To say that the announced Lenovo-IBM merger was met with skepticism is an understatement. The US government pushed back as did the press, many leery of losing a company with a long, reputable reputation and technical know-how to a company with strong ties to the Chinese government and whose products were viewed with suspicion. Lenovo overcame some of environmental issues by locating its new company headquarters in the US.
Foreign Relations. Since the era of World War II, anti-communism became a common U.S. sentiment. Some Americans still view China—run by the communist party since 1949—with lingering suspicion to this day. In the 1990s, China’s central government began efforts to encourage companies to “go global.” This resulted in more companies looking to expand overseas or simply acquire other companies in an effort to increase resources and market share. This was one of the motivations for the 2005 acquisition of IBM’s PC division. American news sources called it “the latest example of big Chinese firms aggressively expanding abroad, under orders from their government.”
Public Perception. At the time of acquisition, many economic and political news sources considered the purchase to be risky for IBM. Competitor Michael Dell of Dell Technologies was quoted as saying of the acquisition, “It won’t work.” The Economist believed it “unlikely that Lenovo can bring much by way of management skill or strategy to its target.” Economists cited Lenovo’s lower-than-average gross margins and wavering Chinese market share as indicators of potential inability to maintain and improve Lenovo. Additionally, IBM’s own declining revenue growth and continual bottom-line losses were cited as indicators of downturn in the PC market as a whole.
Reactions in the U.S. over the acquisition were mixed, ranging from opposition to acceptance to indifference. Lenovo’s partial ownership by the communist Chinese government sparked some fear and concern among U.S. citizens and politicians. Ironically, the Chinese public tends to be suspicious of private businesses, assuming that behind the closed doors of private operations, there must be something to hide.
Chinese companies often have stereotypes to overcome if they are to successfully do business with foreign firms. To Westerners, Chinese companies are occasionally perceived as cost cutting and rule disregarding. The opinion of some was that “Lenovo was unknown in the United States and that made-in-China products have a dubious reputation.” Research of consumer reactions has found that negative social norms associated with emerging markets (China) result in lower purchase intentions of consumers from developed nations (the U.S.).
In contrast, some reactions simply expressed indifference to the change of ownership. As one U.S. branding consultant said, “The deal is a wash. That is, people generally don’t care where technology comes from as long as it works. […] The general reaction is probably just a shrug, and an ‘oh well, OK.’ … We all have such a global mentality now, people think it’s fine for products to come from other places in the world, particularly technology products because it’s generally accepted that there are great technology companies in Asia.”
The IBM employees themselves were quite enthusiastic about the change, especially since it meant stepping out of the shadow of other IBM divisions: “The general sense of excitement also seemed shared among the IBM PC executives, who had for years felt like the unpopular stepsister in their former company…. At the call center in Raleigh, employees filmed themselves triumphantly throwing their old IBM badges into the trash.”
The Chinese public had both critics and supporters of the acquisition deal. Some business professionals considered it “a magnificent acquisition” while others stated they were “cautiously optimistic.” Those opposed to the deal believed IBM to be the greater beneficiary of the arrangement. Some Chinese considered the deal to be risky given Lenovo’s limited international exposure and others thought it was an unwise distraction from “the possibility of Lenovo becoming a super IT company.”
It should be noted that Lenovo has transitioned away from Chinese state ownership. By 2012, stock ownership from the Chinese Academy of Sciences was down to 33.58%. The Academy had reduced its previous 65% stake by selling to private investors in an effort to shift the company away from being owned indirectly by the government and focus instead on market structure. However, there are still tensions today in the U.S. regarding the continued connection to the Chinese government. Some politicians support a ban on using Lenovo products in government work for fear of cyberespionage. These tensions have yet to be resolved.
Location. Upon the merging of the two companies, Lenovo initially established its main headquarters at an office building in New York but then soon moved to North Carolina, where the former IBM staff continued to work. However, as the company has grown and spread globally, there are now key locations all over the world: Beijing, England, France, India, and Hong Kong, just to name a few.
One of the challenges of this acquisition was (and continues to be) the fact that Lenovo, once just located in China, is trying to figure out how to direct a company structure that has existed for 95 years and has been international for decades. As one leader commented, “IBM had a big employee team across more than 100 countries. How to manage them is a still a crucial problem.”
The nature of international business includes the difficulties of time zone differences. Glassdoor.com, a website for the open exchange of employment information, cites many employee reviews complaining about the difficulties of the time zone gap:
“We work very long hours due to the global nature of our jobs.”
“There are conference calls day AND night, which eat up into time which should be spent with your kids. Mine are about ready to disown me!”
“If you work in a U.S. office, expect to be on conference calls at all kinds of strange hours–the U.S. employees are the ones who have to cater to the schedules of the other worldwide offices.”
The difficulty of work-life balance is continuously a topic of conversation on informative public websites. It’s an area of concern that stems from the inconvenience of the global spread of the company.
Regulatory Differences. In addition to lengthy preparatory procedures on the part of both companies, U.S. regulations require careful screening of many M&A transactions originating in countries that are areas of concern, including China. USA Today reported the following:
The relationship sparked U.S. fears the minute the deal was announced. Rep. Don Manzullo, R-Ill., fretted that Lenovo staffers in the company’s Raleigh offices might be able to get into nearby IBM research labs and send cutting-edge technology to China. The Committee on Foreign Investment in the United States, the U.S. government group that vets deals affecting national security, investigated the deal. It eventually gave the go-ahead.
Approval was received May 1, 2005, about 5 months after the initial announcement of the M&A.
Although regulatory processes can also be difficult on the Chinese side of things, the Chinese government—once invested in a company’s success—is likely to make the path clear. As one academic stated, “Lenovo, with the backing of the government, will be willing to do anything to ensure that this works. It’s too strategic a deal to let fail.”
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