Lenovos Operations Management - Case Study Example

?LENOVO: A CASE STUDY Introduction In the year Lenovo has overtaken industry leaders such as Dell by becoming the world’s second largest personal computer manufacturer and by October of this year, it has effectively toppled Hewlett-Packard as the number one PC vendor (Gupta and Yee 2012). Lenovo has declared its might in its website, detailing the expanse of its operations. To quote: Lenovo is a US$21 billion personal technology company... We have more than 26,000 employees in more than 60 countries serving customers in more than 160 countries… We are defining a new way of doing things as a next generation global company (Lenovo 2012). It is interesting, hence, to know that Lenovo has had humble beginnings and, more importantly, it is a technology company that emerged from China, a developing economy and outside of the Silicon Valley. The company started modestly 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). From there on, it began supplying parts and building computers for technology companies such as IBM. Lenovo, which operated under the name of Legend Holdings during its early years, gradually became a dominant PC maker in China. By 2003, it began its internationalization ambition. According to its CEO, Chuanzi Liu, “With a 30 percent share of the Chinese PC market, Lenovo realized that its opportunity for further domestic expansion was limited,” and that “Since the global PC market was estimated at around $200 billion, it could pose huge potential for us (p.574).” But the objective of internationalization or of becoming a multinational company entailed several problems especially for a company that is not based in technological powerhouses such as the United States, Germany and Japan. Problem Analysis International expansion is aligned with existing business theories such as Dunning’s eclectic approach to international production. Lenovo fits the mold of Dunning’s (2002) theory because it is a national firm with a strong domestic operation – variables necessary to grow horizontally and vertically because of the capacity to acquire, diversify and exploit in the international market (p.77). But the internationalization effort is not easy for a company such as Lenovo. In order to tackle market globalization, there are many barriers involved and the type of operations management required is radically different from its own. The organization has effectively identified these problems themselves: 1) the organization did not have a brand name that could invoke worldwide recognition; 2) Lenovo did not have a strong presence in the world market; and, 3) there is a lack of human resources to effectively run and manage a truly global company (Liu, p.574). In internationalization and, much more, in the case of being a multinational company, the operations such as those involving organizational culture and human resources are very international in scope and must adhere with international standards and norms while ensuring a high degree of integration and responsiveness at the same time. Lenovo was able to address the problem and its complexities in a bold and ambitious move. In 2005, it acquired IBM’s PC business. This strategy addressed several critical challenges that it had identified previously. It boosted the organization’s global brand by “piggybacking” on IBM’s reputation and the company’s products such as the ThinkPad brand (see Lenovo’s performance during this period in Fig. 1). 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). The OM involved is aligned with the “springboarding” approach 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 (Luo and Tung, 2007, p.484). Fig. 1: Lenovo’s performance prior and immediately after IBM’s acquisition (Ling et al., p.400). After the acquisition, Lenovo had to address other critical issues such as the lack of qualified and diverse manpower to effectively and successfully run a global organization. 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 (2012), for example, revealed that Chinese MNCs would require 75,000 global managers – those that are multilingual and multicultural - by 2020 in order to be effective. Lenovo’s OM strategy in this respect is still strongly tied with the IBM’s acquisition. When IBM was purchased, Lenovo decided to retain its executives and employees, underpinning a strategy wherein the old company will take charge of the Chinese market while IBM took care of the global operations (Liu, p.576). This OM approach allowed Lenovo success when companies undergoing mergers such as those between HP and Compaq suffered difficulties because of employee redundancies. In order to further establish an international workforce, Lenovo continues to lure executives from computer companies such as Dell. For example, there was the case of William Amelio and Roy Guillen’s transfer. Both of these executives came from Dell. The global OM also emphasizes an international management vision that is dramatically different from Lenovo’s old model. It is guided by three core elements: 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’s operations management is an interesting study because it highlights an internationalization process from a very different perspective. The company emerged out of China, which meant that it operated within a unique business landscape. Yet, the company succeeded to the point that it appears to be leading the global computer industry today. Lenovo’s experience depicted an efficient internationalization strategy that relies on strong global brand, global market presence and truly global workforce. The degree of persistence that the company has pursued these objectives (especially in the context of its position as a Chinese company) highlights OM values that deserve to be studied and emulated. References Brookings Institution, 2012. Are China's Multinational Corporation Really Multinational? East Asia Quarterly, 4(2), April-June 2012 issue. Dunning, J., 2002. Theories and Paradigms of International Business Activity: The Selected Essays of John H. Dunning. Cheltenham: Edward Elgar Publishing. Gupta, A., Wakayama, T., and Rangan, S., 2012.Global Strategies for Emerging Asia. Hoboken, NJ: John Wiley and Sons. Gupta, P. and Yee, L., 2012. Lenovo knocks HP from top of global PC market: Gartner. Reuters. Available at: [Accessed 28 November 2012]. Lenovo, 2012. About Us. Lenovo. Available at: [Accessed 28 November 2012]. 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. Tsui, A., Bian, Y., and Cheng, K., 2006. China's Domestic Private Firms: Multidisciplinary Perspectives on Management And Performance. New York: M.E. Sharpe. Read More