Lenovo, the largest PC business in China faced the intensified competition of its own market by global level companies such as HP and Dell. In attempt to expand the market internationally, Lenovo made the acquisition of IBM’s PC division. Since two organizational cultures were different, the synergy of the merged Lenovo-IBM was required. Lenovo entitled to IBM landmark and “Think” products to move to international market and enabled to increase the market power by over night after the acquisition.
Together with IBM sales forces and distribution expertise, Lenovo employed it cost-efficiency and technology expertise in respond to the global demand. During the financial crisis, even though, global PC market faced the cost-cutting and decline in profit margin, the capability and integration of assets and competencies of both companies lead Lenovo remaining in the top 5 of global PC market. Introduction In this report will address and analyze case study of Lenovo acquired for IBM’s PC division by answering the following questions which are: Why did Lenovo pursue the acquisition of IBM’s PC division?
What problems did Lenovo Face regarding post-acquisition integration? What international strategy did Lenovo adopt, and what challenges remain in the global market for Lenovo products? What does the current situation, involving both economic conditions and management restructuring, say about Lenovo’s prospects going forward? Do you think Lenovo’s history, management philosophy, and current expansion plans will create global demand for Lenovo’s products? To better understanding relevant theories of strategic management will be applied.
Lenovo’s environmental analysis Despite the fact that economics, policy from other countries and societies have impacts on the business strategy in respond to consumers demand for products and services to be improved. Undoubtedly, technology is claimed to be largely affected on that driven behind consumer’s preferences more. The technology does not being addressed only internet, but also devices also have been increasing rapidly during past two decades.
Moreover, China has the significance of economic growth especially in technology, export and free trade which can lead the possibility turning China to become the major threats in global competitions (Mann, 2002). The new high-technology laptop market has been increased dramatically (partial from Chinese market), in oppose to the global economy where it was facing the depression (Nuttall and Waters, 2008). However, the hardware market became less profitable during the global financial crisis that why causing the acquisitions of many companies (Lloyd Morgan, 2010).
Lenovo’s also is one of the examples why, even though the greatest PC Company in China backed up by the government support, also seek to merge with global company such as IBM. Lenovo – IBM Acquisition Behind the acquisition, there are full of many reasons and benefits why Lenovo decided to take that action. Even though, Lenovo remain the leadership in PC Chinese market, it experienced the threats of the new entrances from foreign competitors and investors such as Dell and HP once was opened to competition that why it led its own PC and computer market to be more intensified.
Moreover, since the market is full with many competitors, the Chinese government strongly encourages local companies to move internationally which provides the opportunity to grow and expand market of Lenovo, however, the moving forward to outside China needed to integrate more of significant assets and competencies at the global level. Acquisition of IBM’s PC division And Lenovo has contributed many benefits and expertises. While Lenovo has the efficient economics of scale, IBM has experiences and more capability in international sale force and distribution network.
For both companies, acquisition provides the implication of two business core assets and competencies in corporate level strategy (Dess, Lumpkin and Eisner, 2010). From Lenovo perspectives, acquisition could successfully assist Lenovo to expand its market and enter global market by the facilitation of using IBM trademark and ‘Think’ products. Moreover, it allows Lenovo to gain market power and rapid growth in the global level by the acquisition. Essentially, sale activities, distribution network and services and solutions which IBM focuses in global level could benefit Lenovo in the future prospect.
From IBM’s PC division point of view, acquisition also required large amount of funds which could quickly boost the losses of IBM’s PC division of nearly $ 1 billion since 2001. Furthermore, it also provided the opportunity for IBM to enter Chinese market and focused more on services while manufacturing function Lenovo could cope with very well. Although two different companies have the similar focus and vision in terms of consumers-oriented and full range of services, they are quite different in internal level and their business.
Problems identification after acquisition After acquisition, one of the problems that Lenovo – IBM faces is the organizational culture. Essentially, when two culture – different firms are formed, this could lead to the difficulty after integration. Potential reasons are firstly the differences in target market where Lenovo focuses on Low-end market trying to achieve the cost leadership, while IBM targets High-end market offering the innovation, good quality products and services. Secondly, the management style, Lenovo is more red – taped or bureaucratic style; whereas, IBM is team management, bottom-up approach, flexibility and more innovation.
Thirdly, due to the management style, it reflects in the HR management which bureaucracy at Lenovo is more restrict on the rules, while self-discipline reflects in IBM. Operating business globally, it is actually require company to be more diversified and creative as well as innovative, addressing this the potential culture will becoming similarity to IBM company and this forces Lenovo to adapt and change partial its behaviour (McKenna, Garcia-Lorenzo and Bridgman, 2010).
Beside the internal problems, even though, in 2009 Lenovo gain the market share by 0. 4% (from 8. 2% – 8. %) and in Figure 1, even though the market share in Q4 2009 of Lenovo increase by 1. 4% from Q4 2008, Lenovo faces the rivals who tend to increase the market share from PC market forced Lenovo down to the 4th rank from the 3rd after the acquisition (Annonynous, 2009) Although, economics of scale is the competitive advantage Lenovo has, the demand for prices of PC computers are lowering and decreasing profit margin of the company. The potential conflicts occurred when two companies are integrated; yet, these issues could turn to be the challenges for Lenovo – IBM required new strategic development and implementation.