Exploring challenges facing cross-border mergers and acquisitions: the case of Lenovo-IBM M&A
Chapter 1 Introduction
1.1 Background of the research
The high rate of globalisation and competition in the contemporary dynamic market has resulted in significant changes in the economic world. This has also affected the manner in which business operates and the strategies implemented in order for firms to operate profitably. Precisely, most firms have spent a lot of finances in the acquisition of thousand firms. According to Larsson & Finkelstein (2015), the use of mergers and acquisitions (M&As) is one of the most effective strategies that firms are adopting is a bid to gain a competitive advantage in the market. Therefore, when firms are still adopting newer approaches to enhance their competitiveness, for example, through the use of strategic business management or sustainable approaches, other businesses are also considering implementing internalisation strategies in a bid to enhance their marketing existence (Ivan et al., 2017). Mergers and acquisitions (MAs) refer to transactions whereby companies or business organisations transfer or combine their ownership or operating units. According to Lei & Hitt (2015), M&A is a form of strategic management that allows firms to either grow, shrink or modify their nature of business. In order to stay competitive, many companies worldwide are merging with each other with the intention of expanding into new markets. According to these firms merging has enabled them to incorporate new technologies and to boost the revenue rate (Barney, 2013). Until now, the use of mergers and acquisitions (M$As) is playing a vital role in shaping business activities worldwide. Precisely, this important business strategy has helped organisations to boost their performance.
Recently, the current trends in the use of M&As has significantly increased over the past decade. The practice of forming cross-border M&As has significantly increased within the past 10 years. In 2014, the value of cross border merger and acquisitions increased by 136% after reaching $441 billion in Europe (Unctad, 2017). However, in Asia, the value of these mergers and acquisitions decreased by 27% at around the same period, and this proves that such M&A has faced various challenges (Rich, 2014). Lei & Hitt (2015) explain that there are many other internalisation strategies that firms can implement in order to expand their operations to new markets. In regards to these, some firms have adopted other approaches such as franchising, exportation, fully owned subsidiaries and licensing (Nalwaya and Vyas, 2014). Although internationalization strategies help in boosting the operation of firms through expansion of market prescience, their adoption can result in various management challenges and issues that affect the overall firm performance. During the implementation of internationalization strategies such as M&As, companies are facing challenges such as cultural differences, excess legal fees, and political instabilities (Erel et al., 2012). Despite these challenges, firms continue to adopt the M&A strategy as an effective expansion strategy.
The challenges facing cross-cultural border mergers and acquisitions (M&As) is the main core of this study, whereby the merging between Lenovo and IBM is used as the main case study. Therefore, the aim of this research is to explore M&As as an international strategy in reference to the Lenovo’s and IBM partnership. It also seeks to establish the challenges faced during the merging process, and the impact this has at the global level. Lenovo is a Chinese company that was started in 1984 to seal with consumer electric products (Lenovo, 2017). On the other hand, IBM is an American multinational technology company that was established in 1911, and its headquarters are in New York (IBM, 2017). Lenovo and IBM are both multinational corporations whose role is to design, manufacture and sell electronic products to customers. These products include smart phones, personal laptops as well as electronic storage equipment. During their cross-border merger and acquisitions, both Lenovo and IBM have faced numerous challenges, and most of these issues are explores in this research.
1.2 Research Rationale
The main rationale behind this research is to explore mergers and acquisition as a form of internationalization strategy in regards to the partnership between Lenovo and IBM. Theoretically, one of the importance of this research is in a bid to fill the gap that has been left by other researchers, especially on challenges and issues that firms face during the formation of mergers and acquisitions. Precisely researchers such as Hoffmann (2012) and Faulkner, Teerikangas, & Joseph (2014) only focus on the benefits of mergers and acquisitions without touching on the challenges and limitations. Therefore, the study helps in fulfilling the existing gap about mergers and acquisitions, which other researchers omitted before. Secondly, the practical importance of this research is that it is conducted at the right and ultimate time when the high rate of globalization and development has resulted in the development of multinational firms. This research informs the management of most firms about the challenges faced during the merging and acquisition process. Resultantly, firms will be in a position to adopt the internationalization strategy effectively in order to avoid or manage these challenges.
1.3 Research objectives
This research focuses on exploring the process of cross-border mergers and acquisitions as an international strategy. Precisely, the research narrows the focus on the challenges facing the cross-border M&A of Lenovo and IBM. To achieve the overall aim, the research will fulfil the following objectives:
(1) To explore the reasons behind Lenovo-IBM M&A
(2) To analyse various challenges that Lenovo faced in its M&A of IBM
(3) To Investigate how Lenovo faced the challenges experienced during its M&A with IBM
(4) To examine how the M&A impact the global business of Lenovo
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