Integrating two different corporate cultures is always one of the thorniest challenges in making a takeover work. And after buying IBM’s personal computer business in 2005, one of the first cultural chasms that Lenovo had to bridge was the remuneration for its senior executives. Lenovo’s chairman Yang Yuanqing was being paid far less than some of the executives at his new acquisition. So pay policy had to change: Yang made HK$4.2 million ($539,845) a year before the IBM acquisition but his salary spiked to HK$22 million immediately after. The cost of Lenovo’s expanded board of directors also jumped more than 12 times to HK$175 million.
At the time Lenovo had already evolved from its earlier days as a state-backed firm into more of a privately-run enterprise. But the revelation about the sudden increases in its executive pay still sparked heated debate. “Salaries for people at the top are now comparable with international standards,” a factory worker complained to the China Business Journal at the time. “But we are making only a tiny fraction of the average income of American workers.”
Nearly 10 years on, Lenovo is working through a similar set of challenges as the firm returns to the acquisition trail. More than 1,000 workers at one of IBM’s factories in Shenzhen went on strike last week, as workers protested at the terms of their potential transfer to Lenovo, which announced in January that it would buy IBM’s low-end server business for $2.3 billion (see WiC224). According to China Business News, the American tech giant told workers that they could continue to work on their current terms following Lenovo’s takeover or accept severance packages. They were requested to make a decision before March 7. Instead they staged a wildcat strike, which has gone on for more than a week (triggered by the firing of 20 of their colleagues after the deadline had passed).
“The IBM strike fits a growing pattern of industrial activism that has emerged as China’s economy has slowed,” the Wall Street Journal reported. A shortage of workers is also shifting some of the balance of power in labour relations, while the rise of social media has made organising collective action easier, the newspaper said.
The Financial Times agreeed, adding that this was another example of Chinese workers challenging the multibillion-dollar deals agreed by their employers. Last August, 5,000 workers in Shandong went on strike to protest against Apollo Tires’ proposed $2.5 billion acquisition of Cooper Tire.
For the time being, Lenovo has steered clear of the dispute. “It is an internal matter for IBM,” it said in a statement this week. It also promised that remuneration for workers after the merger would remain unchanged.
Even so, the IBM server factory in Shenzhen is likely to be half empty when it’s finally taken over by Lenovo. More than 50% of the protesting workers have said that they won’t be hanging around. “I don’t want to work here any more. So many security cameras have been installed in the factory. There weren’t any before,” one IBM veteran told the FT.
Similar clashes about workplace culture are likely to shape the career decisions of more than 7,500 IBM staffers in the server business in more than 60 countries.
It took Lenovo several years to integrate IBM’s PC operations into its own after the 2005 deal. It took even longer to become the world’s leading PC supplier: according to market research firm International Data Corp, Lenovo overtook Hewlett-Packard as number one in the third quarter of 2013. It may now be attempting a similar journey with computer servers and even for smartphones (it has just acquired the Motorola handset business from Google as well). But kicking off the new business direction with a strike doesn’t seem like the most positive omen…
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