Chinese Tech Giant Lenovo Group Limited Acquisition of American Computer Leader IBM

Lenovo Group Limited’s Acquisition of IBM’s PC Business
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Lenovo Group Limited’s Acquisition of IBM’s PC Business
Abstract
Company acquisition is one way that a firm can enter the international market. In 2005, Lenovo Group Limited acquired IBM’s PC business and entered the USA market. According to John Dunning’s eclectic paradigm, a company can foster its foreign production by utilizing its ownership, internalization, and location advantages. For example, Lenovo gained direct access to the USA market after acquiring IBM’s PC unit. Besides, IBM was already a renowned company and had developed its reputation in the PC industry. IBM’s acquisition by the Chinese company gave the latter an upper hand to access the American market and expand to other overseas locations. Lenovo benefited from IBM’s core competencies, competitive advantage in the PC industry, resources, and capabilities. Within a short period, Lenovo had introduced its manufacturing and research and development facilities in the USA. Notably, Lenovo is one of the multinational firms that benefited from acquiring IBM’s PC business, making it enter the international market.
Introduction
Legend Group, which was later renamed Lenovo Group Limited, was founded by eleven experienced engineers in 1984 in Beijing. Liu Chuanzhi led this group of intelligent individuals to establish the company with a capital of only $25,000 (Lenovo.com, 2021). The Lenovo Group Limited entered the United States of America’s (USA) technology market in 2005. In 2005, Lenovo Group Limited acquired the International Business Machines (IBM) personal computer (PC) business for around $1.25 billion (Reuters, 2010). In other words, Lenovo Group Limited officially penetrated the USA’s market in 2005. The company launched its first consumer computer on 2nd January 2008 in the USA market. When Lenovo launched its consumer computers in the USA, it encountered fierce competition from Acer, a Taipei-based firm. Acer had a good strategy of selling its personal computers via major retailers, such as Best Buy, in the USA, Europe, and Asia. Acer significantly expanded its market in the USA after acquiring Gateway. However, Lenovo has been steadily growing in the USA by providing its products to commercial customers, many of whom were IBM’s customers. The paper focuses on Lenovo Group Limited’s entry into the USA market after the acquisition of IBM and how the company has been performing in the international market.
How Lenovo Group Limited Entered the USA
In 2005, Lenovo Group Limited made a significant decision to become an international technology powerhouse. The firm’s acquisition of IBM’s PC unit has been the greatest case study that portrays how merging international companies can lead to the establishment of a winning firm. Although many people did not expect Lenovo Group Limited’s acquisition of the IBM PC unit would be successful due to a culture clash, it was a shock to realize that it was the beginning of the Chinese company to enter the USA market and continue doing so significant things. In the 1990s, IBM’s ThinkPad was the popular laptop due to its exquisite designs with improved battery, processors, and screens (Bajarin, 2015). Upon acquiring IBM, the most significant thing that Lenovo Group Limited did was to ensure that IBM’s existing corporate customers’ needs would be addressed entirely. The Chinese firm promised IBM’s clients that nothing would change adversely and that all service needs and warranties would be honored. The USA government was hesitant at first to allow Lenovo Group Limited access to its data, but the situation changed for the better within a year after the acquisition. Eric Mok, Lenovo’s Company Secretary, and Assistant General Counsel said that acquiring IBM’s PC unit was challenging for the Chinese firm at the beginning since the corporation was expected to respond to global issues in the same way its merger did (Nylander, 2015). However, things turned out for the best, and today, Lenovo Group Limited is the largest maker of PC in the USA and worldwide, with operations in over 60 countries. Consequently, the entrepreneurial and innovative spirit runs in the company’s culture.
Literature Review of Internalization
For over 20 years, John Dunning's eclectic paradigm, or the ownership, location, and internalization, has been a dominant framework that accommodates numerous testable economic theories of multinational enterprises (MNEs) foreign activities and foreign direct investment (FDI) (Dunning, 2000). Specifically, it is profound and simple and entails the interaction of three interdependent variables. First, the competitive advantages of the companies that seek to engage in FDI depend on the investing firms' ownership. The greater the company has competitive advantages relative to those of the domiciled country where the firm wants to invest, the more likely it will engage or increase its foreign production. For instance, Lenovo's leadership in the Chinese telecommunication market made its brand highly recognized. In addition, IBM was the company leading in the PC industry in the USA at the time of acquisition by Lenovo Group Limited. Second, locational attractions can facilitate MNEs' value-adding activities. Suppose the created or natural endowments that the company needs to use jointly with the competitive advantages support the presence in a foreign country. In that case, the firm is likely to engage in FDI (Dunning, 2000). Third, the OLI framework evaluates various alternatives that a company might use to create and exploit its core competencies. The internationalization theory posits that the greater the benefits of internalizing cross-border products, the more likely it will engage in foreign production.
Internalization involves the manner in which firms operating outside their national boundaries are well-organized to use their capabilities, resources, and core competencies to improve their foreign production. Companies ought to understand how to exploit their own specific advantages to foster their foreign value-added activities in the global market (Dunning, 2001). For example, despite its operations based in China, Lenovo Group Limited had developed a good reputation in the local market. Additionally, IBM’s PC unit was growing, and the company had already established itself well in the USA. Lenovo Group Limited saw an opportunity to enter the USA technology market by relying on IBM’s superb reputation. That is why once the acquisition deal was made, Lenovo Group Limited assured IBM’s corporate customers that nothing would change negatively due to the change in management. The acquirer did its best to ensure that existing consumers had nothing to doubt about the quality of products even after IBM was no longer the manufacturer. At this juncture, Lenovo Group Limited used its core competencies, resources, and capabilities to promote high-quality PC products, winning the USA government contract and data accessibility.
The first Lenovo Group Limited's internationalization strategy was acquiring IBM's PC unit in 2005. The company benefited from acquiring a USA firm that had already created its reputation and invested in advertising to facilitate brand recognition. Since Lenovo was a Chinese company and IBM was from the USA, the possible issues that might have adversely affected this acquisition are the language and cultural barriers. However, with a few adjustments, the merger succeeded, and it is one of the largest PC manufacturers globally. The protect and attack strategy encapsulated Lenovo after acquiring IBM's PC business such that it had a solid foundation. In reality, Lenovo Group Limited still penetrates new markets with its diversified PC products. Based on Dunning's eclectic paradigm, competitive ownership advantages have steered the growth and expansion of Lenovo in the USA. For instance, adding veterans from the USA PC companies in 2006 contributed to the formation of a more homogeneous company that had a good supply chain. Although in 2010, Lenovo was out of Gartner's annual ranking of the world's top 50 supply chains, it ranked 20th in 2013 (Holstein, 2014). Lenovo Group Limited has co...