Case study

Lenovo’s Acquisition of IBM’s PC Division:
A Short-cut to be a World Player or a Lemon that Leads Nowhere?

1. General presentation

2. Identification of problem, causes and negative effects

Strategic problem definition: • Acquisition of IBM – PC division as part of the expansion strategy.

Causes: • Lenovo was number 9 on PC market and had 2.2% market share worldwide and therefore it wanted to increase its market share position. • Lenovo became a market leader in China with 27% market share and wanted to expand. • They first tried to diversify into non-PC areas but they failed and consequently they decided to concentrate only on PC-products. • …show more content…

3.5. Not to pursue PC-related expansion; pursue non-PC expansion by acquiring LG Smartphone division.

Advantages • Non-PC products bring in more sales than PC-related ones (56.6% of IT sales are non-PC); smartphones in particular have the potential to become very popular. • Lenovo would add product lines and have a wider product portfolio. • The company could develop a well-thought-out strategy by learning from the mistakes it made the first time it tried to internationalize this way. • Make use of LG screen technology.

Disadvantages • No knowledge of the field. • LG not a big brand in smartphones. • Tough competition in smartphone market. • Reputation in non-PC field already spoiled by first failure. 4. Choosing the best solution

Optimal choice: acquisition of IBM’s PC division (solution no. 3.1.).

Benefits comparison • It is the only option which offers the opportunity of rapidly and considerably gaining economies of scale – Lenovo would become the 3rd biggest producer on the market, so acquiring its production facilities means instant increase in production quantity and speed, thus lowering average production costs.

• It is the option which allows for the fastest increase in market