Business History and International Business for Lenovo - Sample

Question: Describe about the Business History and International Business for Lenovo. Answer: Introduction Lenovo, the progressive Chinese laptop manufacturer underwent a dramatic business change in 2004 when it acquired Personal Computers Division from IBM. This acquisition made Lenovo the third largest PC manufacturer in the world, but there were certain intriguing aspects that questioned the firms strategic decision initially. As Hill (2011) describes the case of Lenovo acquiring IBM in the case study presented in this assignment, it is imperative to delve into appropriateness of this strategy. The following sections tend to analyse the case critically with respect to theories on strategic acquisitions concerning staffing approach and cross cultural business establishments. Earlier published theories and cases tend to support the arguments in connection with the case study as they develop in each sub-section. Literature Review Hofstedes Theory on Culture/ Cultural Dimensions A major part of this report is based on cultural distinction, which makes it imperative to bring into discussion Geert Hofstedes views on the impact of culture on Organizations and their functions. Geert Hofstede (2011) in his work Dimensionalizing Cultures described the six dimensions of national cultures which tend to get significant in cross-cultural environments for Organizations at Organizational level ad are entirely different from the value dimensions at individual level. The culture defined in his theory by Hofstede is the collective programming of mind which was later argued upon by many researchers including Tsuji (2015), Stroup (2016) and Durand (2012) in their respective works. The argument was based on the assumption that if collective programming comprises culture, it should be possible for Organizations to train their human resources to adapt to entirely varying cultures in their native environments. The fact however remains that Theory of Cultural Dimensions by Hofste de is essentially valuable in presenting the fundamentally different aspects of national cultures and that the modern Organizations must be prepared to face the challenge of such underlying differences. The six dimensions used by Hofstede (2011) in his theory of cultural dimensions were Power Distance, Uncertainty Avoidance, Individualism, Masculinity, Long Term Orientation and Indulgence. Cultural Dimensions Framework Source: (Hofstede, 2016) The below presented argument for each section is based on the cultural comparison between two countries, China and USA, which helps in assessing the strategic decision made by Lenovo against the cultural challenges the Organization faced after acquisition. According to the statistics, China differs from USA hugely on the five dimensions including Power Distance (recognition of hierarchical authorities), Individualism (China is a collectivist society), Uncertainty Avoidance (Chinese are less threatened by future insecurities than Americans), Long Term Orientation (Setting and achieving long termed goals) and Indulgence (China has a restrained society with higher control on their impulses). In short, the figure helps in establishing that Lenovo was an Organization with inherent Chinese values of high control, adaptability, entrepreneurial spirit to achieve long termed goals, less insecurity towards future and better discipline through lesser indulgence, the characteristics which were keen on strategic outcome. Case Study of Lenovo: A Critical Analysis Strategic Appropriateness of Staffing Approach Buckley (2009) in his study on Business History and International Business mentioned one of the major reasons for Acquisitions among International businesses as the attempt to elevate global positioning. The author found this single factor responsible for several international firms presented as the case studies in his paper as highly decisive whenever the acquisitions crossing the borders took place. Correa (2010) presented her work to include the concept of balanced and unbalanced acquisitions in this regard, relating her findings to the challenges that international businesses faced when acquiring a firm. According to Correa (2010) it was imperative for the acquiring firm to look into strategic positioning when taking over the business operations of another multinational firm; the strategic challenges however were hard to be analysed and could surface as potentially riskier proportion leading to unbalanced state of acquisition. Lee (2010) also used the terms balanced and unbalance d acquisitions in connection with his study on political uncertainty during Mergers Acquisitions which could potentially move a major business dealing well planned and executed from the state of balanced to unbalanced under the influence of political barriers. In this regard, Lee (2010) also elaborated on the people management issues which were directly related to the cross border acquisitions with laws and regulations of the two countries of differing nature, often conflicting each other in their own realms. A remarkable study however was presented by Ping Deng (2010) delving into the generic nature of people management issues when the acquisitions between two countries involved collaboration of Eastern and Western cultures. In his paper titled, Absorptive Capacity and Failed Cross-Border MA, Ping Deng (2010) observed that Chinese manufacturing companies in the spree to establish a global stand with support from Chinese Government after 1999 had rapidly expanded their operations b eyond territories. While most of these acquisitions failed terribly on account of the limited exposure and tacit knowledge that Chinese firms held on managing global operations, the core of the strategic failure happened to be low Absorptive Capacity of these companies in the scenarios where they failed. Lee (2010) in his study also referred to Absorptive Capacity in relation to the example of Chinese Electronics firm TCLs miserable failure of American counterpart Thomson Electronics in 2004 owing to the lagging Absorptive Capacity of TCL leading to massive HR challenges which were evident in less than a year of acquisition. The implications of international Mergers and Acquisitions therefore include certain challenges, of which Human Resource Management challenges according to Buckley (2009) are most complex to handle. Buckley (2009) in his paper on Business History and International Businesses concluded that of all the assets that an Organization possess, tacit knowledge is the most valuable for competitive positioning of business. The author (Buckley, 2009) explained that the fact that this knowledge lies with the human resources of the firm, competitive ability of the firm is directly associated to the people working in it. Bose, Dasgupta and Ghosh (2011) seconded the opinions of Buckley in their combined work in which the co-authors mentioned flow of tacit knowledge as one of the main reasons why firms seek acquisition. The co-authors explained that in case of mergers and acquisitions, the alliance can be between equals or can be between unequals. Businesses as equals or unequals were regarded so on the relative sizes, positioning and scales of operations. Bose, Dasgupta and Ghosh (2011) further added that implications of human resource management gets more complex in the case of international acquisitions which involve unequals since apart from the national cultural gaps to be bridged, the alliance needs to look into the internal cultural gaps owing to the different culture of two Organizations leading to blocked flow of tacit knowledge intended as the aim for acquisition. Owen and Yawson (2012) in their research paper titled Human Development and Cross Border Acquisition found that some of the most successful acquisitions around the world could bridge the gaps related to human resourcing between two Organizations by working on policies that can address the underlying gaps between human resourcing cultures between firms. Applying the above theory on the case of Lenovo, there were massive staffing issues which the firm has to address before affirming their strategic positioning through IBMs acquisition. This was clearly the case of business between unequals where the probability of Lenovo falling short on Absorptive Capacity was high due to its overall exposure and nature of business. Confined to serve individuals and SMEs with China, Lenovos inception in 1995 could never match IBMs experience of running global operations since 1896 with purely American culture at the core of business activities. Through the staffing approach of offering key management positions to IBMs ex-managers, Lenovo made sure that the tacit knowledge which was capable of driving this deal to success remained intact with new Lenovo and was not moved out with IBMs management. Also, the firm relied massively on the profound expertise of staffs of IBM to carry on the combined business from where it was taken over. This means that t he behaviours and attitudes of people in IBM which had been one of the major reasons for IBMs growth in past were to be harnessed now in favour of new Lenovo. Considering this, Lenovo was evidently reliant on the existing culture of IBMs human resourcing management to place itself exactly where IBM had left. Basing its headquarters in China or proposing new policies to IBMs ex-employees which were in any manner less attractive to them than their earlier pay packages could risk in employees leaving the firm as the part of contract. Closely analysing this scenario, Lenovo made a justified move by adapting itself to the existing culture of IBM than changing the all powerful human resourcing management at the acquired firm. In this business deal between the unequal businesses the competitive advantage of new Lenovo was closely tied with adorning the established success of IBM which the firm decided not to disturb. In this case study however there are certain aspects which are not evident readily and make use of further research into published journals to clarify some complex staffing issues. One of the aspects is the movement of companys headquarters to New York which meant the cultural shift in working environment for Lenovos existing employees including its managers. Though the Chinese management shifted to America to adapt itself to IBM, the case study does not elaborate on staffing challenges which are comprehensible due to different nature of businesses the two firms dealt with. While Lenovo focussed mainly on PC manufacturing, IBM was popular for its IT and business solutions through its Personal Computer Division. Study by Lee (2011) refers a section on this acquisition of IBM by Lenovo in which the author mentioned that Lenovo in New York had to undergo complex hierarchical orientation when it tried to fill middle management positions in the company by Chinese employees. These employee s with proven expertise on the subject area when working for Lenovo, China could not adopt easily to the American culture where firms oath was sung before every official meeting. Other than language and cultural issues which created the barrier between Chinese and American employees of new firm to look forward to seamless integration, there were strategic financial challenges that this staffing approach brought along. In terms of cheaper cost of labour, headquarters in China would have been more profitable for new Lenovo than New York. The stringent labour laws and federal policies which compromised the firm about 34% of its revenue within first 5 years made it clear to new Lenovo that human resource management had more staffing challenges than initially anticipated (Lee, 2011). In brief, Lenovo made the appropriate staffing decision in terms of retaining the competitive positioning in global market where low absorptive capacity of Lenovo as well as its insignificant scale of operations in comparison with IBMs global business could be only through its own shift to the new American culture. The management of IBM promised the much needed tacit knowledge for running the massive operations for new Lenovo and also gave an opportunity to the firm to strengthen its own competence by learning through IBMs established culture. There were several staffing challenges however that Lenovo took long to overcome. Most of those were related to positioning of Chinese employees to entirely different work culture of America which placed initial barrier in the flow of tacit knowledge, abandoning altogether the purpose with which acquisitions are strategically made. And yet, this was one of the opportunities that Lenovo despite of its small size and little experience handled inc redibly well through its human resource management favouring the culture that had more offering to firms strategic positioning in global market. In brief, Lenovo did not repeat the error that TCL committed during its acquisition of Thomson Electronics, but took a route which is usually not common to the firm that is acquiring. Suitability of Acquisition Strategy Literature presents several researches focussing on varying drivers for international acquisition. Or in other words the objectives of firms due to which they acquire a different business decides the acquisition strategy they adopt. Buckley (2009) focussed on Market Dominance as one of the reasons for which corporate firms plan to acquire the other firms. Dominating the market is an important factor for firms which rely on consumer base primarily. Acquiring other businesses, usually smaller than their own sizes, rapidly help the acquiring firm to expand itself within a certain market. Lee (2010) made a connection between Market Domination of the firms and the distribution channels spread across the market in which the firm plans acquisition. The author (Lee, 2010) took cases of Chinese banks to reveal that fast spreading Chinese banking establishment in South Africa is the result of some of the highly popular banks in China to utilize the remotely established subsidiaries in new terr itories, for which the most suited and feasible method of adoption is Acquisition. Market Dominance is also argued upon by researchers like Bose, Dasgupta and Ghosh (2011) as another term for increasing global market share in which financially established firms look into opportunities in newer regions to make an entry with an objective of strengthening their market share through prospective markets. The co-authors (Bose, Dasguta and Ghosh, 2011) explained their argument through Vodafones example which expanded geographically with the sole motive of enhancing the global market share and therefore the global market dominance. Correa (2010) in her study on financial institutions observed Competence Leverage as the main driver behind international acquisition. Correa explained the case of General Electric Company to reveal how the global conglomerate created the channel to leverage its competence on wide array of financial services including debt management and credit risk during the ti me when there was no rival for GE in the North American market. In-spite of massive expenditure and resourcing challenges GE acquired relatively much smaller firms in Asian and European markets with the motive of introducing several new services in the new markets as part of its product development plan. Mullarkey (2008) conducted an extensive research on two global e-book brands and found that acquisition in some cases is also an attempt by the market rival in adjusting itself to competition. This was later affirmed by Stroup (2016) in his comparative study on international acquisitions in which the author explained the terribly miscalculated decision of Japanese firm Matsushita investing in Hollywood that resulted in the losses of over $3.3 billion for the firm. According to Stroup (2016), the acquisition move was motivated by Sonys acquisition of Columbia Pictures in the same year which had suddenly brought popularity to Sonys brand image and the speculations urged Matsushita to replicate the move of a scale that was equivalent or better than Sonys. Another acquisition strategy which is common among international businesses is the growth strategy by acquiring trending Capability/ Resource from suitable markets. Owen and Yawson (2012) took the example of Nokia to explain how the Fi nnish mobile manufacturer turned to acquire small scale businesses and new ventures in United States to get the hold on Smartphone Manufacturing skills while its own research and development on entering into Smartphone manufacturing got extensively delayed for various reasons. Resource Acquisition according to Tsuji (2015) is the usual acquisition tactic among international firms as they face resource crunch in their domestic markets and look to new markets for alternatives. IBMs acquisition by Lenovo as presented in the case is apparently a clear example of Market Dominance where Lenovo attempted to enhance its market share by taking a giant leap into the global market positioning. Just before the acquisition of IBMs PC division, Lenovos own global market share in personal computers was just 2.2%. Until then the firm stood 9th in the list of global PC manufacturers after Dell, Hewlett Packard, Siemens/ Fujitsu, Acer Technologies, Toshiba, NEC and Apple Inc (Lee, 2010). This business deal made the firm 3rd largest manufacturer for PCs across the world through the international acquaint of a global player massive in size and scale. Lenovos move to carry on with its acquisition decision can also be termed a forced move, which was on account of the rising competition it was facing within China. Dell through its innovative launch of customized PCs became the global pioneer in the domain and also attained cost reduction on its manufacturing strategy by confin ing its commodities as specified by the customers (Tsuji, 2015). Lenovo, though progressive and highly skilled at its own domain of manufacturing personal computers could easily assess the market competition getting tough with Toshiba, Acer and Apple gradually establishing their foot among Chinese buyers (Lee, 2010). Lenovos global expansion strategy in this scenario can be justified as an opportunistic move of a leading player which had assumed market leadership in its home market, that was close to 27% in 2015 (Tsuji, 2015). To expand globally, there are two strategies that could have been considered by the firm: Establish its own subsidiaries in foreign territories Acquire an existing corporate brand with global reputation The second option to acquire the existing global establishment with considerable market share proposed a much quicker strategy to strengthen the global presence, which Lenovo finally picked up as its choice. Acquisition of IBMs PC division presented itself as a rare opportunity to Lenovo through which the firm could have an instant presence within and outside China with the future prospects to leverage the management and technological expertise of IBM. According to Tsuji (2015), through this acquisition Lenovo saved over $200 million in its supply chain operations establishments which would have been required if the firm had opted for setting up its own subsidiaries worldwide on a similar scale. Conclusively, these were the potential benefits that acquisition strategy of Lenovo offered to the firm: An opportunity to make a presence in and out of China An opportunity to expand the domain of operations by culminating established IT and solution services domains of IBM Beat the surging competition within China through an alliance that provided both resource and capability to the firm Making use of a highly established management team of IBM to run an international business strategy after acquisition Ensure that the tacit knowledge flow important for business is retained within the firm after acquisition Massive savings in cost while balancing growth in efficiency and economies of scale Importance of Cross-Cultural Understanding for Global Business Operations Durand (2012) in his study on global village converging the territories while eliminating the distinction among cultures commented that the businesses which would survive the ordeal of quickly changing environment would be the ones which are conducted internationally. The author (Durand, 2012) made this remark in conjunction with the fact that international businesses in todays times do not seize to expand, they rather grow at every available opportunity across cultures to harness the best of those cultures for continued progress. Weber and Yedidia Tarba (2012) in their combined work on cross-cultural analysis of Mergers and Acquisitions explained the concept of Cultural Theme which represents each culture and is deeply rooted in the people belonging to that culture. The co-authors (Weber and Yedidia Tarba, 2012) exemplified how values and attitudes defining the cultural inheritance becomes a dominating factor when international businesses are done, as the two entities try to bring b est of their cultures to a common platform to assess each other strategically. This becomes particularly important in case of Acquisitions where the firm acquiring the skills and knowledge of the other firm assesses endurance, thrift and trustworthiness of other firm through its people. The case of Lenovo depicts this clearly through an off-route staffing strategy that Lenovo implemented for the new firm. Well aware of the fact that Western culture less susceptible to adapt itself according to the Eastern culture must not be pushed to the situation where the acquisition decision turned to be a huge mistake. Instead, Lenovo made use of its understanding of Confucius values so deeply laid among Chinese employees flexible with work nature that the firm made the decision to move its headquarters to New York. There were evidently no changes brought to the routine work aspect of ex-IBM employees increasing the probability of skilled and experienced American workforce to continue working a s usual. Hofstedes Cultural Model depicts Chinese culture as a long-term oriented culture where results are seen with the strategic eye to major decisions, while American culture tends to reap the short-termed values (Hofstede, Hofstede and Minkov, 2010). From the case of Lenovos acquisition of IBM, this can be witnessed clearly as the firm made the strategic decision of not disturbing anything for IBM managers and employees in terms of what they called gain from the acquisition; however the firm made the decision to bring an integrated structure within 3 years of duration which meant that Chinese employees of Lenovo had to suffer the huge gaps in Organizational cultures which existed between IBM and Lenovo initially. Vidal-Suarez and Lopez-Duarte (2013) in their study explained that the much speculated business deal between Lenovo and IBM which was thought to be suffering from huge integration issues between cultures surfaced as one of the highly successful acquisition deals in history. Acco rding to the co-authors (Vidal-Suarez and Lopez-Duarte, 2013), even after 10 years of passage when Lenovo is entirely on its own managing the international operations in its own way, the firm continues to lead the worlds PC manufacturing market demonstrating that its cultural understanding of business had an immensely profitable impact in the long run. Popli et al. (2016) mentioned another aspect of cross-cultural understanding in business by focussing their work on differences in Organizational cultures. The co-authors explained that in contrast with the national cultural differences which highlight several challenges for international businesses to penetrate and satisfy the demands of new consumers, the Organizational differences are packed with opportunities to combine varying synergies. Lenovo through its strategic decision of acquisition clearly harnessed this difference in synergies by combining the positives and the bests of the two Organizations in its favour. IBMs PC division with its Think series of notebooks and laptops and the globally established business operations was exactly what Lenovo wanted to acquire. Lenovo already had lower cost of infrastructure and the massive scale of manufacturing which was waiting for an opportunistic entry into international platform with premium brand of products. IBMs acquisition helpe d Lenovo fill the gap that the company was waiting for since long. The limited experience on cross-cultural management was the biggest barrier for Lenovo to bridge that the firm excellently handled by retaining the key management authorities of ex-IBM while placing itself within the vicinity to learn the crux of international business management quickly and accurately. Mullarkey (2008) remarked that in case of international business alliances the knowledge of cross cultural factors becomes a driver for accelerated collaboration. An understanding on how the business functions in the other culture helps in expediting, strengthening and co-ordinating of business deal which seldom means reaching a common resolve between the cultural differences appropriately. With reference to Lenovos acquisition of IBM, it may be assumed that IBM had the required cultural knowledge about the firm it wanted to sell its PC division to. The highly expansive global operations of its PC division was decided to be sold to a Chinese fir which could be deemed responsible enough to take it through the hard competitive times this division faced. According to Tsuji (2015), the first proposal for sales of its PC division was made in 2002 by IBM to Lenovo, where the estimated business deal of $4 billion was too high for Lenovo to get into an agreement. The reason that Lenovo was s pecifically selected for this acquisition was its successful and responsible professional history, progressive and yet highly balanced manner of market orientation in China and its urge to enter into global operations (Tsuji). The presented case study further describes the story as the second attempt made by IBM in 2004, which was now settled for $1.75 billion, a price that Lenovo considered was reasonable to make an entry to global platform with a division that could elaborate its global market positioning and skills. In this case therefore the knowledge of Chinese culture, the manner in which Chinese firms work and their insistence on strategic gains rather than the short-termed hauls helped IBM zero upon the right owner for acquisition. Conclusion In the global electronic market, the acquisition of IBMs PC division by Lenovo in 2004 presented an exemplary insight into strategic decision making. It was more significant considering the numerous failed cross-border acquisition deals which gave rise to speculation that Lenovo was making an attempt of a Chinese Snake swallowing American Elephant (Lee, 2010). Since this business acquisition, over 11 years have passed and Lenovo still manages the global electronic PC manufacturing market with its market leadership secured. There were some obvious cultural challenges, both on national and Organizational level, which Lenovo handled exceptionally well by looking into the strategies that were connected to Chinese and American attitudes respectively. New Lenovos strategic move to shift its headquarters to New York and retain the tacit knowledge of IBM through its existing people and top management is the typical case where cultural egotism had high probability to dominate. 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