Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country (Zhang, 2002). Lenovo Group, as a multinational corporation, requires having a global strategic vision and making full use of the domestic and foreign markets as resources to exploit overseas markets.
3.1 FDI entry mode and its advantages
“FDI is one of the three major modes of foreign market entry as well as doing business in the foreign land” (Wang, 2009). FDI was primarily applied by Lenovo Group as it mainly used cross-border mergers and acquisition, which is acquiring all or parts of capital or shares of enterprises of host countries to implement fully or parts control activities in operating management of enterprises of host countries, to lay a good foundation for establishing branches in different countries afterwards.
Ownership advantages, location advantages and internalization advantages are three major advantages of FDI. Ownership advantages suggest that businesses can be performed better within the firm than being negotiated among business partners with short-term financial benefits; location advantages indicate that products being made locally in host countries have better benefits; internalization advantages demonstrate producing through a partnership arrangement such as licensing or a joint venture that allow more direct control and communication than between buyer and seller. Market failure or market imperfections are one of the reasons to internalize business activities (Wang, 2009). The successful acquisition of Lenovo owned to the exploitation of all advantages that shown above.
A complimentarily relationship is forged as Lenovo, focused on low-end markets, and IBM, focused on high-end markets, benefited from both domestic and international selling channels...