Chapter 8 Case 2 Lenovo: The Confusion of Chinese Representatives

Among several cross-border mergers and acquisitions related to Chinese companies, Lenovo's acquisition of IBM PC is the most unique one.This uniqueness is reflected in many aspects, even a bit complicated, but several details after the history are unforgettable: On the morning of December 8, 2004, Liu Chuanzhi walked into the Lenovo press conference at the Crowne Plaza Hotel Beijing Wuzhou with a smile on his face. After he announced Lenovo's acquisition of IBM PC with enthusiasm, many reporters also wrote down a few data that he inadvertently revealed : It took Lenovo 13 months to negotiate the acquisition with IBM, and the agreement signed by the two parties was more than 1 meter high... Several data were resounding, and they were quickly spread on the Internet in the following time, which became a good story.

Compared with the above two data, Liu Chuanzhi's other remarks conveyed more information.In the face of reporters' questioning, Liu Chuanzhi frankly stated that when he first talked about this issue with IBM three years ago, he was stunned, because at that time he thought it was no less than an "Arabian Nights". "Things that you can't even think about (Lenovo)". The facts are indeed true. The entire industry was shocked by the incident on December 8, 2004. Although Lenovo has been in the center of public opinion due to events such as changing the logo and joining the TOP sponsorship of the Olympic Games, and earlier in 2004, TCL acquired the French Tom The Xon incident made the media excited again, but when Lenovo’s acquisition was announced, public opinion boiled again. In media reports, it was repeatedly emphasized that IBM is the originator of the personal PC and a symbol of the American spirit. Lenovo’s acquisition of IBM is a An unprecedented event... Such an honor pushed Lenovo to an unprecedented height, and at the same time pushed it to the extreme of media attention. On December 14, Lenovo held a press conference and pointed out that in just 6 days, there were 224,000 pieces of news pointing to Knowing about Lenovo's merger and acquisition, Lenovo was flattered.

But history is always like this. It will put a rosy aura on an event, but at the same time it will wash away the lead. In the fourth quarter of 2005, Lenovo reported a loss of HK$902 million!Although people in the industry explained that Lenovo was doing mergers and acquisitions in order to make such an announcement, this data still cast a shadow of confusion on many followers; and it was not until August 3, 2006 that Lenovo announced the 2006 In the financial report for the first quarter of 2005, in this well-crafted report, Lenovo marked the first-quarter revenue at an integer of 3.5 billion US dollars, and announced a profit of 5 million US dollars, compared with 45.9 million US dollars in the same period in 2005... For a while, public opinion exclaimed, what happened to Lenovo?

Compared with the overwhelming pride and admiration at the beginning, when the rose-colored wreath recedes, the real side of things will be revealed.In fact, regarding Lenovo's acquisition of IBM PC, doubts in the industry have always existed, and such doubts are congenital, because the story of Lenovo and IBM began long before the merger... If anyone in this world would know Liu Chuanzhi's thoughts, would the following old proverb leave a deep imprint on Liu Chuanzhi's heart? "There are only wrong ones, not wrong ones." For the traceability of IBM, we have to go back to the 1980s. In 1981, the first personal computer manufactured by IBM came out, which also announced the advent of a new era.Since then, the rapidly rising personal computer market has brought IBM into unprecedented glory.A few years later, this company that started with a small computer has become a "big blue".And this situation changed until the birth of another person. In 1985, Dell, who was only 20 years old, told his father that he would give up college because he had found a way to beat IBM.The fact is indeed the case. Dell, which was established in 1985, has always existed as a strong opponent of IBM. By the 1990s, the world's personal computer market had changed: Losses began to appear, and by 1998, the loss of its PC business reached 992 million US dollars, while in the same period, Dell Computer, as a competitor, has maintained a profitable state.The world's personal computer market also rapidly differentiated, and some brands in the later period continued to rise. Hewlett-Packard, Toshiba, Sony, etc. all occupied a place in the world, which further compressed IBM's living space.

On the other hand, IBM found that the world trend is also changing: After a long period of research, IBM predicts that the profits of computer hardware will continue to decrease. to about 42%; on the contrary, the profits of software and services accounted for the profits of the entire IT industry will continue to rise, from 29% in 2000 to 41% in 2005. This change shows that the entire The future trend of the IT industry also determines the direction of IBM's future industrial adjustment. In July 2002, IBM announced the acquisition of the world-renowned PricewaterhouseCoopers Consulting Company with a huge sum of US$3.5 billion. As a result, IBM will establish a professional IT service department with thousands of people and formally transform into an IT service company.On the other hand, since 2001, IBM has been extensively looking for a next home that can take over the IBM PC department. IBM expects to complete a major transformation of the company by spinning off its loss-making PC manufacturing unit.After a series of tortuous blind dates, Lenovo gradually surfaced and became IBM's favorite husband's family.

Lenovo went abroad to enter IBM's field of vision, but experienced a different situation.An interesting fact is that since 2000, books about Lenovo began to spread out. The more well-known ones include "Lenovo Unlimited", "Lenovo Breathing", "Lost Lenovo", "Lenovo Reinvention", "Lenovo Wind and Cloud" and so on. These books also just reflect the bumpy stories of Lenovo along the way. In 2001, Lenovo, which started with 200,000 yuan, has gone through 17 years and has become a famous computer company.In this year, Lenovo formulated a diversified development strategy, hoping to develop into many different business fields, find new markets, and enter the ranks of the world's top 500.At that time, Lenovo chose three IT-related industries: the Internet, IT services, and mobile phone business.

In August 2000, Lenovo became a shareholder of Yingshitong and obtained 40% of its shares, which sounded the clarion call to enter the Internet; in December 2000, Lenovo cooperated with New Oriental to establish New Oriental Education Online; in June 2001, Lenovo and AOL cooperates to jointly establish FM365 website.In the field of IT services, Lenovo completed three mergers and acquisitions in 2002, including the acquisition of a 51% stake in Hanpu Consulting for 55 million Hong Kong dollars; the acquisition of Zhiruan Computer Development Co., Ltd. for 23.33 million yuan; Systems LLC.In the field of mobile phone business, Lenovo invested 90 million in 2002 to establish a joint venture with Xoceco Electronics Co., Ltd. Lenovo Mobile Communications Company.In the following three years, Lenovo invested a total of more than 1.25 billion Hong Kong dollars, of which more than 1 billion Hong Kong dollars were invested in the Internet business, and 150 million Hong Kong dollars and 100 million Hong Kong dollars were invested in the mobile phone and IT service industries.

Although Lenovo has made a bold plan and paid a huge cost, after three years of diversification, Lenovo has not become a Fortune 500 company with a revenue of 60 billion yuan. On the contrary, it has shown a deteriorating trend: 2003 In the first fiscal year, Lenovo's revenue was only more than 20 billion yuan.In the field of Internet business, due to the collapse of the Internet bubble, Lenovo withdrew from the Internet across the board; in 2004, Lenovo released a new strategy, and mobile phones became a business second to the main business of PC; shortly thereafter, Lenovo packaged part of the IT service industry to AsiaInfo Technology ...

The failure of diversification made Lenovo stand at the crossroads of a new choice, and at this time the increasingly obvious trend of globalization made Lenovo have to consider the road of internationalization.The power of history pushed the protagonists of a show together, so on December 8, 2004, Lenovo and IBM walked to the center of the stage together, but the pair of "newcomers" who were about to combine had two very different processes We came together, and confusion was buried on the road of Lenovo at that moment. Although today's Lenovo is trying to keep a low profile: delaying the release of financial reports, handling data carefully, explaining the reasons carefully, and even trying to maintain a soft style when changing the CEO in December 2005, all of this can't hide the problems Lenovo is facing at this time. puzzles and challenges.Especially when William J. Amelio replaced Steve Ward as President and CEO of Lenovo, it was often reminiscent of the handsome event that occurred after HP acquired Compaq: it was called "the world's "The most beautiful female CEO" Carly Fiorina lost her job because she advocated HP's acquisition of Compaq and implemented changes through strong means.Carly's dereliction of duty is related to many factors, but one of the most important points is considered to be the failure to transform the M&A culture. Lenovo's change of handsomeness, although not as colorful as the Carly incident, also shows the challenges Lenovo faces after the merger. cultural conflict.

After Lenovo announced the acquisition of the IBM PC department, in order to appease the feelings of American employees, it quickly decided to move its headquarters to New York, USA.But how effective this change in form is in improving cultural conflicts remains a mystery.Shortly after Lenovo's acquisition of IBM PC, the "International Finance News" published a piece of news: "In order to comply with the internationalization strategy, Lenovo stipulates that senior leaders learn English for one hour a day, and Liu Chuanzhi takes the lead in learning." The report is full of praise, But it reflects a major problem of Lenovo - language differences.And to solve this problem, can it be made up by one hour of charging every day?On the other hand, IBM is a multinational knowledge-based company that emphasizes equality and a higher degree of freedom, while Lenovo is a Chinese local company with strong control based on market capabilities. These two completely different corporate cultures are inherently different. There are conflicts, coupled with Lenovo's lack of international management experience, how to deal with the cultural integration of employees from different countries, different cultures, and different companies has always been a puzzle.A simple example is that in China, domestic managers and employees can work hard day and night as long as the task indicators and schedules are issued, but when faced with Western managers and employees who value quality of life and labor security , everything in the country will be invalid, what should Lenovo do?

At the same time, conflicts of interest will become more apparent.We all know that China's biggest domestic advantage is cheap labor, which is not only reflected in basic manufacturing departments, but also in middle and high-level management departments.When it was originally a mainland company, Lenovo was able to maximize its advantages, and it also had a huge advantage in participating in international competition.But with becoming an international company, former competitors have become today's colleagues, but the huge income gap between domestic and international will become a ditch in the hearts of all Lenovo people.Once this unbalanced psychology breaks out, it will be dangerous. On the one hand, Lenovo wants to ensure its advantages in the domestic market and balance the mood of domestic employees; on the other hand, if it chooses to lay off employees abroad, Lenovo must pay high severance pay. At the same time, it will also lead to a brain drain. How should Lenovo handle the trade-offs here? The most important point is that the goal of Lenovo's acquisition of IBM PC is to purchase on a global scale after completing global supply integration, so as to obtain the advantage of scale cost; especially after completing the integration of sales channels, Lenovo can integrate China's low-cost business The sales model is extended to the world.But there is still a huge question: Lenovo’s biggest opponent in supply chain integration is Dell’s direct sales model. Previously, IBM and HP had considered copying Dell’s “zero inventory” direct sales model, but they were not successful. , This also directly led to the occurrence of today's IBM's sale of the PC department.Moreover, in terms of sales channel model, Lenovo and IBM have huge differences: IBM adopts a national agency system, while Lenovo uses a city agency system.From the perspective of capital flow, IBM has a 30 to 40-day billing period for picking up goods; Lenovo buys goods in cash, and the billing period does not exceed 3 days. The difference here will directly affect Lenovo's final fate. In fact, the financial data of Lenovo and IBM in 2005 and 2006 have clearly shown the stark difference.On the day Lenovo announced the acquisition of IBM PC, Lenovo's share price fell by 3.74%, while IBM's share price rose by US$0.55.The same difference is also reflected in the financial reports of both parties. In the first quarter of 2006, Lenovo's financial report profit was only 5 million US dollars, a decrease of nearly 90% compared with the same period of the previous year; while IBM's financial report for the third quarter of 2006 showed that after the company divested of the PC business, it increased by 47% year-on-year, with a net income of 22.2%. One hundred million U.S. dollars.it is more than words. However, although Lenovo at this moment cannot express a thousand words, one thing is worth affirming: when China decided to join the WTO in 2001, it was doomed that Chinese companies will enter the global environment, and it is only a matter of time before they go out.Therefore, Lenovo's step abroad is almost equivalent to a big step for Chinese companies; and the final result of Lenovo is still unknown, but one thing is certain: the confusion that Lenovo encounters today is the future of Chinese companies. You will encounter confusion, and if Lenovo can answer the question, it will become China's answer. This is the meaning of Lenovo China representative. I very much agree with Lenovo’s merger, and I also know that their losses will definitely come. The reason here is very simple: once we establish that the logic that determines the company’s life and death is customer value, once we understand that the main contradiction facing Chinese companies is still the issue of life and death , then we need to make an evaluation of the achievements of Chinese enterprises in the past 20 years: How many of these successes are successes in the sense of customer value? The Chinese market is a special market. Due to historical reasons, consumption desires that have been suppressed for many years have exploded in just over ten years.In the West, however, this process was completed gradually, and it took about 60 to 70 years.In other words, in a rapidly changing and expanding market like China, one of the great benefits is that it brings countless opportunities to enterprises.It is not difficult for us to understand why the main ways for Chinese companies to compete are "price wars" and "concept speculation battles"?In turn, we have to ask, will consumers always be like this?Of course not. In that case, how much of the so-called successful experience is real customer value? Liu Chuanzhi's management thinking and experience far surpassed many entrepreneurs of the same era, but their management thinking and experience were created in such an immature and irrational market environment after all, so their internationalization The road is actually a process of self-evolution and a process of finding real customer value.The real way of business is to hope to understand the needs of customers, help customers to mature rationally, and establish a win-win industrial structure with competitors.The internationalization cases of Toyota, Sony, and Samsung have successively proved that only by jumping out of the stage of low-cost product manufacturers and approaching business with the mentality of an innovator and a strong man can we truly succeed. Generally speaking, mergers and acquisitions are a shortcut to quickly expand to a large scale. Many Chinese companies are trying to gain market share or even some core advantages (such as key technologies and marketing channels) through international mergers and acquisitions. wrong.However, a large number of studies have shown that such international mergers and acquisitions have two fatal flaws for enterprises: one is the information asymmetry at the time of mergers and acquisitions, and the other is the difficulty of integration after mergers and acquisitions. Moreover, the leaders of some Chinese companies lack basic common sense and do not know what they need to know about the acquired party. In the absence of basic work, they rely on some experience in China's local market and a kind of understanding of the international market. Imagine, implement international mergers and acquisitions.As a result, post-merger integration is fraught with difficulties.Due to the lack of prior knowledge of the relevant laws and regulations of the country where the acquired party is located, after the merger, it will be found that these laws and regulations have become insurmountable barriers to achieve the purpose of integration, and potential cultural conflicts may be even more serious hidden dangers. In fact, Chinese companies often pay more attention to cost reduction in post-merger integration, because Chinese companies have certain experience in reducing costs, but lack experience in using advanced marketing methods to achieve revenue growth in developed markets.This fact eventually leads to fundamental mistakes in the merger and integration strategy, because it is difficult to reduce the cost of European and American companies, and once the revenue growth declines, the companies will be forced to cut expenses more excessively, which will not only lose weight, but hurt the muscles and bones.A Chinese merger and acquisition company that is stuck in cost control will eventually lose its growth momentum and source because of the loss of balance.