Cross-border acquisition is a popular choice for organisations to achieve competitive advantages and access new markets in the world. In 2004, Lenovo acquired IBM’s personal computer (IBM PC) sectors in order to grow and prosper. As Lenovo is a localised Chinese company, the acquisition is called ‘a snake swallowed an elephant’ and viewed cynically by many researchers (Peng, 2008). However, Lenovo has achieved successful cross-border acquisition because Lenovo is one of top players in international computer market now with increasing profit (Peng, 2008). During the post-acquisition period from 2004 to 2008, Lenovo’s business performance improved a lot, for instance the revenue and profit showed an dramatically increased tendency (Appendix 1). Since many failures of cross-border acquisition assigns blame to the cultural differences, or precisely, cultural integration, this essay seeks to explain how the successful cross-border cultural integration was achieved in the case of Lenovo and IBM PC.
In this essay, both of national cultural and organisational cultural distance would be explored through the comparison and analysis of national culture between Lenovo and IBM PC. It will focus on the challenges of culture distance posed on Lenovo’s cross-border acquisition. Some other acculturative factors also will be discussed in order to analyse the cultural integration strategy of Lenovo. All of data about Lenovo’s cultural integration are collected from secondary research.
Background of Cross-border Acquisition
> Differences of National Cultures between China and America
Hofstede’s cultural framework involves five culture dimensions, including individualism/collectivism, power distance, uncertainty avoidance and masculinity/ femininity (Hofstede, 1991). As the following graph shows that both of the index of power distance (PDI) and long-term orientation (LTO) are significant higher in China than those in the USA; America is higher than China in the aspect of individualism (IDV); only the levels of Masculinity (MAS) and Uncertainty Avoidance (UAI) China and America are similar. Since the differences of the index of MAS and UAI are smaller, the following national cultural analysis will focus on the other three dimensions which are more comparative.
(Source from Website Geert-hofstede)
– Individualism ; Collectivism
According to Hofstede (1984), China is country with a high collectivism, and people are more concerned about members of group and sustain social harmony and have a high loyalty with group achievement. For example, people and company do not alter their partners lightly because they are afraid of the impact on relationships (Geert-hofstede, non.). On the contrary, US has a high individualistic culture. People in such individualistic culture are more focused on the people who they perceived as in-groups (Hofstede, 1991, cited in Brock, 2005). In the context of business, American people are more likely to display initiative and emphasise their personal rewards or duties (Hofstede, 1991, cited in Brock, 2005).
– Power Distance
China is a high power distance country. It means that Chinese people is more adaptive the inequalities society. In the context of business, Chinese employees expect paternalistic leadership and the hierarchy is clear in their working system while American employees prefer a consultative management style since America has a low power distance culture (Hofstede, 1983, cited in Peng, 2008). The big difference showed between American and Chinese cultures is that the hierarchy is built for convenience in American companies while it is formed in an aim to show the differences in authority in Chinese companies (Hofstede, 1991, cited in Brock, 2005).
– Long Term Orientation / Short-term orientation
The long-term/short-term orientation is correlated with patience in achieving results and goals (Hofstede ; Minkov, 2010). China is a highly long-term oriented country where is deeply influenced by confusions. Chinese believe in that persistence and perseverance are virtue which will improve the sustainable success. In business, Chinese businessmen prefer to look at long-term interests through establishing outstanding inter-relationship. However, America is a country with short-term orientation which tend to follow traditions and to achieve social obligation (Hofstede ; Minkov, 2010). In the USA, the business performance will be quarterly measured based on financial statements. They pursue short-term performance.
In addition, the language as a part of national culture also posed a communication challenge in the cross-border cultural integration (Peng, 2008). Zhang Jin, Lenovo China’ president of HR, frankly said “the most basic and direct challenge is from language difference, namely, the English communication ability” (Peng, 2008). Through the analysis of the cultural differences between China and America, it is found that the national cultural distance is large between Lenovo and IBM PC.
> Differences of Organizational Cultures between Lenovo and IBM PC
Apart from the national cultural differences, the organisational cultural distance between Lenovo and IBM PC also will be discussed. According to Lorsch (1986, p.95. cited in Tung, 2009), organizational culture is defined as “shared beliefs top managers in a company have about how they should manage themselves and other employees, and how they should conduct their business(es).”
Dickie (2005) recorded the chief financial officer of Lenovo, Mary Ma’s opinion that ‘the national gulf is actually less of an issue than the difference in culture between a youthful Chinese venture only in its second generation of leaders and a global giant with long history’. Therefore, her opinion implies that the most influential cultural difference in this acquisition is the difference of organisational culture between Lenovo and IBM PC. As for the organisational cultural differences between Lenovo and IMB PC, they are mainly appeared at their different management style, decisions modes and incentive systems.
– Management style
American senior managers from IBM PC have complained that their Chinese subordinates are unqualified because they are lack of initiatives, hardly give their opinions and less contribution in every meeting (Yi, 2010). The reason why these employees performed in such ‘silence’ way is that the hierarchical perception is embedded in their mind and they have no authority to question their manager’s decision. The working environment in Lenovo is much more stereotyped and hierarchical and employees are expected do their worker just follow their superiors. This misunderstanding may be caused by the national cultural differences since Chinese has high power distance while America is a low power distance society.
In addition, most of the top managers in Lenovo had little working experience in international companies before the acquisition while IBM PC as a sector of IBM, their managers had equipped with adequate international management ability (Li, 2005). It implies that their management style would be different because the manager in Lenovo could not consider problems from an international perspective when they manage the IBM PC after acquisition.