Lenovos Global Strategy - Assignment Example

? (Source: The Digital Reader LENOVO’s Global Strategy Please take care about the learning outcome Identify some of the key patterns and trends in international business activity 2. Explain the theoretical underpinning of the globalisation process and be familiar with the institutional framework which supports it 3. Critically appraise some of the external influences on international business, such as the political, economic, cultural, ethical and legal framework 4. Evaluate possible internal firm responses to these external influences such as those involving various functional areas of international business management, including international HRM, international marketing, international finance and accounts and international logistics 5. Apply the analytical underpinnings of international business to real world and up-to-date case study situations in order to inform and direct international business decision-making. As explain in page no:3 of the Moodle guide. The question no 2: 2 (a) Using one specific Multinational Company (MNC) that is headquartered in one of the following countries- Brazil, Russia, India, China or South Africa, Mexico, Nigeria or Turkey - identify and critically evaluate the strategies used by the company to internationalise. (50%) Guide – 1800-2000 words. Learning Outcomes 1, 2, 4 & 5 (b) What recommendations, i.e. future strategic direction, would you make for the MNC to sustain its competitive advantage? (30%) Guide - 1000 words. LO: 4 & 5 (c) Structure, format & standard of English (10%) (d) References and referencing skills (10%) This assignment is an investigation of Lenovo’s initiatives and strategies in order to expand overseas. As a Chinese company, it adopted a hybrid internationalization model (hence the claim of “new way” and “next generation” in its self-description) that is typified by the Chinese socio-cultural characteristics such as collectivism and long-term orientation in tandem with conventional methods of international expansion and strong state intervention. Lenovo, today, is one of the leading global manufacturers of computers. In its corporate website, the expanse of the organization was described in the following statement: Lenovo is a US$21 billion personal technology company and the world’s second-largest PC vendor. We have more than 26,000 employees in more than 60 countries serving customers in more than 160 countries… We create and build exceptionally engineered personal technology, but we are much more than a tech company. We are defining a new way of doing things as a next generation global company (Lenovo 2012). This achievement is a result of a daring global strategy of a Chinese firm with humble beginnings to become one of the multinational companies (MNC) in its industry. The Chinese Context The Chinese government plays a strong role in the manner by which domestic firms began to pursue MNC ambitions. This is revealed in many empirical studies examining the motivations of China’s outward FDI (e.g. Taylor 2002, Deng 2004, Liu and Li 2002 and Zhang and Filippov 2009). The current policy is radically different from the Chinese position during the “open door policies” in the 1970s and the policies adopted when China became a member of the World Trade Organization (Sung 2009; and, Bhattasali, Li and Martin 2004). During this period, China’s policies were more focused on dealing with the global trade flows (Laal and Albaladejo, 2004). The policy trend favors a more aggressive outward flow of direct investment. As a matter of fact, it is part of public policy. China mandated that companies should go global (Bell 2008, p.254). This mandate entailed support that covers the legal, financial and political aid from the government. What this means is that loans are available, the domestic conditions for business is favorable (such as streamlined business approval process), and the mechanisms that encourage production, sales and exports are in place. For instance, China created key agencies that approves and facilitate export and overseas investment process. The State Administration for Foreign Exchange (SAFE) is one of such agencies. Then, there is the State council’s provision of sizable venture capital to the China International Trust and Investment Corporation (CITIC), an organization tasked to explore overseas investment opportunities (Buckley, et al., p.502). This is supported by the dominance of state controlled bank, which meant that there is a persistent state control, driving and steering many domestic firm’s organizational objectives. The favorable Chinese policies encourage and nurture certain capital market imperfections. An example of these imperfections is the proliferation of China’s state-owned companies, conglomerate firms and family owned companies (Buckley et al., p.501). According to Buckley et al., it is normal for each of these companies to proceed with an “acquisition” with state sponsorship and with the financial capital involved to be part of the governmental budget (p.501). Companies from competing countries do not have this absolute advantage. This drives the outward expansion for companies such as Lenovo much easier than how MNCs from countries like the United States, Italy or Spain expand globally. China’s policy initiatives are geared towards addressing the fact that China’s outward FDI is small in comparison with other global players (see Appendices A and B). As a matter of fact, in 2004, it is only the eighth most important foreign direct investment (FDI) (Buckley et al., p.500). In 2006, despite impressive economic growth, the country’s outward FDI is only estimated to be 2.3 percent of the global total (Morck et al., 2007, p.338). But the policy trends in recent years collectively point to one particular objective: to become one of the top global economic players, especially if the country is to fulfill the projection that by 2020, it will be part of the top 10 global economy (Wall, Minocha and Rees, 2009, p.5). This is the reason why FDI became a core component of the goal for national competitive advantage and the policies are paying off, with the steady rise of outward direct investment since the year 2005 (see Fig. 1). In 2011, China’s FDI outflows increased to $67.6 billion, which accounts for about 4 percent of the global total (UNCTAD, 2012, p.7). Lenovo’s experience, hence, confirms Dunning’s eclectic theory, which incorporates several internationalisation schools of thought. It explains that the resources that the company had were not merely Ricardian type of endowments such as the nearness to the market and the natural, financial and human resources available but also the market structure and the government support (Wall, Minocha and Rees, p.70). These variables supposedly drive the organization’s success as an international enterprise Fig. 1: China ODI Flow from 1982-2008 (Song and Golley, 2011, p. 101) Lenovo has benefitted tremendously from the favorable business environment in China. Although not a state sponsored enterprise at the beginning, it received funding as a spinoff of China’s Institute of Computing Technology, a research institute of the Chinese Academy of Sciences (Tsui, Bian and Cheng, 2006, p.303). Then, the government’s involvement increased and was best demonstrated when the company acquired the IT giant IBM in 2005. At that time, China owned 57 percent stake in Lenovo and was generally accepted to have underwritten the bid to acquire IBM’s personal computer business (Buckley et al., p.502). Today, however, the government is no longer a major shareholder, a position relinquished to Legend Holdings Ltd and Yuanqing Yang, Lenovo’s CEO (ABC International 2012, p.1). However, the business is already established and the sales continue to grow, posting an impressive 12.6 percent increase based on its 2012 report (ABC International 2012, p.1). Global Expansion Strategy Lenovo signaled its internationalisation efforts when it changed its name. At its inception in Beijing, the company was known by its English name, Legend Holdings Group. This trade name was deemed ubiquitous and, hence, not distinctive in other countries. In 2003, the company adopted the Lenovo name, which was taken from a combination of its old name “Le” and the Latin word “novo” for “new” (Reddy, 2011, p.160). Spearheaded by its CEO, President and Co-founder Chuanzi Liu, Lenovo embarked on an objective of going global partly in response to the Chinese government’s policy of expansion. In addition, it was also a strategic move to grow. In the words of Mr. Liu, writing for the Journal of International Business Studies (2007), he outlined the condition of the organization in the year 2003: With a 30 percent share of the Chinese PC market, Lenovo realized that its opportunity for further domestic expansion was limited. Since the global PC market was estimated at around $200 billion, it could pose huge potential for us (p.574). Realizing the limited potential of the Chinese market, Lenovo’s top management decided to expand internationally. This is move is supported by Dunning’s (2002) eclectic approach to international production theory, which cites how national firms that dominate its own market has huge potential to grow horizontally or laterally (p.77). The idea is that this type of organization, with its resources, is highly capable of acquiring existing enterprises, diversifying its business and exploiting the international market, becoming an international enterprise as a consequence (p.77). Lenovo’s narrative as an MNC began by identifying several problems. Liu, himself, spelled this out succinctly when he explained that, then, they were lacking “a brand name that had worldwide recognition, a strong presence in the world market, and human talent to run and manage a global company” (p.574). What came after was a persistent and long-term strategy that revolved around the aim of swiftly eradicating these barriers. Lenovo was able to immediately address many of these in a single stroke. It acquired IBM’s personal computer department. This was the company that many considered to be the creator of the PC industry during the 1980s (Henderson, p.236). Setting, globalization as the ultimate target, IBM’s acquisition was not only strategically important for Lenovo’s bid to become one of the first multinational companies in China but also for the state as well. According to Liu, “the deal had tremendous symbolic importance to China because it signified that the country had finally arrived on the global economic scene” (Liu, 2007, p.573). Globalizing the Lenovo Brand It is clear that Lenovo’s strategy prioritized the development of a global brand. As has been mentioned, previously, this is a fundamental barrier to the company’s globalization efforts. This is demonstrated in the manner by which it strategically changed its name, its acquisition of IBM and its partnership with popular foreign companies. By acquiring IBM, most importantly, Lenovo was able to leverage its own reputation (Kotler and Pfoertsch, 2006, p.255). This enabled the company to penetrate lucrative markets such as the United States, as well as additional market segments that IBM and its acquisitions were particularly known for such as large enterprise, midmarket and, most particularly, laptop computers (Gupta, Wakayama and Rangan, 2012, p. 195). Lenovo has been doing everything in what Luo and Tung (2007) called as “springboarding”, the strategy that involves the acquisition of critical resources at home and abroad in order to penetrate markets, compete with rivals and reduce vulnerabilities to institutional and market constraints (p.484). The acquisition is expected to “springboard” the MNC by facilitating its growth in the context of a specific market or location (see Appendix B for example). As in the case of IBM, Lenovo was able to improve on its brand awareness and international reputation, a common barrier for MNCs especially those coming from developing markets such as China. According to Luo and Tung, these types of MNC can “use international expansion as a springboard to compensate for their competitive disadvantages” and that they can attain “sophisticated technology or advanced manufacturing know-how by acquiring foreign companies or their subunits that possess such proprietary technology” (p.485). This strategy, which works for Lenovo, is different from the expansion of MNCs coming from advanced economies. The reason is that these MNCs generally leverage and exploit their ownership-specific competitive advantages in foreign countries (Luo and Tung, p. 485). A key component of Lenovo’s aggressive push to penetrate markets through IBM was its focus on the ThinkPad product brand. What the organization did was reassure consumers by retaining this particular IBM product, making it one of the flagship brands of the company, subtly delivering a message that Lenovo is IBM. This is evidenced by an aggressive advertising campaign that repeatedly hammered on the message that Thinkpad was here to stay, stressing how it is being made better and how the product stands for innovation (Gupta, Wakayama and Rangan, p.195). What is being targeted here, with Thinkpad, is consistency. It is one of the most popular and iconic IBM brand and, with its retention, the market is reminded and reassured that the new company Lenovo did not mean the demise of IBM technology or its products and its values. The success of Lenovo’s branding strategy is demonstrated in the manner by which they were able to drop the IBM name in their operations, in their marketing campaigns and strategies two years ahead of schedule (Gupta, Wakayama, and Ranga, p. 195). This success may be attributed to Lenovo’s organizational structure, illustrated in Fig. 2. At the core of this model is the so-called “world-sourcing”, which allows for a high degree of integration and interdependence across its global operations (Moon, p.283). It allows the company to respond to different global contexts, making it effective in all its strategies, such as in the case of branding, as an MNC. Fig. 2: Lenovo’s organizational framework in relation to organizational characteristics of domestic and multinational/global types (Moon, p.284). Joint Partnership An important strategy in Lenovo’s development as a multinational company is its move to expand through a series of partnerships or joint ventures with other organizations overseas. One of the earliest of these was the partnership with NEC Corporation, a Japanese multinational company that specializes in IT products and services. This initiative was concluded with the establishment of Lenovo NEC Holdings B.V., which was registered in the Netherlands (Morgan 2011). In the beginning of the partnership, Lenovo provided the financial capital and some physical assets in Japan while NEC provided the technology (Lenovo 2011). This aspect made the partnership a specialized type of joint venture as each party brought specific and different competencies and resources to the table. An underlying development in this relationship for Lenovo is the manner by which it benefits from learning about NEC’s trade secrets, skills, methods, processes, among others, which in a partnership can disadvantage the other party in the event of future competition. This variable was also the case with IBM. When Lenovo acquired the company, it acquired all of its assets including the intangible ones consisted of technology and skills, among others. Lenovo, in Lenovo NEC Holdings B.V., controlled 51 percent of the shares while NEC retained 49 percent out of the alliance (Xing 2011). Through this move, Lenovo was able to accomplish the so-called indirect exporting component of internationalization. It is equivalent to the export of goods through “piggybacking” or taking advantage of the “carrier”, which, in this particular example, is NEC (Gilligan and Hird, 1986, p.103). Again, this is reminiscent of the dynamics of Legend/Lenovo and IBM relationship prior to acquisition. In the period of inward FDI, IBM contracted Lenovo to manufacture its products. It constituted the typical FDI in China wherein a company acquires physical assets in the country and lead to produce for the domestic and global markets (Morck et al., p.346). The only difference now is that Lenovo has taken control. It owned the physical assets and is now poised to make the decisions. In the example of Lenovo NEC Holdings B.V., Lenovo began to play the role of foreign direct investor. It partnered with an overseas company that owns physical assets in a market it wants to penetrate. The partnership was crucial in Lenovo’s internationalization because it paved the way for the company’s entry to the lucrative Japanese computer market. Before the partnership, which commenced in January of 2011, Lenovo’s share in Japan personal computer market was estimated to be a meager 5 percent compared to NEC’s 20 percent (Peng, 2009, p.354). Today, Lenovo is claiming to be the number one PC company in Japan (Lenovo 2012). The strategy is replicated in many other locations with varying versions of this expansion model and varying degrees of success. It is in this respect that Lenovo satisfies the criteria of the export-based internationalization. It utilised all intermediaries within the indirect exporting model: export house, confirming house, buying house and piggybacking. Multinational Workforce Its partnerships and, most importantly, its acquisitions meant that Lenovo was also expanding its managerial roster towards one that has a truly multinational character. This is a critical issue for organizations that are expanding as an MNC. It is crucial in providing an “opportunity to integrate widely differing social, cultural and business perspectives into key decisions affecting the success of international operations” (Steers, Sanchez-Runde and Nardon, 2010, p.261). It is generally accepted that many Chinese companies do not, as yet, have the capability to operate on a global scale because they lack the qualified manpower and managerial diversity. The Brookings report, for example pointed out that Chinese MNCs would require 75,000 global managers – those that are multilingual and multicultural - by 2020.Lenovo is scrambling to address this vulnerability. It did not merely acquire IBM but also retained executives and employees from this company. According to Liu, this was easy to accomplish because the old company was given the domestic market while IBM took care of the overseas expansion, avoiding employee redundancy that plagued HP’s acquisition of Compaq (p.576). In addition, Lenovo has also lured executives in rival computer companies such as Dell, whose William Amelio, Vice President for its Asia Pacific and Japan region, wasimmediately recruited to become the CEO after the transition period. And this is an ongoing effort. For instance, Roy Guillen was recently hired to head Lenovo’s newly minted Enterprise Product Group launched last October 30, 2012, which is targeted to lead the firm’s efforts to dominate hardware and services to organisations and businesses (Lenovo 2012). Guillen was Dell’s erstwhile vice president and general manager for data center solutions operation. Lenovo’s global strategy in terms of its workforce is to inculcate a management vision to its employees that feature: 1) a more attractive compensation and work environment; 2) the emphasis that Lenovo is not a traditional Chinese company; and, 3) the use of English as official language (Liu, p.576). As a result the company was able to attract and maintain skilled workers and establish a roster of effective global managers. The organization, hence, has no shortage of global perspective and attitude, necessary in understanding the market, particularly in the provision of what it demands. Conclusion Lenovo can be considered as one of the few Chinese companies today that are truly global in MNC sense. The fact is that despite the government’s efforts to encourage and support domestic companies to go places and expand, many firms fail in the process. Lenovo, based on international business norms, cited three vulnerabilities that cripple Chinese firms in their attempts to globalise. As depicted in the following summary of variables raised by this paper, these were effectively addressed in the company’s internationalization. Vulnerabilities Response The inability to operate in a global scale, with physical assets, sales, distribution, logistics, marketing, among other business processes in most continents Acquisition of IBM and partnerships with foreign technology companies such as NEC the lack of qualified manpower and management that could truly understand the dynamics of global business and the global market It recruited global managers, retained and maintained IBM’s multinational workforce the persistence of traditional Chinese corporate culture Established a global organizational culture, distinct from the rigid and collectivist traditional Chinese companies By eradicating the barriers to internationalisation in a short period of time, Lenovo has demonstrated a kind of daring that can only be attributed to the unique conditions it operated on. It effectively took advantage of China’s business landscape and governmental support. It was also able to use the unique socio-cultural characteristics to its advantage and do away with those business values that are inimical to doing business in the global arena. Lenovo should not lose this vision and identity. It was able to work and operate within a hybrid model of internationalization that is unique in many respects and could possibly work only in the case of Chinese companies. But it must be underscored that the organization has succeeded so far because it was able to implement the best practices and standards in internationalization. In the course of its expansion and global operations thereafter, it must not revert to its old business model. There are numerous pitfalls in the Chinese business practices that is why there are few Chinese firms that actually succeed as an MNC. What Lenovo has done was to take advantage of the favorable Chinese business landscape and used it to expand according to the conventional internationalization model. It has repudiated Chinese business models in favor of a truly global one. It must adhere to this core framework in order to maintain its momentum. Finally, an underlying characteristic that has also contributed to Lenovo’s success as a Chinese MNC is the level of integration ensured by control, particularly in its relations with partners and its managers. This is what Moon (2010) called as the capability to remain on top of a situation characterized by wide dispersal, diversity and interdependence (p.283). The amount of control exerted is translated to a type of integration that allows for flexibility and responsiveness to issues that confront Lenovo, operating as a global firm. References ABC International., 2012. Company Report: Lenovo (992 HK) - Buy. ABCI Securities Company Limited. Bell, S., 2008. International Brand Management of Chinese Companies: Case Studies on the Chinese Household Appliances and Consumer Electronics Industry Entering US and Western European Markets. Berlin: Springer. Brookings Institution, 2012. Are China's Multinational Corporation Really Multinational? East Asia Quarterly, 4(2), April-June 2012 issue. Buckley, P., Clegg, J., Cross, A., Liu, X. Voss, H. and Zheng, P., 2007.The Determinants of Chinese Outward Foreign Direct Investment.Journal of International Business Studies, 38(4), pp.499-518. Cheng, L., and Man, Z., 2007. China's Outward FDI: Past and Future. Available at [Accessed 2 November 2012]. Deng, P. (2004). Outward investment by Chinese MNCs: Motivations and implications. Business Horizons, 47, 8-16. Dunning, J., 2002. Theories and Paradigms of International Business Activity: The Selected Essays of John H. Dunning. Cheltenham: Edward Elgar Publishing. Gartner. 2012. 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Advances in Data and Web Management: Joint International Conferences, APWeb/WAIM 2009, Suzhou, China, April 2-4, 2009, Proceedings. Berlin: Springer. Liu, C., 2007. Lenovo: An Example of Globalization of Chinese Enterprises. Journal of International Business Studies, 38(4), pp.573-577. Luo, Y. and Tung, R., 2007. International Expansion of Emerging Market Enterprises: A Springboard Perspective. Journal of International Business Studies, 38(4), pp.481-498. Moon, H., 2010. Global Business Strategy: Asian Perspective. Hackensack, NJ: World Scientific. Morck, R., Yeung, B., and Zhao, M., 2007.Perspectives on China's Outward Foreign Direct Investment. Journal of International Business Studies, 39(3), pp. 337-350. Morgan, T., 2011. Lenovo, NEC eye server tie-up: ThinkExpress coming soon?.The Register.Available at [Accessed 31 October 2012]. Peng, M., 2009.Global Business 2009 Update. New York: Cengage Learning. Reddy, P., 2011.Global Innovation in Emerging Economies. New York: Taylor and Francis. Song, L. and Golley, J., 2011. Rising China: Global Challenges and Opportunities. Canberra: ANU E Press. Steers, R., Sanchez-Runde, C. and Nardon, L., 2010. Management Across Cultures: Challenges and Strategies. Cambrdige: Cambridge University Press. Sung, Y., 2009. The China-Hong Kong Connection: The Key to China's Open Door Policy. Cambridge: Cambridge University Press. Taylor, R., 2002. Globalization strategies of Chinese companies: Current developments and future prospects. Asian Business and Management, 1(2),pp. 209-225. The Digital Reader., 2012. Lenovo logo. [photograph]. The Digital Reader. Available at [Accessed 4 November 2012]. Tsui, A., Bian, Y., and Cheng, K., 2006. China's Domestic Private Firms: Multidisciplinary Perspectives on Management And Performance. New York: M.E. Sharpe. UNCTAD., 2012. Global FDI Outflows Continued to Rise in 2011 Despite Economic Uncertainties; However Prospects Remain Guarded. UNCTAD Global Investment Trends Monitor, (9), pp.1-8. Wall, S., Minocha, S. and Rees, B., 2010. International Business, 3rd edition. Financial Times/Prentice Hall. Xing, W., 2011. Lenovo and NEC plan joint venture. China Daily.Available at [Accessed 1 November 2012]. Zhang, Y. and Filippov, S., 2009. Internationalization of Chinese Firms in Europe. UNU-Merit Working Paper Series No. 2009-041. APPENDICES Appendix A: China’s Outward Foreign Direct Investment in Relation to the Global FDI Total 2002 2003 2004 2005 2006 China (in US$ billion) 2.7 2.85 5.5 12.26 16.1 World (in US$ billion) 539.5 561.1 813.1 778.7 N.A. Percentage 0.50 0.51 0.68 1.57 N.A. Source: Cheng and Ma, 2007, p.24 Appendix B: Forecast of China’s Outward FDI Source: Cheng and Ma, p.31 Please reference the Appendix Appendix C: Significance Comparison between IBM and Lenovo Brands. Source: Ling et al., p.400. Note: This table demonstrates the dynamics of the performance of both companies prior and after Lenovo’s acquisition of IBM’s PC department in terms of brand and reputation significance. Appendix D: Lenovo and IBM Market Shares Before and After Acquisitions Source: Bell, 2008, p.249 Note: This period covers 2004 to 2006 and does not include recent figures that place Lenovo as the second largest PC vendor in the world, next only to Hewlett Packard. Appendix E: Worldwide PC Vendor Sales Estimates for Fourth Quarter of 2011 (in Units) Company 4Q11 Shipments Market Share HP 14,712, 266 16.0 Lenovo 12,931,13 14.0 Dell 11,633,880 12.6 Acer Group 9,823,214 10.7 Asus 6,243,118 6.8 Others 36,827,666 40.0 Total 92,171,280 100.0 Source: Gartner 2012 Note: In the fourth quarter of 2011, Lenovo experienced the strongest growth, jumping 23% from the same period in 2010. Appendix F: Logos Lenovo: IBM: Read More