Gm 599 Strategy Focus Term Paper

IBM and Lenovo

Strategic alliance in the Personal Computing Market

Rudolph (Rudy) Watson

Keller Graduate School of Management

GM599 Strategic Management in a Global Environment

March 2006 Session

Cecil Horst

Executive Summary

[1]A business alliance is an agreement between businesses, usually motivated by cost reduction and improved service for the customer. Since the beginning of time there have been many alliances that were successful and that have failed. Although, it is far too early to determine the outcome of the recent alliance that has taken place between IBM (based out of the U.S.) and Lenovo (based out of Beijing, China). Many experts describe this alliance as an historical engagement coupled with many uncertainties and challenges ahead.

In December 2004, IBM and Lenovo Group Limited announced a definitive agreement that Lenovo will acquire IBM’s Personal Computing Division, thus creating a new company that will bring the strength of IBM’s legendary PC business together with those of Lenovo that will employ approximately 19,000 people and provide the widest range of PC products and technologies to businesses worldwide.

This multi-year agreement between the two companies is broad-based which will allow IBM to continue to provide end-to-end technical solutions to new and existing clients. Furthermore, Lenovo will be the preferred provider of IBM-branded personal computers to IBM clients, thus giving IBM the capability of offering continued financial and maintainance services for personal computing solutions.

As a results of this alliance, Lenovo has aggressivley positioned their organization as a the third largest personal computing supplier in the world. Being a low-cost Personal Computer manufacturer is the basis of Lenovo’s strategy and this is a key factor in their dominance in the personal computing market in China. IBM on the other hand, continues to follow their strategy to be the world leader in...