How Lenovo makes mergers work

Amelio decentralized Lenovo and now travels between Singapore and Raleigh.

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Lenovo CEO William Amelio talks with Fortune's Stephanie Mehta about the difference between outsourcing and world sourcing. Play video

(Fortune Magazine) -- It's hard to bring two corporate cultures together in any merger, let alone one between an obscure Chinese computer maker and the struggling PC division of an iconic American brand. But that's precisely the challenge Bill Amelio faced when he joined Lenovo in 2005.

The company had just swallowed IBM's ThinkPad business for $1.75 billion, creating overnight the third-largest PC maker in the world after HP (Charts, Fortune 500) and Dell (Charts, Fortune 500), where Amelio had previously run Asian operations. (Amelio had IBM (Charts, Fortune 500) roots, too, having spent 18 years at the company.)

His biggest initial challenge in merging the two firms was simply where to locate the united company: ThinkPad operations were based in Raleigh, while Lenovo (Charts) was headquartered in Beijing. Instead of picking one place, Amelio decided to go with no headquarters at all.

He works out of Singapore, Lenovo chairman Yang Yuanqing relocated to Raleigh, and top executives hold meetings in a different location every month. (They'll convene in Phnom Penh in March.)

The method, which Amelio calls worldsourcing, seems to be working. Second-quarter profits tripled year over year, and Lenovo shares are at an all-time high, more than doubling since January. We caught up with Amelio to talk about other ways he's made the two-year-old merger work.

Lenovo made headlines in July when it announced it would base its companywide marketing operations in Bangalore. Why India? Because Amelio felt the team there was the strongest.

He shifted Lenovo's software-development arm to North Carolina to

capitalize on IBM's existing roots and talent base there. Throughout the company, English is the official language, but Amelio says, "When people sit around the table, it looks like a UN meeting."

Shortly after the merger, Lenovo came under fire when lawmakers said the U.S. State Department, a ThinkPad customer, shouldn't be purchasing laptops from a Chinese maker. Amelio invited the critics to send inspectors and explained to them that most major PC companies source through China. Lenovo worked to reassure old ThinkPad customers that the brand's reputation for high-quality manufacturing would stay intact. Amelio says there's been minimal dropoff in loyalty.

When the deal went through, Lenovo had the option of keeping the IBM logo on ThinkPad computers for five years. Against the advice of some of his top executives, who thought the company should leverage the IBM name as long as possible, Amelio decided to take the logo off two years ahead of schedule.

The company celebrated the change at a party where employees ripped stickers off computers in unison. Says Amelio: "It's really hard to work at a company looking at someone else's logo every day."