Analysis Of Economic Performance In Mergers And Acquisitions Marketing Essay

In today ‘s planetary concern environment, companies are eager to turn, and one of the best ways to turn is by unifying with another company or geting other companies.

For such a dealing, the two houses involved must be worth more together than they were apart. The advantages of amalgamations and acquisitions include accomplishing economic systems of graduated table, uniting complementary resources, geting advanced engineering, bettering market range, and increasing market power and market portion. Since amalgamations and acquisitions are so complex, nevertheless, it can be really hard to measure the dealing, specify the associated costs and benefits, and manage the civilization differences between companies.

China ‘s regulative government used to limited amalgamations and acquisitions for a long clip. However, that government is altering now, both to suit these recent developments and to farther excite foreign investing. Not merely foreign companies may now buy and reconstitute Chinese concerns, but besides domestic Chinese companies are unifying and geting one another, and the more successful 1s among them have begun to purchase out foreign investors. The consequence of all of these developments is a quickly spread outing mergers-and-acquisitions ( M & A ; A ) market in China. Nowadays, more and more Chinese companies are traveling planetary through cross-border amalgamations and acquisitions.

The instance, traveling to be discussed in this paper, is Lenovo, a China-based company, successfully acquired the PC section of IBM, a reflecting symbol of American company. The case-study subdivision presents the backgrounds of Lenovo and IBM, analyzes their amalgamation and acquisition schemes, and concludes with a SWOT ( strengths, failings, chances and menaces ) analysis of this trade.

aˆ?Key Wordsaˆ‘

Amalgamations and Acquisitions ; Lenovo and IBM ; Personal computer Industry ; SWOT Analysis ; Market Share ; Culture Differences

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Contentss

1. IntroductionA

Amalgamations and acquisitions ( M & A ; A ) and corporate restructuring are a large portion of the corporate finance universe. In today ‘s planetary concern environment, companies are eager to turn, and one of the best ways to turn is by unifying with another company or geting other companies. In general, amalgamations and acquisitions are performed in the hopes of recognizing an economic addition.

1.1 Research BackgroundA

Amalgamation and acquisition activity has been seen as turning at a fast gait in recent times. Amalgamations and Acquisitions, a development which was seen chiefly in the United States at one clip, are now turning out to be progressively popular in other parts of the universe. Apparently, Merger and Acquisition activity has turned out to be important business-level promotion in recent corporate universe.

China ‘s regulative government has long been hostile to merger-and-acquisition minutess ( Norton, & A ; Chao, 2001 ) . That government is altering, nevertheless, both to suit these recent developments and to farther excite foreign investing. China ‘s World Trade Organization ( WTO ) accession will no uncertainty speed up these alterations. Gone are the yearss when foreign companies wishing to put in China were limited to greenfield investings. They may now buy runing Chinese concerns and may reconstitute their bing investings in China through amalgamations, by-products, and keeping companies that were impossible merely a few old ages ago. Now these developments are non confined to foreign investors. Domestic Chinese companies are besides unifying and geting one another, and the more successful 1s among them have begun to purchase out foreign investors. The consequence of all of these developments is a quickly spread outing mergers-and-acquisitions ( M & A ; A ) market in China. Nowadays, more and more Chinese companies are traveling planetary through cross-border amalgamations and acquisitions.

The instance, traveling to be discussed in this paper, is Lenovo, a China-based company, successfully acquired the PC section of IBM, a reflecting symbol of American company.

1.2 The Theories in Relation with Merger-and-Acquisition

Although they are frequently uttered in the same breath and used as though they were synonymous, the footings amalgamation and acquisition mean somewhat different things.

In general, amalgamations refer to negotiated trades that meet certain proficient and legal demands. Acquisition ( besides called “ stamp offer ” ) normally means that one house or individual is doing an offer straight to the stockholders to sell ( stamp ) their portions at specific monetary values ( Weston, Mitchell, & A ; Mulherin, 2006 ) . In one sense, the word amalgamation refers to dialogues between friendly parties who arrive at a reciprocally agreeable determination to unite their companies. This sort of action is more exactly referred to as a “ amalgamation of peers. ” Both companies ‘ stocks are surrendered and new company stock is issued in its topographic point. However, in pattern, existent amalgamations of peers do n’t go on really frequently. Normally, one house in a amalgamation might be stronger and might rule the dealing. A purchase trade will besides be called a amalgamation when both CEOs agree that fall ining together is in the best involvement of both of their companies. But when the trade is unfriendly – that is, when the mark company does non desire to be purchased – it is ever regarded as an acquisition.

Whether a purchase is considered a amalgamation or an acquisition truly depends on whether the purchase is friendly or hostile and how it is announced. In other words, the existent difference lies in how the purchase is communicated to and received by the mark company ‘s board of managers, employees and stockholders. There may be broad fluctuations in attitudes in either way as dialogues proceed.

1.3 Types of Mergers-and-Acquisitions

1.3.1 Types of mergers-and-acquisitions from an economic point of view

Economists have grouped mergers-and-acquisitions based on whether they take topographic point at the same degree of economic activity – geographic expedition, production or fabrication, sweeping distribution, or retail distribution to the ultimate consumer ( Weston, Mitchell, & A ; Mulherin, 2006 ) . From the position of concern constructions, thereA is a whole host of different amalgamations. Here are a few types, distinguished by the relationship between the two companies that are unifying:

1.3.1.1 Horizontal mergers-and-acquisitions

A horizontal merger-and-acquisition involves two houses that are in direct competition and shareA the same merchandise lines and markets. Forming a larger house may hold the benefit of economic systems of graduated table. Normally, a horizontal M & A ; A activity is motivated by a desire for greater market power.

1.3.1.2 Vertical mergers-and-acquisitions

A perpendicular merger-and-acquisition occurs between houses in different phases of production operation. In the oil industry, for illustration, differentiations are made between geographic expedition and production, refinement, and selling to the ultimate consumer. In the pharmaceutical industry, one could separate between research and the development of new drugs, the production of drugs, and the selling of drug merchandises through retail apothecary’s shops.

Firms might desire to be vertically integrated for many grounds. There are technological economic systems such as the turning away of reheating and transit costs in the instance of an integrated Fe and steel manufacturer. Minutess within a house may extinguish the costs of seeking for monetary values, undertaking, payment collection, and besides might cut down the costs of pass oning and organizing production. Planing for stock list and production may be improved due to more efficient information flow within a individual, vertically incorporate house.

1.3.1.3 Conglomeration mergers-and-acquisitions

A pudding stone merger-and-acquisition involves houses engaged in unrelated types of concern activity. Among pudding stone amalgamations, three types have been distinguished:

A merchandise extension merger-and-acquisition broadens the merchandise lines of houses. These are amalgamations between houses in related concern activities they besides can be called homocentric amalgamations.

A geographic market extension merger-and-acquisition involves two houses whose operations have been conducted in nonoverlapping geographic countries.

Finally, other pudding stone amalgamations that are frequently referred as pure pudding stone mergers-and-acquisitions, which involve unrelated concern activities that would non measure up as merchandise extension or market extension amalgamations.

There are two of import features define a pudding stone house: First, a pudding stone house controls a scope of activities in assorted industries that require different accomplishments in the specific managerial maps of research, applied technology, production, selling, and so on ; Second, the variegation is achieved chiefly by external amalgamations and acquisitions, non by internal development.

1.3.2 Types of mergers-and-acquisitions from how the M & A ; A is financed

There are two types of amalgamations that are distinguished by how the merger-and-acquisition is financed. Each has certain deductions for the companies involved and for investors:

1.3.2.1 Purchase mergers-and-acquisitions

As the name suggests, this sort of M & A ; A occurs when one company purchases another. The purchase is madeA with hard currency or through the issue of some sort of debt instrument ; the sale is nonexempt.

Geting companies frequently prefer this type of amalgamation because it can supply them with a revenue enhancement benefit. Acquired assets can be written-up to the existent purchase monetary value, and the difference between the book value and theA purchase monetary value of the assets canA deprecate yearly, cut downing revenue enhancements collectible by the geting company.

1.3.2.2 Conglomeration mergers-and-acquisitions

With this M & A ; A, a trade name new company is formed and both companies are bought and combined under the new entity. The revenue enhancement footings are the same as those of a purchase amalgamation

1.4 Motivation Theories

Why do amalgamations and acquisitions occur? One plus one makes three: this equation is the particular chemistry of a merger-and- acquisition.

In the Lenovo and IBM trade, the new Lenovo will be a stronger rival in planetary Personal computer market, uniting all the advantages of IBM and Lenovo ‘s bing Personal computer concerns into the new company.

The cardinal rule behind purchasing a company is to make stockholder value over and above that of the amount of the two companies. Two companies together are more valuable than two separate companies – at least, that is the ground behind M & A ; A.

This principle is peculiarly tempting to companies when times are tough. Strong companies will move to purchase other companies to make a more competitory, cost-effective company. The companies will come together trusting to derive a greater market portion or to accomplish greater efficiency. Because of these possible benefits, mark companies will frequently hold to be purchased when they know they can non last entirely.

Synergy is the charming force that allows for enhanced cost efficiencies of the new concern ( Ravenscraft, & A ; Scherer, 1987 ) . Synergy takes the signifier of gross sweetening and cost nest eggs. By merging-and-acquiring, the companies hope to profit from the followers:

1.4.1 Achieving economic systems of graduated table

Growth is the most of import motivation for international amalgamations, and it is critical to the wellbeing of any house. Merger-and-acquisition provides instant growing. A common characteristic of all mergers-and-acquisitions is an addition in steadfast size. Consequently, a standard ground offered for a amalgamation is that the brotherhood of the two houses will make economic systems of graduated table or synergisms. Economies of graduated table may be defined as a lowering of the mean cost to bring forth one unit due to an addition in the entire sum of production ( Encyclopedia of Business, 2nd Ed. ) . Whether it ‘s buying letter paper or a new corporate IT system, a bigger company puting the orders can salvage more on costs. In one word, the larger house ensuing from the amalgamation can bring forth more cheaply than the antecedently separate houses. Efficiency is the key to accomplishing economic systems of graduated table, through the sharing of resources and engineering and the riddance of gratuitous duplicate and waste ( Hughes, 1989 ) . Economies of scale sounds good as a principle for amalgamation, but there are many illustrations to demo that uniting separate entities into a individual, more efficient operation is non easy to carry through in pattern.

Amalgamations and Acquisitions can besides interpret into improved buying power to purchase equipment or office supplies – when puting larger orders, companies have a greater ability to negociate monetary values with their providers, which means, economic systems of perpendicular integrating. This involves geting houses through which the parent house presently conducts normal concern operations, such as providers and distributers. By uniting different elements involved in the production and bringing of the merchandise to the market, geting houses gain control over natural stuffs and distribution out-lets. This may ensue in centralised determinations and better communications and coordination among the assorted concern units. It may besides ensue in competitory advantages over rival houses that must negociate with and trust on outside houses for inputs and gross revenues of the merchandise.

In Lenovo and IBM instance, after the dealing, Lenovo became the universe ‘s third-largest Personal computer shaper, draging merely Dell and Hewlett-Packard in gross revenues.

1.4.2 Acquiring advanced engineering

To remain competitory, companies need to remain on top of technological development and concern applications. Geting new and advanced engineering has become a really of import consideration in mergers-and-acquisitions, particularly cross-border mergers-and-acquisitions. There are two ways that technological considerations impact the activities: A technologically superior house may do acquisitions abroad to work its technological advantages ; while a technological inferior house may get a foreign mark with superior engineering to heighten its competitory place at place and abroad.

In Lenovo and IBM instance, Lenovo was in the 2nd state of affairs. The new Lenovo represents non merely the efficient productiveness of itself and besides the advanced IT engineering of IBM PC section.

1.4.3 Bettering market range

Companies buy companies to make new markets, that is, to perforate new geographic parts. A merger-and-acquisition may spread out two companies ‘ selling and distribution, giving them new gross revenues chances.

In the instance, Lenovo has a strong client base and gross revenues substructure in the Chinese market, while IBM has a comprehensive web in Personal computer gross revenues on a planetary footing. This action was to assist Lenovo to heighten its consciousness in planetary market and assist IBM to develop markets in Asia, particularly China, a fast turning market.

1.4.4 Increasing market portion

The market portion will be increased when a horizontal merger-and-acquisition happens. The market power of the purchaser company will be significantly increased by capturing increased market portion. Greater market portion besides may ensue in advantageous pricing, since larger houses are able to vie efficaciously through volume gross revenues with dilutant net income borders ( George, 1989 ) .

In Lenovo and IBM instance, the new Lenovo was traveling to hold an one-year gross revenues volume of 11.9 million units and gross of $ 12 billion, with a 7 % market portion, increasing Lenovo ‘s current Personal computer concern fourfold.

Besides the three chief forces driving mergers-and-acquisition, there are some other points that a company can profit from the merger-and-acquisition activity, like trade name consciousness, variegations, revenue enhancements, roll-ups, and some other factors.

1.5 Issues Raised by M & A ; A Activity

Merger-and-acquisition can sound so simple: merely unite computing machine systems, unify a few sections, use sheer size to coerce down the monetary value of supplies and the merged giant should be more profitable than its parts. In theory, one and one attention deficit disorder up to three sounds great, but in pattern, things can travel amiss. We had to state, accomplishing synergism is easier said than done. It is non traveling to automatically realized when two companies merge. Certain, there ought to be economic systems of graduated table when two concerns are combined, but sometimesA a mergerA does merely the opposite. In many instances, one and one attention deficit disorder up to less than two, particularly for the cross-boarded M & A ; A activities.

No merger-and-acquisition activity is considered easy, and no house is traveling to successfully determine up after the dealing. M & A ; A and industrial restructuring activities may raise many of import issues for concern determinations.

First, the failure of an acquisition to bring forth good returns is due to the immense sum the parent company paid. Normally, the dealing cost of an acquisition gives the parent company a really difficult clip. It is really difficult to measure the associated costs and benefits. In most instances, the fiscal benefits may non be realized for a short clip.

Second, civilization differences are frequently ignored. When a company acquires another one, the determinations are typically based on merchandise or market synergisms, but non the cultural differences. Companies frequently pay undue attending to the short-run legal and fiscal considerations involved in a merger-and-acquisition, and neglect the deductions for corporate individuality and communicating, factors that may turn out every bit of import in the long tally because of their impact on workers ‘ morale and productiveness ( Balmer & A ; Dinnie 1999 ) .

However, even a trade that is financially good off may finally turn out to be a catastrophe, if the new direction does non cover sensitively with the companies ‘ people and their different corporate civilizations. It ‘s a error to presume that forces issues are easy overcome. There may be acute contrasts between the attitudes and values of the two companies, particularly if the new partnership crosses national boundaries. For illustration, employees at a mark company might be accustomed to easy entree to exceed direction, flexible work agendas or even a relaxed frock codification. These facets of a on the job environment may non look important, but if new direction removes them, the consequence can be resentment and even shriveling productiveness. A merger-and-acquisition is an highly nerve-racking procedure for those involved: occupation losingss, restructuring, and the infliction of a new corporate civilization and individuality can make uncertainness, anxiousness and bitterness among a company ‘s employees ( Appelbaum et al 2000 ) . Research shows that a house ‘s productiveness can drop by between 25 and 50 per centum while undergoing such a large-scale alteration ; demoralisation of the work force is a major ground for this ( Tetenbaum, 1999 ) .

2. Case Study: LENOVO & A ; IBM

“ As Lenovo ‘s laminitis, I am excited by this discovery in Lenovo ‘s journey towards going an international company. Over the past 20 old ages, I ‘ve watched Lenovo develop into the taking IT Company both in China and throughout Asia. Since the beginning, nevertheless, our firm end has been to make a truly international endeavor. From 2003 when we changed our international trade name name to 2004 when we announced our partnership with the International Olympic Committee, to today ‘s strategic confederation with IBM, I have been delighted to watch Lenovo go a truly first company. ” ( Press Release, Dec. 08, 2004, www.legendgrp.com )

– Liu Chuanzhi, Chairman, Lenovo Group

2.1 Brief Introduction of the M & A ; A Deal

In December 2004, the China-based Lenovo Group ( Lenovo ) announced that it had acquired the personal computing machine ( Personal computer ) division of the US-based IT major IBM. Lenovo had completed its $ 1.75 billion purchase of IBM ‘s Personal computer division. Based on both companies ‘ 2003 gross revenues figures, the joint venture was traveling to hold an one-year gross revenues volume of 11.9 million units and gross of $ 12 billion, increasing Lenovo ‘s current Personal computer concern fourfold ( Spooner, & A ; Kanellos, 2004 ) . This made Lenovo the universe ‘s third-largest Personal computer shaper, draging merely Dell and Hewlett-Packard in gross revenues.

Harmonizing to the study of Reuters intelligence bureau, the understanding called for Lenovo to pay IBM $ 650 million in hard currency, $ 600 million in Lenovo Group common stock and for Lenovo to presume $ 500 million in net balance sheet liabilities from IBM. Lenovo was taking over IBM ‘s Personal computer concern, including research and development and fabrication. With taking an 18.9 % interest in Lenovo, IBM had become its 2nd largest stockholder.

Lenovo will be the preferable provider of Personal computers to IBM and will be allowed to utilize the IBM trade name for five old ages under an understanding that includes the “ Think ” trade name. Big Blue has promised to back up the Personal computer shaper with selling and via its IBM corporate gross revenues force.

The combined venture was traveling to hold approximately 10,000 IBM employees and 9,200 Lenovo employees. It will be headquartered in New York, with operations in Beijing and in Raleigh, N.C. ( Gibson, 2004 ) .

Stephen Ward, frailty president of IBM ‘s Personal Systems Group, was going CEO, while Yang Yuanqing, Lenovo ‘s current CEO, was going president ( Dec. 08, 2004, www.chinaview.cn ) .

2.2 Background of the Deal

2.2.1 Background of Lenovo

Lenovo, once known as Legend, was founded in 1984, started its concern as a distributer of computing machine merchandises for foreign companies including IBM, AST ( AST is one of the taking IT companies in South Africa. It is an IT services and solutions organisation with more than 2500 employees ) and HP. In 1990, Lenovo manufactured its first Personal computer and within a decennary it grew to go the prima Personal computer maker in China.

In the early 2000s, Lenovo expanded into new concern countries including the industry of nomadic phone French telephones and digital cameras, and direction consulting.

In the financial 2003, Lenovo manufactured around 4.5 million Personal computers including laptops and desktops. Lenovo has besides diversified into other concern countries including handheld devices and IT. By the terminal of 2003, Lenovo had captured a 27 per centum market portion of the Personal computer market in China. Lenovo was Asia ‘s taking and universe ‘s 9th largest Personal computer maker.

In March 2004, Lenovo joined The Olympic Partner ( TOP ) to patronize Olympics games to be held in 2008 at Beijing. Harmonizing to analysts, this move would assist Lenovo derive trade name acknowledgment globally. As an industry analyst said, “ For Chinese houses, like Lenovo, the Olympic Games provide an honest chance to heighten their image and show their strengths in cardinal engineerings, merchandises and services worldwide ( Wang Yu, 2004 ) . In April 2004, the company changed its name from ‘Legend ‘ to ‘Lenovo, ‘ where ‘Le ‘ bases for Legend and ‘novo ‘ bases for freshness and invention.

For the financial twelvemonth ended March 31, 2004, Lenovo reported a turnover of HK $ 23.2 billion and a net net income of HK $ 1.05 billion. About 51.5 % of its grosss came from the corporate section, 33.5 % from the consumer section, 8.8 % from hand-held devices, 3.8 % from contract fabrication and 2.4 % from IT services ( www.lenovo.com ) .

After its important success in the Chinese market, Lenovo made programs to travel planetary. In March 2004, Lenovo joined The Olympic Partner ( TOP ) to patronize Olympics games to be held in 2008 at Beijing. This move helped Lenovo addition trade name acknowledgment globally.

2.2.2 Background of IBM

IBM incorporated in 1911, get downing as a major manufacturer of punch card tabling machines ( Pugh, 1995 ) . In the 1960s, it was turning at the rapid rate of 15 to 20 per centum a twelvemonth and shortly achieved a domination of the computing machine market that was historically alone in any other major industry.

From one-year gross revenues of $ 1.8 billion and a caput count of 104,000 in 1960, it had rocketed to gross revenues of $ 7.2 billion and 259,000 employees by the terminal of the decennary ( Chposky, & A ; Leonsis, 1988 ) . IBM ‘s success was making a hard environment for its rivals. By 1960 the mainframe computing machine industry had already been whittled down to merely IBM and seven others. For many old ages IBM ‘s domination of the computing machine industry was attributed to a assortment of factors: its managerial competency ; its technological excellence ; its formidable selling organisation ; its monopolistic and antimonopoly concern patterns ; and the leading exerted by the Watsons ( Maney, 2003 ) . It has been nicknamed “ Large Blue ” for its official corporate colour.

John R. Opel ‘s assignment as CEO in 1981 coincided with the beginning of a new epoch of calculating ( Bellis, 2000 ) . Thankss to the birth of the IBM Personal Computer, or Personal computer, the IBM trade name began to come in places, little concerns and schools.

When planing the Personal computer, IBM for the first clip contracted the production of its constituents to outside companies. The processor bit came from Intel, and the operating system, called DOS ( Disk Operating System ) , came from Microsoft.

The IBM Personal computer was sold in high plenty volumes to warrant composing package specifically for it, and this encouraged other makers to bring forth machines which could utilize the same plans. The ringers of IBM Personal computer, called “ IBM Personal computer Compatible ” , were created and followed by many companies like Compaq.

In the late eightiess, IBM damaged its ain market by itself neglecting to appreciate the importance of “ IBM compatibility ” . There was a struggle period for IBM when purchasers began to see PCs as trade goods, and doubted the IBM trade name for the really high monetary value.

In the 1990s, the of import turning point of the Big Blue was coming. IBM ‘s influence on Personal computer architecture became progressively irrelevant. Alternatively of concentrating on remaining compatible with the IBM Personal computer, sellers began to concentrate on compatibility with the development of Microsoft Windows. An IBM-brand Personal computer became the exclusion non the regulation. IBM lost its market portion in Personal computer market.

By 1993, the company ‘s one-year cyberspace losingss reached a record $ 8 billion ( IBM archives: 1990s ) . IBM faced mounting force per unit area to reconstruct its merchandise line, shrivel the work force and do important cost decreases, even to divide the concern into separate companies.

We can see from the chart, IBM did n’t hold a immense worldwide market portion for its Personal computer merchandises in recent old ages – 5.6 % in 2002, far behind market leaders Dell and HP, and shriveling as clip went by.

In add-on to losing market portion, the Personal computer concern was shed blooding money for IBM. The Personal computer section had lost about $ 1 billion from 2001. As the economic system pick up, the planetary Personal computer market achieved growing in both size and public presentation in 2004. But in the first nine months of 2004, IBM ‘s Personal computer concern earned borders of 0.75 % ( IBM archives: 2000s ) . Even food market shops do better.

2.3 The Strategy Analysis

To sum up the points of this trade:

To make universe ‘s third-largest Personal computer concern ;

To make planetary concern with powerful trade name name and world-class merchandises ;

To make Personal computer concern with planetary range, say a demographic displacement.

Commenting on this move, Leslie Fiering, an analyst from Gartner said, “ Lenovo aspires to go a major international participant and a recognized trade name, a company with the ability to sell into transnational corporations and be profitable. ”

Sing IBM ‘s Personal computer concern generates about $ 10 billion each twelvemonth in grosss, looker-ons might believe this sale does n’t do much sense. But it does, one time we look under the screens.

As I mentioned above, though IBM was the No.3 marketer of PCs worldwide, it did non hold great market portion in the planetary Personal computer market any longer, 5.2 % in the first three quarters of 2004, and far behind the leaders Dell and HP. Despite the fact that IBM continued to offer all right merchandises with proficient inventions, clients drifted to the lower-priced merchandises from IBM ‘s rivals. Apparently, clients did n’t see the value-add in IBM ‘s engineering. The fact is, Personal computers are now a trade good, and a few excess bells and whistlings are n’t worth the added dollars.

Retrospect to the operation state of affairs of IBM PC section in 2003, the gross revenues gross of IBM PC section was $ 9.56 billion, while the net loss was $ 258 million, which chiefly caused by the immense disbursal ( about $ 586 million ) of merchandise guarantee. At the interim, the maintained net income of Lenovo reached about $ 135 million, with the gross revenues gross was merely $ 2.97 billion ( Ren, Zhou, Li, & A ; Shen, 2004 ) . We can see that IBM truly needs an improved fiscal profile.

In my sentiment, the trade is about switching demographics. Lenovo has a strong client base and gross revenues substructure in the Chinese market, while IBM has a comprehensive web in Personal computer gross revenues on a planetary footing. Lenovo has achieved a important success in the Chinese market, but the trade name consciousness still non be recognized in planetary market. It will be a major milepost for Lenovo in its attempts to globalise its operations. It was besides perceived as an of import measure towards accomplishing the company ‘s end of going a Fortune 500 company by 2010. While, IBM ‘s largest markets for its Personal computers are North America and Europe, the trade name is extremely recognized in the planetary market for its advanced proficient services. The action has shifted to developing markets in Asia, particularly China, a aggressive market targeted by a figure of planetary tech giants.

After the dealing, IBM will go the preferable services ( including guarantee and care ) and client funding supplier to Lenovo. Lenovo will go the preferable Personal computer supplier to IBM and its broad scope of clients.

2.4 SWOT Analysis

2.4.1 Strengths

2.4.2.1 Successful enlargement of market portion in planetary Personal computer markets

The new Lenovo, No. 3 Personal computer marketer worldwide, successfully spread out its market portion in planetary Personal computer markets. The acquisition made Lenovo one of the taking planetary Personal computer shapers. As can be seen from the chart above, Lenovo expanded its planetary market portion to 7.1 % in 2006, the No.3 PC marketer worldwide. While, it was merely the 9th marketer in 2004 with a 2 % market portion in planetary Personal computer market.

2.4.1.2 Extension of markets, and sweetening of trade name consciousness

The trade helps both Lenovo and IBM to spread out their markets, and to heighten the trade name consciousness. As I mentioned above, Lenovo has a strong client base and gross revenues substructure in the Chinese market, while IBM has a comprehensive web in Personal computer gross revenues on a planetary footing. This action was to assist Lenovo to heighten its consciousness in planetary market and assist IBM to develop its markets in Asia, particularly China, a fast turning market.

2.4.1.3 Complementarity of engineering and selling

The two companies complement each other neatly in engineering and selling. Lenovo will be a strong new rival for them both in the planetary Personal computer market, uniting all the advantages of IBM and Lenovo ‘s bing Personal computer concerns into a new company. The new Lenovo represents non merely the best option for clients ‘ Personal computer demands, and besides the best overall solution for IBM to go on to supply guarantee service, and aid clients use engineering and service to accomplish their toughest concern challenges and ends. Lenovo will go on the advancement that IBM Personal computers have made: developing advanced personal computer science engineerings that provide the lowest cost of ownership and the highest return on investing in Lenovo PCs.

Lenovo specializes in consumer Personal computers and low-priced fabrication. IBM ranges worldwide and focal points on concerns. Its 30,000-person gross revenues force and planetary web of 9,000 concern spouses will assist sell Lenovo PCs. The new Lenovo will make a formidable force against the direct challengers, like Dell.

For IBM, merely as it answered the inquiry of “ Why is IBM doing this alteration? ” on its web site, “ Our Personal computer concern has made enormous advancement over the past several old ages and extended our market leading in our targeted concern sections. To construct on that success, IBM ‘s Personal computer division, as portion of Lenovo, will be able to vie in all countries of the Personal computer market place. The combined company will derive advantages neither Personal computer operation could hold on its ain, and be a powerful planetary leader in the $ 180-billion planetary Personal computer concern.

“ Working together, IBM and Lenovo will be able to supply first-class value in Personal computers for companies of all sizes, with the same research and development, quality fabrication, gross revenues, service, support, funding, and long-run relationships our IBM Personal computer clients have today. ”

The new company starts from a good topographic point. Rather than merely vie on monetary value, the company plans to separate itself through invention. Declares Yang: “ We will be the Personal computer company with the best balance between invention and efficiency. ”

2.4.2 Failings

2.4.2.1 A tough challenge in unifying two distinguishable corporate civilizations

Lenovo faced a tough challenge in unifying two distinguishable corporate civilizations. The large trial comes when the two organisations really operate together. “ The difference in corporate civilizations would usually be a formidable obstruction, ” said Geraldo M. Vasconcellos, a finance professor at Lehigh University in Pennsylvania. What will go on when Lenovo, a partially state-owned company that has benefited vastly from its authorities ties, gets together with IBM, a reflecting symbol of American capitalist economy? Whether both of them can happen right manner to work out the job within short clip?

In add-on, Lenovo performs really small independent R & A ; D and largely makers low-end systems. While, IBM sells to the corporate and frequently to clients that have invested to a great extent in IBM services and package.

2.4.2.2 Possibility of neglecting to gain the trust of IBM ‘s old clients

The amalgamation trade may do the terror and misgiving of IBM ‘s old clients. The guarantee services and proficient supports were frequently the most of import ground why corporations bought from IBM with a comparative high monetary value than its challengers like HP and Dell. Thus, the new Lenovo has to pass some clip to convert IBM ‘s clients that Lenovo will go on to supply advanced Personal computers and services. The biggest donees of this move, at least ab initio, are HP and Dell — presently the largest branded world-wide Personal computer companies. These houses will pass the following several old ages seeking to convert IBM ‘s base that they are now the most sure houses in engineering.

The trade presents a figure of new chances for the new Lenovo. But the combined entity will hold to work difficult towards turn outing that the alteration represents existent benefits for its existing and possible clients.

2.4.2.3 Poor and low presence in the U.S. markets.

Lenovo did no great public presentation in the U.S. Personal computer market, even non in the top five. Enhancing the trade name consciousness is still a really tough job for Lenovo.

2.4.2.4 Poor fiscal public presentation of IBM PC section

Besides the immense sum of hard currency that Lenovo paid to IBM, Lenovo will confront the shortage of IBM. The fiscal public presentation of IBM PC section was hapless with a immense shortage each year.How to better the fiscal public presentation and go on to put in Research & A ; Develop section will be a thorny hard job that Lenovo has to manage with.

2.4.3 Opportunities

Compare to the European and American Personal computer markets, China and other developing states are the emerging markets with great potency. The chief difference between Lenovo and other planetary providers is the company already has a strong gross revenues web in the smaller metropoliss which are turning fast. What makes Dell so successful is the efficiency of its purely direct-sales attack and build-to-order fabrication. While, Lenovo makes its gross revenues channel in really different manner. Lenovo will sell its Personal computers through retail merchants, corporate resellers, the IBM gross revenues forces, and Dell ‘s path every bit good. That presents a ample chance, peculiarly in emerging markets. Worldwide, more than 80 % of Personal computers are sold through retail merchants and other resellers. That figure is even higher in China and other developing states, where consumers like to acquire their custodies on merchandises and often do n’t hold recognition cards.

2.4.4 Menaces

2.4.4.1 The economic downswing is giving a daze on Personal computer market.

Harmonizing to the IDC analyst, consumers and concerns will be much more conservative in their purchases over the recession old ages, and while low monetary values will stay indispensable. That means consumers and concerns will non drive volumes as they did the past few old ages.

Unit of measurement Gross saless and Growth Rate to Global Personal computer Market ( Source: Gartner )

Year

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Unit of measurements ( 1000000s )

70.9

80.6

92.9

113.5

134.7

128.1

132.4

168.9

189

218.5

239.4

271.2

302.2

305.9

Growth ( pct. )

17.8

13.7

15.3

21.7

14.5

-4.6

2.7

10.9

11.8

15.3

9.5

13.4

10.9

5.2

As can be seen from above, the growing rate was worsening, which means the Personal computer demand was greatly hurt because of the quickly deteriorating conditions in the planetary economic system and fiscal system. Almost all the Personal computer sellers are challenged by the tough state of affairs.

2.4.4.2 The competitory environment of Personal computer market is going fiercer.

Global Personal computer Market Share by Units, Percent. 2001-2005 ( Beginning: Gartner )

Rank

2001

2002

2003

2004

2005

1

Dell

13.3 %

HP-Compaq

16.2 %

Dell

15.0 %

Dell

16.4 %

Dell

16.8 %

2

Compaq

11.1 %

Dell

15.2 %

Horsepower

14.3 %

Horsepower

14.6 %

Horsepower

14.5 %

3

Horsepower

7.2 %

IBM

6.0 %

IBM

5.1 %

IBM

5.5 %

Lenovo

6.9 %

4

IBM

6.4 %

NEC

3.4 %

Fujitsu

3.8 %

Fujitsu

3.8 %

Acer

4.6 %

5

NEC

3.8 %

Toshiba

3.2 %

Toshiba

2.9 %

Acer

3.4 %

Fujitsu

3.8 %

aˆˆ

Others

58.1 %

Others

56.0 %

Others

58.9 %

Others

56.4 %

Others

53.3 %

Global Personal computer Market Share by Units, Percent. 2006-2010. ( Beginning: Gartner )

Rank

2006

2007

2008

2009

2009 Q4

1

Dell

15.9 %

Horsepower

18.2 %

Horsepower

18.4 %

Horsepower

19.3 %

Horsepower

19.8 %

2

Horsepower

15.9 %

Dell

14.3 %

Dell

14.3 %

Acer

13.0 %

Acer

13.5 %

3

Lenovo

7.0 %

Acer

8.9 %

Acer

11.1 %

Dell

12.2 %

Dell

11.5 %

4

Acer

5.8 %

Lenovo

7.4 %

Lenovo

7.2 %

Lenovo

8.1 %

Lenovo

8.7 %

5

Toshiba

3.8 %

Toshiba

4.0 %

Toshiba

4.5 %

Toshiba

5.1 %

Toshiba

5.3 %

Others

51.6 %

Others

47.1 %

Others

44.5 %

Others

42.3 %

Others

41.1 %

After the trade in the terminal of 2004, Lenovo merely kept its No.3 place in planetary Personal computer market for two old ages, until the powerful challenger, Acer, made a great motion. In 2007, Lenovo dropped to no.4, behind Acer. Why did this go on? After Lenovo taking over the Personal computer division of IBM in the terminal of 2004, Acer bought Gateway in 2007. At the same clip, the Chinese company took over Packard Bell, which had the side consequence of queering Lenovo ‘s command to get the company and construct its European concern ( Einhorn, 2009 ) .

Can be seen from the chart above, Lenovo is stuck with approximately 7 % of the market for about three old ages, from 2006 to 2008. Meantime, Acer was turning at an dismaying rate. Acer has moved into double-digit, state 13.5 % , catching Dell as the universe ‘s second-largest marketer of personal computing machines, draging merely Hewlett-Packard. Acer ‘s low-priced operation scheme helped it to put more in R & A ; D section and go more profitable.

No uncertainty the worsening growing in the consumer market and the dead commercial market is expected to escalate competition among Personal computer sellers. Even worse, when the demand of emerging markets like the Middle East, Africa are decelerating down, which had been turning fast over the last several yeas.

However, Acer ‘s acclivity even accelerated during the planetary economic lag. The company made an aggressive move into the market for netbooks – the little, low-priced laptops that have been a rare bright topographic point during the worst slump the Personal computer industry has of all time faced. While other Personal computer makers, like Dell, which depends far more on Personal computer gross revenues to concerns, has struggled as companies have avoided purchasing new computing machines.

Lenovo is inevitable confronting the tough state of affairs in the intense competitory clime – the lower volumes and dilutant borders.

3. Decision

After showing the theories of mergers-and-acquisitions, and analysing the schemes of Lenovo and IBM instance, we could see both sides of amalgamation and acquisition action. Obviously, the economic systems of graduated table, the advanced engineering, the possible market and the increased market power are appealing to the companies who are eager to turn and develop fast. However, no merger-and-acquisition activity is considered easy, and no house is traveling to successfully determine up after the dealing.

As for the instance discussed above, synergisms have been achieved when Lenovo successfully geting the PC section of IBM. Meantime, the new Lenovo besides faces tonss of challenges in front its route.

Although there are many different sentiments on exactly what causes so many amalgamations and acquisitions to neglect, and on how these jobs can be avoided, there are certain points that most analysts appear to hold on. It is widely accepted, for case, that the ‘human factor ‘ is a major cause of trouble in doing the integrating between two companies work successfully.

Besides, even though the merger-and-acquisition action has been conducted swimmingly, there may be besides some tough challenges on the house ‘s route in front. The suggestion for all companies, non merely for Lenovo, ever being ready for the changing of market, ne’er slacken in economic growing and ne’er being panic-stricken in economic downswing.

3.1 Recommendation

Why are so many organisations seemingly unable to get the better of such troubles? A merger-and-acquisition is frequently a alone, one-off event in the life-time of a house, companies therefore have no chance to larn from their experience and develop tried-and-tested methods to guarantee that the procedure is carried out swimmingly. However, there are some recommendations for those companies whose merger-and-acquisition activities are ongoing.

First, during the period in which the acquisition is being negotiated, the direction of the two companies can intercede with each other and pull up a clear integrating scheme. Get downing earlier non merely allows the integrating to continue faster and more expeditiously, but besides gives company the chance to place possible jobs, such as drastic differences in direction manner and civilization. The merger-and-acquisition program could be abandoned if the troubles are realized to be so terrible that the acquisition is likely to neglect.

Second, if uncomfortable alterations, such as layoffs and restructuring, have to be made at the acquired company, it is of import that these are announced and implemented every bit shortly as possible – ideally within yearss of the acquisition. This helps to avoid the uncertainnesss and anxiousnesss that can corrupt the work force of a newly-acquired company, leting employees to travel on and to concentrate on the hereafter.

Last but non the least, it is of import to incorporate non merely the practical facets of the concern, but besides the houses ‘ work forces and their civilizations. A good manner to accomplish this is to make groups consisting people from both companies, and acquire them to work together at work outing jobs.

If the passage is carried out without sensitiveness towards the employees who may endure as a consequence of it, and without consciousness of the huge differences that may be between corporate civilizations, the consequence is a stressed, unhappy and uncooperative work force – and accordingly a bead in productiveness.

With this in head, it is of import that a clear ‘integration program ‘ is in topographic point, and that it is overseen by a dedicated director with the experience and interpersonal accomplishments to quiet employees ‘ anxiousnesss and reconcile cultural differences. Preparation for the passage should get down every bit shortly as possible, sooner before the trade has been signed, and any necessary alterations should be implemented every bit rapidly as possible to avoid nerve-racking uncertainnesss that can damage morale. Open and honest communicating throughout the procedure is critical in retaining the trust of employees.

Sometimes, even when following these rules, there may be state of affairss in which a affiliation between two companies could ne’er be made to work efficaciously, because there are unreconcilable differences in corporate civilization or because the drawbacks of a amalgamation would outweigh any possible benefits. Although it is evidently impossible to foretell with certainty the result of a amalgamation or acquisition before it takes topographic point, thorough readying can decidedly assist, and companies should non be afraid to abandon programs for a tie-up if there is grounds that it is improbable to be a success.

3.2 Restriction

Although many recommendations on how the jobs caused by mergers-and-acquisitions can be avoided are put frontward, it is based on really limited resources and researches. The groundss presented may be deficient to turn out that the analysis and decision are perfectly right.

As the writer of this paper, I merely hope that this paper can be helpful to understand the general construct of amalgamations and acquisitions, and to farther research.