Lenovo was able to seal the deal essentially by acting like a Western firm. It did not approach the deal from the same perspective as say, the way that CNOOC did with its unsolicited bid and ultimately failed bid for Chevron. Lenovo had a strategic alliance with IBM prior to the deal, so that the latter's management and shareholders understood the strategic value of the deal. For Lenovo, it was able to maintain relationships with IBM, including taking some of its talent back to China with it.

Lenovo traded on the Hong Kong exchange, giving it the transparency needed by Western investors. Moreover, this also lent liquidity to Lenovo shares, allowing them to be used in the deal. Furthermore, Lenovo was a large company that through its deal with IBM already had a sizeable international presence. While China's hundreds of thousands of SMEs may not be able to seek foreign M&As, Lenovo was among the handful of Chinese firms large enough, and with sufficiently significant presence in both the domestic and international markets, to execute such a deal.

Despite the differences in business cultures, Chinese firms expand overseas for the same reasons that Western firms do -- to acquire strategic capabilities, to offset competitive disadvantages and to leverage their strengths in overseas markets (Rui & Yip, 2008). The Lenovo deal was focused on resource-driven acquisition of strategic capabilities. The resource-driven perspective on Chinese M&A activity shows that Chinese firms engage in activities in part to acquire resources they lack -- in the case of Lenovo they wanted some of IBM's marketing and managerial talent, having already earned IBM's production capacity (Deng, 2009).

Lenovo's strategy was driven by the need to acquire this talent. They had already leveraged their competitive advantage in production to win IBM's business, but had prior to the merger allowed IBM to manage the Lenovo and IBM brands in the U.S. Recognizing that its future was in moving beyond low-cost production and therefore required an increase in managerial competency, Lenovo made the deal to acquire managerial talent in addition to U.S. market share. To do this, Lenovo took advantage of its prior relationship with IBM, the liquidity of its stock, and its abundant supply of cash, spending some $1.1 billion on the acquisition. The main deterrent to the deal with the lack of managerial talent at Lenovo, so the acquisition of U.S. talent not only was a strategic benefit to Lenovo but helped to assuage U.S. investors and IBM management who may have had skepticism with respect to the deal.

Chapter 5: The coming age of Chinese MNC

As reported, the cross border M&A activity of Chinese firms increased dramatically in 2008. Although the domestic market is expected to be the focus for Chinese M&A over the coming years, savvy Chinese firms are using their substantial capital bases to make an increasing number of overseas acquisitions.

In the coming years, it is expected that this trend will accelerate. Chinese firms are improving their managerial capabilities and experience. For example, a large Chinese firm like Huawei would have had difficulty engaging in a sizeable M&A transaction overseas just a few years ago, but now has begun to build...

With markets that are relatively illiquid in relation to the size of the economy and with heavy government involvement at all levels of industry, Chinese firms still have some ground to overcome before M&A outflows can begin to approach the levels (as a percentage of GNP) of Western nations. Gradually, however, Chinese companies are overcoming their internal deficiencies and Westerners are overcoming their hesitations, which should lead to a substantial increase in crossborder M&A activity for Chinese firms going forward.
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