One of the most visible corporate activities is mergers and acquisitions. Acquiring another company has long been touted as one of the most popular avenues for corporate growth and also has been documented as one of the most challenging.

M&A activity has become such a staple corporate activity over the last few decades that hardly its spurs any major interest. But when Lenovo acquired IBM's PC division it created major global news. This was a special case where an up and coming Chinese computer maker made huge strides by acquiring a global icon.

This acquisition created news for many reasons. This was one of the first high profile acquisitions by a Chinese company on the global landscape. By this acquisition Lenovo became the third largest computer maker in the world. Because of the IBM brand name, Lenovo was expected to make great strides within the US and the broader Western market. Business observers and analysts talked about how a Chinese company would successfully morph into a global brand with power and respect. This was three years ago.

Things have not gone exactly as expected for Lenovo. In spite of the mighty IBM brand name, Lenovo exports only 14% of its total shipment to the US as against Acer's 14% and Toshiba's 32%. Even though Lenovo is the market leader in China - the world's second largest computer market - with a 16.4% of the market, a recent report commented that Lenovo does not even come in the top 5 computer makers in the US market.

Further, Lenovo's home market of China accounts for 34% of Lenovo's sales and a whopping 71% of Lenovo's profits. Given such a showing, it is only natural that industry observers, competitors and consumer ask the question: Is Lenovo a Chinese brand or a global brand? What went wrong with Lenovo's plan to emerge as a power player in the global market?

There can be many answers to that question. But the three most important reasons are:

1. A highly lucrative yet competitive home market
2. Lack of brand equity in the consumer computer market
3. Negative effect of "China Brand Effect" in the Western markets

A highly lucrative yet competitive home market: China is one of those rare cases which offers the double whammy of a thriving and highly competitive domestic market along with offering an excellent base for exporting to the global market.

Being a Chinese company, Lenovo has guarded its home turf very aggressively. Lenovo is the market leader with 16.4% of the Chinese computer market. But given its ambition to expand beyond the home turf, it has had to focus increasingly on the US and other Western markets.

Such a division of resources and strategic focus has allowed competitors to inch closer to Lenovo in China. Compared to 2007, all competitors have increased their China market share in 2008. Dell increased its share from 7.2% to 9.1%, HP increased its share from 13.8% to 15.1%, and Acer has gone from 5.6% to 7.2% of the market. This in turn poses increasing challenges to Lenovo and its brand. Till date, it has not been able to effectively do two things at the same time - thwart competition at home and take market share from competitors in their home market - the United States.

Lack of brand equity in the consumer computer market: When Lenovo acquired IBM's PC division, its main aim was to leapfrog to become one of the largest computer companies in the world. Lenovo became the third largest computer company in the world, but not necessarily the biggest in the consumer market. IBM's traditional strength was in the business segment. IBM's Thinkpad laptops were the gold standard in business computers. But Lenovo did not restrict itself just to the business market.

Over the last three years it has made a very aggressive entry into the consumer computer market with two new Thinkpad models and the new line of Ideapads. But given the recessionary economic conditions in the US, this move has not yielded any credible results so far. Furthermore, for a company that is still learning the rules of the global brand game in the computer industry, Lenovo has bitten more than it can possibly chew. Entry into the very highly competitive US consumer computer market where DELL and HP have a near strangle hold, leveraging IBM's brand name in the business market, building equity for the Lenovo brand and guarding the home turf in China have all together put Lenovo under immense stress.

The China Brand Effect: As one of the recent articles in a leading US daily reported, for US consumers Lenovo (even after acquiring IBM’s PC division) is still a Chinese brand. Given the general perception of China, Chinese products, controversies about China's counterfeit markets (and products), the questionable quality of "Made in China" products and the overall macro socio political sentiment towards China have heavily impacted the perception of Lenovo among the US and other Western consumers.

This reflects the lack of Lenovo's efforts in building a strong brand. Even though Lenovo had a golden opportunity to capitalize on IBM's co-brand name for three years, it has turned out that Lenovo has not managed to create a strong brand image among the Western consumers. While sales in China grew by 18% during the first quarter of 2008 compared to 2007's first quarter, sales in the US increased only by a paltry 3%. Furthermore, Acer's acquisition of Gateway has catapulted Acer's position within the US market and Acer is inching closer to Lenovo.

Given these apparently insurmountable challenges Lenovo faces both at home and in the Western markets, it is not surprising that Lenovo is taking a beating of its stock. In spite of reporting sales of US$3.74 billion and revenues of US$140 million in the first quarter of 2008, Lenovo's stock is down by 14% for the year 2008 as against a 15% drop for Dell and an 11% drop for HP. The same saga has continued in 2009 as well. Lenovo reported sales of US$3.5 billion for the June 30 quarter. This sales number is down 17.9% for the same period in the previous year.

Furthermore, Lenovo posted a loss of US$16 million for the quarter as against a net profit of US$119 million for the same period in the previous year. With competitors chipping away at its market share in China, Lenovo will have to aggressively build its brand in the US and European markets in order to survive long term. The strategy has to be carried out by management.