Case Study: Lenovo’s Acquisition of Ibm’s Pc Division: a Short-Cut to Be a World Player or a Lemon That Leads Nowhere?

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I. General presentation of the case study (Summary) By the very beginning of the 21st century, it became increasingly common for Chinese firms to acquire Western companies. However, there was general skepticism over Chinese companies’ ability to make and manage mergers and acquisitions (M&A) overseas, because China-based firms had a long way to go when it came to understanding foreign markets. In fact, Chinese acquirers typically did not have a clearly defined view of the role of M&A in their globalization strategy and had the tendency to respond opportunistically to deals as they became available. The companies also lacked experience in managing a portfolio of businesses across diverse markets as well as a deep understanding of customers, competitors, distribution structures and the regular environment in these markets. Among the main strategic errors made by the Chinese firms there are worth mentioning: • Production relocation in low cost countries; • Failing to conduct proper market research; • Lack of a strong brand abroad; • Lack of experience in managing global operations; In this environment, a well known Chinese firm came forward: Lenovo. Based in Beijing, Lenovo began as a Chinese Academy of Sciences’ (“the Academy”) new technology unit in 1994. It started its life as a distributor for AST computers and later HP and IBM. The company began making its own brand PC in 1990. Six years later, it became the first Chinese brand to outsell any foreign brand (including non-PC products) in China. Lenovo’s stellar growth was attributable to the Academy’s’ strong technological support and close relationship with the Chinese government. Turnover figures for the company in 2003 and 2004 were HK$1 20 billion and HK$ 23 billion, respectively. As other Chinese companies, Lenovo which had assumed market leadership in its country by having about 27% market

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