Lenovo’s Acquisition of Ibm’s Pc Division
Case study
Lenovo’s Acquisition of IBM’s PC Division:
A Short-cut to be a World Player or a Lemon that Leads Nowhere?
1. General presentation
2. Identification of problem, causes and negative effects
Strategic problem definition: • Acquisition of IBM – PC division as part of the expansion strategy.
Causes: • Lenovo was number 9 on PC market and had 2.2% market share worldwide and therefore it wanted to increase its market share position. • Lenovo became a market leader in China with 27% market share and wanted to expand. • They first tried to diversify into non-PC areas but they failed and consequently they decided to concentrate only on PC-products. • The PC-products expansion was easier by acquisition because opening subsidiaries would have been costlier. • The need to expand was also motivated by the competitive pressure pushing for a lowering of the production cost.
Negative effects • Losing opportunity of economies of scale. • Inability to maintain cost competitiveness. • Other expansion strategies might be too difficult to apply and it would take a lot of time to get the same access to international markets in other ways.
3. Alternative solutions
3.1. Acquisition of IBM’s PC division.
Advantages: • Increase in market position. • Guaranteed presence outside of China. • Capitalizing on the IBM brand. • Managerial know-how spill-over. • Saving $200 million per year. • Benefits from the reputation of IBM products (ThinkPad, ThinkCentre). • Assertion of leverage on global market. • The combined entity’s global infrastructure would help drive cost savings by marrying an efficient supply chain with a low cost manufacturing base.
Lenovo’s Acquisition of IBM’s PC Division:
A Short-cut to be a World Player or a Lemon that Leads Nowhere?
1. General presentation
2. Identification of problem, causes and negative effects
Strategic problem definition: • Acquisition of IBM – PC division as part of the expansion strategy.
Causes: • Lenovo was number 9 on PC market and had 2.2% market share worldwide and therefore it wanted to increase its market share position. • Lenovo became a market leader in China with 27% market share and wanted to expand. • They first tried to diversify into non-PC areas but they failed and consequently they decided to concentrate only on PC-products. • The PC-products expansion was easier by acquisition because opening subsidiaries would have been costlier. • The need to expand was also motivated by the competitive pressure pushing for a lowering of the production cost.
Negative effects • Losing opportunity of economies of scale. • Inability to maintain cost competitiveness. • Other expansion strategies might be too difficult to apply and it would take a lot of time to get the same access to international markets in other ways.
3. Alternative solutions
3.1. Acquisition of IBM’s PC division.
Advantages: • Increase in market position. • Guaranteed presence outside of China. • Capitalizing on the IBM brand. • Managerial know-how spill-over. • Saving $200 million per year. • Benefits from the reputation of IBM products (ThinkPad, ThinkCentre). • Assertion of leverage on global market. • The combined entity’s global infrastructure would help drive cost savings by marrying an efficient supply chain with a low cost manufacturing base.