip production lines in mainland China within five years. But this will take time and investment.”

"How much to invest?"

“Our initial estimate is at least US$50 million,” Suning said. “We can contribute technology as equity, taking a 30% stake. The mainland will contribute capital and factory buildings, taking a 70% stake.”

This proposal greatly appealed to the mainland team.

We can not only introduce computer technology, but also chip manufacturing technology!
“Well…we need to report to our superiors,” Director Wang said. “But in principle, we would very much like to welcome this.”

Third, market segmentation.

This is the most sensitive issue.

Lisa pulled out a world map: "The red areas are regions where mainland products can be freely exported. These are mainly Southeast Asia, Africa, the Middle East, and Latin America. The blue areas are the markets that Lemon Technology retains, including the United States, Western Europe, Japan, and Australia."

Director Li looked at the map: "What about the Soviet Union and Eastern Europe?"

“These markets…we can develop together,” Suning said flexibly. “Products manufactured in mainland China can be exported, but sales will be handled by our joint venture. Profits will be shared.”

"What about Hong Kong and Taiwan?"

“Hong Kong can serve as a transit point, but the final sales destination must be clearly defined,” Suning stated clearly. “The Taiwan market… is more complex, and it is not included in the authorization scope for the time being.” The negotiations continued late into the night.

Finally, the two sides reached a preliminary agreement:

1. Lemon Technology has authorized the production of Lemon Model 2 and Model 3 computers in mainland China.

2. Licensing fees are tiered, with a minimum of 10%.

3. Key components are supplied by Lemon Technology at competitive prices.

4. Cooperate to build a chip production line within five years.

5. Markets are divided by region, and there is no conflict between them.

……

A month later, the signing ceremony was held at the Great Hall of the People.

Flashbulbs went off as dozens of Chinese and foreign journalists gathered.

Vice Minister Wang and Suning signed the agreement, exchanged copies, and shook hands.

Question and answer session for reporters.

A Xinhua News Agency reporter asked, "Minister Wang, what is the significance of this technology transfer for my country's computer industry?"

Wang replied, "This is the largest technology import we have made in the computer field since the reform and opening up. It will greatly shorten the gap between my country and developed countries in computer technology and provide strong support for modernization."

An Associated Press reporter asked Suning, "Mr. Gan, aren't you worried about nurturing future competitors?"

Suning smiled and said, "Technological development is a common cause for the whole world. China has a huge market and a large talent pool, and cooperation is more effective than competition in driving progress. Moreover, we are constantly innovating, and by the time our Chinese friends master these technologies, we will already have newer products."

A reporter from People's Daily asked, "In which fields will these computers be mainly used?"

Mr. Zhang replied, "Education, scientific research, business management, and government offices. We believe that computer technology will accelerate China's development."

After signing the contract, Suning accepted an exclusive interview with CCTV.

A reporter asked a personal question: "Mr. Gan, as a person of Chinese descent, what are your special feelings about returning to China for this collaboration?"

Su Ning paused for a moment before replying, "I was born and raised in the United States, but I still have Chinese blood flowing through my veins. I am honored to be able to contribute to China's development."

These words were spoken sincerely, and the interview received a very positive response in the country after it aired.

After the agreement was signed, Lemon Technology sent a 30-person technical team to China.

Zhang Gong personally led the team and established the first production line at the Beijing Electron Tube Factory.

On the first day of training, more than fifty Chinese engineers and technicians came.

Engineer Zhang stood in front of the blackboard: "Hello everyone, I'm Engineer Zhang. Starting today, I will teach you how to manufacture the Lemon 3 computer. We'll start with the basics—this is the motherboard, this is the CPU socket, this is the memory module..."

The Chinese engineers studied very diligently, taking detailed notes.

During the break between classes, Engineer Chen came to see Engineer Zhang.

"Mr. Zhang, why is the wiring in this circuit design? Our lab's design isn't like this."

Engineer Zhang patiently explained, "This wiring method reduces signal interference and improves stability. See, there's a protection circuit here..."

The two discussed for an hour, and then Old Chen suddenly realized.

"So that's how it is! We took a lot of detours before."

"Take your time," said Engineer Zhang. "You are all very smart and learn very quickly."

Three months later, the first batch of domestically produced Lemon 3 computers rolled off the production line.

In the testing workshop, twenty brand-new computers were neatly arranged.

Power on, start-up, all successful.

Wang Bu personally came to inspect the goods.

"What's the pass rate?" he asked.

"98%," the production line manager reported. "Higher than the expected 90%."

"Great!" Director Wang was delighted. "What about the costs?"

"The cost per unit is $420. If we mass-produce 100,000 units, the cost can be reduced to $380."

What should the price be?

"The domestic price is tentatively set at $800, and the export price to developing countries is $600," the person in charge said. "It's very competitive. An IBM machine with the same configuration sells for $3,000."

Looking at the computers, Wang Bu exclaimed, "Finally, we have our own computer industry!"

……

The first batch of computers was quickly snapped up.

The main buyers are universities, research institutes, and key enterprises.

Professor Wang from the Department of Computer Science at Tsinghua University said in an interview: "Although the Lemon 3 is no longer the most advanced product internationally, it is perfectly adequate for our teaching and research. Most importantly, the price is reasonable and the university can afford it."

A textile factory in Shanghai has introduced ten of these machines to manage inventory and production planning.

The factory manager said, "Previously, these data were recorded manually, which was prone to errors and troublesome to check. Now, with computer management, the efficiency has increased threefold."

On the export front, the first batch of 5,000 computers was shipped to Southeast Asia.

The Malaysian Ministry of Education purchased 2,000 computers for use in secondary school computer education.

The purchasing official said, "At this price and with this performance, the price-performance ratio is extremely high. American products are too expensive; we can't afford them."

Singapore, Thailand, and the Philippines have also placed orders.

African countries are also starting to engage – Nigeria ordered a thousand units for data processing in its oil industry.

Six months later, Engineer Zhang returned to the United States to report.

"Boss, the factory in the mainland is operating well. Monthly output has reached 3,000 units, and it will reach 10,000 units by the end of the year. Cost control is very good, 10% lower than we estimated."

"What about the quality?" Suning asked.

"Completely qualified. We randomly inspected 300 units, and the failure rate was only 1.2%, which is even lower than in our own factory," said Engineer Zhang. "Chinese workers are very skillful and their workmanship is exquisite."

What about talent development?

“We’ve held training courses in Beijing and trained over two hundred engineers,” said Engineer Zhang. “They are very enthusiastic about learning and often work overtime to study technology. I’ve suggested that a few of them be sent to the United States for further studies.”

“Okay.” Su Ning approved. “Select five people and send them over next year to study at Lemon Lab for a year.”

Lisa reported on market data: "To date, the mainland factory has produced 40,000 computers, of which 20,000 were sold domestically and 20,000 were exported. Licensing fees have reached US$3.2 million. We expect production to reach 200,000 units next year, with licensing fees reaching US$20 million."

“More importantly,” Suning said, “we have captured the low-end market in developing countries. Companies like IBM and DEC simply cannot enter these markets now—their prices are too high.”

“Yes.” Lisa nodded. “And we have established good relations with the mainland. Wang privately revealed that they plan to get computers into all key middle schools and universities within five years. That’s a market of at least 100,000 units.”

“Not only that.” Suning looked at the map. “In the future, factories in the mainland can also produce other products—printers, monitors, peripherals. We can transfer the entire low-end industrial chain there.”

"What about our American factories?"

“Transformation.” Suning had already planned this. “The factories in the US will focus on high-end products, as well as mobile phones developed in cooperation with Motorola. Low-end manufacturing will be outsourced to factories in mainland China, while high-end R&D will continue to be conducted in the US. Global division of labor.”

This layout impressed everyone.

Using outdated technology, they opened up a market of one billion people.

By manufacturing at low cost, they have captured market share in developing countries.

Meanwhile, I always stay at the forefront of technology and earn the greatest profits.

This is the real global strategy.

In late 1982, when the first batch of Lemon computers manufactured in mainland China were exported to Africa, Suning received a gift in his office...

A thank-you letter personally written by Wang Bu, along with a Chinese landscape painting.

The painting is inscribed with the words: "Though separated by oceans and mountains, true friends are never far apart."

Suning hung the painting on the office wall.

He knew this was just the beginning.

China's market and its potential have only just begun to unfold.

And he and his Lemon Technology are already at the forefront.

Low-end technology gains market share, while high-end technology secures profits.

This was the smartest move he could think of.

...(End of chapter)