This document provides an overview of a thesis examining the dynamic capabilities that led to successful mergers and acquisitions at Acer and Lenovo. The thesis aims to develop a model for successful M&A by understanding how firms link dynamic capabilities during integration. It will conduct case studies of Acer and Lenovo's M&A practices and examine how they developed and managed dynamic capabilities through organizational learning. The document outlines the research motivation and questions, literature review topics, conceptual lens, research method involving interviews and case studies, and plans for data analysis and theory generation.

1. Case Studies on Successful M&A
Practices in Acer and Lenovo:
A Dynamic Capabilities Perspective
DBA Thesis Oral Exam
By
David M. Liu, DBA Candidate 2006
March 5, 2010

2. Overview
I. Research Motivation
II. Literature Review
III. Conceptual Lens
IV. Research Method
V. Acer and Lenovo Case Studies
VI. Discussion and Conclusion
VII. Q&A

3. Two Chinese PC Firms

4. I. RESEARCH MOTIVATION
1. The Phenomenon: The increasing
trend of Chinese firms overseas
expansion via M&A; Many failures
due to lack of organizational
learning in experience and
integration; A few successful cases
because of organizational learning
and strategic integration

5. 2. A Gap in the Literature
• Lack of study in Chinese M&A with a
comprehensive approach
• Short of study in a reverse M&A
situation from developing country to
developed country
• Non-existence of case comparison
between Taiwan and China in IT
sector

6. 3.Research Purpose & Questions
• A: RESEARCH PURPOSE
• Develop a dynamic model for successful M&A
• Understand how firms link their dynamic
capabilities in post M&A integration
• Examine how firms develop and manage
dynamic capabilities via organizational
learning and experience

7. B: RESEARCH QUESTIONS
• What critical dynamic capabilities needed for
successful cross-border M&A under Chinese
context?
• How can dynamic capabilities achieved before
or after M&A?
. What is needed for true value creation in
Chinese M&A?
. What are the key success factors in Chinese
cross-border M&A?

8. 4. Research Approach
• A. Literature Review
• B. Theory development in
considering all aspects of dynamic
capabilities
• C. Integration as key success factor
explored
• D. Firm’s general business
environment examined

9. II. LITERATURE REVIEW
1. Motivation of Chinese M&A
2. Seven Main Streams of M&A Literature
Review
3. Cross-border M&A in Chinese context
4. Measurements for successful M&A
5. Theory development for dynamic
capabilities perspective
6. The role of post M&A integration

10. 1. TEN MOTIVES FOR CHINESE
M&A
. Answering to government call
.Market power enhancing
. Pushing for globalization
. Moral hazard
. Financial claims
. Under value target
. Efficiency
. Capabilities in technology or management
. Private equity
. Management objectives

11. 2. Seven Streams of M&A Literature
• Transaction Cost Economics (TCE) and O-L-I
Approach
• Resources-based View (RBV) and
Organizational Learning
• TCE and RBV, Institutional theory and Culture
Difference Approach
• Uppsala Model
• Outcome Study
• KSF Approach
• HRM Approach

12. 3. Cross-border M&A in Chinese
Context
• Linage-Leverage-Learning (LLL): important
approach for the firms in developing countries
• Springboard Perspective: Emerging market
MNES using M&A to compensate for their
compensate for their competitive weakness
• Evolutionary Perspective for MNEs in Taiwan
• Weakness of Chinese Firms: limited
knowledge of overseas market; Poor R&D;
lack of international brands; lack of strategic
focus;

13. 4. Measurement of Successful
M&A
• Synergy Effect: 1+1=3 or 2+2=5
• Aspects of Synergy Realization such as:
Financial, operating and market synergy
Cost synergy, cost savings
Centralization and capabilities transfer
NEGATIVE synergies: HR conflict; High cost of
integration; Customer and revenue losses;
Cost of compromise and inflexibility

14. 5.Development History of Dynamic
Capabilities Perspective
• Resources-based View: only VRIO resources
lead to sustainable competitive advantage
(Penrose; Wenerfelt; Barney; Dirickx and Cool)
• Competence-based View: firms as bundles of
skills and technologies (Prahalad and Hamel)
• Knowledge-based View: Firm as the source of
knowledge creation through organizational
learning(Grant; Kogut and Zander)
• >DYNAMIC CAPABILITIES PERSPECTIVE

15. Dynamic Capabilities Perspective
(Teece and Pisano; Zollo and
Winter; Adener and Helfat)
• Benefited from RBV, CBV, KBV and focusing
more on the following:
Process and routines as dynamic capabilities
Coordinating / integrating, learning and
reconfiguring as Core Elements
Skills in technological, organizational;
managerial aspects as essential elements
Criticism: confusing definitions and unclear
about a fit organizational structure for DCP

16. 6.The Strategic Role of Post M&A
Integration
• Strategic integration as dynamic capability
based on specific and organizational routines
• Elements of integration in procedural;
procedural and socio-cultural aspects
• Degrees of integration: Absorption;
preservation; symbiosis (with moderate levels
of synergy and cultural difference)
• CHALLENGES: Risk areas in leadership; culture;
communication; vision; growth etc.
• costly; time consuming; business declining

17. III.CONCEPTUAL LENS
• 1. Theoretical Underpinnings
• 2. Concepts, Definitions, and
Observations
• 3. Conceptual Lens

18. 1. Theoretical Underpinnings
• A conceptual framework or supporting
foundation to explain a specific set of
phenomena
• DYNAMIC CAPABILITIES:
Prior experience in M&A
Organizational learning before and after M&A
Managerial capabilities in strategy, relational
and innovative capabilities
Post M&A integration capabilities

19. 2. Concepts, Definition and
Observations
• Cross-border M&A Involvement: sales
revenue; market share; net profit / loss;
patents; brand equity; globalization ratio
• M&A Capabilities: prior experience; target
size; management quality; firm ownership
type; country of origin of acquirer
• Strategic Integration: procedural; physical;
managerial; social and cultural areas

20. Continuing…
• Dynamic managerial capability: strategic
agility and flexibility; relational capabilities;
innovative capabilities
• Organizational Learning: learning by doing;
knowledge creation; knowledge transfer;
knowledge absorptive capacity

21. 3. CONCEPTUAL LENS
• PROFITABLE M&A BASED
GROWTH =
M&A CAPABILITIES x
DYNAMIC MANAGERIAL CAPABILITY x
ORGANIZATIONAL LEARNING x
STRATEGIC INTEGRATION

23. IV: RESEARCH METHOD
• 1. An interpretive approach
• 2. Case study approach
• 3. Unit of analysis
• 4. Data collection
• 5. Conducting interviews
• 6. Data Analysis and Interpretation
• 7. Theory generation
• 8. Quality of research
• 9. Ethical Consideration
• 10. Research process

24. 1. INTERPRETIVE APPRAOCH
• Person (researcher) and reality are
inseparable (life-world)
• Knowledge of the world is intentionally
constructed through a person’s life experience
• Research object is interpreted in light of
meaning structure of person’s (researcher’s)
lived experience
• Focus: Constructivism, inductive logic,
understanding, multiple participant meanings,
social and historical conjunction, theory
generation

25. Qualitative Interpretive
• Justification for qualitative approach:
• A. Research occurs in natural settings
• B. Data reported in words rather than
numbers
• C. My personal experience in the IT field and
human action oriented experience plus
training in business studies make me more
suitable in conducting face to face interviews
• D. A qualitative approach based on
description and exploration make it more
appropriate in providing insights to intended

26. 2. Case Study
• An empirical inquiry:
• Investigates a contemporary phenomenon
• Within its real-life context
• When boundaries between phenomenon and
context are not clearly evident (Yin,1994)
• BEST in addressing the descriptive or
explanatory questions and producing a first-
hand understanding of people and events
(Yin, 2004)

27. Limitation of Case Study
• Lacking of rigor
• Possess an excess of bias
• Ad hoc theorizing
• Hard to measure internal validity of the data
and external validity (Berger, 1983)
• Difficult to generalize findings to different
settings as phenomenon and context are
necessarily dependent

28. 3. Unit of Analysis
• Cross-border M&A in Chinese IT companies
Acer and Lenovo
• Looking for the linkage between successful
M&A practices and dynamic capabilities

29. Case Selection Criteria
• WHY ACER?
• #1 Chinese PC company from Taiwan
• Tried and true in globalization through
incremental M&A
• Similar background as China’s Lenovo in
pursuing global initiatives
• Strong profitable M&A based growth since
2005

30. WHY LENOVO?
• #1 PC firm from mainland China with 30%
market share
• Bold move in acquiring IBM PCD in 2005 at US
$1.75 billion
• Struggling to be profitable even since 2005
• Typical example of mainland Chinese
company in pursing globalization through
means of M&A in overseas market

31. 4. DATA COLLECTION
• Three main sources of data in this research:
documents; archival records; interviews
• Data Triangulation: All three sources pointing
to the same direction
• The use of multiple measures drawn from
different data source is to improve both the
validity and reliability of case study findings

32. 5. Interview as main source for
empirical data collection
• TOTAL 23 INTERVIEWS CONDUCTED
• Acer : 5
• Lenovo: 9
• 3rd
Party: 9
METHODS: Three interview guides provided;
semi-structured interview and open-ended
questions

33. 6. DATA ANALYSIS &
INTERPRETATION
• Data Analysis including: data reduction; data
display; conclusion drawing / verification
(Miles and Huberman, 1994)
• Data Interpretation: 3 Levels of Understanding
Subjective understanding:
Interpretive understanding:
Analytic Understanding:

34. 7. THEORY GENERATION
• Based on the principles of abstraction and
generalization (Klein and Myers, 1999)
• Inductive Process of building from data to
broad themes to a generalized model or
theory (Creswell, 2003)

35. 8. QUALITY OF RESEARCH
• Criteria for trustworthiness: credibility;
transferability; dependability; confirmability
(Lincoln and Guba, 1985)
• CREDIBILITY: through peer debriefing and
member checking; data source triangulation;
• TRANSFERABILITY: generalizability to other
context; emergent theory
• DEPENDABILITY & CONFIRMABILITY: properly
managed audit through my advisors; inquiry
process, notes and recordings well kept

36. 9. Ethical Consideration
• Don’t Harm. Keep interviewees confidential
• Data triangulation was conducted by sending
back the interview summary to the
interviewees to ensure correct interpretation
• Asking for permission to record
• Encouraging the interviewees to speak out
and pointed out there is no right or wrong
answers in interview

37. 10. RESEARCH PROCESS
• Step 1: Review Literature
• Step 2: Building conceptual lens
• Step 3: Carrying out empirical data
collection
• Step 4: Discussing the findings

38. V. ACER AND LENOVO CASE
STUDIES
• 1. PC INDUSTRY OVERVIEW
• 2. INNOVATION BACKGROUND
DIFFERENCE BETWEEN TAIWAN AND
MAINLAND CHINA
• 3. TAIWAN ACER INC. CASE STUDY
• 4. MAINLAND LENOVO GROUP
STUDY

39. 1. Overview of PC Industry
• A. Dominance of Intel and Microsoft
with a Wintel Frame
• B. PC Value Chain in Acer Founder’s
Stan Shih Smiling Curve
• C. Major PC players in 2008: HP
(19.2%); Dell (15%); Acer (10.9%);
Lenovo (7.4%); Toshiba (4.6%);
Others (43%)

40. Stan Shih’s Smiling Curve

41. 2.INNOVATION BACKGROUND IN
TAIWAN AND CHINA
• A. Taiwan as the Silicon Island: with 23 million
highly educated population, GDP per capital
US $15,203.00 in 2005, Spending $345.00 per
capital on R&D; Patent in USA 5300 cases in
2003; R&D Spending Intensity ranking #8 in
the world in 2006
Largest PC producer in the world (72%)
Largest LCD producer (68%)
Largest PDA producer (79%)

42. B. China’s Advantage and
Disadvantage in IT Industry
• China’s largest population (1.3 billion) in the
world and 3rd
largest economy; R&D spending
only $38.00 per capital and only 1.31% of total
GDP
China was closed to the outside world
(1949~1978) and no business or social
engagement with the West
IT firms were mostly State-Owned Enterprises
which enjoy guaranteed orders and with
strong government financial support

43. 3. Acer Case Study
• A. Acer study background: knowing Mr. Lin
from Acer HK; 5 inside interviews and 9 from
3rd
party.
• B. History of Acer INC
Founded in 1976 with $25K by Shih as Multitech
4 Phases in company history
a.1976-1986: commercializing microprocessor
technology
b.1987-2000: create a brand name and globalize

44. Continuing: 4 phases in Acer
history
• c: 2001-2007: transform from manufacturing
to services
• d: 2008 – beyond: Multi-brand strategy
C. M&A HISTORY IN ACER
1987 Counterpoint; Failed
1989 Service Intelligence, Failed
1990 Altos, Failed in most part
1997 Travelmate brand, limited success

45. M&A History in Acer…continuing
2007 Gateway. Succeeded with more than 2%
market share increase in USA; adding two
brands to the Group: Gateway and eMachines
2007 Packard Bell. Succeeded in Europe and
now expanding to Japan and Middle East
REALITY CHECK: 10 YEARS GAP BETWEEN
TRAVELMATE BRAND M&A AND GATEWAY
ACQUISTION. BIG RE-ENGINEERING AND
LEADSHIP SHAKE UP IN ACER.

46. D. CAUSES OF ACER’S NEWLY
SUCCESS – DYNAMIC CAPABILITIES
• Accumulating M&A Capabilities
• Strategic Integration
• Dynamic Managerial Capabilities
• Organizational Learning
• Successful Measurements in Synergy
In sales and market performance etc.

47. Acer: Accumulating M&A
Capabilities
• Prior cross-border M&A Experience: 4 big
mistakes brought learning opportunities,
reflection, and managerial capabilities
improvement
• Quality of management team improved
through mistakes. Used to send managers
from Taiwan; later on used local talents. Used
to delegate too much to local units, later on,
more centralization is used. The Dynamo Duo:
Wang and Lanci replacing Shih etc.

48. Accumulating M&A capabilities…
continuing
.Learning to acquire the right size target: snake-
eat-frog approach
.More responsible management style due to
Acer’s private owned enterprise (POE): very
frugal and cautious with shareholder’s money;
lean and mean;
. Taking good advantage of Taiwan’s economic
and non-political position in the world: more
Westernized thinking; open systems in
education and social settings; Good will in the
West for being non-communistic like China

49. Acer: Strategically managing
integration
• Procedurally: efficiently centralized product
design, production and marketing to HQ.
Implemented New Business Model
aggressively to newly acquired units
• Physically: downsized quickly on unnecessary
staff and offices
• Managerially: use one HQ in Taiwan to
manage all worldwide IBUs
• Socio-culturally: use local talents to manage
local teams.

50. Acer: Winning with Dynamic
Managerial Capability
• Strong in Strategic Agility and Flexibility: very
sensitive to ever-changing environment; quick
in modifying and relocating resources;
effectively executing Channel Business Model;
clear vision and strong passion; quick in
product launch and fast in innovation
• Mature in relational capabilities with
institutions, suppliers and customers: strong
government support in R&D and innovation;
leading role in trade and industry associations;

51. Winning in dynamic managerial
capabilities …continuing
• Key accounts with major suppliers and OEM;
aggressive prices for dealers and strong
incentives to push the product; using its own
and strong OEM manufacturing network
• Pushing customer satisfaction by promoting a
global image through sports etc.; giving
customers value for money; taking advantage
of its unique position not being an American
brand or a mainland Chinese brand;

52. Acer winning in dynamic
managerial capabilities…continuing
• First-class in Innovative Capabilities: new lean
and mean Channel Business Model (Indirect
sales model); fast in new product
development; effective in international
marketing; timely in business execution; right
product at the right timing such as its 11”
netbook in 2008/2009 being #1 in the world

53. Acer: Strong in Organizational
Learning
• Learning by doing: 6 major M&A deals. Learnt
from mistakes made in first 3 and matured in
later 3 with Travelmate, Gateway, Packard
Bell
• Knowledge Creation: creation of Channel
Business Model; performance based apprasial
introduced by Lanci as well; creativity from
diversified work force worldwide; quicker
product development due to staying close to

54. Acer: Organizational Learning…
continuing
• Knowledge Transfer and Absorptive Capacity
Strong transfer among IBUs in product
knowledge, in business model, and through
newly acquired targets in marketing etc.
Good environment for absorptive capacity:
healthy and open communications;

55. SUCCESSFUL MEANSUREMENT IN
THE PROFITABLE M&A GROWTH
• Acer the Racer: 30% growth in shipment since
2002 to 2008 (33 million PC shipped, Revenue
$16.65billion, NP $428 million)
• Beat Dell in becoming #2 in notebook
shipment in 2Q 2009
• Global revenue counts for 98% of group
revenue, only 2% from Taiwan
• Ready to challenge #1 HP soon

56. 4. LENOVO CASE STUDY
• A. Data Collection for Lenovo Case: 9
interviewed from within; 9 from 3rd
party
• B. History of Lenovo: A Mainland LEGEND
1984-1989:Distributing PC Components
1990-1994: Gaining foothold in China
1995-2000: Making waves in China
2001-2004: Failure in over-diversification
2005-beyond: Pushing for globalization

57. C. MARRIAGE BETWEEN LENOVO
AND IBM PC DIVISION ON 5.1.2005
• Strongly promoted by Yang in 2004 after his
failure in diversification in China
• IBM PCD loss in 2003 was $500 million, ready
to be dumped by the Group. Approached Acer
but got rejected
• Acquisition agreement on 12.8.2004 with full
day celebration: Viewed as Chinese Red Chip
conquering American Blue Chip by many
(Lenovo was 65% owned by Chinese Academy
Science from the government)

58. D.LENOVO DECLINING
PERFORMANCE AFTER IBM PCD
DEAL
• Profit Record (in US $)
• 2000: 110m
• 2001: 131m
• 2002: 130m
• 2003: 135m
• 2004:143m
• 2005:22m; 2006:161m; 2007: 484m
• 2008: - 226 m

59. E. CAUSES FOR FAILURES IN
LENOVO: Lacking in Dynamic
Capabilities
• Non existence of M&A Capabilities
before acquiring IBM PCD
• Poor execution in post M&A
integration
• Weak in dynamic managerial
capabilities
• Short in global organizational

60. Lenovo: lack of M&A capabilities
before taking M&A
• No real international M&A experience. QDI
failed overseas and Hong Kong
• Not a strong management team under Yang
• Too greedy in becoming big fast: IBM PCD 3
times bigger than Lenovo
• State Owned Enterprise (SOE) with managerial
hubris and strong political motivation
• From a developing country and different
ideology put itself in a more difficult seat

61. Lenovo: poorly executed
integration process
• Power struggle between Western and Chinese
executives from 2005 to 2008
• Still difference MIS system
• Three HQs between 2005 and 2008
• IBM PCD ran like a different company with
product design, marketing, and sourcing
• C.A.G.E. difference strongly existed

62. Lenovo: short of dynamic
managerial capability
internationally
• Lack of strategic agility and flexibility
• Weak in international relational capabilities.
Unable to extend its domestic advantages to
international arena
• Working with Intel and AMD in component in
a dangerous balance act
• Failed in keep Thinkpad premium image and
struggling putting Lenovo brand to consumer
market overseas

63. Continuing…dynamic managerial
capabilities
• Slow in coming up with new products. 6
months behind Acer
• Struggling in business model
• Did poorly in 2008 Olympics for international
marketing with most $$ spent in China

64. LENOVO: without much global
organizational learning
• No previous M&A experience before IBM deal
• Weak in knowledge creation and knowledge
transfer after the IBM deal
• Many obstacles for absorptive capacity
transfer
• Compromising too much or too little between
acquired IBM PCD and its Chinese parent
company

65. Lenovo Case Summary
• IBM deal lifted Lenovo from #9 in the world in
PC shipment in 2004 to #3 in 2005 but failed
to #4 since 2006 after Acer passing them.
• IBM deal made Lenovo #499 in G500 in 2008
(partially due to RMB exchange rate
appreciation against USD) with revenue of
$16.3 billion in 2007
• Lenovo’s snake-devour-elephant of IBM has
become a typical managerial case study since
12.8.2004

66. Acer and Lenovo Cross-Case Study
SIMILARITIES OF THE TWO:
Same industry
Similar Chinese culture
Same passion for international growth
Both used foreign born executives
Both working hard pushing global image
Both gaining huge government support
Both are quite strong in product development

67. Acer and Lenovo Comparison
DIFFERENCE BETWEEN ACER AND LENOVO:
Different in prior M&A experience
Different in managerial team quality
Different approach to target size
Different country of origin in economics and
political system
Different in firm’s ownership
Different in strategy integration, managerial
dynamic capabilities and organizational
learning

68. OTHER FINDINGS
• Political motivation
• Influence of traditional Chinese culture
• Open social system impact on OB
• Age of top management
• Degree of Westernization of the firm
• Moral hazard behavior in SOE
• Negative knowledge tranfer

69. VI. DISCUSSION & CONCLUSION
• A. MAJOR FINDINGS:
The strong linkage between profitable
growth through M&A with dynamic
capabilities including M&A
capabilities; Strategic integration;
Dynamic managerial capabilities and
Organizational learning

71. B. Theoretical Contribution
• A holistic approach toward firm performance
and dynamic capabilities
• Proposed that dynamic managerial
capabilities are country dependent and path
dependent
• Organizational learning as the most important
factor in successful cross-border M&A
• Successful global integration must overcome
C.A.G.E. difference

72. Continuing…theoretical
contribution
• Pointed out the role of country of origin in
M&A
• Focused the OB difference between SOE and
POE
• Studied a reverse M&A case (developing to
developed country; small eating big;
communist country vs. capitalist country)
• Fresh approach in comparing IT companies
from Taiwan and Mainland China

73. C. PRACTICAL CONTRIBUTION
• The importance of M&A capabilities readiness
before global MA&A activities
• The handling of foreign managerial talents
could be rewarding and backfiring
• The virtue of patience needed in globalization
• The importance of organic growth in getting
things set before going global
• The necessity of “system thinking” of heaven,
earth, human for managerials.

74. D. LIMITATIONS & FUTURE
RESEARCH DIRECTION
• Inherent limits in a qualitative interpretative
study such as subjectivity and generalization
• Company age of 8 years difference between
Acer and Lenovo could make all difference
• Founder Shih and Liu from both companies
were not studied enough
• More future study on cultural and political
factors, traditional values, open systems,
means to create a global learning
organizations are needed.

75. E. CONCLUSION
• A PROFITABLE M&A BASED GROWTH
depends on the following dynamic
capabilities:
1).READINESS OF M&A TOTAL CAPABILITIES
2).STRATEGIC INTEGRATION
3).DYNAMIC MANAGERIAL CAPABILITES
4).ORGANIZATIONAL LEARNING

76. VII. Q&A
Thank You!