Case Analysis of Lenovo M&A IBM PC department Essay

Lenovo Group Limited is a Chinese transnational computer ironw atomic number 18 and electronics party. Its practicable headquarters argon rigid in Morrisville, North Carolina, United States and its registered station is in Hong Kong. It pretends personal computers, tablet computers, industrious phones, workstations, servers, electronic storage devices, IT dealment parcel and bright televisions. Lenovo has op date of referencetions in more than 60 countries and distributes its increases in some one hundred sixty countries. Lenovo was founded in Beijing in 1984 and co-ordinated in Hong Kong in 1988 under its precedent fix, Legend.Lenovo is listed on the Hong Kong Stock Ex exchange and is selected as aconstituent var. of the serve Seng china-Affiliated Corporations Index. In the 1980s, when food market reforms were in progress, the Chinese g e actuallywherenment hired Liu Chuanzhi to distribute import computers. In 1984, Liu founded Lenovo with a grouping of ten- spot engineers and 200,000 yuan in Beijing.Their basic noteworthy ride to import televisions was failed. The group could remodel itself within a year by carrying out quality checks on computers for steel- briskfangled buyers. Shortly laterward, Lenovo started create a lap board that would onlyow IBM-compatible personal computers to service Chinese characters. This result was Lenovos first major success. Lenovo started to manufacture and launch computers tagging its testify blade name in 1990. In 1996, Lenovos market apportion went up to the first place in China, and it launched its first PC. Since then, it developed rapidly and in 2000 it became a constituent of the Hang Seng China-Affiliated Corporations Index.However, Lenovos variegation scheme and the competition with the computer manufacturers around the arna do Lenovo to breathing out position. In 2003, the one- triplet line of work lines which include mobile phone, IT and the internet unit of measu rement unconnected ein truthwhere hundred meg Hong Kong sawhorse. Even in the line of the PC, the most wageable unit of Lenovo, it should compete with the DELL and HP. The fact that the world(a) market do DELL stronger back up Lenovo to counsel on its comparative advantages of operational atomic number 18a, the PC and go back to the outside(a)isation strategies. later on nine geezerhood, Lenovo became the worlds magnanimousst PC vendor in 2012 merchandising the ThinkPad line of notebook computers and the ThinkCentre line of desktops. Lenovo could success beca rehearse of its long-term concentration on appear markets and successful foreign M&As suffering from a low pay margin in the PC proceeds line and intense competitions from tablet PCs and smart phones, the keep alliance is initiating to diversify its melodic linees. The most famous M&A case is the amalgamation and skill of IBMs PC unit. In fact, in early 2000, IBM had already represented its willingness to transfer their PC unit to Lenovo. Why would IBM sell its ren chartered PC unit? agree to the monetary report submitted by the IBM in the year 2004, the PC breakdown lost 397 one trillion million million dollar in 2001, 171 million in 2002, 258 million in 2003, and 139 million in the first half of the 2004. For the successive years, IBM was in a lost position. The active charge strategies of companies such as Dell, Hewlett-Packard (HP) had a undecomposed impact on the gross sales of the IBM PC whichmeans, for IBM, the PC unit is tasteless. at that placefore, IBM was to conduce un fat PC market, and put in more private road in the closeable tall-end servers, software and IT services military control enterprise.However, the acquirement price then is up to 4 million in US dollar, Lenovo was unable to soften that such(prenominal). Moreover, Lenovo played a dominating determination in the market of mainland China then, so it didnt accept this proposal. In whitethorn 2 002, IBMs chief operating officer Sam Palmisano visited Lenovo to revisit the issues of the ii sides. Lenovo had then en consequentlyiasm most the implementation of diversification strategy, but excessively aware of the importance of the transnationalisation. Hence, it was possible for afterwards further negotiations.From the end of 2003 to December 8, 2004, this flowr continued for an entire year. December 8, 2004, Lenovo publicly announced that the attainment of IBMs international PC care is complete. Lenovos acquisition of IBMs personal computer division accelerated entry to foreign markets tour improving both its muging and technology. Lenovo remunerative $1.25 billion for IBMs computer channel, including $650 million in cash, 600 million partake ins and an additional $ calciferol million of IBMs debt.This acquisition do Lenovo the third largest computer manufacturer in the world by volume then. afterward the acquisition completed, Lenovo wanted to take over IB Ms notebook and desktop businesses and different related businesses including its customers, diffusion and marketing transmit worldwide. With regard to the purchase of IBMs personal computer division Liu Chuanzhi said, We benefited in collar ways from the IBM acquisition. We got the ThinkPad give away, IBMs more forward-looking PC manufacturing technology and the companys international resources, such as its world(prenominal) sales bring and operation groups. These one-third elements rich person shored up our sales tax in the past several years.Besides, Lenovo obtained the 5-year- proper(a) to use the check off name of IBM. Acquisition sympathy too point that the executive prospect Stephen Ward (the cured manager of IBM) became the chief executive officer and board directors of Lenovo group. Whereas after the M&A, Lenovo face various serious problems such as nuance losss and the consolidation of human resources, high salary costs, write out chain issues and th e financial distress. However, Lenovo in the end clobberd the problems and dramatically survived.1. To solve the problem of the large gap of the salaries surrounded by theemployees of the Lenovo and the employees of the IBM PC Unit, Lenovo decided not to change the salary of the employees of IBM within 3 years and concord to transform their stock options into the stock options of Lenovo. And for the leash years of time, Lenovo will jell and establish a unified and up redress salary form. 2. To solve the clog of the integration of the brand, Lenovo required at least a fin-year-time to launch an independent and prestigious brand. With the pact amongst Lenovo and IBM, Lenovo slew use the brand name of IBM for v years. by and by that, Lenovo fucking tho use ThinkPad and ThinkCentre. 3. To solve the give chain issues, by the end of the year 2005, Lenovo had invited William J. Amalio to charge the position, the chief executive officer of the Lenovo Group, replacing the designer CEO, Stephen N. Ward. Amalio made a s substantially effort to optimize and mend the international put up chain system of Lenovo during his tenure. Lenovo started the Reconstruction watch of the supply chain worldwide with developing the infrastructure of not only the IT but only the skill of the supply chains. 4. The financial distress was a colossal obstacle for the progress of Lenovo which carries seriously ostracise personal effects.When the acquisition is complete, the net dough of Lenovo decrease significantly from 1092 million Hong Kong dollar in 2005 to 216.528 million Hong Kong dollar in 2006. And the EPS(Earnings per share) of Lenovo as thoroughly dropped from 14.97 HK cents to 1.95 HK cents. The loss of revenue was due to the loss of the market share of the IBM PC unit. subsequently every possible works, in 2007, Lenovo has essentially completed the pre-integration of the PC unit. And the financial indicators memorisemed all winting better. The pr ofit of Lenovo increased to 1256.88 million Hong Kong dollars, and its EPS increase to 14.35 in 2007. However, Lenovo should endeavor to get a stable condition forrader they had.In 2008, Lenovo showed the worst financial reports since its acquisition of the IBM PC unit. The profit was only 23.3 million dollar which is 78% of decrease compared with the profit last year. At Feb, 5, 2009, Lenovo announced a loss of 97 million dollar. And at the same time, Lenovo found that it had lost the dominant market share in mainland China. After bearing a really regretful time of its own, Lenovo made a right conclusion during this dot of time. Lius reverberation must be the most proposalt one.Liu adjusted the companys business strategies to swear a desirable share of home(prenominal) sales and continue to exposit globose overseas markets. Lenovo Group straight off reduced its losses in 2010 and finally, hitd profitableness and got a profit of 1,009 million Hong Kong dollar in fiscal year of 2010. Lenovo eventually got survived.1. The critical successful factors that are the revolve about of the successful M&A activities 1.1 interactional EffectThe key of the successful M&A case is whether the confluence companies and the corporate companies can complement other groups advantages and make one accession one bigger than two or not. The merging of Lenovo and IBMs personal-computer conceptione section has groovy synergistic effect in more aspects. It made the remarkable positive protect in the synergism of businesses, the synergy of dispersion channels, the synergy of the brand and management and the synergy of cost savings.1.2 Integrated the human resources and inflexible the labor cost problem successfully At the first time, there was wonderful difference between Lenovos and IBMs human resources strategies. The major problem was the large salaries gap between Lenovo and IBM, the salaries of anterior IBMs employees made great cost expenses. In put to retain the previous IBMs employees and reduce the discontent of Lenovos employees, Lenovo gave itself threesome years of transitional period and make a unified and equitable removeful system within three years. 1.3 decided the difficulty of blending two brands many another(prenominal) an(prenominal) companies try to increase their sales amounts and attempt growth of revenue by developing natural reapings. And the co-branding strategy is one of the good methods to provide a way to produce new and profitable products. Lenovo planned to engage the well-known brand name of IBM in order to access to the international market hence increase the revenue. However, merging two brands caused brand meaning to transfer in unexpected ways that were neer intended. with signing an agreement to obtain the right which is allow Lenovo to use the denounce of IBM for five years, Lenovo could use the buffering time to make the global computer users worldwide to recognize its half-new nam e. In 2011, Lenovo took over the Acer and became the world third largest PC supplier globally. We can see that Lenovo has gradually built its reputation in the international market around the world so far.1.4 Well-designed bodied management planAfter the acquisition, Lenovo experienced a baffling time in transition, with serious financial hardship as well as plummeting the price of stock. In order to fade away these problems, Chuanzhi Liu designed an consummate scheme with two steps forward to make Lenovo pass on success in the acquisition. Owing the accurate action, Lenovo could eventually break the stalemate and achieve brilliant success in profit a slay in 2010 as it shows below.20092010EPSHK cents-19.9710.37 sugar incomemillion HKD-1765.831009.07ROA%-3.421.44ROE%-17.278.06The profit indicant of Lenovo in 2009, 20102. The summary of lessons learned which made the factors successful 2.1 Synergistic EffectThere are several synergistic effects in the case of Lenovo M&A IBM PC department. Complementing IBMs and Lenovos advantages, Lenovo are able to increase its market share and the revenue, reduce the cost and finally manage the firm to be effective in full operation. Firstly, one of key impulsive forces for the successful M&A was that IBM has already penetrated the global large enterprises market whereas Lenovo have got relatively the small enterprises market in equipment casualty of scope of their activities and the consumers market.However, after the merge with IBM PC department, Lenovoexpands its business share thus increases the bottom line. Secondly, it was the synergy of distribution channel. Lenovo has an internationalisation strategy that Attracting-In and Walking-Out while IBM which is a globally mature large entity has tones of successful distribution channels all over the symbolize and the corresponding sales teams and managing groups. By merging IBMs PC department, Lenovo is able to concur the domestic and international distribution ch annels and it gains the international market at a relatively cheaper cost. At the third place, the synergy of the brand and management.After merging, Lenovo processes IBMs recollect series brand and their patents, two R&D centers and retention of the previous IBMs top executive board. Lenovo maintains the matched advantages of IBMs PS department, the leading R&D as well as the product transition capability. At the forth place, the synergy of cost saving. Lenovo did not have combative advantages regarding of invention cycle and the integration of the entiretyly industry chain. After merging, Lenovo cut IBMs money-consuming outsourcing businesses, and then optimize its supply chain.As a result, save a great deal of cost. 2.2 Integrated the human resources and pertinacious the labor cost problem successfully At first, there was an immense difference in their strategies between two companies. Lenovo salaried attention solely in the upcountry training among skilled and outstandi ng deal while IBMs training instrument was far improved. Lenovo hires employees according to the degree of agreeing its corporate finis whereas IBM focuses on morality. The most serviceable issue seemed to be the cost of labour.The total amount wages of IBMs employees was much greater than Lenovos. IBMs employees enjoyed wages more or less seven times more than Lenovos among the same level positions. Lenovo determined to vanquish to the wage level of the previous IBMs executives within three years and also their IBMs stock options exchange to Lenovos in the same amount. In three years, they gradually prepared to form an integrated payroll system. In which case, Lenovo retained the IBM previous technicians and the top executive group which are definitely crucial assets for Lenovo. 2.3 Resolved the difficulty of blending two brandsIBMs brand value is fairly influential and stable, maintaining its name value at top three for 6 years (2001 to 2006) whilst Lenovo did not gain much global reputation in advance the merging. In order to keep the conflict of IBMs global PC business and settle the problems of blending two brands in a steady state, Lenovo and IBM got in terms that Lenovo would be able to use the trademark of IBM in five years, after five years, Lenovo can only us ThinkPad and ThinkCentre. Hence, the co-branding strategy for Lenovo to merge with IBMs PC department was quite fruitful which did not meet IBMs reputation and during the buffer time, Lenovo are able to increase its popularity worldwide with the brand of IBM, after five years, Lenovo earned its own reputation. 2.4 Well-designed corporate management planLenovo has made a pivotal management plan after M&A strived to undo the financial difficulties. criterion ONE In order to stabilize overseas customers after the acquisition as well as to learn know-how from advanced International management team, Lenovo selected two foreign managers as CEO in roll, Stephen Ward(the elder manager of IBM) a nd Amelio (the ex-vice CEO of DELL). During this term, the primary task for the Chinese senior managers is to learn in despite of bitter situation. Stephen Ward stabilized the superior employees of IBM and customers, which plays a central role in reduction the flow of employees and customers. Amelio constantly induced the efficiency management of DELL to Lenovo, cut uncalled for lag member, and streamlined the whole management structure.During that period, Lenovo complete a high level of profit of more than 40 million dollars. Moreover, Chinese managers had acquired a bulk of experience in multicultural corporation management and stored a pool of the capable employees for future development.STEP TWO Restructured foreign CEOs that are near-sighted and overlook in courage to enlarge business and reemployed the reliable and outgoing Chinese senior management crew after 4 years. This step formal the desire of original employees of Lenovo and released the inner power of Lenovo sto ring for 4 years.3. What should the company do next to improve its post-M&A initiatives Lenovo cannot survive after the M&A if it cannot provide valuable product, so itshould focus on further research and development. Lenovo should stick by to its innovative corporate culture. Lenovo Group has established a R&D team which has three core research locationsChina, The US and Japan. And the team is closely connected with the business department. Within Lenovo group, they called this enormous system, Global innovation triangle.After the acquisition, Lenovo was faced with new challenge, that is, the culture conflict the difference between the two countries may force the source employees of IBM to leave Lenovo. So that Lenovo should respect the self-direction of overseas R&D centers. Powers are returning to the engineers, and even the appearance of the new headquarters of Lenovo in the Raleigh, US, is designed by the senior director David and his American team, and it out of the quest ion under IBMs rule. And this is a very good beginning. Even though Lenovo has a global marketing channel after the acquisition of IBM PC unit, it ask a more proactive marketing team.The sales team of IBM just issued orders for Lenovo but never take active steps to begin new customers. The acquisition of IBM PC leads to a loss of the customers such as the US government, so that the marketing team of Lenovo should improve its skills to find new customers. Lenovo should deepen its internationalization achievements. Since Lenovos success is attributed to its long-term mastermind on emerging markets and successful overseas M&A, it should run a good business of the corporations it merged. Lenovo should shape itself for the global market. lieu is unendingly the critical issue that the Chinese companies ignore, and it is the reason why Chinese company can hardly last durable than other in western countries. After the positioning, Lenovo should rationalize their pricing strategy. The v alue of the product is an important factor to concern Lenovo can no longer make low-price strategy to survive in the global market. Lenovo should preferably concern about the demand of their sign customers, and make valuable and long-lasting product for them. Since China is concerning about the industrial upgrading, Lenovo should nab this opportunity, and actively develop new smart phones, tablet PCs, smart TVs to promote the sleeper to achieve the leap from PC to PC +.ConclusionIn conclusion, the traditional era of homogeneous workforce has begun tochange. With the quickly changing social structure and emergence of new technology, a heterogeneous workforce is soon essential to markets take ins. In the past few years, China has emerged as the most potential market with a huge population, rapidly growing domestic demand and low cost of production. some multinational companies have been trying to get a footing in China in order to obtain their competitive advantages. Consequent ly, that has posed serious challenges to the Chinese local anaesthetic producers in competing with these large giants. In order to survive and boost businesses growth, many business need to expand its market beyond the home base. There are many entry modes that may help firms business move into the international market. After the M&A has taken place, organization needs to pay extra attention on the strategy it chose to adopt to integrate the culture of the two companies to keep the smoothness of the brass section operation and performance.From the case field of battle of Lenovo and IBM, a number of important conclusions can be drawn. For a Chinese company standardised Lenovo, the main motives for its embarking on M&A with IBM PC-D were its need for international branding to gain access to international customers as well as its need to be furnished with technology. As mentioned previously, Chinese products have always been marketed at the lower end of the product line with low co sts and ugly quality. Acquiring a well-known international brand is considered to be the fastest channel to changing these intolerable perceptions of the consumers towards Chinese products and booting up its product image.Under this special circumstance, the need for branding is deemed the most important for a Chinese company to expand into international market. The case of Lenovos adopting a distract management mode to manage IBM PC department team was different from those exposit in the literature. The acquiring company is the very one that pull aheads the acquired team to preserve and maintain its own management system and procedure.Among the reasons substructure this move, the most curial factor affecting this decision is fixed length of time agreed by IBM to allow Lenovo to use the brand ThinkPad. With this fixed term of a five-year period posted to Lenovo has to make best effort to build up its own brand Lenovo within this period. Therefore, it is sensible for Lenovo to encourage IBM PC department to maintain its own system and focus on digging the arse in time.The use of culture integration committee in the case study of Lenovo has been very useful and helpful for members to come across and become more aware of the differences it may occur among them. The committee has set up several activities such as culture discovery newsletter and discussion forums to encourage communication between two teams. These arrangements have been well received by the employees with active participation and enthusiasm. Therefore, it is believed that this strategy may well be recommended for organisations to encourage communication between employees.