International Business: Global Expansion Strategies

This assignment requires students to delve into the complexities of international business. It focuses on understanding multinational firms' strategies for global expansion, the transmission of international business cycles, and the impact of cultural differences on international business operations. Students will analyze relevant research papers and case studies, such as Lenovo's acquisition of IBM's PC division, to develop a comprehensive understanding of these concepts.

Business Environment

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................1
Literature review..............................................................................................................................1
Analysis and discussion...................................................................................................................5
CONCLUSION................................................................................................................................8
Recommendation to Lenovo after acquiring IBM...........................................................................9
REFERENCES..............................................................................................................................10

EXECUTIVE SUMMARY
The report includes the case of IBM acquired by the Lenovo in the year
2004, where the main aim of the company was to be the largest global seller of the
personal computer. As the IBM was already dealing in the international countries it
serves various advantage to the company. The report includes financial
performance of the company before and after the acquisition which state that CEO
of the company have taken fruitful decision to fulfil their objective.

INTRODUCTION
According to the case given in the scenario is of 2004, when Lenovo have acquired IBM,
IBM have sold it's all personal-computer business and entire PC operations to the Lenovo. The
company is fast growing manufacturer in China who sell computers and laptops. After acquiring
IBM, the organisation became third largest PC venture, the firm having 2400 workers in US, 4000
employees in the foreign countries, in manufacturing and more than 3600 in the selling and
distribution. At the time of acquisition, IBM have created the memos for their employees which
mentioned that the compensation which is paid to them will be same and they will not be ask to re-
locate their location. The strategy which was adopted by the Lenovo was that they have shifted their
business tom a new location at New York and due to that the employees of the IBM will leave the
company and if their employees leaves then the value of acquisition will be become very low. The
top executive of the Lenovo were very smart, they found good strategy to enter into the global
market. They have announced that English would be new language for their business and after that
they started competition with the Dell. Another advantage they have found that none of the
employees of IBM have capabilities to manage global market so they started hiring new and eligible
person for their business. Organisation should also focus on making policies for the domestic
employee rather than only focusing on making policies for international employees.
Aim of the project
Aim related to this acquisition of IBM by Lenovo is to analyse the suitability of the strategy
adopted by the Lenovo to enter into the global market and the staffing approach adopted by the
company on acquiring IBM PC department.
Objective of the project.
 Evaluating the suitability of strategy adopted by the Lenovo related to acquisition of IBM to
enter into global market.
 Analysing the strategic appropriateness of the recruitment and selection approach adopted
by the Lenovo for acquiring the IBM PC division.
1

Literature review
Different ways to enter into Global market
Direct exporting
According to view of Durepos (2016) direct selling is the process by which organisation
can enter into international market by selling its products to the other company which is outside the
domestic territory.In the contradicting view of Stahl (2016) it is creation of sales program where
agents are the representatives of the company and that agents are distributors who work closely with
the international organisation and then they sell the products to them so that the company can able
to generate sales in international market.
Licensing
According to view of Villanueva (2016) it is the process where one company transfer its
rights to the other organisation to use their products and services.In the contradicting view of
Zellmer-Bruhn (2016) is the process of renting or leasing the tangible and non-tangible assets of the
company. Is the way where the contract are created and managed between the owner of the
company and the person who want to use the brand in association of the products and services for a
specific period of time and in particular territory.
Franchising
According to view of (Meyer (2016) there are two parties involved in the franchising that
are franchisor and franchisee, franchisor is the person who provide privilege to the franchisee to the
business and he provides special assistance related to training, organising, managing and marketing
so that is franchisee earn profit, he can collect some share out of it. In the contradicting view of
Peng (2016) it is process where one party grant rights to the other party to use its trademark and
brand name as well as use their business processes and system in order to produce goods and
service related to the certain specification.
Partnership
2

According to view of (Cravino (2016) it is the relationship made by the law which is created
on the basis of special agreement between two parties where they carry out single business by
playing the role of co-partners. In this type of every partner need to invest according to his ratio in
the business. In the contradicting view of Levchenko (2016) it is the type of business where two
more than two people pool skills, different resources and money. All pasterns share loss as well
profit according to the terms in the partnership agreement.
Joint Ventures
According to view of Durepos (2016) A commercial enterprise undertaken jointly by two or
more parties which otherwise retain their distinct identities. In the contradicting view of Villanueva
(2016) It is business arrangement in which two or more parties agree to pool their resources for the
purpose of accomplishing a specific task. This task can be a new project or any other business
activity
Piggybacking
According to view of Stahl (2016) it is unique way to enter into the global market where a
particular company is interested in the innovative services and products that they are distributing in
the domestic market place and want to sell into the international market and then the company
approach to the foreign company to purchase its inventory.In the contradicting view of Zellmer-
Bruhn (2016) it is the distinction system where small and medium size company deals with the big
organisation who existingly deal in the international market.
Greenfield Investments
According to view of (Meyer (2016) it is the process where the organisation need the
greatest involvement in the international business, it is the way where the existing business
enterprises purchases the land, build the facilities as company to distribute good and services t. It is
most costly way to invest in the global market as well as it carries the highest risk if the foreign
market rates fluctuate.In the contradicting view of Peng (2016) It is form of foreign direct
investment where a parent company builds its operations in a foreign country from the ground up.
In addition to the construction of new production facilities, these projects can also include the
building of new distribution hubs, offices and living quarters.
Buying a Company or acquisition
3

According to view of (Cravino (2016) it is the most effective and fruitful strategies where
one company buy the existing organisation to reduce the competition and grow in the international
market. There are various reasons when once venture buy other one such includes direct
competition, to cover large market share and due to different government laws and regulations. To
determine the value of the company in the foreign market, it is most costly process. It helps the
organisation to get the market knowledge and create customer base. In the contradicting view of
Levchenko (2016) It is the process of buying the portion or all of the target company.
Strategy adopted by the Lenovo to enter into the global market.
According to the case given in the report Lenovo have adopted the buying a
company/acquisition strategy where they have acquired IBM in 2004. After acquiring they have
become third largest PC and laptop sellers. Their top executives are very smart, they have acquireed
their distributors, employee and managers which help them to gain more market share in the global
market. The organisation wants to become the international company, over the 20 years they are
leading IT firms in the Asia and china Durepos and Villanueva, C. E., 2016). They want to become
world class company to serve quality products over the globe, to achieve that objective they made
strategic alliances with the IBM. According to Liu Chuanzhi, the Chairman of the company have
made the fruitful decision and by the purchase they have become third largest company in the globe
and the revenues was exceeded to the 10 billion $. By 2015 they have captured 27% market share in
the China.
Suitability of the strategy adopted by Lenovo to enter into international market.
In 1990 Lenovo produced its first personal computer with the main motive to become the
Largest PC manufacturer in the China and Asia. In 2014, the chairman of the company Liu
Chuanzhi mde a decision to acquire IBM. This decision has been very fruitful for them, it is shown
in the figure, that are as follows:
51% revenue from the Corporate department (Stahl and Zellmer-Bruhn, 2016).
Consumer segment generate profits of 33.5%.
Handheld devices generate 8.8% revenue.
3.8% revenue are generated from contract manufacturing.
And 2.4% from IT services
4

Acquiring of IBM by Lenovo Creates world's third-largest PC business with about US$12
billion annual revenue for 2003. Worldwide business with global reach, powerful brand name, self-
balancing product offerings and leading R&D capabilities (Meyer and Peng, 2016). Long-term
strategic alliances between Lenovo and IBM in PC sales, service and financing as global.
Worldwide headquarters in New York, principal operations in Beijing and Raleigh, North Carolina,
transaction of US$1.25 billion in cash, equity and total transaction consideration of about US$1.75
billion. IBM to take 18.9 percent equity stake in Lenovo.
Staffing approach adopted by the Lenovo for acquiring the IBM PC division
According to view of Durepos (2016) Organisation have adopted strategic human resource
management which is more practical management system that help the company to think and plan
for the needs and wants of the employee so that they can able to fulfil their future need in the best
way in order to motivate them towards the fulfilment of organisational objectives. This technique
helps the organisation to best understand the desire and personal objective to make top level
objective, policies and programs. In the contradicting view of Villanueva (2016) strategic human
resource management which includes typical human resource components for example discipline,
hiring and payroll and also include those factors that can increase the retention, enhance the
experience related to work and maximise the mutual interaction between the employees and
employer.
The approach is classified into two approaches that are time and method that focus on the
human resource management and management personnel. The base of this approach is
commitment, trust and morale. Lenovo is the leading information technology company
continuously have concern related to the commitments in rendering quality services and products,
they not only focus on the current market but also approach to the new market and currently they
have acquired IBM so that they can serve their products and services to the global customers. The
organisation always look forward and does not withdraw from the hurdles and this is the strength of
the Lenovo (Beugelsdijk and Roth, 2017). This approach can be achieved by the man force only, so
the company hire those employees who are eligible for them and train them to enhance their skills
to deal with new technologies. As per this case, organisation have acquired IBM employees which
is not capable to lead in the global market, so they are staffing new employees which can able to
help them to make their company as the global leading company(Cravino and Levchenko, 2016).
5

Analysis and discussion
The major consumers of Lenovo were Chinese individual and small and nedium sized
enterprise. A total revenue that organisation have generated from its persona computer sales are in
2004. In contrast, IBM had given higher significance to supply services and IT solutions to
international large and medium sized enterprises, while its PC business was only a non strategic
business segment attached part.
Characteristics Lenovo IBM
Country and year of
incorporation China 1984 USA 1911
Operational age before
acquisition 20 93
Market value at employees 46009788 513279155
rank of fortune NA 19th
rank of worldwide PC
sellers 9th 3rd
Key characteristics
Top and most recognized IT brands in
China. Major customers are Chinese
personal consumer and SMEs.
Products: Desktop (82%) and
notebook (18%). Efficient operational
platform and extensive retail network
Premium Global PC
Brand. Major
customers are
worldwide large and
medium enterprises.
Products: Desktop
(40%) and notebook
(60%). Global network
in sales, financing, and
service support
As per the table the market place of the Lenovo have been reach to the 3rd position. The
main objective of the company was to be the leading global company, for achieving this objective
they have acquired IBM which is premium global brand and they have customer over worldwide
and majour clients are large and medium scale enterprise. They produce Personal computers and
6

notebook and they have major share for the notebook. They are global in sale, service support and
financing. The organisation's main motive is to serve their products and services to the international
level and being the leading global company (Tian, 2016). Acquisition with IBM make the firm third
largest company for IT service and personal computer sellers.
Illustration 1: Position of the company
(Source: A case study of lenovo’s acquisition of IBM pc division, 2016)
Additionally, several findings can be concluded through analysing the company's ten
year financial data. First, Chinese MNCs need to have sufficient capitals to leverage their
ability to conduct post transaction integration. Table 1, shows that company's annual receipts
having dramatically enhanced during the process of firm's integration from 2005 to 2010, its
average net profit margin has reduced from 3.4% to 1.4% compared with 4.8% in the first.
Before acquisition, in the year 2003 and 2004 the annual revenue of the company was
2784212 billions and after the acquisition of IBM the profits of the company have increased up to
2892586 billions, which states that the organisation have fruitful result from the acquisition. The
employee of IBM was not enough capable to lead in the global market so the strategies was adopted
by the Lenovo was to hire new employee which provide good result in the interaction market
(Cumming and Zahra, 2016).
Lenovo have become the world famous company and have remarkable growth from 2003 to
2013, the company have generated 28347403 billions revenue in 2013 whereas before the
acquisition, the profits was 2784212 billions in 2003. Lenovo have been the world's largest
computer seller which is based on the research made by the Gartner Inc. They have adopted very
7

good strategies such as acquisition with IBM which helps then to reach at top at the global level
because IBM was already serving their product and services at the international level.
Illustration 2: Position of the company
(Source: Financial report, 2013)
The graph shows that the annual revenue in 2005 was approximately 2.9 billion $ which has
been increased as compare to the past two years in 2003 which was 2.5 billion$ and in 2004 which
was 2.6 billion$. This financial data state they have successfully stabilised and controlled in the
initial stage of acquisition. In 2004, Lenovo have made strategical alliances with IBM where the
profits have been jumped to approximately 3 billion which state that they have fruitful result to
acquire personal computer division of IBM (Richter and Schlaegel, 2016). The graph represents
that there is 44% growth rate on the annual income which is happened due to great success on the
IBM's marketing channels. In the financial year 2013 the company net profit and revenue have
enhanced 500% and 1300% respectively as compare to the year 2003. It is clearly said that the
company have performed very well in the post integration with the IBM.
8

CONCLUSION
It can be concluded from the project report that company have different advantages and
disadvantages after acquiring IBM, they have acquired IBM in 2004, After acquiring IBM, the
organisation become third largest PC venture. IBM have created the memos for their employee
which includes that the compensation which is paid to them will be same and they will not be ask to
re-locate their location. The advantage they have from acquisition is that the company become the
3rd largest company who sells personal computers and have remarkable growth where they have
generated 2892586 billions revenue in 2005 whereas before the acquisition, the profits was
2784212 billions in 2003.
Recommendation to Lenovo after acquiring IBM.
There are several aspects at which organisation is lacking when they are acquiring IBM
which includes proper training and development programs, proper organisation structure and
cultural resistance.
Training and development programs: it is the program which is organised by the company so
that employees can enhance their skills and knowledge to perform task and adopt changes in the
organisation. The key focus of training and development programs is to grow employee for present
and future performance. When Lenovo acquire IBM, they find that the employees are not capable
enough to lead in the foreign market, so the company should arrange different training program
which help them to learn different international theories and different policies and culture of various
countries. These development events helps then to enhance international skills and work in global
environment. Through these training programs employee can able to interact with global customer
and identify their needs and wants in order to satisfy clients expectations.
Proper company's structure: When Lenovo have acquired IBM, number of employees and manager
have been increased in the company, so the organisation have to manage those employees and need
to fill position with the eligible candidate (Durepos and Villanueva, 2016). Mostly acquisition
change the organisation's structure and there are different factors that determine the structure such
as skills and ability of the employees, geographical condition etc. The main aim of the company
was to be global so they acquire IBM so their geographical boundaries have been increased,
accordingly they need to plan their organisation structure and allocate task, responsibility and
authority to their employee
9

10

REFERENCES
Books and Journal
Durepos, G. and Villanueva, C. E., 2016. How might we study international business to account for
marginalized subjects? Turning to practice and situating knowledges. critical perspectives on
international business. 12(3). pp.306-314.
Stahl, G. K. and Zellmer-Bruhn, M., 2016. Widening the lens: Rethinking distance, diversity, and
foreignness in international business research through positive organizational scholarship.
Meyer, K. and Peng, M.W., 2016. International business. Cengage Learning.
Cravino, J. and Levchenko, A. A., 2016. Multinational firms and international business cycle
transmission. The Quarterly Journal of Economics. 132(2). pp.921-962.
Picciotto, S. and Mayne, R. eds., 2016. Regulating international business: beyond liberalization.
Springer.
Beugelsdijk, S., Kostova, T. and Roth, K., 2017. An overview of Hofstede-inspired country-level
culture research in international business since 2006. Journal of International Business Studies,
48(1). pp.30-47.
Tian, X., 2016. Managing international business in China. Cambridge University Press.
Hood, N. and Birkinshaw, J. eds., 2016. Multinational corporate evolution and subsidiary
development. Springer.
Cumming, D. J. and Zahra, S. A., 2016. International Business and Entrepreneurship Implications
of Brexit. British Journal of Management. 27(4). pp.687-692.
Cuervo-Cazurra, A. and Reuber, A.R., 2016. From the editors: Can I trust your findings? Ruling out
alternative explanations in international business research.
Richter, N. F. and Schlaegel, C., 2016. A critical look at the use of SEM in international business
research. International Marketing Review. 33(3). pp.376-404.
Moffett, M. H. and Eiteman, D.K., 2017. Fundamentals of multinational finance. Pearson.
11