Lenovo Foreign Direct Investment in the US - Literature review Example

Lenovo’s Entry Strategy to the United s Introduction The entry strategy of an international corporation is one of the most important decisions that needs to be thoroughly analyzed and carefully selected in order to serve the objectives of the organization as well as the overall goal regarding international expansion and international performance. According to Hill (2004) the entry strategy is eventually developed and implemented on the basis of the objectives, resources, policies and procedures that underline organizational intend and gradually build upon the company’s capabilities and the environmental (external environment) characteristics and opportunities. The choice of entry mode therefore becomes a critical decision making process that determines to a great extend the degree of success or failure in the prospected foreign markets. Literature and practical research suggests that there are various modes of entry available to multinationals or international corporations in their attempt to penetrate or expand to foreign environments. Albaum and Duerr (2008) suggest that there are two fundamental types of internationalization; the one that involves the physical presence of the international corporation to the foreign market and the one that refers to contractual agreements (licensing, franchising, exporting) and do not call for presence of the organization in the foreign environment. Foreign direct investment (FDI) may also come in the form of acquisition of a foreign firm’s resources as a means of reducing uncertainty, exploiting already established knowledge and learning, and leveraging already penetrated foreign markets (Ding and Akoorie, 2009; Hill, 2004). As noted by Deng (2007) acquisition can be implemented towards vertical or horizontal orientation; vertical implies the taking over of a foreign firms’ supplier or customer market whereas horizontal implies the acquisition of a similar level of the entire chain of production. Lenovo’s Case Lenovo is a strong and powerful company operating in the Personal Computer industry in the Chinese market The company was founded in 1984 and has presented a remarkable overall organizational performance throughout the years of its operational existence. The products manufactured by Lenovo are equivalent in quality and design to those produced and marketed by world leaders (Sony, Hewlett Packard etc) (Xiaohui and Trevor, 2009). In an attempt to go global and penetrate international markets, Lenovo has proceeded to the acquisition of IBM’s PC division in 2004; a fact that clearly underlines the strategic expansion growth pursued by the corporation. IBM is currently among the top technological producers on a worldwide basis. The expertise, the experience and the know-how need no justification when considering the massive production and the boost of the global markets. IBM is a successful organization that has presented an outstanding performance and course of action throughout the years of its existence. The acquisition of IBM’s PC division by Lenovo merely constitutes a strategic move on the part of the Chinese company to enhance and in fact ensure successful operations on international level. The management team of Lenovo expected to acquire better knowledge and gradually engage to continuous learning through the business conducts of the two organizations. Lenovo has ‘gained’ and eventually dominated the local market (the Chinese market) effectively and efficiently; this however by no means implies that the international business will succeed accordingly. IBM constitutes a remarkable source of information and knowledge for Lenovo, which by being acquired eventually provides competitive advantages over the leading PC makers. Lenovo’s acquisition of IBM’s PC division was a clearly strategic action towards the end of achieving to move internationally and penetrate the global markets by manufacturing and selling personal computers. This form of entry mode actually stresses the importance and the significance of the need to soundly and solidly conduct business in foreign markets. Despite the fact that Lenovo has been a successful PC maker in the Chinese industry, it is more than obvious that international activities require careful and strategically designed steps. Taking over the PC division of IBM indeed provides Lenovo with the potentials and the prospects for further growth associated with market expansion. Lenovo’s acquisition of IBM’s PC division offered control of the first one to the Think desktop and ThinkPad laptop brands apart from the entire product lines of PC computers (Peng, 2008). This was very essential as these two represented the most successful PC markets. In the onset of acquisition, Lenovo also made a very significant decision by transferring its headquarters’ to New York in order to gain even greater control of the foreign market (Peng, 2008) The acquisition comprises various elements of managerial implications that are to be fully exploited by the Chinese corporation. Lenovo can accomplish great knowledge and technology transfer by committing upon the systematic learning process over the operations and general administration of IBM. Either way IBM is a world leading company competing on a global scale in the information and computer industry – an issue vital to the future performance of Lenovo. IBM possesses the expertise, the know-how and the appropriate management style that have gradually proven effective into placing the company among the most profitable enterprises in the world and into establishing the quality standards related to the products it manufactures. Therefore, Lenovo actually perceives the acquired firm (division) as an excellent paradigm that needs to be followed. The main challenges for Lenovo originate with the cultural and organizational structure of IBM; Lenovo needs to fully commit into the learning process in order to achieve the desired results – which mainly comprise profitability and growth. Successful organizational learning implies, above all, adaptability and adjustability to the new environment; this simply means that Lenovo needs to re-establish its own structural context and corporate mission so that total alignment with the acquired division is ensured. Avoiding to incorporate – in the sense of modifying the new ‘business unit’ into fitting the other company - and managing to make Lenovo fit the IBM’s PC department is essential. Furthermore, such an acquisition requires the ‘readiness’ on the pat of Lenovo to cope with intense rivalries attached to the global business markets. In other words, the Chinese organization should by all means adopt the strategic objectives and goals targeted by IBM initially; a fact that will highlight its ‘willingness’ to learn from a leading enterprise (Ding and Akoorie, 2009). Furthermore, the challenges entailed in the acquisition of IBM’s PC division are mostly associated with the ability of Lenovo to leverage the opportunities that are offered. Gaining access to the resources and the technology “know-how” as well as the professional experience of the management team of IBM certainly reassures great prospects for obtaining and generating beneficial results for the parent corporation. In more details, Lenovo is now able to “benchmark” and withdraw practices, techniques and tools that eventually will prove essential in building upon the competitive advantages. IBM is a competent player in the industry, a fact that qualifies Lenovo to become competent over the learning of all the processes and procedures that are directly related to the global operations. The opportunities offered to Lenovo through the acquisition in account generate the entire business prospects for growth and development. Lenovo actually penetrated international markets on the basis of already established and well known PC maker; additionally the know-how with regards to all levels of operations – from management to technological infrastructure –certainly provided the framework for future related business. IBM provided the grounds for greater learning and continuous improvement on the learning procedure. Likewise, the most important challenge to be met is the capacity and simultaneously the ability of Lenovo to keep up with the competitive environment that comes with international markets (Peng, 2008). The Chinese organization is the leader PC maker in local market – going global comprises different handling and different management practices and applications. Thus, gaining access to a strong and powerful company implies – apart from the actual acquisition – sourcing of quality information and knowledge over the markets. In other words, Lenovo through the joint activities with IBM is granted the benefits of learning how to do business on a global scale; an issue of great importance considering the future growth prospects. References Albaum, G. and Duerr, G. (2008). International Marketing and Export Management, (6th ed). UK: Prentice Hall Financial Times Deng, P. (2007). Investing for strategic resources and its rationale: The case of outward FDI from Chinese companies. Business Horizons, 50(1), pp. 71-81 Ding, Q. and Akoorie, M.E.M. (2009). Going International: the experience of Chinese companies. International Business Research. 2(2), pp. 148-152 Fan, Y. (2006). The globalisation of Chinese brands. Marketing Intelligence and Planning, 24(4), pp. 365-379 Hill, C. (2004) Global Business Today, (3rd ed). London: McGraw-Hill Companies Peng, S. (2008). Achieving Successful Cross‐Cultural and Management Integration: The Experience of Lenovo and IBM. Thesis paper submitted to Auckland University of Technology, pp. 1-78 Xiaohui, L. and Trevor, B. (2009).The internationalisation strategies of Chinese firms: Lenovo and BOE. Journal of Chinese Economics and Business Studies, 7(2), pp. 167-181 Read More