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Smarter technology for all!

Group Members
Ahmad Nadeem Mohyal
Arifa Batool
Faryal Akhtar
Nayab Akhtar
Samar Ikram
Sumaira Sumaira
Umbreen Kausar
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Agenda

1) History of Lenovo and IBM - PC

2) Reasons for Merger
3) Financial Aspect
4) Negotiation Process
5) Cultural and Political Issues
6) Aftermath and Conclusion
 IBM PC-LENOVO Negotiation
A high
profile cross-region USD 1.75 billion acquisition
involved
Chinese computer manufacturer
Lenovo Company
and
American IBM’s notebook
business division in December 2004.
 Background
Founded in 1984
• Initial investment of RMB 200,000 (roughly USD 125,000 at that
time)
• Launched by eleven CAS scientists
• Initially it was a tiny guard house
• In 2000s, Lenovo attempted to diversify its products beyond
manufacturing and the sale of personal computers in China, but
that effort largely failed

Founded in 1911
• #1 personal computer manufacturer worldwide
• 2002-03: Lenovo became IBM’s preferred choice while sourcing
buyers for its PCD
• Lenovo completed the acquisition of IBM PCD in May 2005 for
USD 1.25 billion in stock and cash.
• Purchase included: ThinkPad brand, IBM PC operations in 166
countries, and a global workforce of more than 10,000
 Financial Aspect

• Net loss of $429

million (2002-03) • Profitable every year
• Parent company (from 2000-04)
equity infusion of • 27% of China's total PC
$987mil (2004) market share (2004)
• Gross margins of 10% • Gross margins of
for PCs 13.3% for PCs
• 67% of PC sales came • Only 2% of sales came
from loans and from outside China
government
 Negotiation Process
In 2000, chairman of Lenovo Mr. Yan was contacted by IBM regarding its intention to sell
the personal solution computer department

In 2003, Lenovo was

contacted by Merrill Lynch In October In December Lenovo paid $1.25
2003, MLC 8, 2004, billion for IBM’s
Corporation who formally began to Lenovo made computer business
looked for potential PCD arrange history by venture, including
buyer all over the world for Lenovo and acquiring $650 million in
IBM IBM to IBM’s global cash, $500 million
negotiate PC business. of IBM’s debt and
additional $600
million for shares
 Outcome
Lenovo
 Became third-largest personal computer company in the world
with approximately $13 billion in annual revenue
 Lower cost of production
 Access to new customers
 Right to use IBM logo on its products for 5 years
 Expand the company’s structure in order to strengthen its
bargaining position with its supplier
 From an unknown local PC maker to an overnight global
phenomenon

IBM
 Way to shed an unprofitable operation and
concentrate on consulting services
 Better access to China's market
 Stronger relationship with China's Government
 National Cultural Clash

WEST
Individualism EAST
Low-power distance Collectivism
Masculinity High-power distance
Low-uncertainty Masculinity
avoidance
High- uncertainty
avoidance
 Enterprise Cultural Clash
IBM LENOVO
American boxing* Negotiation Chinese Kung Fu**
Rules in case of absolute Task Orientation Rule-oriented behaviors
necessity
Speaking In-meeting behavior Listening

Free discussion Decision making Leader-oriented

9-5 working hours Working hours Encouraged to work more

Fierce Inside competition Relatively steady

Networking Business customs Guanxi ***

*https://ballardboxing.tripod.com/id38.html
**https://kungfumediation.com/2014/04/11/14-principles-of-kung-fu-negotiation/
***Guanxi is the granting of preferential treatment to business partners in exchange for favors and obligations.
 How Culture Influences Negotiation
Negotiation Factors Range of Cultural Responses

Definition of negotiation Contract Relationship

Negotiation opportunity Distributive Integrative
Selection of negotiations Experts Trust associates

Protocol Informal Formal

Communication Direct Indirect
Time sensitivity High Low
Risk propensity High Low
Groups versus individuals Collectivism Individualism
Nature of agreements Specific General
Emotionalism High Low

IBM US Lenovo China

 Political Issues
Being an international negotiation, there was an
international environmental interplay as well.
Congress
Members of Congress tried to block the deal due to
security concerns 1

Economist
China’s already growing economic influence could be
fueled 2

Public
People though a Communist company with access
to "US Technologies” as dangerous 3

Market
What will stop Lenovo from dominating the US PC
Market?. 4
 Resolution of Cultural Difficulty

Cultural Difficulty How was it Resolved???

o Communication Difficulty
o Talking slowly and Voicing opinion- A
General rule for all.
o Sharing pre-meeting information and
Issues 24 hours beforehand.
o Language Barriers
o English as an official language
o Provided language training programs.
o ‘Cocktail party’ encouraged
understanding language differences
 Resolution of Cultural Difficulty

Breaking Solving
Hierarchy Used “Where the
Abandon the Chinese
Individualism- Chinese approach
practice of calling Collectivism worked best, they
seniors as Zhong borrowed it, and where
(Boss) the IBM approach
worked best, they
borrowed that.
CEO, made all senior
executives to wear
name tags instead of Made it a global
formal titles to foster corporation- Not a
Chinese or Westerner.
creativity
 Resolution of Cultural Difficulty

Issue of Remuneration
• Lenovo Introduced ‘Mutual Pay System’ for entire staff

Issue of working overtime

• Chinese employees willingly compromised time difference to
cope up meeting/conference time with American counterparts
 Deal Complete
Keys to Successful Negotiation of IBM and Lenovo

Establishing  Goals are powerful—they can focus parties’ attention

and
on achieving desirable outcomes.
recognizing
goals

 Shows that both parties are serious about their

Securing an
agreement in intentions.
principle  Helped Lenovo and IBM successfully closing the deal

Establishing  Is at the center of every successful negotiation.

future needs  Helps in making sure that the deal between IBM
and demands and Lenovo does not fall flat in the failure
 Aftermath of Deal

The change leadership of Lenovo

 Aftermath of Deal
Recreating Shared Values
Culture
Yang and Liu had As a result, Yang and Liu decided
identified the “old” that all divisions, regardless of
Lenovo culture as a time zone and nationality, should
major contributor to share the same set of values that
the problems. include:
When the company • Serving Customers
reported its losses in
2009, the cultural gap • Trust and Integrity
widened further. • Teamwork Across Cultures
• Innovation and Entrepreneurial
Spirit
 The Lenovo way - Strikingly Un- Chinese

 Western employees seem to find their places

“The key
in the Chinese organization while appreciating or
core valu essential part of
Yang’s bottom-up performance-culture. es is to p o ur
We need u t people fi
employe t o make s rst.
es love th u re our
 Lenovo has also made great strides to when we is co
become a more employee focused organization. are succe mpany. And
to give b ss
ack to our ful, we need
incentive em
s and rew ployees with
to take c ards. We
are of our ne
make sur employe ed
e they ha es to
ve a goo
d life..””
 Towards Global leadership In Pc Industry

 By the third quarter of 2012 Lenovo outsold HP to become the

number one PC vendor in the world.

 From 2011 to 2012 Lenovo was the one of top five PC makers that reported a
growth with increasing shipments of almost by 30%

 Lenovo’s acquisition deal is still regarded as one of Asia’s most prominent

success stories.
 Lenovo’s financial performance and the changes in culture and mind-set
brought about by the merger indicate that IBM acquisition greatly facilitated
Lenovo’s transition from a Chinese firm to becoming a global leader in the PC
industry.
 Conclusion!

 Understanding the cultural perspective of second party is important for

problem solving and decision making.

 The surface level successful negotiation like financial gains may result
pronouncing deep rooted cultural differences which can fail forecasted
growth and expansion deals.

 The differences in culture should be on Heads table along with financial

when negotiations for merger and acquisition made.
THANK YOU!