Lenovo Group Limited

Lenovo Group Limited (SEHK: 0992) is a Chinese Multinational electronics and computer corporation which was founded 1984 in Beijing, China. Its headquarters are now in Mossisville North Carolina, United States and Beijing, China. Its products include personal computers, tablets, mobiles and workstations. It serves all around world includes, 160 countries.

From the first six years of the Lenovo, the company did not have their own personal computer brand in the market, it was only a small accessories vender for the huge computer manufacturers such as IBM. In the year of 1990, Lenovo started to manufacture and market computers using its own brand name.

From the year 1996 to 2000, Lenovo became the largest PC Company in the Chinese market, and finally became a constituent at the Hong Kong stock market and start to trade publicly. At that time, the top management of Lenovo were not just satisfied with first place in China, they wanted to become more competitive in the global market. However, they fail the competition around the world because they did not have any reputation and the price advantage compare to Dell and HP. Then the company set a long-term plan which focused on emerging markets and overseas M&As. Under this circumstance, the IBM’s PC department became the biggest target for Lenovo.

During the first five years of 21st century, IBM’s PC department was facing a very difficult time. According to the IBM financial statements from 2001 to 2004, the PC division lost about total one billion dollar in the global market. Dell and HP took a huge market share from the IBM PC unit, the department was no longer profitable for the corporation. The IBM top management decided to sell their unprofitable PC unit to a company to reduce their financial burden; their decision exactly fit Lenovo’s long-term development plan. Lenovo and IBM started to negotiate in May 2002. After one and a half year negotiation, the two sides finally made an agreement about the acquisition. From the November 2003 to December8, 2004, this acquisition process lasted about one entire year. At December 8, 2004, Lenovo announced the completion of the acquisition of IBM’s global personal computer business. For this acquisition, Lenovo paid in total 1.75 billion to IBM Corporation, and IBM traded their whole notebook, desktop business and other related businesses including the customer service, distribution and marketing channels to Lenovo. After the acquisition, Lenovo became the world’s third largest computer maker by volume.

However, after the merger and acquisition, Lenovo faced various serious problems which decreased profits of the company significantly in the next years. The cultural difference, high salary cost, financial distress, and difficulties in integration took a lot of effort to solve.

The first and most important problem is the big gap of the salaries between the employees of Lenovo and the employees of IBM. Some newspapers announced that there was a seven times gap between the employees of Lenovo and IBM employees. Some of the Lenovo employees felt that they had been treated unfairly and left the company. On the other hand, IBM employees did not have faith of the Lenovo management that Lenovo management would not lower their salaries, so some of them also left the company. Lenovo lost some of their important employees which deeply harm their operation and the working environment. The top management then set a salary plan which is not to change the salary of the employees of IBM within 3 years and transformed their IBM stock option in to stock option of Lenovo. For the Lenovo employee they also decided to increase their compensation and training activities. Most of the Lenovo employees were satisfied with the plan because their salaries will increase in upcoming years, and IBM employees also gained some benefits from the plan. The human resources and salaries problem was solved with this plan.