The aim of this paper is to evaluate the effectiveness of Lenovo’s acquisition with IBM. In addition, this paper evaluates the appropriateness of Lenovo’s staffing approach. Then, this study provides recommendations for Lenovo. The finding of this paper comes from several journals, books, websites, case studies on Lenovo and IBM, and reports published by third parties. The finding of this paper shows that Lenovo did a historic alliance with IMB through a successful acquisition. Apply this strategy Lenovo paid $1.25 billion to IBM and bought 19.8% of IBM stock in its PC business. This acquisition strategy has made Lenovo the first owned well-known PC Company in greater China. Lenovo has also been the third biggest PC Company across the world. However, this acquisition strategy has caused a loss of Lenovo’s price competitiveness.
Therefore, alternative strategies are now suggested for Lenovo. Most importantly, the cost leadership and differentiation strategies are suggested to beat competitors and gain sustainable competitive advantages. On the other hand, although the geocentric staffing strategy has given huge success to Lenovo, it has increased cultural differences, language barriers, and operational costs. In addition, Lenovo has done poor research on IBM’s weaknesses in human resource management. Therefore, it is suggested that Lenovo can look for an alternative geocentric staffing approach. Lenovo can apply the ethnocentric approach in hiring the team members and lower-level employees, and at the upper-level and senior management level, it should apply a geocentric or egocentric approach. In addition, Lenovo should do more research on IBM’s brand value and weaknesses of its human resource management.
Table of Contents
2.0 Literature review.
2.1 Acquisition strategies.
2.2 Strategic staffing.
3.0 Discussion and analysis.
3.1 Suitability of acquisition strategy applied by Lenovo and IBM.
3.2 Discussion and analysis on strategic staffing approach.
5.0 Recommendations for Lenovo.
5.2 Generic strategies can be applied by Lenovo.
5.2 Lenovo can look for alternatives to the geocentric staffing approach.
5.3 Lenovo needs to do more research and development
5.4 Lenovo can focus on a centralized management system.
Lenovo, a Chinese-based company officially bought IBM’s PC division in 2004. IBM and Lenovo formed a joint venture. . Lenovo paid $1.25 billion to IBM in 2004 and captured IBM’s desktop and notebook business along with its marketing and distribution channels, and target customers. This acquisition strategy promoted Lenovo to be the third-largest PC brand across the world. Lenovo is now operating in more than 60 countries and sells its products in over 160 countries with more than 60,000 dedicated and devoted employees. It gained $43.03 billion in revenue, $672 million in operating profit, and $535 million in net income in 2016 (Lenovo, 2017). However, since the acquisition with IBM, Lenovo has been facing several challenges including cultural differences, financial distress, supply chain issues, and integration of human resources.
Lenovo faced a financial crisis during the global recession in 2008/2009 that affected Lenovo’s market growth, revenue, and profit margins. In 2009, Lenovo’s revenue declined by 8.9% losing about $226 million, which was more than the industry average. Liu Chuanzhi, the founder of Lenovo, stated that Lenovo faced these financial challenges because of management structure and cultural collision after the acquisition with IMB (Dignan, 2015). Therefore, this paper critically analyzes how the acquisition between Lenovo and IBM was suitable for Lenovo to enter global markets. In addition, this paper analyses the strategic appropriateness of the staffing approach employed by Lenovo on acquiring the IBM Personal Computer Division.
2.0 Evaluate and comment upon the strategic imperative behind the acquisition, from the view of Softbank
2.1 Concept and suitability of acquisition strategies for entering the global market
According to Bragg (2014), acquisition refers to the corporate actions by which a business buys stocks of other business and take ownership. Applying this strategy, a business can gain up to 50% ownership of the target company. Brain and Hill (2016) stated that acquiring company buys stock and assets of the target company that gives the right to the acquiring company to make decisions about the acquired assets and stocks. Bain and Company (2016) said acquisition can be in the form of a company’s stock or be paid in cash or both.
Study shows that companies apply acquisition strategies for various purposes. According to Bain and Company (2016), companies can apply acquisition strategy to gain new niche offerings, economies of scale, cost reductions, increased synergy, and greater market share. DePamphilis (2015) stated that acquisition strategy can be only the viable way for a company that wants to enter into the foreign market. This is because applying this strategy the acquiring company buys the stock of the existing business and starts off its business in foreign new markets with a good customer base gained by an existing company. Bragg (2014) said many companies apply acquisition strategy as part of their business growth strategies by taking over an existing company’s operation. Most importantly, it is difficult for a big company to continue its growth without losing efficiency.
According to Brain and Hill (2016), many companies face too bureaucratic and physical or logistic resource constraints. Therefore, the large companies find out existing successful companies to acquire revenue stream, higher growth and net profits (Snow, 2011). Brain and Hill (2016) argue that when a business faces too many competitions, it can look for an acquisition strategy to operate with an existing company to reduce competition, and excess capacity. Bragg (2014) said a business may apply acquisition strategy to emerge new technologies that can increase business productivity. In this case, the company can apply an acquisition strategy to use the technologies of the existing company in cost-efficient ways and to beat the competitors. DePamphilis (2015) disclosed that many companies feel difficulties or take lots of time to do market research to gain sustainable competitive advantages in the market. Therefore, they may decide to buy assets of an existing reputed company that have already gone through effective research and development process…………………………..