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With an initial capital outlay of only RMB200,000, (US$25,000) Lenovos founding chairman Liu Chuanzhi, together with 10 like-minded colleagues, launches the New Technology Developer Inc. (the predecessor of the Legend Group) funded by the Chinese Academy of Sciences.
The very first Legend PC is launched in the market. Legend changes its role from that of an agent for imported computer products into that of a producer and seller of its own branded computer products. Legend PCs are ratified and accepted by the China Torch Program.
Legend becomes the market share leader in China for the first time. Legend introduces the first Legend brand laptop.
Legend announces the birth of its new “Lenovo”logo to prepare for its expansion into the overseas market.
Lenovo launches a Tech RoadShow 2003 nationwide to promote Lenovo’s innovation.
Lenovo successfully develops DeepComp 6800 in November 2003. It ranks 14th on the global list.
Lenovo completes the acquisition of IBM’s Personal Computing Division, making it a new international IT competitor and the third-largest personal computer company in the world.
1.2. Acquisition of IBM PCD
In 1984 Lenovo started to assemble, sell PC and became largest Chinese PC producing enterprise. became despite IBM, dell multinational competition, But still, Lenovo is limitation being the best in China. From this crisis awareness, Lenovo added IBM’s low cost producing structure, world wide brand and was trying to make future growth possibility by global PC enterprise.
On one side, in IBM’ s position, it was showing loss at the time of sales. It reorganized PC business which was behind Dell, and the main force to HP competitors and computer related technology service, consulting, software was sales reasons. Another reason for sales was Chinese computer service market reinforce through M&A with Lenovo which is in good relations with Chinese government. Instead of providing PC hardware to China, it is going to concentrate on high profit producing service, software part.
Through M&A Lenovo and IBM is have synergy effect. Lenovo harmonized IBM’s superior technology to existing low cost production and ensured global production competitive power. In the aspect of market, through Lenovo ensured global circulating network, in the position of US, France, Singapore it retained global marketing ability. Also, through technologically IBM’s excellent R&D ability and special permission, new product development capability increased . IBM’s global high level Brand ensure became important intangible property for market entering to an advanced nation. After acquisition, Lenovo used IBM log for 5 years and used “Thinkpad” brand permanently.
1.2.2. Tasks of Lenovo(For successful Post Merger Integration)
But Lenovo has several subjects below to achieve successful PMI.
At first, Maintaining high quality and innovative products through continuous R&D. To keep continual satisfaction of the essential developed countries, production of highly advanced and variously-designed PC is required to Lenovo.
Secondly, A reconciliation of staff members. There is almost ten thousand people whose position was changed from IBM to Lenovo. Therefore it is a main issue to prevent secession from Lenovo with adapting its circumstances quickly and keeping the loyalty of staff members. To maximize the synergy effect, it is also important PMIã€€assginment through transfering the superior knownledge, technology and know-how of IBM to Lenovo.
Third task is successful combination of different culture. For achieving this goal, Lenovo moved its headquarters to New York so that established unified management strategies from viewpoint of global corporation.
1.2.3. Result of the acquisition
Taking over IBM, Lenovo got its international 8 million customers, superior system desiner in America and Japan, global brand. IBM being keep its stakes 18.9 %, headquarters of Lenovo moved to New York. The first time, top world technological brand owned by chinese corporation was born
2. Type of strategy that Lenovo pursues
As written above, the top executives at Lenovo made it a goal to transform Lenovo into a global corporation with a global workforce. Strategy for achieving the goal is clearly defined by Bill Matson who became senior vice president of human resources at Lenovo. What he noted is not only using the same set of principles to guide management in all locations but sensitively responding to the needs of people in different countries. This is the strategy that Lenovo pursued, called transnational strategy.
Some people can say that international strategy explains more about Lenovo. But it is not reasonable. Because there is a rival firm ‘Dell’ which dominate the global PC market in advance, only when there is remarkable core competencies which Dell is unable to compete, the international strategy can be effective. In addition, Lenovo took IBM over which has 3,600 sales and distribution centers in over 60 countries around the world. Generally, it means high degrees of pressure for local responsiveness. Therefore, regarding strategy of Lenovo as international strategy is not valid.
For a similar reason, Global strategy is not proper strategy Lenovo is pursuing. As written above, Lenovo needs to have adaptation and decentralization to sell customized products in over 60 countries. If Lenovo was a company which sells semiconductors or energy like oil, there should be the chance to think that Lenovo’s strategy is a global strategy. But, Its product is mainly computers, which demand to meet different consumers’ preferences in different countries.
At last, considering the discussions we had already, we can understand that it is also not appropriate to regard a multidomestic strategy as a Lenovos’ strategy.
Under the presumption that none of the Chinese executives have the experiences and capabilities to manage a global enterprise, Lenovo moved its headquarter to New York. It means that Lenovo put emphasis on its high central control and also high standardization. More over considering the market conditions Dell dominates already, it is much reasonable to think that Lenovo’s market strategy is a transnational strategy, not multidomestic.
Under the assumption that the strategy of Lenovo is transnational strategy, now we can discuss about the staffing policy of Lenovo. Considering the article, a staffing policy is obvious. Lenovo is committed to hiring the best people no matter where they come from. That is, the staffing policy of Lenovo is Geocentric framework.
3. Challenges faced by Lenovo after M&A in terms of HRM
3.1. Staffing policies
â‘ Ethnocentric: Principles and practices of home-office country are superior to those used by rivals of other countries. Leadership, ideals, management values, and workplace practices of one’s company are superior to those in foreign countries. Headquarters makes key decisions and foreign subsidiaries follow home country resource management practice, commands.
â‘¡Polycentric: Adapting differences between home and host countries is important. Foreign centers are equivalent to those in home centers. Since headquarters’ managers lack adequate local knowledge, headquarters make broad strategic decisions which local units adapt to the market.
â‘¢Geocentric: World-oriented set of attitudes and values, which all nations are equal and neither superior nor inferior. It seeks best people for key jobs regardless of their nationality. Headquarters and subsidiaries collaborate to lead to best practices.
3.2. Advantage of Geocentric policy – Chosen by Lenovo
l* Helps companies to pursue a global and transnational strategy.
l* More places generate more ideas and the more competitive you will be.
l* Helps to deal with different people in different countries.
l* Managing in many places require willingness to accept good regardless of where they are from which means to have global attitude.
3.3. Drawbacks of Geocentric policy,
l* Hard to develop, costly to implement, and to maintain.
l* Exposing people to different ideas in diverse places is expensive.
l* Hard to find qualified expatriates.
l* Transferring high-priced managers from country to country brings about high compensation and relocation costs.
3.4. Lenovo & IBM’s geocentric staffing policy
We assume that Lenovo uses geocentric policy. Trying to adapt IBM’s strong points, HRM focuses on choosing the best people regardless of the country of origin. We will discuss strength and weakness of geocentric staffing policies Lenovo used when acquisition of IBM occurred.
â‘ National origin is not issue. The person’s skill, capabilities to Work in global enterprise.
Strength: This gives more wide range of choosing people with best talents. Lenovo keeps a close watch over its key talents. High-potential employees are discussed at CEO-level meetings to discuss how the organization can help them to develop. Also every employee has an individual development plan, job rotations to provide them what their strengths and abilities are.
Weakness: Culture differences, working styles among different national origins which lead to conflicts. It is costly to expose people to different ideas in diverse places.
â‘¡English as office language
Strength: A quarter of world’s population speaks some English. It is language most taught around the world as second language. English makes us to have wide view of world that is effective in different cultures. As growing importance of internet as global network for communication of employees around the world, more than 80 percent of home pages on the web are in English. It can also prevent mistakes in translating one language to another.
Weakness: The time is needed for those of who could only speak their local language. There may be opposition of Chinese workers who wants to keep their local language. Easier to contact with local
Strength: Through acquisition of PC of IBM, it was trying to earn 8 million customers, US and Japan’superior system plan team, world-wide brand.
Lenovo created programs, “New World New thinking” and “Managing Across cultures” to help managers cope with changes and give managers guidance on managing diversity in their teams. These focused on handling multi-cultural and cross-cultural differences. For new employees, it offered “Mandarin classes” to help them communicate better with Chinese colleagues.
Weakness: If Lenovo retains IBM’s human strength, without restructuring they are caring IBM PC problem which was high cost and low effect which will occur loss. It would have been better if they scouted researchers or core human strength to acquire IBM’s technology. Lenovo didn’t value the IBM brand since it threw away IBM brand and changed to Lenovo.
Acquisition is start for new business.
Strength: Lenovo moved its head quarter office to New York. This meant globalizing the group.
Weakness: Experts say Lenovo had too loose business after acquisition of IBM PC business. Headquarter office was in New York, R&D was in North Carolina, core business was done in China, financial business was managed in Hongkong.
4. Changes and result from M&A
As a result of successful M&A and suitable strategy and staffing policy, Lenovo became the first Chinese owned global company with globally well-known brand supported by huge demand in China. It enabled Lenovo to strengthen its position in China by gaining most market share in Chinese PC industry and also lower manufacturing cost thanks to low Chinese labor cost and efficient manufacturing process. By adopting geocentric staffing policy and moving headquarters to New York, it was able to retain the core human resources from IBM and previous technological competency while procuring global competitive brand with capability of manufacturing at lower cost in China. Lenovo built strong alliance with IBM which holds 18.9% of equity of Lenovo and became one of the most affective global PC manufacturers with 8million customers and superior American system designers.
It seemed very successful at first when Lenovo was reborn to the world. However, as competition in PC industry gets severe and PC market becomes saturated, sales got deteriorated by 2006. Since geocentric staffing policy is very hard to develop and costly, Lenovo started to lose its price competitiveness and its operating margin got worse. The fact that its headquarter is located in New York, R&D center in North Caroline, majority of sales departments in China resulted in inefficient operation and slow responses to the market. In 2006, Lenovo went through a first huge restructuring process. It made a massive cut in the number of employees and spent more than $100 million just for the restructuring job. These unfavorable factors caused $116.4 million operating loss and 31% decrease in stock price. Lenovo implemented restructure procedure and lay off a lot of employees and replaced them by relatively cheap Chinese workers from 2006 to 2009. As a result of these efforts, Lenovo’s financial performance got better but its position of world’s 3rd largest PC company is at stake.
5. Evaluation of Lenovo’s PMI strategy
As a result, after year 2006 large scale restructuring, Lenovo’s PMI strategy made its own limits. Then after this situation, should we evaluate Lenovo’s strategy selection as a failure decision? Our evaluation is explained in the followings.
â‘ In order for Lenovo to absorb core capacity, IBM PCD human power which is IBM brand value core needed to be acquired.
â‘¡However, driving exceeded aggressive and extended M&A strategy in situation where specific, careful approach is excluded, occurs the start of restructuring.
â‘¢The reduction of staff members and the relocation of production capacity at the process of restructuring have meaning of improvement of reasonable cost structures and it should not be judged as a modification of staffing policy itself.
â‘£After restructuring on a large scale on 2006, Lenovo recovers its net income rapidly, and it proves that Chinese corporations can take the global firm over and manage the global firm successfully.
Lenovo.com Cross-border M&A of Chinese enterprises : on the case of Lenovo M&A with IBM PC division Jin, Jinghua Graduate school of international studies, Korea university Lenovo large scale organization management adjustments. IBM acquisition side effect? 2006.03.17 HRM Asia, Lenovo: Eye on talent, Sumathi V Selvaretnam 14 Apr 2011, http://www.hrmasia.com/case-studies/lenovo-eye-on-talent/83154/ International Business “Learning a Foreign Language-Still useful?” P. 810
Cross-border M&A of Chinese enterprises : on the case of Lenovo M&A with IBM PC division Jin, Jinghua Graduate school of international studies, Korea university
Lenovo large scale organization management adjustments. IBM acquisition side effect? 2006.03.17
HRM Asia, Lenovo: Eye on talent, Sumathi V Selvaretnam 14 Apr 2011,
International Business “Learning a Foreign Language-Still useful?” P. 810
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