The Internalization of Lenovo - Term Paper Example

INTERNATIONALIZATION PATH OF LENOVO and Internationalization Path of Lenovo Brief Introduction of Emerging Market Multinational Emerging Market Multinational companies (EMNCs) are those business enterprises that have emerged as major global phenomenon from developing countries. The term emerging markets was first coined in 1981 by economists attending the International Finance Corporation. It is used to denote countries that are trying to catch up with the developed nations in terms of socioeconomic development (Banerjee, Prabhu, & Chandy, 2015 p. 15). These are countries that face the challenge of underdeveloped industrial systems and infrastructure on the one hand, but also experience a fast rate of economic growth on the other hand. The economic growth in these countries often exceeds that of developed nations in some instances. Furthermore, these emerging markets are also characterized by some level of institutional and economic instability coupled with a continuous demographic growth. The multinational world has been for a long time dominated by companies from first world countries such as the US and major economic powers in Europe. Companies such as Coca Cola, Pepsi, Microsoft, Volkswagen, General Electric, Wal-Mart, HP, IBM and Exxon among others have been dominant forces in global business for several decades (Buerki, Nandialath, Mohan, & Lizardi, 2014 p. 9). However, due to significant economic growth experienced in some of the world’s emerging markets has seen businesses in the markets rise to the global stage to offer competition to the established multinationals. According to the World Bank, economic growth in emerging markets such as Brazil, Russia, India, China, and South Africa commonly known as BRICS is likely to surpass that The US, Germany, Italy, France, and the UK in the next ten years (Camillus, 2014. P. 147). This indicates the great potential of these markets in the future. However, the well-established companies on the international scene have already established themselves in these markets with huge investments thereby posing a huge challenge to any emerging businesses in these regions. Nevertheless, the dramatic surge in the emerging markets in the past few years is a major indicator of s significant geopolitical shift in the world (Gaur, & Delios, 2015 p. 242). The other interesting fact is that companies and businesses from these markets have been able to assert global dominance in the past decade despite the challenges they faced as well as the difficulties in implementing the methods and strategies they used in rising to the top (Christofor, 2008 p. 37). As such, the economic revolution experienced in the world as a result of the Emerging Market Multinational has not only attracted to the businesses themselves, but also to the methods they used to rise to the helm of their global industries. These companies have made their mark on the global scene by moving boldly, fast, stealthily, and strategically by negotiating through volatile political and economic environments. In additions, these EMMCs have also leveraged the use of joint ventures and other initial forays to create learning experiences through acquisitions and expansion programs that have driven them to success (Etemad, 2013 p. 48). This is in sharp contrast to the rigid, top-down, and more plodding methods that have been traditionally employed by established multinational companies from the developed world. According to Chuan (2007), suggest a number of reasons that have made these strategies workable for the EMMCs. Most of these companies have emerged from harsh environments characterized by unstable political and economic structures. In addition, there are also other limiting factors such as poor infrastructure, technological challenges, and little capital. However, according to Chuan (2007), these organizations managed to become successful due to their ability and that of their owners to make the most out of their limited resources. They were also comfortable in handling risks, uncertainty, and volatility. Furthermore, most of them are either family-owned or government owned, thereby managing to focus on the long-term development of the company unlike focusing on maximizing the shareholders’ wealth. Type of Emerging Market Multinational One of the companies that have been able to become a global enterprise from the emerging markets is Lenovo. Lenovo was initially referred to as Legend. However, due to a desire to position itself as a global brand in the 1990s, the company changes its name to Lenovo. The name was derived from combining the first two letters of the name legend, ‘Le’ and the Latin word ‘novo’, which means new (De Clercq & Lianxi, 2014 p. 58). Due to its ambition to appeal to the global market, Lenovo has established a unique organizational culture. For instance the company promotes the use of other international languages such as English in their organizations; furthermore, it has established its headquarters in both the US and China. Its headquarters are in Beijing, China and Morrisville, North Carolina, USA. The company’s vision is to transform the world through employing innovations in technology. Its main products are the ThinkPad line of laptops. The company which began in 1984 has been one of the greatest Chinese success stories in recent years. The organization has been able to rise from the status of an underdog in the industry to a global powerhouse in the production of personal computers. The company was founded by Mr. Liu Chuanzhi, assisted by a team of ten scientists and engineers who had no previous experience in marketing or managing any business operations. The company’s initial capital was only 200000 Yuan (Fourné, Jansen, & Mom, 2014 p. 27). The company’s humble beginning saw it establish itself in a small building in Beijing with its main business being the distribution of foreign computers to Chinese locals. The company has many other business ventures failing before it kicked off with manufacturing personal computers (Gonela, 2009 p. 58). For instance, Lenovo had tried marketing imported digital watches and televisions in the local market, but the business was not successful. The first signs of success emerged when the circuit board was developed to help IBM develop PCs that could produce Chinese Characters. Analysis of Emerging Market Where the Company Is Based The emerging market in China is quite unique in relation to the markets in the developed world. China is the most populous nation, implying that there is both ready labor and a ready market for products. Being a communist country, the Chinese maintains a significant level of control over the lives of the people, including economic activities. Since opening up to the international community, China became part of the World Trade Organization. The Chinese government has been encouraging private ownership of businesses and companies in the country in recent years. Some of the top industries in the country include the telecommunications sector, the manufacturing sector, and the service industry. The main currency in use in China is the Yuan. China has also established itself as the world manufacturing center with many manufacturing multinationals setting up their manufacturing campuses in the country. The main advantages of doing business in China include the strong financial services sector, which has evolved over the years to meet the needs of the people. In addition, china’s huge population provides a big market for the businesses that offer good quality products. The privatization trend that has seen most of the public corporations in the country being transformed to private ownership is set to benefit the business sector in the country a great deal. This is likely to spur innovative ways of conducting business in the country. However, there are also some huge challenges for doing business in China. The political climate in the country is considerably unstable. The communist government remains in control of most activities in the country thus limiting the freedom of those opposed to the government initiatives (Zheng, Khavul, & Crockett, 2012 p. 241). Therefore, the potential of unrests among workers is very high. Demonstrate In Which Way the Country Where the Multinational Is Based Represents an Emerging Market Recent developments in China point to the fact that the country is an emerging market. For instance, China has been experiencing massive and rapid economic development in the past ten years. This has seen the country rise to become one of the major economic powerhouses not only in the Asian continent, but also globally. However, despite this huge economic growth, China still experiences many challenges that limit the country from being classified as a developed market. For instance, challenges in the country’s political structure, economic problems such as corruption, a powerful government, and lack of uniform development across the country make China an emerging market (Yuanyuan, Holland, Shengfeng & Weicheng, 2008 p. 67). Furthermore, China does not have an elaborate infrastructure system as well as vast resources to support their industries. This has led to most of the industries being located in the country’s major cities where there are adequate resources. However, a majority of the citizens in the country come from the rural areas, which lag behind in poverty. These discrepancies only contribute to making China an emerging market. Internationalization Path of Company Lenovo is one of the largest vendors of personal computers in the world. As of 2014, the company was the second largest company in terms of units sold globally. Currently, the company has operations in more than 60 nations with its products available in more than 160 countries in different parts of the world. The company’s main competitors are Hewlett Packard (HP) and Dell both from the US and Acer from Taiwan (Yi, Batra, & Siqing, 2015 p. 63). Lenovo began its operations in 1984 operating under the brand name, Legend. It started producing its own computers under the Legend brand in 1989. However, the industry was dominated by major companies such as IBM, Samsung, and HP. The new brand, Lenovo, was born in 2004 when the company began envisioning itself as a global force. The internalization of the company began later in 2005 when Lenovo IBM’s acquired the personal computer business division. This was the first major step that propelled the company to a global presence. Lenovo used this opportunity to improve on its technology and international branding (Xiaoyun, Alex Xin, & Kevin Zheng, 2014 p. 36). Later on, the company also paid additional $ 1.25 billion to acquire the computer business division of IBM. This deal made Lenovo the third-largest company in the industry in terms of its production volume. In 2011, the company took another vital stride by forming a strong joint venture with NEC, a Japanese leading IT company. This led to the establishment of Lenovo NEC Holdings B.V, which was registered in the Netherlands (Thomas, 2014 p. 8). This joint venture deal was very important in catapulting the company to greater heights in terms of expanding its brand across Europe and boosting its sales. Furthermore, Lenovo also acquired Medion, another dominant German electronics company. This helped the Lenovo to solidify its brand in the European market as well as helping the company to set up distribution channels in Europe for its products (Xiaohui, & Buck, 2009 p. 177). In 2012, Lenovo also entered into a deal to acquire CCE, a Brazilian electronics business that sells its products under the brand name digibras (Si, 2014 p. 811). Furthermore, Lenovo also acquired Stoneware, a US-based software company in the same year. This helped the company to expand its cloud computing services. The main strategies the company used for entering into new markets was that of acquisition. However, in some instances, the company formed joint ventures and mergers with some companies to help it enter new markets. The target customers of Lenovo in all of its markets are the young professionals aged between 24 and 40 years who are more enthusiastic about technology (Oortwijn, 2011 p. 98). The company has been able to grow and expand at a rapid rate, especially given the fact that it has only taken ten years for the company to rise to the help of the international market. Following this international expansion path followed by the company, it is clear that its strategy was to retain its market share in the markets that it dominated such as China while still entering new markets in other areas, for instance, its entry into the smartphone business in Europe. Some scholars refer to this strategy as the Protect and Attack strategy (Ladousse, 2009 p. 201). This strategy has seen the company establish itself and dominate in three of its global markets. In addition, it has also enables the company to expand in some markets such as the US, where it has been able to double its market share in just five years. It now has 5% of the US electronics market. Application of Internationalization Theories There are several theories and theoretical models that can be used to describe the internationalization process of major corporations in the world. One of the theoretical models that apply effectively to the case of Lenovo is the Uppsala model. The Uppsala model states that companies usually begin by solidifying their home market before opting to expand to foreign markets (Hilmersson & Jansson, 2012 p. 95). This helps the company to gain sufficient experience which it then transfers to its foreign markets. The model further states that the company begins by reaching out to those markets that are culturally or geographically close to the home market before moving to other distant countries or markets (Henderson, Appelbaum, & Ho,2013 p. 1233). Further ore, companies also begin by using their traditional exports before moving to other intensive and demanding modes of managing their supply chain. This model basically describes the process of internalization of Lenovo. The company took about twenty years building its brand name and increasing its market share in China. This saw it battle some leading organizations in the country to become one of the biggest computer manufacturing companies in the country (Schlager & Maas, 2013 p. 46). Its first expansion project was the acquisition of IBM’s PC division. IBM was best suited for Lenovo because of the extensive relations that IBM had built in China, being the company that created computer systems that could accept Chinese Characters (Heng, Xu, Jianqi, & Xinglu, 2013 p. 84). Therefore, Lenovo and IBM were very close in terms of their understanding of the Chinese market. This was followed by other expansion projects across Europe, Africa, and the Americas. Conclusion Lenovo is one of the few companies that have managed to rise from a humble background in their emerging markets to become one of the leading multinational brands in the world today. The company which was established in 1984 managed to rise over the years to become very competitive in China. Its rebranding to Lenovo was also influential for its global positioning. Lenovo first tested the international market by acquiring the PC branch of IBM. This was followed by other rapid acquisitions, mergers and joint ventures that saw the company increase its market share in the world. Lenovo is currently the second biggest company in the industry in the world. References Banerjee, S, Prabhu, J, & Chandy, R. 2015. Indirect Learning: How Emerging-Market Firms Grow in Developed Markets, Journal Of Marketing, 79, 1, pp. 10-28. Buerki, T, Nandialath, A, Mohan, R, & Lizardi, S. 2014. International Market Selection Criteria for Emerging Markets, IUP Journal Of Business Strategy, 11, 4, pp. 7-41. Camillus, J. C. 2014. The Business Case for Humanity in Strategic Decision Making, Vilakshan: The XIMB Journal Of Management, 11, 2, pp. 141-158. Christofor, J. 2008. Antecedents of Venture Firms Internationalization: A Conjoint Analysis of International Entrepreneurship in the Net Economy. Wiesbaden: Gabler / GWV Fachverlage. Chuan Zhi, L. 2007. Lenovo: an example of globalization of Chinese enterprises, Journal Of International Business Studies, 38, 4, pp. 573-577. De Clercq, D, & Lianxi, Z. 2014. Entrepreneurial Strategic Posture and Performance in Foreign Markets: The Critical Role of International Learning Effort, Journal Of International Marketing, 22, 2, pp. 47-67. Etemad, H. 2013. The process of internationalization in emerging SMEs and emerging economies. Cheltenham, UK: Edward Elgar. Fourné, S, Jansen, J, & Mom, T. 2014. Strategic Agility in MNEs: Managing Tensions To Capture Opportunities Across Emerging And Established Markets, California Management Review, 56, 3, pp. 13-38. Gaur, A, & Delios, A. 2015. International Diversification of Emerging Market Firms: The Role of Ownership Structure and Group Affiliation, Management International Review (MIR), 55, 2, pp. 235-253. Gonela, S. K. 2009. Acer vs. Lenovo: Asian Brands Global Ambitions, ICFAI Journal Of Brand Management, 6, 2, pp. 54-65. Gonela, S. K. 2009. Acer vs. Lenovo: Asian Brands Global Ambitions, ICFAI Journal Of Brand Management, 6, 2, pp. 54-65. Henderson, J, Appelbaum, R, & Ho, S. 2013. Globalization with Chinese Characteristics: Externalization, Dynamics and Transformations, Development & Change, 44, 6, pp. 1221-1253, Heng, L, Xu, J, Jianqi, Z, & Xinglu, Z. 2013. Strategic Flexibility and International Venturing by Emerging Market Firms: The Moderating Effects of Institutional and Relational Factors, Journal Of International Marketing, 21, 2, pp. 79-98, Hilmersson, M, & Jansson, H. 2012. Reducing Uncertainty in the Emerging Market Entry Process: On the Relationship Among International Experiential Knowledge, Institutional Distance, and Uncertainty, Journal Of International Marketing, 20, 4, pp. 96-110. Ladousse, C. 2009. How Lenovo deploys powerful creative sponsorship activation techniques for a global brand, Journal Of Sponsorship, 2, 3, pp. 199-205. Oortwijn, M. 2011. Foreign entry commitment as a human choice: An empirical study of how firm and manager experience impact the entrance decision and entry mode choice through managerial assessment of host country conditions. Raleigh, N.C: Lulu.Com. Schlager, T, & Maas, P. 2013. Fitting International Segmentation for Emerging Markets: Conceptual Development and Empirical Illustration, Journal Of International Marketing, 21, 2, pp. 39-61. Si, Y. 2014. The Development of Outward FDI Regulation and the Internationalization of Chinese Firms, Journal of Contemporary China, vol. 23, no. 89, pp. 804-821. Thomas, E. 2014. Lenovo Agrees to Purchase IBMs Low-End Server Business for $2.3 Billion, China Business Review, p. 8. Xiaohui, L, & Buck, T. 2009. The internationalisation strategies of Chinese firms: Lenovo and BOE, Journal Of Chinese Economic & Business Studies, 7, 2, pp. 167-181. Xiaoyun, C, Alex Xin, C, & Kevin Zheng, Z. 2014. Strategic Orientation, Foreign Parent Control, and Differentiation Capability Building of International Joint Ventures in an Emerging Market, Journal Of International Marketing, 22, 3, pp. 30-49. Yi, X, Batra, R, & Siqing, P. 2015. An Extended Model of Preference Formation Between Global and Local Brands: The Roles of Identity Expressiveness, Trust, and Affect, Journal Of International Marketing, 23, 1, pp. 50-71. Yuanyuan, Y, Holland, R, Shengfeng, Q, & Weicheng, W. 2008, Development of a Customer Experience- Based Brand Strategy for the Lenovo Group to Explore the UKMarket, Design Management Journal, 3, 1, pp. 60-68. Yuanyuan, Y, Holland, R, Shengfeng, Q, & Weicheng, W. 2008. Development of a Customer Experience- Based Brand Strategy for the Lenovo Group to Explore the UKMarket, Design Management Journal, 3, 1, pp. 60-68. Zheng, C, Khavul, S, & Crockett, D. 2012. Does it transfer? The effects of pre-internationalization experience on post-entry organizational learning in entrepreneurial Chinese firms, Journal Of International Entrepreneurship, 10, 3, pp. 232-254. Read More