An Introduction To Dragon Multinationals Management Essay

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They are relatively small, compared to players from industrialized countries, although a number of large ones with globalambitions have recently appeared on the world stage (Amighini et al. 2009; UNCTAD 2006). They are used at operating in highly volatile environments(Fortanier and Tulder 2009) and they rely of firm-specific advantages such as process capabilities (UNCTAD 2006), management and corporateentrepreneurship (Yiu et al. 2007), parental networks (Fortanier and Tulder 2009), flexibility, social and networking skills (Buckley et al. 2007, UNCATD 2006). While emerging economies MNEs are usually treated as a homogeneous group, a few papers also explore cross-country differences among them.( Duysters et al.2009)

If this is the portrait of Dragon multinationals, what are the characteristics of their

investments abroad? What are the push and pull factors? Is there any trend in terms

of entry mode choices?

A variety of drivers seems to promote global expansion of emerging countries

MNEs. Following Dunning (1993)’s classification of pull factors, market- and

resource-seeking FDIs are particularly important, while efficiency considerations

play only a limited role (Athreye and Kapur 2009; Fortanier and Tulder 2009;

Duysters et al. 2009; Kumar and Chadha 2009; Nicolas 2009; Nicolas and

Thomsen 2008; Amighini et al. 2008; Yeung and Liu 2008; UNCTAD 2006; Deng

2004, 2007; Schuller and Turner 2005; Zhang 2005; Wu 2005;).

According to (Amighini at al. 2008; Filippov and Saebi 2008), resource-seeking operations have experienced a radical evolution over time: until the 1990s, they were motivated by the hunger for natural resources while technology, brand and human capital are the kind of assets that Dragon MNEs search for nowadays. Adding to pull factors, a variety of push forces are worth mentioning when trying to explain recent flows of ODI. These forces range from government support to competitive pressure, from the availability of capital to over-capacity in the domestic market7 (see, among others: Kumar and Chadha 2009; Athreye and Kapur 2009; Duysters et al. 2009; Berger and Berkofsky 2009; Nicolas 2009; ; Fortanier and Tulder 2009; Nicolas and Thomsen 2008; Amighini et al. 2008; Yeung and Liu 2008; UNCTAD 2006; Deng 2004, 2007; Schuller and Turner 2005;). Note that push and pull factors depend on the type of the investing firms and, in turns, they design the

geography of outward direct investments.

Evidence shows that state-owned enterprises, enjoying strong government support, mainly expand overseas to access natural resources, and they target developing countries. On the contrary, private firms respond to market stimulus, such as competitive pressure, over-capacity or availability of capital, and they invest abroad to appropriate strategic resources; for this reason, they target industrialized hosts, the most (Filippov and Saebi 2008).

As far as the entry mode decision is concerned, Dragon multinationals operate

abroad via Joint Venture (JV), Merger & Acquisition (M&A) or Greenfield FDI,

carried on in Wholly-Owned Subsidiaries (WOSs). Depending on whether the

investor is rich or poor in intangible resources, and whether the host market is

developed or developing, one entry mode is more likely to prevail over the others.

As mentioned in (Amighini at al. 2008, 2009), past operations were usually carried on via Greenfield or JV and they were directed towards emerging economies;

recent operations are mainly based on M&A and they concentrate in industrialized

countries. Put another way, M&A and JV provide a privileged gate to foreign

strategic assets, while Greenfield WOS represent the natural way preserve own

resources (Nicolas 2009; Nicolas and Thomsen 2008; Deng 2007; Child and

Rodrigues 2005; Schuller and Turner 2005).

Entry mode decisions have been investigated econometrically by (Cui et al. 2008; Filatochev et al. 2007). Cui et al. (2008) analyse the choice of JV versus WOS in a sample of 138 Chinese MNEs.Their estimates show that the major differences between Chinese and Western multinationals regard organizational capability and strategic behaviour approach, while they exhibit the same attitude according to the institutional or transaction

cost perspective. Filatochev et al. (2007) regress Taiwanese investment choice on a

number of firm-level variables, to address the potential link between entry mode,

corporate governance and location. They show that the choice of the equity stake

in a local subsidiary depends on the share of family and institutional ownership in

the parent company. Moreover, high commitment entry is associated with the

affiliate being located in areas with strong economic, cultural and historical link

with the parent company.

Lenovo Group Limited

Background of the Company Lenovo Group is one of the leading IT companies in China, and it has now become the 3rd PC provider in the world market after the acquisition of IBM’s Personal Computing Division.( Jiang.L, 2007) As a global company after the alliance with IBM, it has a number of more than 19,000 employees worldwide; and with executive offices in Raleigh, North Carolina, USA; Beijing, China; and Singapore (Lenovo.com, 2007a). The company’s main operations are in Beijing, China; and

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Raleigh, North Carolina, USA, with an enterprise sales organization worldwide (Lenovo.com, 2007a). As the largest PC producer in China, it took 27 per cent of China’s PC market share in 2003 and Lenovo PCs ranked No.1 in the Asia Pacific (excluding Japan) with a market share of 12.6 per cent in that year (People’s Daily, 2004). Since the year 1996, Lenovo has maintained its leadership position in China for ten consecutive years with over 25 per cent market share till 2006. The following is a brief development history of the company:

The company was first founded in 1984 by 11 computer scientists in Beijing, China, as the New Technology Developer Inc. (the predecessor of the ‘Legend’ Group), which thereafter opened the new era of consumer PCs in China (Lenovo.com, 2007b). In 1989, Beijing Legend Computer Group Co. was established and launched its first PC in the market in the following year, since then, the name ‘Legend’ became a household name in China (Lenovo.com, 2007b). By 1994, Legend was trading on the Hong Kong Stock Exchange, becoming one of the few Chinese companies that listed there (Lenovo.com, 2007b).

In 1996, Legend became the market share leader in China for the first time and kept with the line thereafter and three years later, it became the top PC vendor in the Asia-Pacific region and headed the Chinese national Top 100 Electronic Enterprise ranking; furthermore, the company ranked in the Top 10 of the world’s 42 best managed PC vendors (Lenovo.com, 2007b). In the year 2003, with an aim to expand its business globally with a more global-like brand, the company changed its former brand name ‘Legend’ to the name used today as ‘Lenovo’, “taking the ‘Le’ from Legend, a nod to the heritage, and adding ‘novo’, the Latin word for ‘new’, to reflect the spirit of innovation at the core of the company” (Lenovo.com, 2007b).

The change of the brand name from ‘Legend’ to ‘Lenovo’ was perceived as the first move under the firm’s global stretch. ( Jiang.L, 2007) At the end of the year 2004, Lenovo and IBM announced the agreement of Lenovo’s acquisition of IBM’s Personal

Computer Division, which was IBM’s global PC (desktop and notebook computer) business (Lenovo.com, 2007b). In May 2005, Lenovo’s acquisition of IBM’s Personal Computing Division was completed, making it a new international IT competitor and the third-largest personal computer company worldwide (Lenovo.com, 2007b). After the acquisition and the strategic alliance with IBM, Lenovo-branded products were introduced to the world outside of China at the first time (Lenovo.com, 2007b).

Lenovo and its employees are committed to four company values that are the foundation for all that they do (From Lenovo.com, 2007a):

• Customer service: We are dedicated to the satisfaction and success of every customer;

• Innovative and entrepreneurial spirit: Innovation that matters to our customers, and ourcompany, created and delivered with speed and efficiency;

• Accuracy and truth-seeking: We manage our business and make decisions based on carefully understood facts;

• Trustworthiness and integrity: Trust and personal responsibility in all relationships.

With an aim to provide market cutting-edge, reliable, high-quality products and professional services for the satisfaction of the customers, the company is dedicated to research and talent development (Lenovo.com, 2007a). The company owns research teams who have won hundreds of technology and design awards, which includes more than 2,000 patents, and has also introduced many industry firsts (Lenovo.com, 2007a). The goal of Lenovo’s R&D team is ultimately to improve the overall experience of PC ownership while driving down total costs of

ownership. ( Jiang.L, 2007)

Apart from being a prosperous business entity, Lenovo is also committed to being a responsible and active corporate citizen, which makes it a reputable company in the home market. ( Jiang.L, 2007) Moreover, as one of the major marketing strategy, Lenovo also actively takes a hand with sports games to help introduce the Lenovo brand around the world. In 2004, Lenovo became the first Chinese company to join the Olympic Partner Program and a sponsor of the 2006 winter games

in Turin, Italy, and it will also be a major supplier of computing equipment and funding in support of the 2008 summer games in Beijing, China (Lenovo.com, 2007).

Key success Factors for Lenevo

Core Competence of Lenovo

Lenovo has its own unique core competence generating Competitive advantages. If we carefully review the unique business development history of Lenovo, it is not hard to track that what are the sources of Lenovo’s competitive advantages, and how these core competence have been built up, and to estimate if its competitive advantages are sustainable for its ongoing global expansion. In Lenovo’s early stage, it has some advantages from its parent. ICT supported Lenovo by providing ICT’s facilities free of charge; Legend used ICT’s name for doing business and then gained the strong support of government. These can be seen as supportive elements for building core competence. (Liu, 2005)

The Ability of Learning

Lenovo presents a significant ability of learning for capability development can be regarded as one of its core competence. An important source of learning was its customers. Lenovo learned from its customers through its direct contact with customers and its extensive PC distribution network. Apart from carefully observing customer purchasing habits, Lenovo actively sought out customer help to guide its product and service development. (Xie & White, 2004).

Another source of learning was from those multinationals. As mentioned earlier, even while it produces its own brand, Lenovo learned a lot from HP, IBM and Compaq such as marketing and management skills, personnel training, product design and customer services. (Xie & White, 2004).

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The third source of learning is its internal R&D activities. They attained the awareness of that proper R&D activities should be combined with the engineering, and manufacturing, instead of purely pursuing cutting-edge technologies such as large-scale integrated circuits and digital switches (Xie & White, 2004).

— A related view in terms of learning is that developing countries’ MNCs develop their advantages through the accumulation of technology and skills. Tolentino (1993) claims the importance of the accumulation of technological competence in the expansion of firms from developing countries.

The Capability of Competing on Price

Another core competence is Lenovo’s super capability of competing on the basis of product price. An article in Wall Street Journal (1997) points out that the prices of Lenovo’s products are only roughly two-thirds of those of foreign brands. Lenovo successfully maintained a lower cost structure than multinationals, (Liu, 2005)

Firstly, the management costs of Lenovo are lower than those of its competitor’s especially foreign firms doing business in China. (Liu, 2005) .Second, owning to more foreign component producers such as Seagate (the no.1 hard driver producer in the world) have established manufacturing operations in China, Lenovo and other Chinese PC makers benefited from cost savings of cheaper components purchasing. Apart from these above, Lenovo constantly concentrated on the cost reduction in all activities including manufacturing, R&D, marketing, distribution etc. and accumulated great experience in this field. (Liu, 2005)

The Ability to Establish and Manage Effective and Efficient Distribution Network

Among domestic and foreign IT companies, in Chinese market, Lenovo can be awarded as the no. 1 company with the best distribution network management. Lenovo have approximately 50 authorized distributors in each of the seven regions in China, and each distributor has its own reseller network. There are over 2, 000 resellers in Lenovo’s distribution network. Additionally, it has 130 “1+1” PC specialty shops in major cities. (Liu, 2005)

To be compared, IBM has no more than ten main distributors in some major cities. It could be imaged t hat how hard to manage and control such a huge network. But Lenovo has cultivated a positive relationship with its distributors by implementing a win-win strategy. Many distributors had grown with Lenovo over years. (Liu, 2005) Even when Lenovo constantly increased the depth and breadth of its distribution network, it never encountered any big conflicts among its distributors. The huge and effective network gives Lenovo much greater geographic coverage than either domestic or foreign companies in Chinese IT market. (Liu, 2005) Therefore, the ability of building and managing such huge distribution network and constantly exploring the potential of the network can be seen as another source of Lenovo’s core competence. (Liu, 2005)

To be concluded, the abilities of learning, cost reduction and building and managing sophisticated distribution network are supposed to be the core competence of Lenovo. Additionally, in Chinese market, the brand name-Lenovo is also an important core competence of Lenovo. But in the context of global scale, the brand of Lenovo is still waiting for customers’ recognition. (Liu, 2005) These core competences sustain Lenovo’s success in domestic market. However, Lenovo is undertaking its new globalization strategy. The question is that if they can generate sustainable competitive advantages for global competition and what are the challenges of existing in its globalization process. The next section is the case study of Lenovo acquiring IBM PCD (Personal Computer Division) and the objective is to challenge its international expansion strategy and its core competence in the context of global competition. (Liu, 2005)

Giant Step of Globalization: The Acquisition of IBM PCD

Lenovo group ltd. has completed its $1.75 billion purchase of IBM’s PC Division, creating the third-largest PC vendor in the world and giving IBM greater entree into the rapidly growing Chinese market. According to the agreement of the acquisition, Lenovo will gain control of IBM’s Think desktop and ThinkPad laptop brands, as well as the thousands of IBM PC customers. Lenovo is allowed to use the IBM name for five years. However, the new Lenovo will have a strong IBM presence. Many of the top executives have moved over from IBM, including Stephen Ward, the former vice president and general manager of IBM’s PC Division and now CEO of Lenovo. Yang Yuanqing, president and CEO of Lenovo Group Ltd, will become chairman. In addition, 10,000 of Lenovo’s 19,000 employees are former IBM’s employees, and IBM will continue to provide service and support for the IBM products. Lenovo’s headquarters will move to Armonk, New York, and IBM also holds an 18.9 percent stake in the new company. (Burt, 2005; Daniels, 2005; Khanna, 2005; Dowling, 2005)

The Lenovo’s Strategy for Global Expansion

Apparently, Lenovo realized that there are not so much potential of Chinese PC market after becoming the leading PC maker in China. And becoming a real global player is the Urgent mission for Lenovo. A common view of firm’s internationalization process is that the internationalization is the process of accumulating experiential knowledge and market commitment in foreign markets (e.g. Bilkey & Tesar, 1977; Johanson & Vahlne, 1977; Chang, 1995). Firms tend to start their internationalization process by exporting to countries with similar culture. (Sharma & Blomstermo, 2003).

Lenovo chose the most efficient way (the acquisition) for its global expansion and foreign market entry. The founder Liu Chuanzhi has such a comment on the acquisition in an interview (Chandler, 2004):

“We have a $3 billion business with 27% market share in China. There’s not much room to expand. The global PC market is $200 billion, so there’s still a lot of potential. IBM has all the things we need. This deal brings us market share, Management know-how, technology, and international reach.”

The strategy decision to acquire IBM PCD has been given careful considerations in Lenovo. In 2002, Lenovo almost refused the suggestion of the acquisition approached firstly by IBM since the top managers of Lenovo thought it was too risky. (Chandler, 2004) But they also saw this as a great opportunity to become a global PC maker. After one year’s consideration, analysis and learning from big multinationals, they understood the opportunities and challenges related to this deal and decided to implement this acquisition. (Chandler, 2004)

As Liu Chuanzhi said in the same interview as above:

“As discussions progressed, we gained confidence that many of the risks we’d feared could be distributed or controlled. For example, we worried about losing customers. So we worked out an agreement that would allow us to continue using the IBM brand, to keep the IBM salespeople, and even to keep the top IBM executive as CEO. That gave us confidence we could give customers the same level of service and quality after the acquisition”. (Chandler, 2004)

—The main advantage of acquisition is that it provides the fastest way to enter foreign markets and rapidly build the firm’s presence in these new national markets. Through the acquisition, Lenovo becomes the third biggest PC multinational of the world from a little-known Chinese PC maker and then makes a giant step forward of internationalization. (Chandler, 2004)

— Furthermore, acquisition provides the great opportunity to acquire valuable resources of the acquired company. Through the acquisition, Lenovo attains the IBM’s global market share, global management skills, top PC technologies and the outstanding ability of R&D, experienced managers and other personnel, and as Liu Chuanzhi mentioned, the

International reach. (Chandler, 2004) Lenovo appears great confidence on their ability of learning for absorbing these merits from IBM PCD. (Chandler, 2004)

— For example, IBM PCD was commonly regarded as the sophisticated expert in serving corporate customers, while Lenovo was significantly good at selling PCs in consumer market. Such a successful combination of these advantages of both sides will definitely result in great performance. Additionally, Lenovo hopes that combining Lenovo’s price advantage with IBM’s engineering will deal with Dell’s formidable threat (Forelle, 2005).

The Necessity to Form the Strategic Alliance

Lenovo was known as one of China’s most promising companies in the early 1990s, with its sales more than tripled between the year 1994 and 1998, and Asia’s leading PC vendor outside Japan at the end of the 1990s (Lau, 2004a). However, before the declaration of the alliance with IBM, the company had encountered with obstacles for its further expansion and development. (Lau, 2004a). Though Lenovo is the largest PC maker in China with more than a quarter of the market share, it does little business outside the country. The increasing fierce competition from aggressive foreign rivals such as Dell and HP in the past few years in Chinese market has put further pressures on Lenovo’s margins. (Lau, 2004a).

—- Rather than just continue to concentrate on the domestic Chinese market, the decision to go global is a necessity for Lenovo at that critical time. Under these circumstances, Lenovo decided to form the deal with IBM to acquire its low profitability PC business with US$1.75bn. According to the terms of the agreement, Lenovo pays US$650m in cash and up to US$600m in shares (which later changed to US$800m and US$450m share value), giving IBM an 18.9 per cent stake as well as shouldering US$500m in debt; and IBM will become the Chinese PC maker’s “preferred supplier” of support services and customer financing. For Lenovo’s part, the acquisition quadruples its sales to more than US$12bn and expands its sales market globally; besides being given the ownership of the Think family trademarks, Lenovo also gains the right to produce IBM-branded PCs under a five-year licensing agreement (FT reporters, 2004; Simon, 2004).

Motives toward Lenovo & IBM’s Strategic Alliance

Lenovo’s takeover of IBM’s PC division has been described as “snake ate the elephant”, and the deal pulls Lenovo from the eighth-largest PC maker in the world to the third-largest just behind Dell and HP (Buetow, 2005; Ling, 2006; London, 2004).

— The motivations that drive the formation of the strategic alliance between Lenovo and IBM can be analyzed from two perspectives. For Lenovo’s aspect, though Lenovo is the largest IT Company in China, its products are mainly within China. Michele Mak, an analyst at ABN Omro, once commented that “Lenovo’s distribution network is its biggest problem, and it is not well adapted to serving the small and medium-sized companies who usually buy directly” (Lau, 2004a). Thus, in the first place, with an intention to expand its business globally, the firm needs a well-developed worldwide distribution network, which happens to be the advantage of IBM. As what has been announced by Lenovo, the agreement between the two firms includes broad-based strategic alliance under which Lenovo’s products will be integrated into IBM’s global service offerings, which also became the impetus to the deal.

—- Secondly, as a world-leading company like IBM, it has specialized and advanced skills in sales and marketing functions, for Lenovo, the sales and marketing support, as well as the R&D support are significant and of a necessity in its way to a multinational enterprise, which is also part of the agreement (Lenovo.com, 2007c).

—- Thirdly, the use of IBM’s globally recognized brand is an impetus to accelerate the alliance, and also perceived as a sweet victory for Lenovo. The local brand ‘Lenovo’, formerly known as ‘Legend’, will become more valuable in the market after its association with the ‘ThinkPad’ series of laptops. And also, Lenovo’s right to use the IBM brand on the computers for five years adds more value and trustworthiness to the brand, as despite the fact that Lenovo is the largest PC maker in China and Asia, it is little known elsewhere in the world, even with the ownership of ThinkPad family trademarks, it can hardly divert the loyal customers from IBM to Lenovo (London, 2004). Furthermore, analysts said that the deal could enable Lenovo to cut procurement costs (Guerrera and Dickie, 2004).

The Performance after Acquisition

— The fiscal report combining two months after the completion of the acquisition truly shows a magic turnaround of PCD (Ramstad, 2005) with a profit of $33 million, while the PCD recorded a pre-tax loss of $149 million before joining Lenovo. (Liu, 2005) Further, the latest

fiscal report (The First Fiscal Quarter Report 2005/2006, Lenovo) reported on 11th Aug 2005 illustrates a great performance of Lenovo Group Ltd., with revenue up 234% from organic growth in emerging markets and PC business acquisition, EBITDA up 135% to HK$829 million, pre-tax profit increased 54% to HK$515 million, and profit attributable to shareholders up 6% to HK$357 million. (Liu, 2005)

— However, this turnaround remains some strong arguments. Ramstad (2005) argues that

Lenovo gives no evidence of the sustainability of the turnaround and there are some accounting differences. Nevertheless, the fact is that Lenovo has achieved the first step of

Success. (Liu, 2005) The time will answer such questions such as whether the acquisition is successful or not, how Lenovo efficiently and effectively manage the global business, and

What is the final result of this acquisition? (Liu, 2005)

From the reports in Lenovo’s archive, the following critical success factors were identified in planning stage:

1) Top management support: Believed to be critically important in the early stage to engender commitment, provide direction and resources. CEO of Lenovo and senior managers decided to implement ERP project in 1998 and invested 30 millions RMB in the project. (Tang, 2007)

2.) External expertise: In the planning stage, technology support and management consultancy was received from 38 vendors and consultants. Regarding to implementation plan and SAP process. Deloitte and SAP Corporation were participated in planning Lenovo’s ERP system. (Tang, 2007)

3.) Project management: Detailed project plan was developed with the help from ERP vendor and consultants. Before the implementation, Deloitte supplied with ‘FastTrack’ solution, business process re-engineering and module designing for Lenovo’s ERP project. (Tang, 2007)

4.) Clear Goals: Project objectives and staged implementation developed. From senor manager’s statement presented earlier, the goals of ERP implementation are support rapid business growth, address data sharing issues, and obtain a competitive advantage and new management techniques. (Tang, 2007)

5.) Balanced project team: Mix of IT professions and senior management. Project team consist consultants from SAP Corporation and Deloitte, IT professionals in Lenovo and heads of other departments (SCM, finance, sales and productions). (Tang, 2007)

Organizational System-Knowledge management

— Lenovo Group puts priority on knowledge management, and established specific knowledge management department in 2003 to conduct planning and implementation of knowledge management of the whole group. Cultivation and introduction of knowledge-type workers also achieve notable effect, and recruited a lot of talents acquainted with knowledge management knowledge and software.(Ming)

— At the beginning of 2004, Lenovo integrated knowledge management, information management and flow management to the flow management department. This integration makes knowledge management more executable not only more authoritative, but also practicable with feasible means, because the flow management department takes charge of deciding posts, deciding flow and deciding organization, and enjoy authoritativeness within the company. (Ming)

When knowledge management and information system are integrated, knowledge management becomes more practical and feasible, and this orientation has made knowledge management play a more important role in the company. Because knowledge management and business execution are combined together, i.e. knowledge comes from business and should feedback to business, the flow requires that knowledge be turned over, then the authoritativeness is represented. As index management of the flow, including deciding posts, deciding responsibility and review, knowledge management is closely related with unfolding of various items of work of the company, not confined to simple knowledge management. (Ming)

System Design

—Lenovo carries out knowledge management in four steps. The first step is the definition of knowledge. Lenovo has many business flow links or activities, the first step is to tidy up the business flow of the company, identify activities in the flow, find knowledge hidden behind various activities to form a knowledge map and expose the hidden knowledge(Ming)

— The second step is to conduct efficient classification over knowledge. Behind each post there contains corresponding contents of organizational management, once posts are set, the flow has been decided and it is hard to modify. Of course, this is based on alignment of knowledge. (Ming)

—- The third step is to encourage staff contribute knowledge. In order to establish a knowledge management incentive system of vigorously promoting staff passing on knowledge, Lenovo Group sets knowledge management as an index of assessing staff performance. Lenovo’s knowledge management system includes assessment tools, using every piece of information of knowledge, the user shall have to give a score of appraisal. (Ming)

To a certain stage, Lenovo will conduct statistics to form a statement. In this way, according to the latest and most valuable knowledge ranking of every month or every week, staff members with most knowledge contribution will be awarded corresponding material incentive. (Ming)

Process of Implementation

In the concrete process of implementation, Lenovo divides the whole process into four stages as follows: pilot & demonstration stage, knowledge integration & summarization stage, optimization & sharing stage and business audit stage. (Ming)

— First stage: pilot demonstration. Select pilot units and implement knowledge management. Explore problems and resistance arising out of the process of implementation of knowledge management and seek corresponding solutions, endeavor to pose a demonstrative effect on whole group upon knowledge management in pilot units. (Ming)

— Second stage: knowledge integration. Based on experience from pilot stage, divide the group into many teams and many project teams to swiftly promote various departments set up their own knowledge system. The main work is concentrated on effective classification, integration and issuing of current knowledge. This stage is not intended to pursue optimization of knowledge system, and the key is to establish the primary knowledge system of the whole group as soon as possible. (Ming)

— Third stage: dynamic sharing. Operate knowledge management flow, realize dynamic running of knowledge database, and optimize incessantly the established knowledge system in the dynamic updating process. Promote learning sharing and help others solve problems, conduct knowledge quality assessment in the process of sharing and application, and implement knowledge contribution incentive measures. (Ming)

—Fourth stage: knowledge audit. Carry out audit over validity of each link of activities of the whole flow, and provide programs of improvement and promote management improvement. (Ming)

Lenovo recruits expertise of two types as map retrieving operation and flow management to conduct appraisal and testing over the system, and arrange quite a lot of human resources to update and maintain knowledge database. Each piece of knowledge has a valid period, and the system will retrieve automatically after the valid period to ensure constant updating of knowledge. (Ming)

Innovation and Entrepreneurship in Lenovo

Lenovo, a prestigious

They are relatively small, compared to players from industrialized countries, although a number of large ones with globalambitions have recently appeared on the world stage (Amighini et al. 2009; UNCTAD 2006). They are used at operating in highly volatile environments(Fortanier and Tulder 2009) and they rely of firm-specific advantages such as process capabilities (UNCTAD 2006), management and corporateentrepreneurship (Yiu et al. 2007), parental networks (Fortanier and Tulder 2009), flexibility, social and networking skills (Buckley et al. 2007, UNCATD 2006). While emerging economies MNEs are usually treated as a homogeneous group, a few papers also explore cross-country differences among them.( Duysters et al.2009)

If this is the portrait of Dragon multinationals, what are the characteristics of their

investments abroad? What are the push and pull factors? Is there any trend in terms

of entry mode choices?

A variety of drivers seems to promote global expansion of emerging countries

MNEs. Following Dunning (1993)’s classification of pull factors, market- and

resource-seeking FDIs are particularly important, while efficiency considerations

play only a limited role (Athreye and Kapur 2009; Fortanier and Tulder 2009;

Duysters et al. 2009; Kumar and Chadha 2009; Nicolas 2009; Nicolas and

Thomsen 2008; Amighini et al. 2008; Yeung and Liu 2008; UNCTAD 2006; Deng

2004, 2007; Schuller and Turner 2005; Zhang 2005; Wu 2005;).

According to (Amighini at al. 2008; Filippov and Saebi 2008), resource-seeking operations have experienced a radical evolution over time: until the 1990s, they were motivated by the hunger for natural resources while technology, brand and human capital are the kind of assets that Dragon MNEs search for nowadays. Adding to pull factors, a variety of push forces are worth mentioning when trying to explain recent flows of ODI. These forces range from government support to competitive pressure, from the availability of capital to over-capacity in the domestic market7 (see, among others: Kumar and Chadha 2009; Athreye and Kapur 2009; Duysters et al. 2009; Berger and Berkofsky 2009; Nicolas 2009; ; Fortanier and Tulder 2009; Nicolas and Thomsen 2008; Amighini et al. 2008; Yeung and Liu 2008; UNCTAD 2006; Deng 2004, 2007; Schuller and Turner 2005;). Note that push and pull factors depend on the type of the investing firms and, in turns, they design the

geography of outward direct investments.

Evidence shows that state-owned enterprises, enjoying strong government support, mainly expand overseas to access natural resources, and they target developing countries. On the contrary, private firms respond to market stimulus, such as competitive pressure, over-capacity or availability of capital, and they invest abroad to appropriate strategic resources; for this reason, they target industrialized hosts, the most (Filippov and Saebi 2008).

As far as the entry mode decision is concerned, Dragon multinationals operate

abroad via Joint Venture (JV), Merger & Acquisition (M&A) or Greenfield FDI,

carried on in Wholly-Owned Subsidiaries (WOSs). Depending on whether the

investor is rich or poor in intangible resources, and whether the host market is

developed or developing, one entry mode is more likely to prevail over the others.

As mentioned in (Amighini at al. 2008, 2009), past operations were usually carried on via Greenfield or JV and they were directed towards emerging economies;

recent operations are mainly based on M&A and they concentrate in industrialized

countries. Put another way, M&A and JV provide a privileged gate to foreign

strategic assets, while Greenfield WOS represent the natural way preserve own

resources (Nicolas 2009; Nicolas and Thomsen 2008; Deng 2007; Child and

Rodrigues 2005; Schuller and Turner 2005).

Entry mode decisions have been investigated econometrically by (Cui et al. 2008; Filatochev et al. 2007). Cui et al. (2008) analyse the choice of JV versus WOS in a sample of 138 Chinese MNEs.Their estimates show that the major differences between Chinese and Western multinationals regard organizational capability and strategic behaviour approach, while they exhibit the same attitude according to the institutional or transaction

cost perspective. Filatochev et al. (2007) regress Taiwanese investment choice on a

number of firm-level variables, to address the potential link between entry mode,

corporate governance and location. They show that the choice of the equity stake

in a local subsidiary depends on the share of family and institutional ownership in

the parent company. Moreover, high commitment entry is associated with the

affiliate being located in areas with strong economic, cultural and historical link

with the parent company.

Lenovo Group Limited

Background of the Company Lenovo Group is one of the leading IT companies in China, and it has now become the 3rd PC provider in the world market after the acquisition of IBM’s Personal Computing Division.( Jiang.L, 2007) As a global company after the alliance with IBM, it has a number of more than 19,000 employees worldwide; and with executive offices in Raleigh, North Carolina, USA; Beijing, China; and Singapore (Lenovo.com, 2007a). The company’s main operations are in Beijing, China; and

Raleigh, North Carolina, USA, with an enterprise sales organization worldwide (Lenovo.com, 2007a). As the largest PC producer in China, it took 27 per cent of China’s PC market share in 2003 and Lenovo PCs ranked No.1 in the Asia Pacific (excluding Japan) with a market share of 12.6 per cent in that year (People’s Daily, 2004). Since the year 1996, Lenovo has maintained its leadership position in China for ten consecutive years with over 25 per cent market share till 2006. The following is a brief development history of the company:

The company was first founded in 1984 by 11 computer scientists in Beijing, China, as the New Technology Developer Inc. (the predecessor of the ‘Legend’ Group), which thereafter opened the new era of consumer PCs in China (Lenovo.com, 2007b). In 1989, Beijing Legend Computer Group Co. was established and launched its first PC in the market in the following year, since then, the name ‘Legend’ became a household name in China (Lenovo.com, 2007b). By 1994, Legend was trading on the Hong Kong Stock Exchange, becoming one of the few Chinese companies that listed there (Lenovo.com, 2007b).

In 1996, Legend became the market share leader in China for the first time and kept with the line thereafter and three years later, it became the top PC vendor in the Asia-Pacific region and headed the Chinese national Top 100 Electronic Enterprise ranking; furthermore, the company ranked in the Top 10 of the world’s 42 best managed PC vendors (Lenovo.com, 2007b). In the year 2003, with an aim to expand its business globally with a more global-like brand, the company changed its former brand name ‘Legend’ to the name used today as ‘Lenovo’, “taking the ‘Le’ from Legend, a nod to the heritage, and adding ‘novo’, the Latin word for ‘new’, to reflect the spirit of innovation at the core of the company” (Lenovo.com, 2007b).

The change of the brand name from ‘Legend’ to ‘Lenovo’ was perceived as the first move under the firm’s global stretch. ( Jiang.L, 2007) At the end of the year 2004, Lenovo and IBM announced the agreement of Lenovo’s acquisition of IBM’s Personal

Computer Division, which was IBM’s global PC (desktop and notebook computer) business (Lenovo.com, 2007b). In May 2005, Lenovo’s acquisition of IBM’s Personal Computing Division was completed, making it a new international IT competitor and the third-largest personal computer company worldwide (Lenovo.com, 2007b). After the acquisition and the strategic alliance with IBM, Lenovo-branded products were introduced to the world outside of China at the first time (Lenovo.com, 2007b).

Lenovo and its employees are committed to four company values that are the foundation for all that they do (From Lenovo.com, 2007a):

• Customer service: We are dedicated to the satisfaction and success of every customer;

• Innovative and entrepreneurial spirit: Innovation that matters to our customers, and ourcompany, created and delivered with speed and efficiency;

• Accuracy and truth-seeking: We manage our business and make decisions based on carefully understood facts;

• Trustworthiness and integrity: Trust and personal responsibility in all relationships.

With an aim to provide market cutting-edge, reliable, high-quality products and professional services for the satisfaction of the customers, the company is dedicated to research and talent development (Lenovo.com, 2007a). The company owns research teams who have won hundreds of technology and design awards, which includes more than 2,000 patents, and has also introduced many industry firsts (Lenovo.com, 2007a). The goal of Lenovo’s R&D team is ultimately to improve the overall experience of PC ownership while driving down total costs of

ownership. ( Jiang.L, 2007)

Apart from being a prosperous business entity, Lenovo is also committed to being a responsible and active corporate citizen, which makes it a reputable company in the home market. ( Jiang.L, 2007) Moreover, as one of the major marketing strategy, Lenovo also actively takes a hand with sports games to help introduce the Lenovo brand around the world. In 2004, Lenovo became the first Chinese company to join the Olympic Partner Program and a sponsor of the 2006 winter games

in Turin, Italy, and it will also be a major supplier of computing equipment and funding in support of the 2008 summer games in Beijing, China (Lenovo.com, 2007).

Key success Factors for Lenevo

Core Competence of Lenovo

Lenovo has its own unique core competence generating Competitive advantages. If we carefully review the unique business development history of Lenovo, it is not hard to track that what are the sources of Lenovo’s competitive advantages, and how these core competence have been built up, and to estimate if its competitive advantages are sustainable for its ongoing global expansion. In Lenovo’s early stage, it has some advantages from its parent. ICT supported Lenovo by providing ICT’s facilities free of charge; Legend used ICT’s name for doing business and then gained the strong support of government. These can be seen as supportive elements for building core competence. (Liu, 2005)

The Ability of Learning

Lenovo presents a significant ability of learning for capability development can be regarded as one of its core competence. An important source of learning was its customers. Lenovo learned from its customers through its direct contact with customers and its extensive PC distribution network. Apart from carefully observing customer purchasing habits, Lenovo actively sought out customer help to guide its product and service development. (Xie & White, 2004).

Another source of learning was from those multinationals. As mentioned earlier, even while it produces its own brand, Lenovo learned a lot from HP, IBM and Compaq such as marketing and management skills, personnel training, product design and customer services. (Xie & White, 2004).

The third source of learning is its internal R&D activities. They attained the awareness of that proper R&D activities should be combined with the engineering, and manufacturing, instead of purely pursuing cutting-edge technologies such as large-scale integrated circuits and digital switches (Xie & White, 2004).

— A related view in terms of learning is that developing countries’ MNCs develop their advantages through the accumulation of technology and skills. Tolentino (1993) claims the importance of the accumulation of technological competence in the expansion of firms from developing countries.

The Capability of Competing on Price

Another core competence is Lenovo’s super capability of competing on the basis of product price. An article in Wall Street Journal (1997) points out that the prices of Lenovo’s products are only roughly two-thirds of those of foreign brands. Lenovo successfully maintained a lower cost structure than multinationals, (Liu, 2005)

Firstly, the management costs of Lenovo are lower than those of its competitor’s especially foreign firms doing business in China. (Liu, 2005) .Second, owning to more foreign component producers such as Seagate (the no.1 hard driver producer in the world) have established manufacturing operations in China, Lenovo and other Chinese PC makers benefited from cost savings of cheaper components purchasing. Apart from these above, Lenovo constantly concentrated on the cost reduction in all activities including manufacturing, R&D, marketing, distribution etc. and accumulated great experience in this field. (Liu, 2005)

The Ability to Establish and Manage Effective and Efficient Distribution Network

Among domestic and foreign IT companies, in Chinese market, Lenovo can be awarded as the no. 1 company with the best distribution network management. Lenovo have approximately 50 authorized distributors in each of the seven regions in China, and each distributor has its own reseller network. There are over 2, 000 resellers in Lenovo’s distribution network. Additionally, it has 130 “1+1” PC specialty shops in major cities. (Liu, 2005)

To be compared, IBM has no more than ten main distributors in some major cities. It could be imaged t hat how hard to manage and control such a huge network. But Lenovo has cultivated a positive relationship with its distributors by implementing a win-win strategy. Many distributors had grown with Lenovo over years. (Liu, 2005) Even when Lenovo constantly increased the depth and breadth of its distribution network, it never encountered any big conflicts among its distributors. The huge and effective network gives Lenovo much greater geographic coverage than either domestic or foreign companies in Chinese IT market. (Liu, 2005) Therefore, the ability of building and managing such huge distribution network and constantly exploring the potential of the network can be seen as another source of Lenovo’s core competence. (Liu, 2005)

To be concluded, the abilities of learning, cost reduction and building and managing sophisticated distribution network are supposed to be the core competence of Lenovo. Additionally, in Chinese market, the brand name-Lenovo is also an important core competence of Lenovo. But in the context of global scale, the brand of Lenovo is still waiting for customers’ recognition. (Liu, 2005) These core competences sustain Lenovo’s success in domestic market. However, Lenovo is undertaking its new globalization strategy. The question is that if they can generate sustainable competitive advantages for global competition and what are the challenges of existing in its globalization process. The next section is the case study of Lenovo acquiring IBM PCD (Personal Computer Division) and the objective is to challenge its international expansion strategy and its core competence in the context of global competition. (Liu, 2005)

Giant Step of Globalization: The Acquisition of IBM PCD

Lenovo group ltd. has completed its $1.75 billion purchase of IBM’s PC Division, creating the third-largest PC vendor in the world and giving IBM greater entree into the rapidly growing Chinese market. According to the agreement of the acquisition, Lenovo will gain control of IBM’s Think desktop and ThinkPad laptop brands, as well as the thousands of IBM PC customers. Lenovo is allowed to use the IBM name for five years. However, the new Lenovo will have a strong IBM presence. Many of the top executives have moved over from IBM, including Stephen Ward, the former vice president and general manager of IBM’s PC Division and now CEO of Lenovo. Yang Yuanqing, president and CEO of Lenovo Group Ltd, will become chairman. In addition, 10,000 of Lenovo’s 19,000 employees are former IBM’s employees, and IBM will continue to provide service and support for the IBM products. Lenovo’s headquarters will move to Armonk, New York, and IBM also holds an 18.9 percent stake in the new company. (Burt, 2005; Daniels, 2005; Khanna, 2005; Dowling, 2005)

The Lenovo’s Strategy for Global Expansion

Apparently, Lenovo realized that there are not so much potential of Chinese PC market after becoming the leading PC maker in China. And becoming a real global player is the Urgent mission for Lenovo. A common view of firm’s internationalization process is that the internationalization is the process of accumulating experiential knowledge and market commitment in foreign markets (e.g. Bilkey & Tesar, 1977; Johanson & Vahlne, 1977; Chang, 1995). Firms tend to start their internationalization process by exporting to countries with similar culture. (Sharma & Blomstermo, 2003).

Lenovo chose the most efficient way (the acquisition) for its global expansion and foreign market entry. The founder Liu Chuanzhi has such a comment on the acquisition in an interview (Chandler, 2004):

“We have a $3 billion business with 27% market share in China. There’s not much room to expand. The global PC market is $200 billion, so there’s still a lot of potential. IBM has all the things we need. This deal brings us market share, Management know-how, technology, and international reach.”

The strategy decision to acquire IBM PCD has been given careful considerations in Lenovo. In 2002, Lenovo almost refused the suggestion of the acquisition approached firstly by IBM since the top managers of Lenovo thought it was too risky. (Chandler, 2004) But they also saw this as a great opportunity to become a global PC maker. After one year’s consideration, analysis and learning from big multinationals, they understood the opportunities and challenges related to this deal and decided to implement this acquisition. (Chandler, 2004)

As Liu Chuanzhi said in the same interview as above:

“As discussions progressed, we gained confidence that many of the risks we’d feared could be distributed or controlled. For example, we worried about losing customers. So we worked out an agreement that would allow us to continue using the IBM brand, to keep the IBM salespeople, and even to keep the top IBM executive as CEO. That gave us confidence we could give customers the same level of service and quality after the acquisition”. (Chandler, 2004)

—The main advantage of acquisition is that it provides the fastest way to enter foreign markets and rapidly build the firm’s presence in these new national markets. Through the acquisition, Lenovo becomes the third biggest PC multinational of the world from a little-known Chinese PC maker and then makes a giant step forward of internationalization. (Chandler, 2004)

— Furthermore, acquisition provides the great opportunity to acquire valuable resources of the acquired company. Through the acquisition, Lenovo attains the IBM’s global market share, global management skills, top PC technologies and the outstanding ability of R&D, experienced managers and other personnel, and as Liu Chuanzhi mentioned, the

International reach. (Chandler, 2004) Lenovo appears great confidence on their ability of learning for absorbing these merits from IBM PCD. (Chandler, 2004)

— For example, IBM PCD was commonly regarded as the sophisticated expert in serving corporate customers, while Lenovo was significantly good at selling PCs in consumer market. Such a successful combination of these advantages of both sides will definitely result in great performance. Additionally, Lenovo hopes that combining Lenovo’s price advantage with IBM’s engineering will deal with Dell’s formidable threat (Forelle, 2005).

The Necessity to Form the Strategic Alliance

Lenovo was known as one of China’s most promising companies in the early 1990s, with its sales more than tripled between the year 1994 and 1998, and Asia’s leading PC vendor outside Japan at the end of the 1990s (Lau, 2004a). However, before the declaration of the alliance with IBM, the company had encountered with obstacles for its further expansion and development. (Lau, 2004a). Though Lenovo is the largest PC maker in China with more than a quarter of the market share, it does little business outside the country. The increasing fierce competition from aggressive foreign rivals such as Dell and HP in the past few years in Chinese market has put further pressures on Lenovo’s margins. (Lau, 2004a).

—- Rather than just continue to concentrate on the domestic Chinese market, the decision to go global is a necessity for Lenovo at that critical time. Under these circumstances, Lenovo decided to form the deal with IBM to acquire its low profitability PC business with US$1.75bn. According to the terms of the agreement, Lenovo pays US$650m in cash and up to US$600m in shares (which later changed to US$800m and US$450m share value), giving IBM an 18.9 per cent stake as well as shouldering US$500m in debt; and IBM will become the Chinese PC maker’s “preferred supplier” of support services and customer financing. For Lenovo’s part, the acquisition quadruples its sales to more than US$12bn and expands its sales market globally; besides being given the ownership of the Think family trademarks, Lenovo also gains the right to produce IBM-branded PCs under a five-year licensing agreement (FT reporters, 2004; Simon, 2004).

Motives toward Lenovo & IBM’s Strategic Alliance

Lenovo’s takeover of IBM’s PC division has been described as “snake ate the elephant”, and the deal pulls Lenovo from the eighth-largest PC maker in the world to the third-largest just behind Dell and HP (Buetow, 2005; Ling, 2006; London, 2004).

— The motivations that drive the formation of the strategic alliance between Lenovo and IBM can be analyzed from two perspectives. For Lenovo’s aspect, though Lenovo is the largest IT Company in China, its products are mainly within China. Michele Mak, an analyst at ABN Omro, once commented that “Lenovo’s distribution network is its biggest problem, and it is not well adapted to serving the small and medium-sized companies who usually buy directly” (Lau, 2004a). Thus, in the first place, with an intention to expand its business globally, the firm needs a well-developed worldwide distribution network, which happens to be the advantage of IBM. As what has been announced by Lenovo, the agreement between the two firms includes broad-based strategic alliance under which Lenovo’s products will be integrated into IBM’s global service offerings, which also became the impetus to the deal.

—- Secondly, as a world-leading company like IBM, it has specialized and advanced skills in sales and marketing functions, for Lenovo, the sales and marketing support, as well as the R&D support are significant and of a necessity in its way to a multinational enterprise, which is also part of the agreement (Lenovo.com, 2007c).

—- Thirdly, the use of IBM’s globally recognized brand is an impetus to accelerate the alliance, and also perceived as a sweet victory for Lenovo. The local brand ‘Lenovo’, formerly known as ‘Legend’, will become more valuable in the market after its association with the ‘ThinkPad’ series of laptops. And also, Lenovo’s right to use the IBM brand on the computers for five years adds more value and trustworthiness to the brand, as despite the fact that Lenovo is the largest PC maker in China and Asia, it is little known elsewhere in the world, even with the ownership of ThinkPad family trademarks, it can hardly divert the loyal customers from IBM to Lenovo (London, 2004). Furthermore, analysts said that the deal could enable Lenovo to cut procurement costs (Guerrera and Dickie, 2004).

The Performance after Acquisition

— The fiscal report combining two months after the completion of the acquisition truly shows a magic turnaround of PCD (Ramstad, 2005) with a profit of $33 million, while the PCD recorded a pre-tax loss of $149 million before joining Lenovo. (Liu, 2005) Further, the latest

fiscal report (The First Fiscal Quarter Report 2005/2006, Lenovo) reported on 11th Aug 2005 illustrates a great performance of Lenovo Group Ltd., with revenue up 234% from organic growth in emerging markets and PC business acquisition, EBITDA up 135% to HK$829 million, pre-tax profit increased 54% to HK$515 million, and profit attributable to shareholders up 6% to HK$357 million. (Liu, 2005)

— However, this turnaround remains some strong arguments. Ramstad (2005) argues that

Lenovo gives no evidence of the sustainability of the turnaround and there are some accounting differences. Nevertheless, the fact is that Lenovo has achieved the first step of

Success. (Liu, 2005) The time will answer such questions such as whether the acquisition is successful or not, how Lenovo efficiently and effectively manage the global business, and

What is the final result of this acquisition? (Liu, 2005)

From the reports in Lenovo’s archive, the following critical success factors were identified in planning stage:

1) Top management support: Believed to be critically important in the early stage to engender commitment, provide direction and resources. CEO of Lenovo and senior managers decided to implement ERP project in 1998 and invested 30 millions RMB in the project. (Tang, 2007)

2.) External expertise: In the planning stage, technology support and management consultancy was received from 38 vendors and consultants. Regarding to implementation plan and SAP process. Deloitte and SAP Corporation were participated in planning Lenovo’s ERP system. (Tang, 2007)

3.) Project management: Detailed project plan was developed with the help from ERP vendor and consultants. Before the implementation, Deloitte supplied with ‘FastTrack’ solution, business process re-engineering and module designing for Lenovo’s ERP project. (Tang, 2007)

4.) Clear Goals: Project objectives and staged implementation developed. From senor manager’s statement presented earlier, the goals of ERP implementation are support rapid business growth, address data sharing issues, and obtain a competitive advantage and new management techniques. (Tang, 2007)

5.) Balanced project team: Mix of IT professions and senior management. Project team consist consultants from SAP Corporation and Deloitte, IT professionals in Lenovo and heads of other departments (SCM, finance, sales and productions). (Tang, 2007)

Organizational System-Knowledge management

— Lenovo Group puts priority on knowledge management, and established specific knowledge management department in 2003 to conduct planning and implementation of knowledge management of the whole group. Cultivation and introduction of knowledge-type workers also achieve notable effect, and recruited a lot of talents acquainted with knowledge management knowledge and software.(Ming)

— At the beginning of 2004, Lenovo integrated knowledge management, information management and flow management to the flow management department. This integration makes knowledge management more executable not only more authoritative, but also practicable with feasible means, because the flow management department takes charge of deciding posts, deciding flow and deciding organization, and enjoy authoritativeness within the company. (Ming)

When knowledge management and information system are integrated, knowledge management becomes more practical and feasible, and this orientation has made knowledge management play a more important role in the company. Because knowledge management and business execution are combined together, i.e. knowledge comes from business and should feedback to business, the flow requires that knowledge be turned over, then the authoritativeness is represented. As index management of the flow, including deciding posts, deciding responsibility and review, knowledge management is closely related with unfolding of various items of work of the company, not confined to simple knowledge management. (Ming)

System Design

—Lenovo carries out knowledge management in four steps. The first step is the definition of knowledge. Lenovo has many business flow links or activities, the first step is to tidy up the business flow of the company, identify activities in the flow, find knowledge hidden behind various activities to form a knowledge map and expose the hidden knowledge(Ming)

— The second step is to conduct efficient classification over knowledge. Behind each post there contains corresponding contents of organizational management, once posts are set, the flow has been decided and it is hard to modify. Of course, this is based on alignment of knowledge. (Ming)

—- The third step is to encourage staff contribute knowledge. In order to establish a knowledge management incentive system of vigorously promoting staff passing on knowledge, Lenovo Group sets knowledge management as an index of assessing staff performance. Lenovo’s knowledge management system includes assessment tools, using every piece of information of knowledge, the user shall have to give a score of appraisal. (Ming)

To a certain stage, Lenovo will conduct statistics to form a statement. In this way, according to the latest and most valuable knowledge ranking of every month or every week, staff members with most knowledge contribution will be awarded corresponding material incentive. (Ming)

Process of Implementation

In the concrete process of implementation, Lenovo divides the whole process into four stages as follows: pilot & demonstration stage, knowledge integration & summarization stage, optimization & sharing stage and business audit stage. (Ming)

— First stage: pilot demonstration. Select pilot units and implement knowledge management. Explore problems and resistance arising out of the process of implementation of knowledge management and seek corresponding solutions, endeavor to pose a demonstrative effect on whole group upon knowledge management in pilot units. (Ming)

— Second stage: knowledge integration. Based on experience from pilot stage, divide the group into many teams and many project teams to swiftly promote various departments set up their own knowledge system. The main work is concentrated on effective classification, integration and issuing of current knowledge. This stage is not intended to pursue optimization of knowledge system, and the key is to establish the primary knowledge system of the whole group as soon as possible. (Ming)

— Third stage: dynamic sharing. Operate knowledge management flow, realize dynamic running of knowledge database, and optimize incessantly the established knowledge system in the dynamic updating process. Promote learning sharing and help others solve problems, conduct knowledge quality assessment in the process of sharing and application, and implement knowledge contribution incentive measures. (Ming)

—Fourth stage: knowledge audit. Carry out audit over validity of each link of activities of the whole flow, and provide programs of improvement and promote management improvement. (Ming)

Lenovo recruits expertise of two types as map retrieving operation and flow management to conduct appraisal and testing over the system, and arrange quite a lot of human resources to update and maintain knowledge database. Each piece of knowledge has a valid period, and the system will retrieve automatically after the valid period to ensure constant updating of knowledge. (Ming)

Innovation and Entrepreneurship in Lenovo

Lenovo, a prestigious

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