Ibm- Lenovo Mergers & Acquisitions

THE ACADEMY OF ECONOMIC STUDIES

FACULTY OF INTERNATIONAL ECONOMIC RELATIONS

IBM- Lenovo

1. Short presentation of the case study

In order to launch internationally, on 20th April 2004, the largest Chinese manufacturer of computers in the local market held a meeting to evaluate the potential acquisition of IBM's personal computer (PC) division.

Lenovo has started as a distributor of computers AST, HP, IBM. In the 90's it began producing its own brand of computers, and then in 1996 become the first brand in China which sold more than any other foreign brand.

On the other hand, IBM was founded in 1896 and started as Tabulating Machine Company, focusing on the development and production of punched card data processing equipment. IBM dominated the indsutry in the 80s and it was a major supplier of computers for retail consumers, corporations and the U.S. government. However, computer division was much less profitable than high-value products and services that it also offers.

Lenovo has a global market share of 2.2%, and it was ranked number nine behind well known companies such as Dell, HP, IBM, Fujitsu / Siemens, Acer, Toshiba, NEC, and Apple. With the acquisition of IBM's PC department, Lenovo could rise to third place in the same ranking top.

Internally Lenovo has a market share of 27%, making it the market leader in terms of PC sales in China. Because of this, the Chinese company wants to develop and occupy a leading position and global. The first attempt to achieve this plan has been diversifying its area of non - PC, which proved to be not so successful, therefore they sought extension either by opening branches in foreign countries or by purchasing a major player in the market.

This merger means achievement goal, in the company's global expansion, external recognition, enhancement means of production, cost reduction, access to a new level of technology and know-how.

With regard to mergers and acquisitions of overseas companies and the Chinese, there are many doubts. This is owed to the fact that Chinese companies come from a business environment where protectionism has a much higher level than in Western countries and are not familiar with concepts such as costumer service or Customer Relationships, this leading to the inability to manage portfolios of businesses across diverse markets and their lack of experien in understanding some terms such as competitors, customers or structures distribution. An important obstacle is the difference between how Western and Chinese companies operate. Lenovo recruited an elite group of IT for middle management in the period 2002 - 2003, most of whom left the company in less than a year because of the difficulties of adapting to Chinese culture.

Following an agreement between IBM and Lenovo products rebranding will take place gradually. Lenovo could use the IBM brand on its products in the 18 months following the acquisition. After that, Lenovo had another 18 months to co-brand its products, and in the end "Lenovo" brand alone would appear on its products.

At the same time as a result of this transition, the Chinese company would also have marked series "Think. In spite of the progressive rebranding, a number of IBM customers have begun to abandon its partner services for various reasons. Some experts expected that the real winners of this merger will be Dell and HP, while others argue that the Lenovo will become a strong competitor for leading global IT market.

2. Identification of the problem/problems, the causes and the negative effects

2.1. Identification of the problem/problems

Problem no.1

The main problem of the Chinese company Lenovo is represented by the globalization strategy, because of the future/potential acquisition of the company IBM. Lenovo wants to become a global company without having a good plan, without a good management team, who can analise the situation of going globaly.

In what concerns the merger of Lenovo and IBM the fact that this agreement combines two very different companies is a major problem. Lenovo is an independent company which operates locally and has close links with the government, and on the other hand, IBM is a company that acts globally having important customers.\

Problem no.2

A second problem encountered by the Chinese company is about the cultural differences.

The Americans and Asians have completely different ways of approaching businesses and also choosing business management systems.

2.2. Identification of the causes that have generated the problems

The causes that have generated the problems are related to the identity of the company, which is a Chinese one. The managers of Lenovo wanted their company to become as soon as possible a major player in the global market and in consequence they acted without seriously thinking and they didn't establish a concrete strategy.

Another element that put pressure on the Chinese company is the increasing fierce competition from aggressive players on the PC market such as Dell and HP.

The target of Lenovo is to conquer boyh the European and the American markets. The difficulties that may arrise from the acquisition of IBM are caused also by the differences between the companies, the cultural ones in particular.

Cultural differencies are due to the fact that countries that ranked high on power distance would be expected to be more hierarchic and centralized in the organization. In China, the business is more often characterized by centralized power and personalized relationship, which is very different from that of the West companies.

2.3 Identification of potential negative effects that can appear if the problem/problems is/are not solved

The existence of the problems mentioned above leads to a series of negative effects for the company. So, the incapacity of local managers to lead the company in a global context will determine also the maladjustment of the general