Janet Hsieh

Dr. Chung
International Business Management
January, 19, 2014
Cultural integration in Lenovo IBM Merger
Background
In April, 2004, Chinese-based company Lenovo (former name: Legend) officially bought
IBMs PC division. Lenovo took over IBMs notebook and desktop business and other related
business worldwide, including its customers, distribution and marketing channels. These two
companies formed a complex joint venture and Lenovo therefore became the third-largest PC
maker in the world because of the acquisition. Lenovo paid $1.25 billion for IBM's computer
business, including $650 million in cash, 600 million shares and an additional $500 million of
IBM's debt. However, after the merger and acquisition, Lenovo faced various problems,
including culture difference, integration of human resource, supply chain issues and the financial
distress. In 2008, Lenovo surrendered the worst financial report since its acquisition of the IBM
PC unit. The financial crisis of 20072008 strongly affected the global computer market;
negative industry growth reached more than 5% year-on-year in terms of market value. Sales of
Lenovo PCs declined by 8.9%, more than the industry average, and it thus reported
losses of US$226 million for the fiscal year 2009. The founder of Lenovo, Liu Chuanzhi
then told the media that the company's huge losses was fundamentally due to problems in its
corporate management structure and cultural collision after the buyout of IBM's PC operations.
As a matter of fact, the initial transition after the merger went relatively well, employees
from both sides expressed their excitement about the new development. However, it was then

found out that the integration yielded some unexpected difficulties as Lenovo struggled to
complete the integration of operations, and cultural issues then became apparent. The departure
of two CEO, Steve Ward and Bill Amelio reflected the problem of cultural issues within the
management team. Yang Yuanqing (current CEO of Lenovo) also admitted that the integration
process was difficult to some extent and most of the problems lay in senior management.
However, after a series of strategic changes and the reorganization of structure, by August
2012, Lenovo was close to surpassing Hewlett-Packard as the worlds leading manufacturer of
personal computers following a strong quarterly rise in sales, Hewlett-Packard was only 0.6%
ahead of Lenovo in terms of global market share. In 2013, as the figure 1 shows, Lenovo
achieved its long-time goal of surpassing HP and Dell to become the worlds largest PC maker
and it is continuing its streak of gains following channel expansion and solid product
development. As a result, the issues of cultural integration will be discussed below based on the
study of Lenovo and IBM merger. Furthermore, the implication of culture integration in
international merger and acquisition will be addressed as well.
International merger and acquisition (IM & A) and culture conflict
International mergers and acquisitions is of the key corporate strategies multinational
corporations (MNCs) use to expand, diversify, or consolidate their businesses. It is also utilized
as a means to gain the entry into a foreign market. In spite of the challenges brought by the cross
border M&As, this strategy remains popular among the MNCs. A large number literature has
been reviewed regarding different perspectives about M&A, including finance, strategy,
organizational behavior and human resources. It is not till recent years, the M&A literature about
culture impact is reviewed and it is also pointed out that if a company can position the culture as
a central component form the very beginning of the M&A process, a great deal of mistakes can

be avoided and thus the outcome of the whole process could be improved. Culture is often not
considered till later in the process of M&A. But since the culture clashes seems to be the key
reason for the failure of M&A, it is suggested that organizations should identify and have a clear
understanding about their own culture at the beginning of the integration process.(Denison,
Adkins, and Guidroz ,2011).
It is pointed out that since the combinations of different cultures in international
acquisition generally occurs in the post-acquisition integration stage, the cultural conflict is not
seen until two involved organizations work together(Rottig, 2007). It is essential for both
organizations to integrate their cultures to attain the cultural compatibility. In the case of Lenovo
and IBM merger, the issues of different organizational culture and communications will be
discussed below.
The difference of organization culture and communications:
Cartwright and Cooper (1993) pointed out that the organizational culture type will
influence the employee commitment, job satisfaction and mental health as different culture bring
out various characteristics than one another. Lenovo did not have a particularly successful track
record of partnerships with foreign companies before acquiring IBM. A managing director of
BDA China Ltd., Duncan Clark, a Beijing-based consulting firm once said that Lenovo is
traditional, in the state-owned enterprise style and it will be very challenging for Lenovo during
the integration process. Back in 2002, when Lenovo went to Silicon Valley to recruit middle
managers, a handful of U.S.-educated Chinese were hired but about a year later, almost all of
them quit. They said that found it difficult to fit into the corporate culture.(Tse and Couturier
2009 ).

Regarding communication style, according to Hall (1976), there are two types of
understanding culture orientations: high context culture and low context culture. He proposed
that high text culture is the one that people are deeply involved with each other. There is an
existence of an intimate relationship among people and a structure of social hierarchy. Peoples
inner feelings are kept under strong self control. The communication styles of Asian and Arabic
are under this category. On the other hand, the communication styles of Americans and
Europeans are considered as low context cultures, in which, people are highly individualized and
there is relatively little involvement with others. Here we take Gina Qiao, senior vice president
of human resources of Lenovo, as an example. She told the media that when she first attended a
Lenovo meeting full of Westerners, she had plenty of ideas, but she didnt say much. The
assertive, non-stop nature of the conversation was puzzling to her after years of doing business in
China.
Success of the merger- The ability to integrate or displace a culture
Cartwright and Cooper (1993) argued that in order to achieve the objective of a
successful merger for both organizations, they must fall into the following three types of mergers
depending on the degree of integration and culture change necessary : extension mergers,
collaborative mergers, and redesign mergers. After losing business and admitting
underestimating the two parties culture differences in 2009, Lenovo started reforming and
reorganizing the company system. They have been trying to find a way out to achieve cultural
compatibility since the reformation from 2009. Untill now, Lenovo and IBM is finally on the
right track.It is shown that Lenovo made great strides to become a more employee-focused
organization Stahl and Lengyel (2012). The communication among the employee is changing

too, which can be seen from Gina Qiao, senior vice president of human resources of Lenovo (we
mentioned before) and Yolanda Conyers, vice president of cultural integration and diversity.
They both told Washington Post that their communication styles have adopted. Gina Qiao
said she has learned to become more direct and aggressive as American. Yolanda will ask
Chinese attendees to chim in during the meeting as she has learned that Chinese are not used to
express their opinions during the meeting because of feeling uncomfortable. As the culture
adaption goes on, the changes will be made continually. Employees from Lenovo also told
Washington Post that Chinese tends to listen and American tend to talk and which annoy them as
they do not understand why they are doing so. Nevertheless, both parties have learned to adopt to
each others culture. Chinese employees will talk more whereas American employees will listen
more. Other than the culture adaption, Lenovo was aware that the discovery of mutual learning
had to happen at all levels of the company. Lenovos top leaders took a class to help identify
such differences and talk about them frankly. And the executive team, comprised of nine people
of six nationalities, makes an effort to constantly rotate the location of its regular meetings so as
to increase exposure to one anothers culture.
Conclusion
Lenovos success does not come easy. The path of culture integrating is challenging and
painful. In order to have a successful IM&A, it is vital for the organization to evaluate and have
very clear strategies towards cultural conflicts. Culture aspect is pervasive because if affects how
the everyday business gets down as well as how priorities are set and how the understanding is
shared in the meeting ( Weber and Camerer,2003). As a global player like Lenovo, there is still a
long way to go. It is argued that Chinese companies seem to be incapable of managing M&A as
they are not familiar with and do not have a fully understanding about the foreign markets. The

companies also seem to lack experience in managing a portfolio of businesses across diverse
markets as well as a deep understanding of customers, competitors, distribution structures and
the regular environment in these markets. Compared to large global firms, Chinese companies
tend to have less developed management information systems, governance structures, managerial
skills and corporate processes. (Tse and Couturier 2009). Therefore, while it is embracing the
success, Lenovo should also keep this in mind that the ongoing assessments towards the
strategies should not be overlooked.

Figure 1
Top 5 Vendors, Worldwide PC Shipments, Second Quarter 2013 (Preliminary)
(Units Shipments are in thousands)

Vendor

2Q13 Shipments

2Q13 Market
Share

2Q12 Shipments

2Q12 Market
Share

2Q13/2Q12
Growth

1. Lenovo

12,619

16.7%

12,802

15.0%

-1.4%

2. HP

12,378

16.4%

13,414

15.7%

-7.7%

3. Dell

9,230

12.2%

9,633

11.3%

-4.2%

4. Acer Group

6,226

8.2%

9,241

10.8%

-32.6%

5. ASUS

4,590

6.1%

5,820

6.8%

-21.1%

30,589

40.4%

34,464

40.4%

-11.2%

Others

Total

75,632

100.0%

85,374

100.0%

-11.4%

Source: IDC Worldwide Quarterly PC Tracker, July 10, 2013

Reference
Cartwright, S., & Cooper, C. L. (1993). The role of culture compatibility in successful
organizational marriage. Academy of Management Executive , 7, 57-70.
Daniel R. Denison, Bryan Adkins, Ashley M. Guidroz (2011), Managing cultural integration in
cross-border mergers and acquisitions, in William H. Mobley, Ming Li, Ying Wang (ed.)
Advances in Global Leadership (Advances in Global Leadership, Volume 6), Emerald Group
Publishing Limited, pp.95-115
Gnter K. Stahl and Andras Lengyel (2012) Lenovo-IBM: Bridging Cultures, Languages, and
Time Zones Becoming a Global Player (C)
Rottig. D (2007) Successfully Managing International Mergers and Acquisitions: A Descriptive
Framework International Business: Research Teaching and Practice
Hall, E. T. (1976). Beyond culture. New York: Anchor Books
Roberto A. Weber and Colin F. Camerer (2003) Cultural Conflict and Merger Failure: An
Experimental Approach. Journal Of Management Science ,Volume 49 Issue 4, Pages 400-415
Terence Tse and Jerome Couturier (2009) Lenovos Acquisition of IBMs PC Division:

A Short-cut to be a World Player or a Lemon that Leads Nowhere? ESCP Europe Business
School, London
Lenovos tale of two cultures
http://www.washingtonpost.com/business/on-leadership/lenovos-tale-of-twocultures/2013/11/04/4e270704-3cd1-11e3-b6a9-da62c264f40e_story.html
Lenovos corporate culture a key issue as it absorbs IBM
http://www.forbes.com/feeds/general/2004/12/14/generalcoxnews_2004_12_14_engcoxnews_eng-coxnews_093428_6883557114389138522.html?jumpSelect=Select+Section