Discuss About The Language Distance International Acquisition?
Buckley (2009) states that the implications of international mergers and acquisitions involve some challenges that the human resource finds sophisticated to handle due to the complexity of such problems. According to Buckley (2009), tacit knowledge is the most valuable of all assets that an organization can have in establishing a competitive position for the business. However, while such knowledge lies purely in the human resources, the competitive ability of any particular firm is based on the people working in a firm. One of the main reasons why firms seek acquisition is so that they can benefit from the tacit flow of knowledge from the firms that they merge with. According to Bose, Dasgupta, and Ghosh (2011), they explained that the mergers and acquisitions could be between equals and unequal.
A good proportion of Hofstede’s work is based on cultural differences that evaluate the effects of culture on organizations and their operations. According to Hofstede (2011), he described several dimensions responsible for national cultures that tend to be effective in varying cultural environments for institutions at organization level though they get to be different from the perspectives of value at the individual stage. The culture according to Hofstede is a programming of the mind that was later debated upon by other significant researchers such as Tsuji (2015) and Durand (2012) in their works. The argument behind such a theory was based on the notion that if culture is composed of programming that is collective, then, it organizations should find it easy to train their human resources to adapt different cultures in their external environments. The cultural dimension theory is paramount in presenting diverse aspects of cultures from national frameworks, and the contemporary organizations should be prepared to handles some of the challenges that arise from such differences. Hofstede used six dimensions to demonstrate the theory of cultural dimensions; individualism, masculinity, long term orientation, distance, and indulgence.
The above diagram presents arguments for each of the highlighted sections stated above based on the cultural dimensions between USA and China and helps in assessing the decision that was made by Lenovo in comparison with the cultural difficulties that the firm was faced in the period of acquisition. The data from the diagram presents huge disparities between China and the USA on the five dimensions, and this includes aspects such as Uncertainty avoidance where the chines community takes future risks with little caution compare to the Americans. China has a society that is constrained by regulations on the impulses that are made, indulgence. China is a communist society based on the concept of collectivism that is on the part of individualism. The figure helps in summarizing that Lenovo was an institution that exercised high levels in control, had an entrepreneurial culture and cared less on the part of future insecurity.
The success of Lenovo as a result of acquisition can be evaluated in a better way using the SWOT analysis. One of the strengths is where Lenovo was able to design cards that convert the English language into the Chinese language. Such a move made sure that the Chinese market was not left out in the personal computer. One major weakness with Lenovo is that it has created a brand image only in Chinese markets. One significant threat is the presence of companies such as Dell and HP in the Chinese markets that affects creating stiff competition. The opportunities are enormous for Lenovo as there is ready international market to be ventured through innovation.
PESTLE is an important tool that is used for analyzing macro and micro- environmental factors that could affect business operations either positively or negatively. The approach includes the political, economic, social, economic, technological and environmental aspects of a company.
Lenovo’s operations are not only in China but all over the world and as such the company has to keep pace with the global politics. Scientific growth is one of the agendas in the manifesto of the Chinese Party, and as such, it is a must for a company like Lenovo to think of expanding beyond the national borders. Liberalization of trade by the World Trade Organization has enabled firms that seek to extend their operations globally enjoy the benefits associated with globalization. The Chinese government had to negotiate within the WTO in a bid to ensure that there are mutual agreements in favor of Chinese firms. On the other hand, China had to open up its borders and relax some of the laws that restricted imports.
Lenovo had a history of stagnation regarding sales and profits while in China and had to expand its operations beyond the national boundaries. Fortunately, the brand became acceptable in other international markets as a result of the acquisition of the firm by IBM. However, due to the economic crisis, the company got crippled financially forcing it to move back to China. For Lenovo to enjoy the economies of scale, the firm has established production units in countries like Argentina, Brazil, and China where the costs of production are relatively cheap.
In the previous decades China recorded less than 20% in literacy levels; however, as of today, the literacy levels are satisfactory making the household’s income increase thereby increasing the purchasing power among the population. Lenovo benefits from such an improvement in the literacy levels since it is in the high tech business that relates directly to literacy levels. There is a relationship between high tech and literacy levels where the more literate a population becomes then, the more people that will demand the high tech products. One challenge is for Lenovo to increase the size of its markets. In some countries like the UK and US, Lenovo brand is associated with low quality due to the low price. However, there is a tremendous opportunity in developing nations where the market is not saturated as the population is not familiar with the brand.
The world is on the verge of a recent breakthrough in technology and companies are inventing products every moment. Those that are not able to compete with others become extinct for instance companies such as Nokia and Blackberry that were once market leaders are no more. Lenovo has also to take care and combine forces with strategic partners to have a lasting reputation for quality so that people can associate it with innovation and good quality.
Lenovo is one of the few companies where the product gets recycled from product to packaging. Lenovo is also committed to producing low halogen for its products so that it is environmentally friendly.
In China, some laws are aimed at protecting the consumer from the sale of harmful or inferior products. Such laws ensure that firms do not engage in fraudulent activities that are meant to increase sales through false advertisements. The laws also ensure that the patent rights for companies such as Lenovo get protected at all costs.
STP refers to segment, target group, and positioning. Lenovo has divided its markets regarding segments where it has markets such as China, Middle East nations, India and Africa. The target group for Lenovo includes Small and medium sized companies, students and households who need systems for their daily operations. Lenovo develops new products at affordable products, and that makes up for the positioning.
The geocentric approach involves employing the best people who possess the skills and expertise to perform their functions. In the case of Lenovo, it shifted its headquarters from Hong Kong to New York with the aim of tapping the ex- managers of IBM since it lacked people with skills and expertise in the global operations. Almost all the senior executives came from IBM since they had the right skills for such a company and also an adequate experience in the global business (House 2014).
Lee (2010) also went a step further in revealing the management issues that revolve around people that relate directly to acquisitions that go beyond the cross border with regulations and laws governing the two differing countries, bringing the conflict of interest for the firms merging and those being acquired. In one of the studies that were done by Ping Deng (2010), it entailed an analysis of people’s nature that is generic in the case that the two countries involved are from the Eastern and the Western cultures
One advantage of the geocentric approach is that a firm can make use of the best personnel more so in the executive position. Also, there is the integration of different cultures and affects improving the operations of the firm (House 2014). One of the benefits associated with the geocentric approach is that the multinational company can capitalize on the pool of executives who possess international experiences. Lenovo admitted the fact that it lacked the executives that had the international experience and that was the reason it had to pick managers from IBM to bridge the gap.
The skills and specialization of one manager can be used for the benefit of the whole organization regarding objectives. Through the geocentric approach, managers get picked according to their specializations which can benefit the organization in delivering the best per department.
The approach also ensures that employees share in terms experiences from their workmates, there is a flow of ideas among the staff. As such, there is continuous learning that facilitates the development of the staff in the work place and also brings on board new skills.
Huge costs involved in training, compensation, and training of the employees. The case with Lenovo acquiring IBM made the new Lenovo incur some losses regarding compensation for the IBM staff something that they had not anticipated. As a result, Lenovo had to sign a contract with the team of IBM for the three years before adjusting a new salary to suit Lenovo’s strategic plan.
Another disadvantage of the approach is the fact that a centralized control on the staff is required which at times is costly regarding infrastructure and the operations costs.
The procedure is also time-consuming as adequate scrutiny is needed by the Human resource trying to select the most convenient person for the job position. Such time could be used in other productive activities that could benefit the fi
In this policy, the practices and principles of the home country are superior to those of foreigners. As such the management, leadership and ideas of the host country are higher than those of the foreigners. The headquarters is responsible for the major decisions that are to be followed by the subsidiaries.
In this approach, adapting home and foreign countries differences is important. There are no differences between the international and home centers. Since the headquarters is incapacitated with managers that have adequate knowledge of the locals, the headquarters is tasked with making key decisions that local units embrace with regards to the market.
Conclusion
The acquisition of IBM by Lenovo was important in providing insight for the other firms in the electronic market. From the failed acquisitions that were cross-border, Lenovo was implying that it Chinese snake that was swallowing an Elephant from America (Lee 2010).It was more than eleven years ago, and Lenovo still handles and controls the PC market with a secure leadership.(Weber and Yedidia Tarba 2012). The move by Lenovo to move its headquarters to New York to acquire the tacit knowledge and top management is a move that portrayed cultural egotism had high chances of dominating. However, Lenovo in the quest for strategic positioning had to give the top management to the IBM ex-managers to ensure that skills needed in running a global business were in control.
With the success of Lenovo in acquiring IBM, it is evident that despite the challenges posed by national an organizational difference it is possible for firms that are not of the same level to merge successfully. However, some issues are critical in ensuring that Lenovo continues being successful and a key player in the PC market. There is the need for investing in research and development to ensure that the firm keeps pace with the changes and trends in the needs of the people. Lenovo should also innovate and be creative in the development of its products. The electronics market is comprised of firms that each day out-competes each other through the latest innovations of products in the market. The effect of innovation is that some companies may be shut down due to their inability to compete favorably.
References
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BOSE, G., DASGUPTA, S. and GHOSH, A. (2011). Cross-border acquisitions and optimal government policy. pp.427-437.
Buckley, P. (2009). Business history and international business. Business History, 51(3), pp.307-333.
Correa, R. (2010). Cross-Border Bank Acquisitions: Is There a Performance Effect?. SSRN Electronic Journal.
Durand, M. (2012). The Global M&A Tango: How to Reconcile Cultural Differences in Mergers, Acquisitions, and Strategic Partnerships. Cross Cultural Management: An International Journal, 19(2), pp.271-273.
Hofstede, G. (2011). Dimensionalizing Cultures: The Hofstede Model in Context. Online Readings in Psychology and Culture, 2(1).
Hofstede, G. (2017). China – Geert Hofstede. [online] Geert-hofstede.com. Available at: https://geert-hofstede.com/china.html [Accessed 25 Jul. 2017].
House, S. (2014). LENOVO. [online] prezi.com. Available at: https://prezi.com/upkopefp0dmt/lenovo/ [Accessed 28 Jul. 2017].
Lee, K. (n.d.). Cross-Border Mergers and Acquisitions amid Political Uncertainty. SSRN Electronic Journal.
Mourdoukoutas, P. (2017). Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/panosmourdoukoutas/2015/03/11/the-global-rise-of-lenovo/ [Accessed 25 Jul. 2017].
Owen, S. and Yawson, A. (2010). Human development and cross-border acquisitions. Journal of Empirical Finance, 17(4), pp.689-701.
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Vidal-Suárez, M. and López-Duarte, C. (2013). Language distance and international acquisitions. International Journal of Cross Cultural Management, 13(1), pp.47-63.
Weber, Y. and Yedidia Tarba, S. (2012). Mergers and acquisitions process: the use of corporate culture analysis. Cross Cultural Management: An International Journal, 19(3), pp.288-303.
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