Lenovo Building a Global Brand Case Solution

1. Why did IBM want to sell its PC business? Why did IBM sell to Lenovo?

Reason for IBM to sell its PC business:

The PC business was an unprofitable part of the overall portfolio of the IBM business. It wanted to focus more on the consulting side of things and provide service-based offerings. The main things it wanted to focus on were consulting services (which included outsourcing enterprise operations) and middleware solutions (software that is usually packaged with server-related hardware). Deepak Advani, the later Chief Marketing Office of Lenovo, put forward his relation regarding IBM's sell-out of its PC business as follows: PC was going more and more to the fringe side of the business, and they wanted to go into the service side of things. Getting acquired by Lenovo was an option. Another option was selling to Lenovo. They made a deal with Lenovo. 

IBM Selling to Lenovo:

A few years ago, a Lenovo manager told, IBM approached them for the deal, but since the PC market was weak then, they did not move forward with the deal. This team, their Lenovo’s CEO Mary Ma, evaluated the acquisition deal and gave the company the go-ahead for the acquisition. As per the agreement, Lenovo had the rights to use the IBM brand logo in two main product lines for the next five years: one was the IBM ThinkPad laptop and ThinkCentre desktop computers. The use of the IBM logo was only allowed in the IBM Think-family products, and any presentation of IBM logo in an ad couldn’t be used separately but only with a product. The use of IBM’s logo would change over time. In return, Lenovo had to promise not to compete with IBM in the consulting and services groups. For five years, IBM would supply the computers with worldwide support. The 30,000-person enterprise sales staff at IBM, as well as ongoing assistance from partner and channel management initiatives, were also available to Lenovo.

2. What explains Lenovo’s success prior to the acquisition?

Lenovo’s Success before the Acquisition: 

In its first 20 years, Lenovo transformed from a modest import computer reseller into the top computer company in China. The Chinese Academy of Sciences gave 11 of its computer scientists around $25,000 in 1984 to start the New Technology Developer, Inc. With a mission to monetize the Academy's discoveries and use the earnings to support computer science research, NTD established its offices in a modest concrete cottage in Beijing. Early on, NTD made money by selling huge state-owned corporations and government institutions imported computers like IBM PCs.