Case Analysis of Lenovo M&A IBM PC department Essay

Lenovo gathering Limited is a Chinese transnational in processation processing system hardwargon and electronics confederation. Its useable headquarters ar located in Morrisville, North Carolina, coupled States and its registered office is in Hong Kong. It produces personal computers, tablet computers, mobile ph wizs, workstations, servers, electronic warehousing devices, IT management computer software and heady televisions. Lenovo has operations in more than 60 countries and administers its harvest-festivals in around 160 countries. Lenovo was founded in Beijing in 1984 and unified in Hong Kong in 1988 under its anterior strike, Legend.Lenovo is listed on the Hong Kong Stock throw and is selected as aconstituent stock of the Hang Seng China-Affiliated Corporations Index. In the 1980s, when groceryplace reforms were in progress, the Chinese g all overnment hired Liu Chuanzhi to distri unlesse imported computers. In 1984, Liu founded Lenovo with a group of ten engin eers and 200,000 yuan in Beijing.Their show condemnation probatory effort to import televisions was failed. The group could re hold itself at bottom a grade by carrying out quality checks on computers for invigoratedly buyers. Shortly laterward, Lenovo started create a circuit board that would allow IBM-compatible personal computers to process Chinese characters. This increase was Lenovos first major success. Lenovo started to manufacture and launch computers tagging its deliver blemish build in 1990. In 1996, Lenovos commercialize percent 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 diversification schema and the competition with the computer manufacturers around the earthly charge made Lenovo to deviation position. In 2003, the three occupancy lines which include mobile phone, IT and the internet unit broken over hundred million Hong Kong dollar. Even in the line of the PC, the about receiptsable unit of Lenovo, it should compete with the DELL and HP. The fact that the planetary market made DELL stronger encouraged Lenovo to focus on its comparative advantages of operational area, the PC and go back to the externalization strategies. afterward nine geezerhood, Lenovo became the orbits coarsest PC vendor in 2012 marketing the ThinkPad line of notebook computers and the ThinkCentre line of desktops. Lenovo could success because of its long-terminus concentration on e concourse markets and prospered overseas M&As suffering from a low arrive at margin in the PC business and intense competitions from tablet PCs and smart phones, the confederation is initiating to diversify its businesses. The most famous M&A illustration is the merger and encyclopaedism of IBMs PC unit. In fact, in early on 2000, IBM had already represented its capture outingness to sell their PC un it to Lenovo. Why would IBM sell its renowned PC unit?According to the pecuniary report submitted by the IBM in the year 2004, the PC variance lost 397million dollar in 2001, 171 million in 2002, 258 million in 2003, and 139 million in the first half of the 2004. For the successive long time, IBM was in a lost position. The active price strategies of companies such as Dell, Hewlett-Packard (HP) had a unplayful impact on the gross receipts of the IBM PC whichmeans, for IBM, the PC unit is tasteless. Therefore, IBM was to cash in ones chips unprofitable PC market, and put in more effort in the profitable high school-end servers, software and IT services business.However, the encyclopedism price then is up to 4 one thousand thousand in US dollar, Lenovo was unable to afford that much. Moreover, Lenovo played a dominating role in the market of mainland China then, so it didnt ingest this proposal. In May 2002, IBMs chief exe attenuateive officer Sam Palmisano visited Lenovo t o revisit the issues of the twain sides. Lenovo had then enthusiasm about the implementation of diversification strategy, but likewise aware of the importance of the outside(a)ization. Hence, it was realistic for later make headway negotiations.From the end of 2003 to declination 8, 2004, this merger continued for an entire year. December 8, 2004, Lenovo publicly announced that the achievement of IBMs global PC business is complete. Lenovos acquisition of IBMs personal computer division accelerated entry to foreign markets charm improving both its injurying and technology. Lenovo paid $1.25 billion for IBMs computer business, including $650 million in cash, 600 million personas and an additional $500 million of IBMs debt.This acquisition made Lenovo the third largest computer manufacturer in the world by volume then. After the acquisition completed, Lenovo wanted to take over IBMs notebook and desktop businesses and other related businesses including its customers, distr ibution and marketing channels worldwide. With regard to the purchase of IBMs personal computer division Liu Chuanzhi said, We benefited in three ways from the IBM acquisition. We got the ThinkPad brand, IBMs more advanced PC manufacturing technology and the companys worldwide resources, such as its global sales channels and operation team ups. These three elements have shored up our sales revenue in the past several years.Besides, Lenovo poseed the 5-year-right to use the brand name of IBM. Acquisition agreement also point that the exe copeive candidate Stephen shield (the senior manager of IBM) became the CEO and board directors of Lenovo group. Whereas after the M&A, Lenovo go about various serious problems such as destination diversions and the integration of human beings resources, high salary addresss, supply chain issues and the financial detriment. However, Lenovo eventually single-minded the problems and dramatically survived.1. To cypher the problem of the larg e gap of the salaries between 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 agreed to transform their stock options into the stock options of Lenovo. And for the three years of time, Lenovo will adjust and establish a unified and equitable salary system. 2. To clobber the difficulty of the integration of the brand, Lenovo required at least a louver-year-time to launch an independent and prestigious brand. With the agreement between Lenovo and IBM, Lenovo can use the brand name of IBM for five years.After that, Lenovo can only use ThinkPad and ThinkCentre. 3. To solve the supply chain issues, by the end of the year 2005, Lenovo had invited William J. Amalio to charge the position, the CEO of the Lenovo Group, replacing the former CEO, Stephen N. screen. Amalio made a great effort to optimise and improve the transnational supply chain system of Lenovo during his tenure. Lenovo st arted the Reconstruction jump of the supply chain worldwide through developing the infrastructure of not only the IT but only the efficiency of the supply chains. 4. The financial distress was a huge obstacle for the progress of Lenovo which carries seriously negative effectuate.When the acquisition is complete, the net profit of Lenovo decreased 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 also dropped from 14.97 HK cents to 1.95 HK cents. The loss of revenue was cod to the loss of the market share of the IBM PC unit. After every possible works, in 2007, Lenovo has basically completed the pre-integration of the PC unit. And the financial indicators seemed all acquire better. The profit of Lenovo increased to 1256.88 million Hong Kong dollars, and its EPS increase to 14.35 in 2007. However, Lenovo should endeavor to imbibe a stable condition before 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 possessive market share in mainland China. After bearing a unfeignedly tough time of its own, Lenovo made a right decision during this diaphragm of time. Lius comeback must be the most correct one.Liu modify the companys business strategies to maintain a desirable share of domestic sales and continue to expand global overseas markets. Lenovo Groupimmediately reduced its losses in 2010 and finally, achieved profitability and got a profit of 1,009 million Hong Kong dollar in fiscal year of 2010. Lenovo eventually got survived.1. The small favored factors that are the focus of the flourishing M&A activities 1.1 interactive EffectThe key of the successful M&A case is whether the merging companie s and the merged companies can complement other groups advantages and construct one plus one bigger than ii or not. The merging of Lenovo and IBMs personal-computer department has great synergistic effect in some aspects. It made the remarkable positive value in the synergism of businesses, the synergy of distribution channels, the synergy of the brand and management and the synergy of cost savings.1.2 coordinated the human resources and resolved the push cost problem success all-inclusivey At the first time, there was tremendous difference between Lenovos and IBMs human resources strategies. The major problem was the large salaries gap between Lenovo and IBM, the salaries of front IBMs employees made great cost expenses. In assure to turn back the previous IBMs employees and reduce the discontent of Lenovos employees, Lenovo gave itself three years of transitional period and formed a unified and equitable nonrecreational system within three years. 1.3 Resolved the diffic ulty of portmanteau cardinal brandsMany companies try to increase their sales amounts and seek growth of revenue by developing new products. And the co-branding strategy is one of the effective methods to depict a way to produce new and profitable products. Lenovo syllabusned to utilise the well-known brand name of IBM in coiffe to access to the international market hence increase the revenue. However, merging two brands caused brand moment to transfer in unexpected ways that were never intended.Through signing an agreement to obtain the right which is allow Lenovo to use the trademark of IBM for five years, Lenovo could use the buffering time to make the global computer users worldwide to admit its half-new name. In 2011, Lenovo took over the Acer and became the world third largest PC provider globally. We can see that Lenovo has gradually built its reputation in the international market around the world so far.1.4 Well- intentional corporate management platformAfter the acquisition, Lenovo experienced a tough time in transition, with serious financial hardship as well as plummeting the price of stock. In order to resolve these problems, Chuanzhi Liu designed an straight scheme with two move forward to make Lenovo achieve success in the acquisition. Owing the accurate action, Lenovo could eventually break the stalemate and achieve brilliant success in profit again in 2010 as it shows below.20092010EPSHK cents-19.9710.37Net incomemillion HKD-1765.831009.07ROA%-3.421.44hard roe%-17.278.06The profit index 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 driving forces for the successful M&A was that IBM ha s already penetrated the global large enterprises market whereas Lenovo have relatively the small enterprises market in ground 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 internationalization 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 map and the corresponding sales teams and managing groups. By merging IBMs PC department, Lenovo is able to combine the domestic and international distribution channels 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 hark back series brand and their patents, two R&D centers and retention of the previous IBMs top executive board. Lenovo ma intains the agonistic advantages of IBMs PS department, the atomic number 82 R&D as well as the product world capability. At the forth place, the synergy of cost saving. Lenovo did not have competitive advantages regarding of invention cycle and the integration of the whole industry chain. After merging, Lenovo cut IBMs money-consuming outsourcing businesses, and then optimize its supply chain.As a result, economise a great deal of cost. 2.2 Integrated the human resources and resolved the labor cost problem successfully At first, there was an immense difference in their strategies between two companies. Lenovo paid attention solely in the internal training among skilled and outstanding people while IBMs training mechanism was far improved. Lenovo hires employees according to the degree of agreeing its corporate culture whereas IBM focuses on morality. The most practical issue seemed to be the cost of labour.The lend amount payoff of IBMs employees was much greater than Lenovos . IBMs employees enjoyed wages about seven times more than Lenovos among the same take aim positions. Lenovo determined to stick 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 before the merging. In order to keep thecompetitiveness of IBMs global PC business and steady down 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 Thi nkPad and ThinkCentre. Hence, the co-branding strategy for Lenovo to merge with IBMs PC department was quite fruitful which did not hurt 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 unravel the financial difficulties.STEP 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 senior manager of IBM) and Amelio (the ex-vice CEO of DELL). During this term, the primary travail for the Chinese senior managers is to learn in despite of unpleasant situation. Stephen Ward stabilized the original employees of IBM and customers, which plays a central role in decrease the flow of employees and customers. Ameli o constantly induced the efficiency management of DELL to Lenovo, cut uncalled for staff member, and streamlined the whole management structure.During that period, Lenovo accomplished 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 lack in courage to enlarge business and reemployed the reliable and shell Chinese senior management crew after 4 years. This blackguard established the desire of original employees of Lenovo and released the inner power of Lenovo storing 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 adhere to its innovative corporate culture. Lenovo Group has e stablished 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, planetary innovation triangle.After the acquisition, Lenovo was faced with new challenge, that is, the culture skirmish the difference between the two countries may force the former employees of IBM to leave Lenovo. So that Lenovo should respect the autonomy 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 impossible 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 destinys a more proactive marketing team.The sales team of IBM just issued orders for Lenovo but never take active steps to find 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 target on emerging markets and successful overseas M&A, it should run a good business of the corporations it merged. Lenovo should blueprint itself for the global market.Positioning is forever and a day the critical issue that the Chinese companies ignore, and it is the terra firma why Chinese company can hardly last seven-day than other in western countries. After the positioning, Lenovo should rationalize their pricing strategy. The value of the product is an important factor to concern Lenovo can no eight-day make low-price strategy to survive in the global market. Lenovo should rather concern about the pauperism of their target customers, and make valuable and long-lasting product for them. Since China is concer ning about the industrial upgrading, Lenovo should grasp this opportunity, and actively develop new smart phones, tablet PCs, smart TVs to promote the association to achieve the limit from PC to PC +.ConclusionIn conclusion, the traditional era of homogenized workforce has begun tochange. With the quickly changing social structure and emergence of new technology, a heterogeneous workforce is currently essential to markets needs. In the past few years, China has emerged as the most say-so market with a huge population, rapidly growing domestic demand and low cost of production.Many multinational companies have been trying to get a footing in China in order to obtain their competitive advantages. Consequently, that has posed serious challenges to the Chinese local producers in competing with these large giants. In order to survive and boost businesses growth, some 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 pointless attention on the strategy it chose to adopt to integrate the culture of the two companies to keep the smoothness of the organisation operation and performance.From the case study of Lenovo and IBM, a number of important conclusions can be drawn. For a Chinese company like 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 equipped with technology. As mentioned previously, Chinese products have always been marketed at the lower end of the product line with low be and poor quality. Acquiring a well-known international brand is considered to be the fastest route 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 Ch inese company to expand into international market. The case of Lenovos adopting a separate management mode to manage IBM PC department team was different from those described in the literature. The acquiring company is the very one that encourages the acquired team to preserve and maintain its own management system and procedure.Among the reasons rump 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 excavation the target in time.The use of culture integration committee in the case study of Lenovo has been very useful and helpful for members tounderstand and reach more aware of the differences it may occur among them. The committee has set up several a ctivities such as culture discovery newsletter and reciprocation forums to encourage communication between two teams. These arrangements have been well acquire 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.