Question:
Using an example of an MNC present an analysis of the Opportunities and threats that Globalisation creates for decision-makers.What are the main lessons international business managers can learn about the interplay between home and host country differences in achieving success?
Lenovo happens to be one of the multinational companies that deal with computer hardware and electronics in China. Recently, it transferred its headquarters to Morrisville, in the US. Moreover, its recognized and registered office is stationed in Hong Kong China. It deals with products such as servers, tablets, and personal computers. More than 60 countries have become an operational base for Lenovo and in more than 170 countries has seen its market for its products (Buckley, 2009). In 1984, the company began its operations in Beijing; however, the company was incorporated in Hong Kong later in 1988.Lenovo was identified as Legend in China a name that saw the company dominate the market for personal computers. Later on, Lenovo was listed as one of the companies on the Hong Kong Stock Exchange (Durand, 2012). The man behind Lenovo establishment and success was Liu Chuanzi who started importation of computers. The computers were later to be distributed countrywide. Liu with ten other engineers started the process of forming Lenovo and that marked the start of Lenovo.
China’s economy over the past decade has grown immensely. China is an emerging market due to its big size. Despite having a communist form of governance, the government controls the lives of people while promoting a private form of ownership and entrepreneurial premises. China’s market is characterized by a wide manufacturing base and distributes a wide range of products around the world.
Integration of Motorola will be a hard nut to crack. Lenovo’s plan of acquiring Motorola poses great challenges as Lenovo is acquiring a company that lost its taste and luster. Furthermore, Motorola may not have the engineering capacity it used to have in the last years it had become part Google. Also, the brand name may not fetch a market in countries such as the US as it has a limited share of the market.
Lenovo’s ambitions of dominating smartphone business may be a dream far from reality following the fact that Lenovo has a limited supply chain. A big proportion of the supply chain has been taken by companies such as Apple and Samsung.
Lenovo may also be incapacitated regarding finance. Engaging Motorola will see the company drain its resources in developing the acquired company. As a result, Lenovo may end up spending money in other sectors that were unplanned.
Many acquisitions more so from developing nations failed in many cases, and the case for Lenovo was exceptionally appealing and inspired other firms considering an acquisition in developed nations. Lenovo as one of its strategy it retained the staff of IBM employees from the PC sector. Such a move ensured that the skills acquired from ex-employees of Lenovo were incorporated into Lenovo human resource management (Weber and Yedidia Tarba 2012). Lenovo understood one thing for sure that they lacked the technicalities to manage a global business. For the other firms that tried acquisition, they failed due to lack of a pool of management to operate on a global platform. The staff from Lenovo had the experience of operating overseas markets, and that is what Lenovo lacked and needed such people to be successful in its acquisition. The tacit knowledge and expertise were critical if Lenovo was to achieve its desired goals and objectives of dominating the world market for PCs.
Lenovo looks forward to becoming a technology behemoth once it closes its position in purchasing one of the servers of IBM x86 and also the deal is said to incorporate the acquisition of Motorola Mobility once owned by Google (Dignan, 2014). Lenovo spent more than $ 5.21 billion in acquiring a technology stack that is a sign of relief for the firm as it generates a halo effect for Lenovo. One of the motives for purchasing Motorola by Google was to control the smartphones by consumers. However, it is fundamental to note that such device can make a lifetime enterprise (Dignan, 2014). Samsung happens to be a competitor in the production of personal computers, and Android phones can form strategic alliances with Lenovo a move that can benefit both firms as on one side Lenovo has a more corporate presence through its ThinkPad franchise while Samsung, on the other hand, has more business to business push.
Lenovo has a strategic plan just like it acquired IBM personal computers venture; it wants to extend the same for smartphones. With the IBM server sends off to Lenovo looking seamless, would be the same for other sectors it seeks to acquire (Dignan, 2014). However, the business of smartphones seems trickier and more challenging than Lenovo could ever imagine because Motorola brand was struggling to regain its enterprise footing a ground that it has never regained. The big task for Lenovo is whether it will manage two different acquisitions at the same time. It is obvious that trying to integrate acquisitions is a sophisticated affair, especially where management of two separate acquisitions is involved.
Currently, Lenovo, as organized around four groups to generate revenues for the firm and this, include the PC enterprise that involves Lenovo and IBM brands, A mobile business of smartphones and Television sets, storage facilities and servers and lastly management of cloud services integrated with the ecosystem (Dignan, 2014). The strategies and organization by Lenovo seem sound, but there are major challenges. One main hurdle is that the hardware stack and also Lenovo’s strategic plan resembles that of Dell and HP and it will be a problem trying to win consumers in the sector.
Strengths
Lenovo already commands a large share of the market, and it can use its share in the market for personal computers and also the scale in the supply chain that accompanies it. IBM has substantial reasons for selling the server venture to Lenovo as it was evident that the margins were slim and as such needed a lot of scales to make good money (Buckley, 2009). The selling of IBM X86 server by IBM to Lenovo was a strategy to increase and improve the leverage of the strength by the two firms. Also, there was a motive that made Google sell its Motorola Mobility to Lenovo. According to Larry Page, a CEO of Google, he considered the market for smartphones as one that is extremely competitive, and for firms to thrive, they required utmost care and strength to continue making mobile devices or else face extinction out of the market.
Cross sell enterprises
A business venture purchasing personal computers from Lenovo would also want to buy servers from Lenovo (Durand, 2012). It also stems from such relationships that most of the IBMs contracts that require support will be allocated to IBM and Lenovo won’t miss any chances. The case of Motorola is a more complex integration, though Lenovo can manage selling many screens to businesses.
Hardware results in higher margins for businesses
For most IT businesses, it is common for firms to garner strong base in the field of installed hardware that includes servers and personal computers and then upgrades to software that works with the hardware. Lenovo can benefit if it can develop hardware and sell its stack and after that, it can develop software for its hardware thus managing two processes at the same time (Blank, 2017). It would make it possible for Lenovo to penetrate the service industry as well.
Lenovo has one big advantage in that it can use China as the center stage for most of the world market and such a position could be used to enter other markets. Advantages associated with geographical mobility are huge for Lenovo. China is being eyed by most vendors in IT industry and is trying to compete with the local companies (Mourdoukoutas 2017). However, Lenovo still has an advantage over other multinational companies in China. For instance, Huawei keeps on raising eyebrows in China, but for a firm such as Lenovo, there is no need to raise eye brows as it also has a large base and market in the United States of America.
India’s market for smartphone
Among the Pacific markets, India stands to be one of the markets that have seen little penetration as compared to other markets. Lenovo could benefit and reap advantages associated with a new market that has not been saturated. The case with Lenovo’s penetration in India could be viable following a successful launch of low priced phones such as the LePhone. One of the benefits of a growing market is that it can offer more opportunities and demand for a product.
The market for tablets is growing
According to the world rankings, Lenovo prides itself as the fourth in the sale of tablets. With such a position, it could further its prospects by producing quality products. In most cases, better products are as a result of continued efforts and innovations. The continued investments in research and development programs facilitate production of first class products a move that could push Lenovo’s position up in the world rankings (Jurevicius, 2013). It is also expected that the market for a tablet is expected and projected to grow by double digits in the unforeseen future and Lenovo as one of the companies has many and huge opportunities. Lenovo could develop and generate new models for the tablets and as such benefit from the expected growth of the market.
One way for Lenovo to sustain growth is through obtaining patent rights, and the best way to obtain such patent rights is for Lenovo to acquire firms having those patent rights just as it acquired IBM personal computer division.
Decline of profit margins
Of late, hardware products are faced with the risk of declining profit margins as per new trends and reports from business researchers and analysts (Jurevicius, 2013). Lenovo generates primary income from the sale of hardware products, and due to the price increase in raw materials, the cost of production will increase making such products expensive. The increase in the costs of production for Lenovo cuts the profit margin.
Laptop market is experiencing a slow growth rate
The rate of growth for computers is slowing down and raising red flags for the manufacturers of such commodities as they scramble for the market and deal with the stocking problem. It is estimated that shortly, the markets for computers will become saturated something to worry about for key stakeholders such as Lenovo, Dell, and HP. It is evident that Lenovo will face difficulties while competing in such highly competitive markets yet volatile. As for Lenovo, its objective of growing and increasing the market share may be a dream never to be achieved in such markets.
Developed countries have a saturated market for smartphones
Lenovo is one of the few companies that does not extend its market for smartphones in developed economies and as such minimizes competition with other companies such as Apple and Samsung. However, in future, Lenovo may experience huge problems than it anticipated for its smartphone division in developed economies (Jurevicius, 2013). Such economies at that time will be facing saturation for the smartphones market. Business reports indicate most economies fear saturation and that will create fewer opportunities for the competing giants in the smartphone market.
Technological changes
A grave, serious threat stands on Lenovo’s path for success. Many companies involved in the technology industry have to keep up their speed with technological changes that occur on a daily basis. Companies are always under pressure to release new products to suit the changing needs and preferences of different customers on a constant and continued basis. It is evident that in today’s world, new products are innovated on a daily basis if not on a monthly basis as there is stiff competition for firms in upgrading their products. One will be amazed by the costs that firms accrue in developing new hardware products after launching others that have not even finished a month in the market. Companies that are unable to subdue to such pressure are forced out of the market as they are unable to compete favorably.
Stiff and intense competition
Lenovo faces stiff competition in all sectors of its business operations. The intense competition is as result of fierce competitors in terms of prices, technology and also brand. Competitors such as Apple, Dell and HP among others continue with massive campaigns and advertising strategies to outcompete others and maintain a large share of the market. It is as a result of such fierce competition that forces firms spend a lot of money in research and development sectors (Tsuji, 2015). Research and development is a trend among firms as it facilitates innovation and development of new products. Lenovo has been forced to create and produce quality products that meet world standards. Lenovo’s pricing strategy also comes handy as competitors watch each other’s move so as to determine the prices they will set.
Lessons learnt
Lenovo, a Chinese company, specialized in the manufacturing of personal computers and had for many decades been obscured and made it difficult for Lenovo to generate revenues. Currently, Lenovo prides itself as one of the large distributors and manufacturers of the personal computer having sales revenue of $ 40 billion almost beating key competitors such as Dell and HP. The acquisition strategy that was employed by Lenovo was critical for the success of the Lenovo (Lee, 2010). IBM sold its computer segment to Lenovo for $1.8 billion that led to the acquisition of IBM by Lenovo. One of the primary objectives for IBM selling its PC department was due to the intense competition and also due to market for computers declining. The acquisition came handy for both firms as there was a stream of mutual benefits. On the other hand, IBM will engage in IT consultation services that are deemed profitable. Lenovo, on the other hand, took control of personal computers previously owned by IBM.
After acquisition of IBM by Lenovo, Lenovo enjoyed economies of scale as a result of increasing its scale of operations that has the benefit of cutting down the costs of operation. IBM also brought other substantial benefits such as upgrade of technological platforms for Lenovo were improved.
Lenovo also understood perfectly that despite having a new market in the US following a successful acquisition; it had to make its market share in China as other competitors started showing interest in China. For it continue being dominants in Chinese market, it developed and designed chip card that converted English language into Chinese as most people in China had problems understanding English (House 2014). Such an innovation ensures that Lenovo competes favorably both in the domestic market and in the foreign market.
Lenovo was also keen in adopting a geocentric approach that involves tapping the best skills and expertise among people irrespective of their nationality to perform some duties assigned to them. Lenovo was forced to shift its operations and headquarters from Hong Kong all the way to New York. Why New York? New York was strategic in ensuring that former employees from IBM did not have to travel and relocate to China as it would inconvenience them and also it would be an extra expense for Lenovo transferring equipment and personnel. Almost all senior staff managing Lenovo came from IBM.
Lenovo relied massively on the expertise from IBM to manage its operations as it lacked the needed expertise, knowledge skills and acumen needed in managing a multinational company. As a result, it ensured that the very people who were behind the success of IBM were now in favor of Lenovo’s success in global operations. The once IBM culture was now transferred and integrated in Lenovo.
As previous reports stated and indicated that most manufacturing firms from China moved to establish firms overseas and were supported by the Chinese government. Such firms expanded and operated beyond domestic boundaries (Weber and Yedidia Tarba 2012) .However most of these firms failed in global markets due to lack of tacit knowledge and also lack of the much needed exposure required in managing global firms. One if failure for Chinese firms stemmed from the fact Chinese companies lacked absorptive capacity in many situations that they failed. TCL is a perfect illustration of a multinational company that failed. TCL acquired Thompson electric and merged in 2004, however, sooner than expected, the acquisition failed as TCL facing limitations in terms of absorptive capacity and crippled human resource in less than one year of acquisition.
Lenovo was also successful in ensuring that it incorporated the salaries of IBM employees with no adjustments from previous employer. It was a huge risk for Lenovo as it was expensive hiring such employees bearing in mind that Lenovo was from a developing state and IBM was from a developed state (Vidal-Suárez and López-Duarte 2013).. However, in order to ensure a smooth transition, a three year contract had to be signed to ensure that in future adjustments would be made. Lenovo in such a case ensured that it did not lose staff from IBM as they were the underlying factor for Lenovo’s success.
Conclusion
As observed from the above illustrations, it is clear that Lenovo stood amidst major challenges as a successful acquisition with IBM. However, such a transition was not easy bearing in mind that Lenovo was from a developing country China, a communist nation. On the other hand, IBM originated from a developed country, United States of America, a capitalist nation. However, despite different ideologies, the company was determined in ensuring that it succeeded and commanded a large share of the market. As of today we are speaking and telling a different tale as the company is among leading players in the market of personal computers (Stroup, 2016). Lenovo has also expanded its market by also investing in smartphones business. However, despite Lenovo’s success, there are many challenges that lie ahead for instance, the declining market in hardware business is a threat for Lenovo as it has invested and specializes in that area. Also, fierce competition that looms in the industry is another factor, though competition is good in ensuring quality products
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