Lenovo: From Chinese Origins to a Global Player

Abstract

China-based Lenovo has managed to become the number-one seller of personal computers (PCs) in five major PC markets. To achieve this goal, the company has repeatedly chosen to grow via acquisitions, joint ventures and strategic alliances. The present case study provides an overview of Lenovo’s internationalization path and highlights the objectives and motives underlying the firm’s expansion strategy. It shows why Lenovo embarked on an inorganic growth strategy, although it had successfully established itself through organic growth on the Chinese market in previous years. The case study also outlines the company’s approach in meeting some of the major challenges in post-acquisition management.

Questions

• 1. Acquisitions can be categorized in various ways. One of the possible categorizations is the following:

  Differentiation criteria	Characteristics
  Direction of acquisition	• Horizontal acquisition • Vertical acquisition • Concentric acquisition • Conglomerate acquisition
  Evaluation by the acquired firm	• Friendly takeover • Hostile takeover
  Ultimate goal of the acquisition	• Builder acquisition • Raider acquisition
  Payment of the purchasing price	• Cash payment • Swap payment

  1. Source: translated from Kutschker and Schmid (2011, p. 914)

  Please characterize the following acquisitions of Lenovo according to the categories illustrated above:

  • (a) acquisition of IBM’s PC branch

  • (b) acquisition of Medion

  • (c) acquisition of CCE

  • (d) acquisition of Motorola Mobility

• 2. There are many reasons why firms undertake cross-border acquisitions.

  • (a) Please summarize the reasons stated in the case study that led Lenovo to acquire IBM’s PC branch, Medion, CCE and Motorola Mobility.

  • (b) John Dunning distinguishes between the following four motives underlying foreign direct investment: resource-seeking, market-seeking, efficiency-seeking and strategic asset-seeking. Which of these dominated when Lenovo took over IBM’s PC branch? Which motives influenced Lenovo’s subsequent acquisitions beyond Chinese borders?

  • (c) Are there other motives beyond those outlined in the text and those stated by Dunning that might have been relevant to Lenovo?

• 3. While Lenovo has mainly expanded through international acquisitions, strategic alliances and joint ventures have also contributed to its growth strategy. Please argue why Lenovo did not restrict its growth to acquisitions.

• 4. Acquisitions are characterized by a mutual transfer of knowledge and skills. MNCs from emerging economies that expand into developed markets via acquisitions to benefit from local knowledge and skills often face aggressive outward expansion of competitors from developed markets in their home countries.

  • (a) How did Lenovo’s acquisition of IBM’s PC branch influence its subsequent entries into foreign markets in terms of the knowledge and skills it gained?

  • (b) In more general terms, in what manner do the motivations for emerging market companies to expand abroad via acquisitions differ from those of Western MNCs?

• 5. In contrast to IBM’s PC branch, Medion and CCE were left largely autonomous after the two transactions were completed.

  • (a) Why did Lenovo’s top management team decide to leave the two consumer electronics firms, Medion and CCE, comparably independent during their post-acquisition integration?

  • (b) Do you see problems and risks associated with granting an acquired firm the right to maintain its distinct autonomy and identity?

  • (c) What are the advantages and disadvantages of assigning the task of post-acquisition integration to the former management team of a purchased firm?

• 6. Please imagine that you are a consultant for Lenovo and that your task is to develop Lenovo’s future internationalization strategies. Based on a strategic analysis, which internationalization strategies would you recommend for the next 10 years? Please be sure to provide support for your recommendations with reasonable arguments derived from your strategic analysis.

• 7. Please read the following two extracts. One extract is from an interview that Harvard Business Review editor in chief Adi Ignatius conducted with Yang Yuanqing, the head of Lenovo in 2014. The other extract is from the book “The Lenovo Way: Managing a Diverse Global Company for Optimal Performance” (as cited in Conyers and Qiao 2014), which was written by Yolanda Conyers, vice president for global human resources operations and chief diversity officer at Lenovo, and Gina Qiao, the senior vice president, human resources, at Lenovo.

Please reflect upon Lenovo’s orientation according to the four states of mind of international managers proposed by Howard Perlmutter (1969). Is Lenovo mostly ethnocentric, polycentric, regiocentric, or geocentric? Has Lenovo’s orientation changed over time?

Harvard Business Review, July–August 2014: The HBR Interview: “I came back because the company needed me”, p. 6.

HBR: What can U.S. companies learn from how Chinese companies do business, and vice versa?

Yuanqing: I think both can learn from us, because we’re not a U.S. or a Chinese company but a global company. Our top ten executives come from six different countries.

HBR: I understand that Lenovo doesn’t employ many expats.

Yuanqing: It’s true. We don’t assign people to other countries; we rely on local talent. That helps build a culture of trust and helps us understand different markets and industries. Throughout the company we employ only about 50 expatriates among our 54,000 employees.

Conyers, Y., & Qiao, G. (2014). The Lenovo Way: Managing a Diverse Global Company for Optimal Performance. McGrawHill Education, pp. 25–27, p. 51.

“After bursting onto the global stage with our acquisition of the IBM PC business in 2005, Lenovo’s top leaders wisely concluded that the company needed to hire people with experience in multinational corporations. In the process of transforming ourselves from a completely homogeneous Chinese organization into a corporate and cultural mosaic, with employees from more than 50 countries, we were experiencing a series of missteps, misfires, misunderstandings and, on top of that, we were losing money.

Rightly so, the leadership team decided that we needed people who knew how to operate in overseas markets. Certainly that strategy would enable Lenovo to become a world leader in the competitive high-tech industry.

But the result of this recruiting effort was a mix of three distinct cultures that didn’t get very well. We called them the “three rivers,” referring to Lenovo, IBM, and Dell, the corporate backgrounds of the majority of our employees.

Redefining Diversity

We needed to figure out a way to get the three rivers to flow together as one powerful force. Herein lay my diversity challenge, which came on top of the huge language barrier we faced.

We had to learn to leverage the strengths and styles from all the business cultures, thinking styles, national cultures and perspectives—blending both Eastern and Western—to create a world-class global enterprise. Our leaders wanted nothing less than to reconstruct Lenovo’s entire cultural DNA. We wanted to create a new way of thinking inside one unified Lenovo company.

At Lenovo, we were redefining diversity as something that was much more global and effective as a business strategy: how do you work together across cultures to create something that hasn’t existed before? We were going beyond the statistical, compliance level of diversity—we wanted to integrate the diverse cultural experiences and points of view of all our employees, starting at the very top with our executive committee, to create something trailblazing that would drive business results.

It was pure genius, and I was relishing the opportunity to try something that had never been done before. This was our chance to be real change agents and prove to the world what could be accomplished in a culture of inclusiveness, compromise, and understanding. Until then, most leaders in my field had focused only on the compliance aspect of diversity: adhering to government regulations concerning demographics and making sure that women and minorities in the workplace felt mentored and had equal employment opportunities.

Fits and Starts

Following the IBM PC acquisition, the excitement was palpable on both sides of the globe. Of course, no one knew exactly just how bad a case of indigestion we were about to face, with one analyst referring to the acquisition as a case of “the snake swallowing the elephant.” At the time of the acquisition, naysayers predicted failure. There was also some resentment and fear that a Chinese company had acquired an American icon.

But the public had no idea what we had planned. Lenovo was trying to do something truly bold. Our chairman at the inception of the acquisition, Yang Yuanqing (known to all as simply “YY”), insisted on fully integrating all of us. Putting himself at a tactical disadvantage in the short term by relinquishing his CEO position in the company, he personally dedicated himself to learning both Eastern and Western best practices in business as well as the English language.

Usually, when a foreign company takes over another business, the acquired company gets absorbed into the national culture of the acquirer’s home country. This isn’t always the best way to do things, but it’s the easiest way.

For years, the Koreans and the Japanese did business according to their own customs, even when they were operating on North American shores. That’s how most global companies have operated, with the culture of the company’s home base calling all the shots.

Lenovo was working towards a global-local model, where we would hire the best talent locally and challenge them to think and act globally. But at this point, it was all just a little too new…”

Source: Conyers and Qiao (2014)

Please note that, for some of the questions, the case study is only a starting point. You will have to search for additional information to answer the questions.