Lenovo began in Beijing in 1984 as the "New Technology Development Center," a start-up of the Chinese Academy of Sciences. The practice of government organizations arranging commercial businesses was quite common at the time and was called "guoyou minying," meaning "state-owned, people-managed." The Academy hoped it would be a source of income to make up for government budgeting shortfalls.

In 1988, the start-up company expanded its operations into Hong Kong and adopted the name "Legend Computer Group Co." Over the next decade, Legend adapted to a role distributing American- and Japanese-made computers and learning trade strategies by partnering with companies such as Intel and HP. Eventually, the company introduced its own self-branded PC, which, with the help of favorable market conditions and government benevolence, began to dominate the Chinese PC market. However, the company sought global expansion. The company name was changed to "Lenovo" since "Legend" was a name already claimed on the international market. In 2004, Lenovo seized the opportunity when IBM announced that it wants to sell off its PC division and only focus on the enterprise business. This was a critical expansionary step allowing Lenovo to eventually obtain the largest share of the international PC market.

As one global business director at Lenovo reported, "We believed that through this acquisition, Lenovo can reach the designated position at one step...and we can benefit from this acquisition in three areas: global market, valuable brand and advanced technology." However, the acquisition came with risks. Lenovo, a much smaller company, had only a fourth of the capital that IBM had at the time and the popularity of the Lenovo brand was limited to China.

Beyond the logistical challenges, the business anticipated difficult culture clashes. As one Chinese consultant stated, "The cultural challenges are going to be big. [...] Lenovo hasn't had a particularly successful track record of partnerships with foreign companies."

Culture clashes indeed proved difficult to manage as the two companies combined operations. However, with time and effort, Lenovo was able to achieve cultural synergy and is regarded today as an integration success story.

This analysis follows the M&A Synergies Framework, developed from careful research of cross-border M&A cases and existing social psychology theories. The framework, as utilized in this application capacity, outlines important considerations when approaching cross-border mergers and acquisitions, especially between U.S. and Chinese counterparts. This analysis addresses communication, behavior, management, environment, and accounting and finance in the context of the Lenovo-IBM integration and provides insights that can apply to future similar transactions.

Q1(a). As a manager of IBM, discuss the advantages of carving out the PC division? Also analyze the alternatives available for carrying out this corporate restructuring process.

Q1(b). Discuss Lenovo`s motivations for acquiring IBM`s PC Division while throwing light on the type of acquisition.

Q1(c). Discuss and examine the new risks Lenovo is going to face while running the newly acquired international PC business from IBM.