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How Lenovo managed Cross-Cultural Challenges in its acquisition of Medion AG

Nyamweya is a Kenyan scholar who has done many years of research on a diversity of topics

Lenovo Company  Headquarters in Hong Kong

Lenovo Company Headquarters in Hong Kong

Research on the cross-border M&A deal of Lenovo's acquisition of Medion AG

Abstract

The heightened globalisation has made many companies to internationalize their value chains in an endeavor to enhance their competitive advantage by means of scope or scale in different parts of the world. Accordingly, Mergers and Acquisitions have been a common form of internationalization for many companies. However, firms face a myriad of international consequences in the process of M&A. This study is intended to assess how the management of Lenovo and Medion AG integrated their cultures after the acquisition deal. To achieve this objective, the researcher seeks to collect data from senior management at Lenovo. With the help of the HR department, the researcher will choose 5 senior level managers from different departments and conduct the interview with them through telephone. Content analysis will be the main form of data analysis to be used.


Introduction

Globalisation in business, as well as manufacturing in specific, have over the years increased and continue to do so on a regular basis (Abdulai, 2011). Accordingly, many companies are increasingly internationalising their value chains in an endeavor to enhance their competitive advantage by means of scope or scale in different parts of the world. Alongside other factors such as corporate restructuring, technological developments, heightened deregulation, privation as well as other developments, globalisation has stirred a heightened international orientation as well an unprecedented rise in cross-border acquisitions and mergers (M&A). According to Kyvik (2013) cross border (M&A) can be defined as processes involving acquisition of another firm or company by another. The two companies (acquiring firm) and target Company have to be located in two different home countries. Abdulai (2011) notes the existence of international consequences in a merger involving two domestic firms, especially if the operations of the individual firms in different countries are integrated.

Lenovo is multinational company involved with technology with its headquarter based in China. This company is involved in the manufacture of tablet computers, PCs, smart phones, laptops etc. The firm whose initial interest was to import computers for the government of China was established in 1984 (Zhou and Huang, 2014). However, in the early 2000, the firm came up with a 3 year “global diversified development strategy” whose aim was to exploit the opportunities provided by the internet in integrating its diversity of business for the purpose of optimizing the outcome from sales. However, the firm was forced to change this strategy after being overwhelmed by the global IT bubbles bust (Zhou and Huang, 2014).

Lenovo’s recent acquisition of Medion AG, a German consumer electronics company extends the list of acquisitions and mergers by the company. Among these include IBM (standing for International Business Machines), Motorola, Fujitsu-PC Business, Lenovo Mobile Communication Technology, and Marvell Semiconductor (Crunchbase Inc, 2019). This study seeks to assess how the management of Lenovo and Medion AG integrated their cultures after the Medion AG acquisition deal. The cultural differences, the impact of these differences on cultural integration and cultural integration strategies are explored.

Rationale of the Research

Gertsen (2013) noted that the level of success in cultural integration also depends on the degree of cultural differences between the two firms involved in the process. In this regard, the author recommended an evaluation of the degree of cultural differences as well as in building an appropriate strategy and communication system for a successful cultural integration. Despite the fact that many studies have been formulated to study the implication of cross border M&A it is still critical to understand the emerging strategies of successive firms in around cross border M&A deals(Venema, 2012). This study is deemed to be significant in both the theoretical and practical application of cross-cultural management. Particularly, the findings are presumed to contribute to literature regarding effective cross-border management of M&A and thus contribute to the success of multinational firms and businesses involved in M&A. Despite being in existence numerous studies pertaining to cross-border cultural management, there is still a need for case studies of modern companies to augment and confirm the strategies applied for the success of these endeavors. This owes to the dynamic nature of the business environment fuelled by increased rate of globalisation and technological developments (Stahl et al, 2013). Therefore, these developments may warrant a change of strategy in business management perspective and the insights will contribute to increased knowledge of the same. Accordingly, the insights from this research will help Lenovo and other Chinese enterprises in seeing what they can better manage cultural differences towards enhancing their performance around cross-border M&A deals.

Research Objectives

This study’s core aim is to explore the cultural integration in cross-border M&A deal of Lenovo acquisition of Medion AG. Specific objectives are as follows:

1. To evaluate the cultural integration in cross-border M&A deal of Lenovo acquisition of Medion AG

2. To explore the cultural differences between Lenovo acquisition of Medion AG

3. To assess the effect of cultural variations on cultural integration of Lenovo acquisition of Medion AG

4. To offer recommendations on how to manage cultural differences between Lenovo and Medion AG to enhance cultural integration

Impact of cultural differences on cross-border M & A cultural intergration

According to Moser et al. (2011), cultural integration as simply a form of cultural exchange where a specific group (or company) for this matter embraces the practices, beliefs, or rituals of another group (or company) without necessarily doing away with the features of its own culture. As opposed to cultural syncretism which is associated with negative connation, cultural integration is in most cases held positively since there is nothing which is lost in the process. In light of this perspective, cultural integration can thus be considered to be a healthy combination of the rituals, and beliefs of two different cultures. On the other hand, Berry considers cultural integration as the process of dealing with emerging conflicts, adaptations and contacts arising from the diffusion of the divergent cultural factors.

Research on cultural integration is usually premised on Cultural Anthropology, Sociology, and Psychology which is then combined with the cross-cultural management. According to Stahl et al. (2013), the success of M&As is highly dependent upon the attractiveness of the acquired company to the acquired employees and how willing are the employees of the acquired company to accept the new culture. Alongside these is the level of dependence of the two sides, as well as the willingness of autonomy of the respective companies. On their part, Stahl et al. (2013) describes four processes in cultural integration of M&As which include: absorption, preservation, holding and symbiosis. Gertsen (2013) noted that the level of success in cultural integration also depends on the degree of cultural differences between the two firms involved in the process. In this regard, the author recommended an evaluation of the degree of cultural differences as well as in building an appropriate strategy and communication system for a successful cultural integration. Other factors promoting cultural integration include organizational commitment, and employee’s willingness and cooperation in the whole process (Schmid et al., 2012).

Cultural differences between German and China from the Perspective of Hofstede Dimensions

Hofstede's cultural dimensions are cultural model developed by Geert Hofstede for the purpose of evaluating cross-cultural communication (Geert, 1991). The model explains the impact of culture within a given society on the behavior and value portrayed by the members of that given society. The framework has six dimensions namely: Power Distance, Individualism/collectivism, Masculinity/Feminity, Long term/short term orientation, Uncertainty avoidance, and Indulgence (Hofstede and Hofstede, 2004), as illustrated below;

Figure 1: China vs. Germany national cultures

Source: Hofstede Insights (2019)

Power Distance

Minkov (2011) describes power distance as the extent and hierarchy employees have in relation to their relationship with their managers at the workplace. In essence, there is much association of human life with hierarchy. Typically, the cultures of China have a relatively higher gap between the low and the high, resulting into the well to do in the society feeling respected and powerful by the people. Furthermore, there is a low level of movement between different levels and classes. In such a culture, supervisors and managers are main ones making decisions and solving problems (Hofstede and Hofstede, 2004). They are generally feared by the people. This is a different case with German which is considered to have a low power distance. In this culture, it is normal for people to confront and disagree with their seniors whenever there are issues to sort out. People do not gain power and respect by just being at senior positions; rather, they have to earn it by doing the best. Generally, the gap between the senior staff and junior employee is low. Inequality is unacceptable and people have to fight for their rights without fear (Hofstede and Hofstede, 2004).

Collectivism/Individualism

Collectivism/individualism is described as the level in which an individual identifies himself/herself and the degree a person is incorporated in a group rather than a system or group (Hofstede and Hofstede, 2004). Hofstede research found out that German is a place with high individualism; placing high regard for individualistic initiatives and will power. In this culture, most members are more concerned about themselves and their immediate families as opposite to a group. People can go to any length to accelerate their success (Minkov, 2011). This is a direct opposite of China which places high regard for collectivism. In this context, members are concerned about group identity rather than individualistic ties. The focus is on group success rather than individual success (Bluszcz and zhen, 2016).

Femininity/Masculinity

Hofstede and Hofstede (2004) defines femininity/masculinity as the differentiation of the role distributions between the genders in particular societies as well as biological differences. While men are considered to be competitive, women are known to be caring and modest. Hofstede’s research noted that both China and German were dominated by masculinity culture. In both of these cultures, discussions are dominated by men; there is no or little expression of emotions while many people are ineffective listeners (Bluszcz and zhen, 2016).

Uncertainty Avoidance

This index index is explained as the tolerance of a given society in ambiguity where people are ready or avert an unexpected or unknown event. A low degree in this index indicates more acceptances of divergent ideas and or thoughts while a higher degree indicates that members opt for stiff codes of behavior (Hofstede, 1991). On this index, China scores 65 on Hofstede, owing to their need for security while German has a low score. Germany insist on detailed code of conduct and rules to govern business deals and management. Contrastingly, China has a high level of acceptance of uncertainty. In other words, they are not afraid of the future and neither do they try to control the future. Chinese do not see the need to establish strict rules and regulations in their workplaces/businesses (Worldbusinessculture.com, 2011).

Long term orientation vs short term orientation

Short-term vs long term orientation is noted to be a key concern for German-Sino business context. According to Hofstede (2004) findings, the Chinese are inclined towards long term orientations and as such, they have an entrepreneurial-risk taking behavior. On the contrary, their German counterparts are more risk-averse and as such, they would prefer projects with shorter term prospects rather than those with long term prospects (Minkov, 2011).

Indulgence/Restraint

The indulgence dimension is defined as the level at which persons endeavor to control their impulses and desires depending on how they grew up. A relatively strong control is identified as “restraint” while weak controls are identified as “Indulgence” (Hofstede, 2004). Cultures can thus be labeled as restrained or indulgent. China is a highly restrained society taking into account its low score of 24. Such a society do not value leisure time while they strive to control the satisfaction of their desires (Hofstede Insights, 2019). On a similar note, German has also a relatively low score on indulgence 40, implying that People who have this orientation perceive their actions to be restrained by social norms and hence; consider it wrong to indulge themselves (Hofstede Insights, 2019).

Management of Cultural Differences

In across border merger and acquisition, the need for cross-cultural sensitivity and communication capability becomes inevitable. In this respect, companies are expected to look into two main strategic areas when operating in a setting that is cross-cultural (Venema, 2012). The first area is development of a cultural sensitivity and understanding among both employees and senior management through education (training) and learning. The second is making adjustments on the style of communication to meet the cultural needs of the target market for specific objectives, programs or projects when making decisions concerning them, during management and when they are being implemented (Stareva, 2018). Despite these two strategies being rarely managed and planned systematically on a global scale within a firm, they are fairly simple to define by creating communication guides and resources that can easily be followed by employees (Sudarsanam, 2010).

Regarding training and learning, companies are mandated to create awareness on their employees and executives regarding cultural differences from different perspectives (Sudarsanam, 2010). For instance, the use of Geert Hofstede’s cultural dimensions theory will work towards a greater understanding and comparison of different market nuances on the basis of the 6 dimensions (Minkov, 2011). The ideas gained from this learning will certainly enhance a comprehension of how leadership and management can be approached from different cultures so as to get buy in from stakeholders (Petrakis, 2014).

Another important strategy required in effectively managing cultural differences include making adjustments on communication (Coelho, 2011). Cultural variations certainly require adjusting of cross-cultural communication to fit the new stakeholders. According to Minkov (2011), the style adopted must align with the country and market nuances. In this regard, the new communication plan for change management and internal stakeholder management must be premised on the cultures underpinning the company for every initiative, meeting or project (Stareva, 2018).

Methodology

Research philosophy

Antwi and Hamza (2015) defines research philosophy as an evaluation of the beliefs that led to designing of the background of the study, data collection and analysis approach in a given research. Accordingly, two common forms of research philosophy abound namely: positivism and interpretivism (Sekaran and Bougie, 2016). Interpretivism philosophy is majorly concerned on using existing theories in assimilating human interests as well as in determining major insights on a given phenomena. On the other hand, positivism philosophy is premised on the idea of an observable (seen) social reality to construe the meaning and impact of a given research (Ngulube, 2015). This study will use interpretivism research philosophy to address the objectives. This approach is presumed to help the researcher to interact with research subjects with a view to retrieve meaningful information regarding the subject under study.

Research approach

Massa et al (2017) explains a research approach as the process that a research opts to adopt in undertaking a study. Accordingly, two main types of research approaches abound: deductive verses inductive (Antwi and Hamza, 2015). Inductive approach entails examining a sequence from a particular observations and theory to explain a given development. On the other hand, deductive approach entails coming up with a hypothesis on the basis of existing framework and conducting a test on the hypothesis to make determinations of whether hypothesis were supported by the research or not (Sekaran and Bougie, 2016). Accordingly, this study will rely on inductive approach to answer the research questions. This approach was preferred against a deductive one since the researcher wishes to retrieve new information concerning emerging strategies in management of M&A, as past research findings may have little or no significance with the current study. Also, this study does not involve hypothesis development, therefore deductive approach is not applicable.

Research method

Bengtsson (2016) defines a research strategy as an approach used by a researcher in collecting data. There are three main types of research strategy which include; qualitative, quantitative and mixed methods. Qualitative research strategy comprises of exploratory studies that do not take into account numerical data in understanding a given situation. The method is commonly used to understand underlying reasons, opinions and motivations. Furthermore, this approach is as well used to analyze trends in thoughts, observations and thoughts and in discovering unknown aspect in a given situation. Data collection through qualitative approach may be done through the use of interviews, focus group, participations or observations (Bengtsson, 2016).

Quantitative approach is the direct opposite of qualitative in the sense that it relies on numerical (quantitative) data in deducing inferences. The obtained quantitative data is then transformed into appropriate statistics. Mixed methods research on the other hand is one which integrates both quantitative and qualitative approaches. The purpose is to expand the data collection and ensure that the benefits of both approaches in data collection are taken advantage of (Creswell and Clark, 2011). This leads to collection of a more diversified form of data.

In this study, the researcher will make use of a qualitative research approach to answer the research questions. The approach will enable the researcher to gather rich data pertaining to the topic under investigation. Accordingly, the approach is presumed to help the author in obtaining the opinions, experiences and feelings of the participants and their interpretation of the events (Scott & Garner, 2013).

Data Collection and Analysis

To address the objectives of this research, the author will collect data from middle level managers at Lenovo. With the help of the HR department, the researcher will choose 5 appropriate managers and conduct the interview with them through telephone. Each interview will last about 30 minutes. It is believed that these participants are in a position of providing relevant insights and information on this topic owing to their firsthand experience.

The analysis of the interview data will be done through the use of content analysis. According to Bulmer (2017), content analysis is a suitable approach to effectively analyse interview data. Accordingly, the data and information obtained from interview guide will be thematically coded and compared to deduce the meaning and implication of the responses. However, the participants will remain anonymous and will only be given names such as A, B, C, D, E to hide their identity.

Timeline

The timeline for this research is presented in the following Gantt chart

Activity

Timeline-May to Sept 2019

May

June

July

August

Sept

Research Proposal

Writing of introduction chapter and interview questions

Conducting literature review and identifying research methods

Collection and analysis of data

Concluding the research findings and compiling the whole dissertation ready for submission

Ethical Considerations

Prior to and while undertaking this research, the author will adhere to all the ethical requirements for such studies are followed promptly. Firstly, the management of Lenovo will be duly informed on the intention of this research before contacting the participants, that is, the 5 middle level managers from different departments for the interview. The aim, objectives and role of the research will be explained to them as well as their right to give or refuse to give consent. However, the identity of the respondents and background information will remain anonymous. Additionally, confidentiality will be assured accordingly and that each participant is free to retract from the interview anytime he or she feels so. It is also within the participant’s right to refuse answering questions he/she deems inappropriate or not relevant. The data collected will only be utilized for the purpose of this study and will not be diverted to other uses.

References

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