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.

University Degree Business and Administrative studies

Henley Business School

How to achieve a successful cross-border cultural integration: Learning from Lenovo and IBM PC

Introduction

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 ...

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Management style

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.

Decision Modes

In IBM, the power distance is low. Employees works in a democratic environment, where is less obsession of hierarchy. In order to make democratic decisions, IBM sets up a series of bilateral communications ways to collect employees’ opinions (Li & Wu, 2007). As for Lenovo China, its decision mode shows a high power distance. The decision mode in Lenovo is that subordinate just to follow and implement instructions made only by superiors. The advantage of this mode is time saving and effective in perform decision; however, it ignores grass-roots voice. This kind of mode would not be acceptable by IBM PC employees who prefer to consultative style in decision making.

Incentive system

As for the salary and remuneration system, it should be noted that IBM is with high rate in bonus, and low late in salary, whereas Lenovo is in an oppositive situation (Li & Wu, 2007). The employees from IBM PC would resign as a result of less willing of accepting Lenovo’s incentive system but Lenovo desires to retain the talents of IBM PC in an attempt to learn their managerial skills and improve its R&D capability through this acquisition (Peng, 2008).

However, based on the Peng’s quantitative survey (2008), it is found that the differences in major value and commitments between them are small. For example, the missions/values between those two companies are similar. The core value of Lenovo is “customer focus, accuracy, honesty and creativity”; and IBM valued “customer focus, creativity, honesty and responsible” (Peng, 2008, p58-59). Those similarities reduce the obstacle of acquisition for Lenovo.

Challenges of Cultural Differences posed on Cross-border Integration

For companies, the main purpose of acquisition is to maximise the effective synergy of new company. However, undervaluing the impact of cultural differences would result in fail cultural integration and thereby affect the realisation of synergy as well as affect the success of cross-border acquisition (Stahl & Voigt, 2008; Sarala, 2010). As Stahl and Voigt (2008) states that culture differences between acquired and acquiring companies are negatively related with synergy realization as the poor culture compatibility would limit the effectiveness of tasks integration. Consequently, cultural integration is extremely important to achieve the synergy and the success of acquisition.

Impact of national culture

Several studies show that the national cultural differences posed challenge in cross-border acquisition. Brock (2005) pointed out that the differences of national culture loaded pressure on the post-acquisition resource sharing and complicated the cultural integration. Weber et al. (1996) found that lack of national cultural fit could produce a negative attitude of acquiring company toward to acquisition based on the affection of staff. This finding also displayed in the Kramer’s study (1991, cited in Peng, 2008), which suggests that the members in acquired company or acquiring company may show a biased attitude to the other group in acquisition comes from different national culture and undermine the achievement of synergy. Moreover, the turnover in top management may be taken place due to the national cultural differences and thus the managerial costs are increased (Krug & Nigh, 1998).

Impact of organisational culture

Even though organisational culture is one of subcultures of national culture, and rooted in national culture to a certain degree, according to Stahl and Voigt (2008), organisational culture is the most relative element in cultural integration.

Most wisdom believes in that similarities in organisational culture between different companies are able to ease the achievement of coherence so as to accelerate the integration (Sarala, 2010). Meanwhile, the difference in organizational culture is the main reason for the integration conflicts as well (Sarala, 2010). Problems would be occurred because two different companies have difficulty in understanding each other in term of organisation culture and affect the efficiency of integration, and hence pose a drag on the success of cross-border acquisition (Nahavandi and Malekzadeh, 1988). David and Singh (1993) showed the similar view that culture ambiguity would be caused by imperfect understanding of organisational culture in both acquiring and acquired companies. Even though the predominant culture is distinct, most of organisational members cannot make sure they are able to adapt the new one, so the conflicts would be likely increased after acquisition (Datta, 1991). Stanwick (2000) states that the cohesion between the sectors in the acquisition will be undermined if the acquirer force the acquired company accept its culture, and therefore the synergy would not be realised. Therefore, underestimating the importance of organisational cultural integration would result in fail cross-border acquisition (Schraeder & Self, 2003).

Since the impact of cultural differences on cross-border acquisition is significant as discussed above, as a whole, understanding the cultural differences between the sectors in the cross-border acquisition is useful to choose an appropriate cultural integration approach.

Acculturation Factors on Cultural Integration in Lenovo

Although there is a tendency that the acquisition researches from the cultural perspective concentrate on the impact of cultural differences, some additional acculturation factors derived from the theory of acculturation should also be taken into account since these factors have revealed their significant influence in cultural integration (Sarala, 2010; Nahavandi & Malekzadeh, 1988).

Acculturation can be identified as a process of cultural changes that occur when different cultural entities contacts with each other (Berry, 1980, cited in Sarala, 2010). According to Winthrop (1991, cited in Hewege, 2011), the acculturation theory originates from the study in relation to cultural adaptation in the context of immigration. In the 1980s, this theory has been applied to management field to cope with the organisational cultural integration through increasing research (Nahavandi & Malekzadeh, 1988; Sarala, 2010; Hewege, 2011; Stahl & Voigt, 2008). These quantitatively examined factors derived from the theory of acculturation include organisational cultural preservation, partner attractiveness and organisation relatedness.

- Attractiveness of Partner

The first factor is attractiveness of partner. It is identified as the degree of attractiveness of the combining sectors in acquisition appeal to each other (Buono & Bowditch, 1989, cited in Sarala, 2010). It is in relation to the strengths embedded in the organisational culture. If the quality of organisational culture in the acquiring company is considered as superior to the acquired one’s, the organisational member in acquired company will accept the cultural integration with less conflict, and vice versa (Haunschild et al., 1994; Larsson & Lubatkin, 2001). Consequently, the attractiveness of the parties in acquisition, either the acquirer or the acquired company, is able to decrease integration conflict (Salar, 2010).

As mentioned above, some management practises (e.g. incentive system) is really different between Lenovo and IBM PC. In addition, the reputation of Lenovo was significant lower than IBM PC’s in international market since Lenovo was just a localised company in China before the cross-border acquisition (Peng, 2008). Lenovo’s maturity of management practices was exactly lower than IBM PC; at least, Lenovo lacked the international management experience, the staff from IBM PC may not trust Lenovo’s international management ability. As a result, the attractiveness of the acquirer Lenovo is lower to IBM PC in the acquisition. Because of the desire of getting foot in international market and gaining access to more mature managerial skills through this acquisition, in contrast, the attractiveness of IBM PC is strong to Lenovo so as to the level of integration could be reduced and hence less conflicts (Peng, 2008).

- Organisational Cultural Preservation

Secondly, organisational cultural preservation is viewed as the degree to which the combining sectors in acquisition expect to retain their existing culture (Nahavandi & Malekzadeh, 1988). Due to the dominant role of acquirers, they are more likely to impose culture on the acquired company since the acquired companies are recognised as losers by acquirers (Nahavandi & Malekzadeh, 1988; Haunschild et al., 1994). This condescending attitude is more likely to embarrass and irritate the acquired company and may increase the integration conflict. On the other hand, the preference of cultural preservation in acquired company can also hinder the integration and may affect the success of acquisition as the cultural self-identity of acquired company is too strong and it may resists to cultural changes (Elsass & Veiga, 1994; Salar, 2010).

In the case of Lenovo and IBM PC, the employees in IBM PC are very proud of being part of IBM (Peng, 2008). Moreover, the long enterprise history and mature organisational culture of IBM has embeded in the mind of its employees. It implies that employees in IBM PC have a higher cultural self-identity to the organisational culture of IBM PC. If Lenovo coercively impose its culture on IBM PC, it can also be deduced that the brain drain may take place after the acquisition because the talents could not accept Lenovo’s organisational culture (e.g. incentive system), and conflicts may be triggered due to cultural crash. While, one of motives of Lenovo’s acquisition is to achieve the talents of IBM PC in order to improve R&D capability (Peng, 2008). Consequently, the post-acquisition synergy could not be achieved, and it will trigger the failure of the cross-border acquisition (Stahl & Voigt, 2008).

- Organisational Relatedness

Finally, organisational relatedness can be interpreted as the extent of similarities of the acquisition partners in the sectors of business practises. Since the relatedness is closer between the acquired company and the acquiring company, the level of cultural integration is lower and thereby the integration conflicts are decreased (Nahavandi & Malekzadeh, 1988; Stahl & Voigt, 2008). On the contrary, the high level of cultural integration resulted from less relatedness will increase the conflicts. In this respect, organisational relatedness is considered as a moderator of the conflicts arising from cultural differences to integration (Stahl & Voigt, 2008; Sarala, 2010).

In fact, according to the results of internal employee survey, Lenovo found that its major values and commitments are not very different from IBM’s (Peng, 2008). It means that the organisational relatedness between Lenovo and IBM PC is close, and it can facilitate the cultural integration of Lenovo with less organisational cultural crash resulted from the relative low requirement of cultural integration.

As a whole, Lenovo seems would face a lot of challenges posed by cultural differences, including low attractiveness, possible cultural preservation in IBM PC and the problems triggered by the differences in national and organisational cultures. Fortunately, the similarities in cultures and the low requirement of cultural integration could mitigate the negative impact of cultural differences on achieving successful cross-border acquisition.

The Reasons of Lenovo’s successful Cultural Integration

Surprisingly, according to Peng’s quantitative research (2008), there is no serious problem had occurred during the Lenovo’s cultural integration, either resulted from national cultural crash or organisational one. It indicates that Lenovo had achieved post-acquisition synergy as a result of successful cultural integration. This positive result can be mainly ascribed to Lenovo’s preventive strategies and the integration code of separate.

- Preventive strategies

In order to minimise the conflicts resulted from organisational cultural differences and choose an appropriate integration approach, Lenovo had carried out an internal survey in IBM PC about the gap in values, commitments, management practices and structure before conduct the integration (Peng, 2008). In this survey, as mentioned above, the major problem of incentive system had been pointed out. In the aim of enhancing the attractiveness to IBM PC and retain the talents, Lenovo has worked out an eclectic strategy that guarantee the same rewarding level (e.g. same salary) to employees in IBM PC in conjunction with balance the incentive level in original Lenovo’s employees (Peng, 2008). Finally, most of employees from IBM PC have stayed after the acquisition.

Furthermore, Lenovo has established a cultural integration committee at the first post-acquisition stage (Peng, 2008). This committee organised many activities to encourage the communication between the employees from Lenovo and IBM PC in an aim to minimise the cultural crash and achieve post-acquisition synergy. These activities include regular cocktail parties, staff discussion forums in corporate internal-network, language training course and a special column ‘Cultural Discovery’ in the corporate monthly newsletter (Peng, 2008). With the increase in social occasions and frankly cultural discussion, these activities have significantly enhanced the communication between Lenovo and IBM PC, and prevented serious cultural conflicts caused by cultural differences from arising.

- The integration code of separate

Thank to Lenovo’s separate management mode, the cultural integration conflict was reduced to the minimum level. The implementation of the separate management mode means that Lenovo has adopted a mode of acculturation involves supporting to remain the culture of the acquired company (Berry, 1983, cited in Nahavandi & Malekzadeh, 1988). In such mode, according to Nahavandi and Malekzadeh (1988), the acquired company is allowed to function as an independent entity under the financial umbrella of the dominant company and its culture is supported to preserve. Since the employees from IBM PC have a high cultural self-identity to their own culture and the attractiveness of Lenovo’s culture is low to them, this mode has helped Lenovo wipe out the potential problems involves resisting to change culture. Moreover, Lenovo has not made any changes in IBM PC’s management during the integration period (Peng, 2008). This action further manifests that Lenovo has supported IBM PC retain their own culture, and it has contributed to the avoidance of management problems resulted from organisational cultural crash during the integration period.

In general, Lenovo’s cultural integration strategy focuses three points, including the increase of attractiveness, the enhancement of communication and the choice of appropriate integration approach. Its strategy discussed above show that Lenovo has paid enough attention to the impact of cultural differences on the success of cross-border acquisition and has putted an adequate effort into realise the post-acquisition synergy. Lenovo’s current success also proves that its strategy of cultural integration is successful.

Conclusion

Based on the above comparison and analysis regarding to the national culture between China and America, the organizational culture between Lenovo and IBM PC and the impact of acculturation factors after acquisition, there are some similarities between Lenovo and IBM-PC; however, the cultural distance between them is still relatively great in both of national culture and organisational one, such as the definitely different attitudes in power distance and management styles. Numerous scholars have shown their opinions that the culture differences will negatively affect the achievement of maximising the effective synergy in cross-border acquisition. However, Lenovo do not come across serious problems in this acquisition according to Peng’s research. This research found that Lenovo had taken a series of effective measures to reduce the negative influence of cultural differences in its post-acquisition under the pressure of achieving sustainable development through opening up international market, for instance, the maintenance of the remuneration system and the separate management mode used by IBM to increase its attractiveness to IBM PC members, and the establishment of cultural integration committee also improve the communication between the two groups and the harmonious working environment. The limitation of the research in this essay is that our data is secondary information and thus our discussion is limited.

Appendix 1

Financial performance is a significant indicator in evaluating a company’s operation performance. In the post-acquisition period from 2004 to 2008, Lenovo’s financial performance improved to a large extent. The following chart illustrates the change trend of some financial indicators including revenue and profit based on the financial statement during those periods.

Source from Lenovo (2012)

As the above chart showed, both of revenue and profit are increased dramatically in these 5 years. The sales increased by almost 6 times in 2008 in comparison with that in 2004. As for the profit, it grows to $465,237,000 in 2008 from $130,128,000 in 2004. Therefore, Lenovo’s acquisition is successful in the aspect of financial performance.

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