I.
POINT OF VIEW:
Our point of view in this study is from Lenovo Group Limiteds
management specifically Mr. Yang Yuanqing, the President and CEO.
II.
MAJOR PROBLEM:
SWOT ANALYSIS
STRENGHTS:
Legend PCs were awarded the First Prize for National Science and
Technology Advancement in China
Top-selling domestic brand
Listed in the Top 10 Most Valuable Chinese Brands
Increasing market share
Achievements were publicly acknowledged by the government
Expansions into overseas markets
Formed strategic alliances with a number of leading local
software companies
Signed a Memorandum of Understanding with IBM
Could also distribute IBM software products
Low Cost Production
Consumers who are keen at realizing price fluctuations are likely to
shop at shops that offer the lowest prices, if the products in the market
are of quality and relatively homogenous.
Competent to acquire and diverse business institutions
Lenovo continuously acquire firms in order to bring patents, new
capabilities, resources and skills to the business. Through flourishing
acquisitions and combined ventures, Lenovo expands its markets and
distribution networks.
Vertical Integration
Vertical integration has been very helpful to Lenovo for it has been
capable of keeping low costs, keep up with both domestic and
international competitions while relying less on original equipment
manufacturers.
WEAKNESSES:
Invested heavily in advertisement
Could not simply transfer its product into overseas markets
Tough market environment
Poor brand perception in the developed economies
2
Other countries, especially United States of America and Europe, think
or understand that because Lenovo is China Made its products are
not that durable.
Low Differentiation
Lenovos
products
are not far
much differentiated
from
other
competitors products.
Commodity Products
The large stream of Lenovos revenues comes from computer,
especially laptop, sales, which is a commoditized product. Computer
hardware products are sold with a very low profit margin.
OPPORTUNITIES:
The number of internet users in China increased by 100%
Obtaining patents through acquisition
Lenovo can sustain its growth by obtaining more patents though
acquisition of firms holding them like it did with IBMs Compaq.
International Expansion
Due to low pricing and the low purchasing power, Lenovo can easily
penetrate the market, as a population can afford and much willing to
3
buy low priced electronic products with having the same quality as of
other branded products.
Lenovo can make its expansion to poor
countries that are not in the position to purchased expensive gadgets
and become a global seller.
THREATS:
Dell was growing faster
Falling stock price coupled with a decline in PC shipments
Price wars
Foreign rivals
Slowing growth rate of the laptop markets
The rate of growth of the computer market is diminishing as the
market becomes saturated.
Intense Competition
The company faces intense competition in all its business segments. It
competes in terms of price, quality, brand, technology, reputation,
distribution and range of products, with Acer, Apple, Dell, HP and
Toshiba.
Summarized below are the situations encountered by Lenovo:
Developing a business model that would not only combat Dells
direct selling model but would also take advantage of the Groups
traditional strengths
Based on a slowdown in rate of growth and increasingly
sophisticated customers, Lenovos home field advantage was
being threatened
It found itself in a more competitive field, with both local and
foreign players moving forward aggressively
Smaller local firms were growing fast, selling at prices that
Legend had difficulty matching
Street level competition from clone makers that undercut prices
using smuggled components and pirated software
Market was being invaded by foreign heavies such as IBM,
Toshiba, HP, and Dell.
Therefore, the major problems of Lenovo are:
Would Lenovo be able to compete in the international market?
Should Lenovo adjust its business model to remain being
dominant and profitable in China?
How would Lenovo remount the learning curve once again?
Will Lenovo be able master the supply chain better than Dell?
Will Lenovo be able to earn the greatest profits in Chinas market?
What are the preventive measures that Lenovo should take, in
order to alleviate the threats in the competition of the maturing
PC market in China?
What are the strategies that will ensure their dominance in the
market share and penetrating the foreign PC market?
III.
OBJECTIVES:
Lenovo is a $30 billion electronics company and the worlds secondlargest PC vendor. It employs 30,000 people, operates in more than 60
countries and serves customers in more than 160 countries.
Hence, Lenovo must have the objectives of:
To consolidate its leadership in the PC market in China
To become one of the worlds great personal technology
companies.
6
To be respected for their product innovation and quality.
To be recognized as one of the best and most trusted companies
to work for and do business with.
To develop a business model that would not only combat Dells
direct selling model but would also take advantage of the Groups
traditional strengths.
To tap international markets, as well as exploring alternate
product diversification strategies.
To develop a five year action plan focusing in the continuation of
the market leadership of Lenovo in China
To establish a more customer oriented market system, extensive
sales network and integrate distribution strategy.
While, Lenovo wants:
To explore alternate product diversification strategies in the local
market
To become global players while defending its domestic market
share from foreign rivals
7
To become part of the Fortune 500 in 2010
To implement new action plan focusing in the strengthening ties,
winning and cultivating long term with customers.
To secure their existing businesses before venturing on expanding
its market share.
To focus and attain short term goals and objectives in order to
achieve the projected result of the long term plan.
IV.
FACTS OF THE CASE:
Since its inception in 1984, Lenovo Group Limited had grown from
a company engaged primarily in the distribution of imported
computers to being the largest IT Corporation in the Peoples
Republic of China.
In April 2003, laying the groundwork for expansion into overseas
markets, the Group adopted a new logo that incorporated the
brand name Lenovo. A year later, in April 2004, with a view to
raising the recognition and popularity of the Lenovo brand, the
Group officially changed its English name to Lenovo Group
Limited.
In
early
2004,
Chief
Executive
Yang
Yuanqing
commented that besides concentrating on its core business of
personal computers, the Group would continue to focus on mobile
8
devices, because the product segment shared natural synergies
with the PC business.
Of the top five, Acer displayed the best performance, growing
30.9% from Q2 2003 to Q2 2004.
Apple, despite a healthy increase in its shipments, still accounted
for less than 4%.
Lenovo was previously known as Legend, formed by Mr.
LuiChuanzhi.
The Groups first manufacturing base was Legend Science and
Technology Park.
PC MARKET IN CHINA:
In one of the most dramatic stories of the computer industry in
recent years, Chinas PC industry went from being non-existent in
the 1980s to becoming a force to be reckoned with by the turn of
the century. Chinas computer policies shifted in the early 1980s
from an isolation approach aimed at achieving technological
independence to adopting a more pragmatic strategy. By 1998,
domestic
companies
held
80%
of
the
market
shares,
remarkable shift from the early 90s, when foreign companies held
around 60% of the market. By 2004, IDC had ranked China as the
9
worlds second-largest PC market. Another interesting aspect
about the PC market in China in 2004 was the aggressive entry of
international chip-making giant Advanced Micro Devices into the
market. In a bid to win the price game, in 2004 Lenovo, HP and
Founder introduced models into China that were powered by AMD
chips.
A combination of factors influenced the growth of Chinas PC
market. These included the role played by the domestic PC
makers foreign multinationals and contract manufacturers. In
addition, government policies promoted computer production and
use. Quasi-state-owned enterprises were also encouraged to
enter the PC industry. Foreign investment was also solicited,
requiring the transfer of technology in return for market access.
While direct import of computers was discouraged through the
imposition of high tariffs and taxes, various multinational
companies such as HP, Toshiba and Compaq formed joint
ventures with local companies to market their own products as
well as to gain access to local distribution channels. In turn, they
provided technology and know-how to local companies.
10
China remained the largest market in Asia/Pacific (excluding
Japan) in terms of shipments for the 9th consecutive year with
13.3 million units shipped in 2003.
Lenovo retained its position as the market leader, commanding
more than a quarter of the market.
DISTRIBUTION CHANNEL:
Internet use in China also rocketed from 2.1 million subscribers in
1998 to a reported 53 million in 2003, with e-commerce turnover
seeing exponential growth. Lenovo, evidently taking notice of
Dells presence in China, implemented a series of strategic
initiatives in 2004.
Lenovo, evidently taking notice of Dells presence in China,
implemented a series of strategic initiatives in 2004. By that
year,
an
extensive
sales
network
with
18
sales
regions
comprising 108 grids and more than 4,000 retail shops had
already been built across the country, penetrating deeply into
township areas.
LEGEND:
In 1985, NTD started manufacturing the Legend Chinese
Insertion
Card
(LCIC).
In
1988,
11
Hong
Kong
Legend
was
established to distribute foreign-brand computer products and
peripherals for Beijing Legend and other distributors in the PRC.
Yang Yuanqing was appointed the general manager of the PC
business unit initiative in 1994.
By 2003, Legend-brand PCs had been the best seller in China for
seven consecutive years.
In 1989, Legend participated in the World Fair held in Hanover,
Germany. Among other products, it exhibited its first selfdeveloped PC based on the Intel 80286 microprocessor. Buoyed
by this success, Liu Chuanzhi sought government approval to
manufacture PCs in China. As a prerequisite, he had to
demonstrate the companys capabilities in the Hong Kong
market. In 1990, after a thorough round of inspections, Legend
was granted the required license to manufacture PCs in Mainland
China. It launched its first PC, the Legend 1+1, at retail price of
RMD 3,000.
In 1994, the Group launched its second-generation Legend 1+1
PCs, and started manufacturing printed circuit boards.
By 1997, Legends market share in PRC had increased to 13.9%.
It was also acknowledged as one of the leading computer brands
in the Asia-Pacific region.
12
In 1998, the Group was engaged in five core businesses: the
manufacturing
and
distribution
of
Legend-brand
PCs,
the
distribution of foreign-brand computer related products, the
provision of systems integration services, and the manufacturing
of motherboards and printed circuit boards.
Legend initiated an innovative marketing channel, the 1+1
Home PC Specialty Shop, which does not only provided a new
channel for the sales of Legend home PCs but also served as a
window for demonstrating new technologies and products to end
users.
Legend developed and offered customized products in quick
response to the local market demand.
DELL:
In April 1999, Dell introduced its award-winning range of
Dimension desktops, targeting home and small business users. In
came as a surprise in August 2004 when Dell announced that it
had decided to reduce its focus on the low-end PC consumer
market in China.
Dells major strengths lie in its direct order business model and in
its current power in the market. The direct business model cuts
13
costs for retailing and provides a highly customizable product.
These features are ideal for marketing low and middle spectrum
computers to companies, a strategy that has resulted in Dells
success.
Dells weaknesses, however, also lie in this direct order business
model. Customers have no physical sense for the product theyre
buying, resulting in dissatisfaction with often solid, functional look
of new Dell products.
V.
ALTERNATIVE COURSES OF ACTION:
14
A. Diversification of the products as well as the geographical areas.
The new markets will be explored and on the basis of the latest
strategy the company will be able to improve the revenues as per
estimates and avoid losses incurred in the previous year.
ADVANTAGES
New products may be
DISADVANTAGES
Management will invest more
introduced to markets and
in
its
research
and
will help Lenovo products
development
effective. New product sales
and therefore will cost a
will be earned. With the
much higher expense in it.
department,
innovative products the
chances of the company to
increase the market share
seems to be acceptable.
It will have distinction from
It will take quite some time.
any other brands.
It will be easily notice by
It will be quite hard to have
people
whether
they
are
common or professionals.
This is a step forward to
Lenovo
to
its
potential
competitors.
capable
professionals
to
work with it.
The step is risky for creating
new product, especially if the
product is not a necessity;
there is a large chance that it
Creating new product will be
new
to
chances
consumer
of
having
profitability
increase.
15
will not be patronized.
Advertising
expense
product
differentiation
very costly.
in
is
Identification
of
local
and
international customer needs
and demands.
Larger target market
International relations
connections
Adaptation of
and
international
standards and knowledge
B. New marketing channels will be developed and the company as
discussed earlier will be able to reach the grass root level. The
business strategy of higher volumes will be retained and the
margins will show improvement with the reduction in cost.
ADVANTAGE
Lenovo will increase
its
DISADVANTAGE
The risk that Lenovo Group
among
may not meet their expected
consumers. People will know
sales in a certain marketing
about
channel.
popularity
the
brand
and
its
product more. It will be more
accessible to its buyers.
Enhances the popularity of
Lenovo within the country.
C. The company should target consumer and small & medium
business (SMB) segments to tide over slowdown in commercial PC
sales.
ADVANTAGE
The group may be able to
16
DISADVANTAGE
It will cost the group to
sell to its low-end market
invest
in
consumers. It may help the
promotion.
marketing
its
group to maximize its sales.
D. Enter the Global market
ADVANTAGE
It would be able to increase
DISADVANTAGE
First, the group might have
its internalization process in
difficulties
accumulating
position
sufficient
in
in
securing
china
its
and
experiential knowledge and
competing within the Global
market
market.
commitment
in
foreign markets
Competitors
such
as
Dell
might overlap Lenovo in the
Market share.
E. Continue to form alliances with a number of leading local
software companies
ADVANTAGE
Helps develop and market
computer
application
software, respond to quick
market
demands
maintain
its
DISADVANTAGE
Conflict of interest between
partners may arise.
and
distribution
network.
Access to foreign market and
distribution channels.
Local; companies may take
advantage
17
of
Lenovo
because of their importance
to
the
company
as
their
bridge.
Broad location positioning of
the product.
F. In concern with having poor brand perception, Lenovo must
challenge negative perceptions as soon as they arise, defend
their brand and manage its reputation, especially in the face of
negative feedback on service and quality by at least for now
disassociate itself from its origin country.
ADVANTAGES
By taking this challenge,
other
prosperous
DISADVANTAGES
This may take a very long
country
way to be competitive on
might be able to see that
rich countries because for
Lenovo is well managed and
the
legitimate.
products have one of the
past
worst
decades
reputations
China
among
consumer.
Lenovo
would
competitive
be
and
be
more
more
eager to improve.
Getting
lumped
to
companies being known to
have bad quality because of
its origin country, proving
disassociate
the business would be costly.
By disassociating, Lenovo
itself from China, having an
will not be able to help China
unfavourable origin in terms
in regaining its name in the
When
Lenovo
18
of products, their perception
to
other
countries
field of business.
may
increase.
G. Lenovo must go beyond the pricing strategy and start to offer
something more than simply the cheaper option by focusing more
on being a functional product.
ADVANTAGE
The pricing strategy is a
DISADVANTAGE
Generally, the basis
very basic model and it
consumer
will not always be very
products are the companys
successful for everyone is
sales and by focusing more
using
strategy.
on being a functional product
Therefore, Lenovo must
will lead to high cost of their
focus
products leading to a certain
that
on
being
functional product that is
percentage
very hard to imitate by
sales.
for
of
quality
decrease
in
other companies.
H. Plan and implement a competitive strategy towards other
competitors
ADVANTAGES
Lenovo has choices between
product differentiations, low
cost, and focus strategy.
Time
in
analyzing
the
competitors and other firm
19
DISADVANTAGE
Low cost versus good quality
competitive advantage.
VI.
BEST COURSE OF ACTION:
We highly recommend Lenovo to:
1. Study what is viral inside and outside China. Lenovo must
customize products and services, higher value added, provide
unique product design new product category. Appearance is
the first thing that we all see in a particular thing. Adding
special features in the external appearance of every unit will
make people be excited about the product. Making the product
eye-catchy will eventually be a great factor to increase the
sales and the demand of the users.
The Group should hire
more capable people to help them in developing and making
new product categories differentiating them to their other
competitors not only domestically but also internationally.
Upon hiring people, the company should also eliminate those
that contribute less. Everyone should be given a specific work
and be monitored most of the time. Lenovo must choose the
right people who will
2. Lenovo should enter the global market but at the same time
provide strategies that would minimize foreign companys
threats. It must focus on key points such as focusing more on
20
Product Brand rather than Corporate Brand. Building key
competencies on quality and innovation to overcome state
owned Chinese company image and narrow the gap of country
of origin effect. Lenovo should maintain competitive advantage
on low cost, continue with global brand image, and quickly
adapt to customer change.
3. Lenovo should decentralize. Hire employees having other
nationalities that can help in advertising your product through
disassociation. Consumer havent started trusting China in the
market because of media reports on poor quality and other
issues, its all negative information which unfortunately tends
to be weighted more heavily than all the good things that
came out from the said country. Lenovo must also go beyond
pricing strategy for there are a lot of businesses who can
already imitate original products and sell it on a much lower
price than the products true price.
4. Lenovo should develop new marketing channels. Brand image
will reach the users as per social programs being launched by
the company in various countries. Lenovo has established its
product in Peoples Republic of China so it is the time where it
should
expand
its
coverage
21
in
terms
of
customers.
International market may be hard to penetrate but it will be
very rewarding. Conquering international market will enhance
the quality of the products offered by Lenovo to its consumers.
VII. CONCLUSIONS/RECOMMENDATIONS:
Being an emerging industry with access to a large domestic market,
like that in China, can be a recipe for success. Lenovo benefited from,
first developing the distribution channels (with the government
protection from international competitors), then helping
foreign
vendors with sales and low-end manufacturing/assembly, cooperating
with foreign companies to create low-cost computers with up-to-date
technology fit for Chinese consumers. The China market continues to
be a sustainable source of advantage for Lenovo, both in overall sales
and as a low-cost manufacturing and R&D base.
Lenovo has a wide range of alternatives to help them penetrate the
international market. Lenovos competitive advantage lies on its
marketing capabilities, strong channel management and the ability to
meet the customers tastes and needs. Implementation of new
marketing strategy can be very helpful, winning and cultivating longterm relationship with customers, consolidating existing businesses
22
and
expanding
the
market
share
not
only
in
the
China
but
internationally.
PROGRAM/ACTIVIT
TIME FRAME
RESPONSIBILITY
Expand
COMPLETIO
DIRECT
SHARED
Januar
N
Continuous
President
Top
Lenovos
project
within
the
global
market
Advertise
internet,
management
2004
March
Lenovo through
class
START
Continuous
Marketing
Employees,
Department
Advertising
Unit, Top
Advertisers
Management
Continuous
President,
Production
Continuous
Artist
Board of
Manager
Managers/He
Directors/To
ad on every
Department
2004
world
events,
etc.
Product
April
Diversification
Monthly
2004
2005
meeting
with
regards to their
strategies
Manageme
and
nt
objectives with
the
necessary
budgets
for
next years.
Discuss
where
to
on March
put
2015
December
Top Level
2015
Manageme
23
the
new
nt
marketing
channel
Implementation
2016
2018
Employees
Top Level
Management,
of the proposed
Department
plan
Heads
2016
Top Level
Appropriate
the
Manageme
Personnel, All
its
nt
Department
Researchers
Head
Top
Updates
regarding
plan
and
development.
Conduct
research
peoples
for
Januar
2018
Continuous
Management
2004
demand
24
