Lenovo
- 1. LENOVO : CHALLENGER TO THE LEADER
- 2. OBJECTIVES • Critically analyze the strategies to be adopted by Lenovo to maintain its market leadership position in the lucrative Chinese PC market. • Understand the issues and challenges faced by a Chinese PC company in growing its business • Study how Lenovo achieved a balance in catering to global customers while customizing its practices to suit the needs of its Chinese consumers. • Understand the strategies to be adopted by Lenovo to defend its market share in the global PC market considering the demand in the global PC industry was decreasing. • Analyze Lenovo’s Protect and Attack strategy. • Examine whether Lenovo could increase its dominance in the Chinese smartphone market and become a leading player in the Chinese smartphone market. • Examine the strategies Lenovo should adopt to enter and make a mark in the US smartphone industry. • Examine the challenges faced by Lenovo in gaining a presence in the intensely competitive US smartphone market
- 3. GLOBAL PC MARKET • Most PC manufacturers followed retail store distribution model • In the 90’s, outsourcing and offshoring resulted in key PC components being produced outside the US • Dell sourced components from outside but assembles in US Others shifted manufacturing completely offshore • Dell set up manufacturing in China, ends up as Lenovo’s biggest competitor • Early 2000s show consolidation trend, e.g. Gateway acquired eMachines (new entity had 7% of US market)
- 4. HISTORY OF LENOVO • Started as New Technology Developer (NTD) Inc. • Small distributor of Imported PCs in Beijing • Investment : $ 25,000 • 1987: First Original product: LEGEND CHINESE CHARACTER CARD – translated English operated machines into Chinese • Accounted for 38% of First year sales and 46% of profits • Got contracts from HP and IBM to distribute PCs in China • Renamed to Legend Computer Company in 1989
- 5. • In 2003 , it changed its name from Legend to Lenovo ; the very first step in globalisation process • Acquired IBM’s PC division and became the world’s third biggest PC-maker
- 6. Lenovo’s acquisition of IBM • For IBM, the deal was a way to shed an unprofitable operation and concentrate on consulting services • IBM had two options: i. First was a potential acquisition by Lenovo ii. Second was to spin out the PC division to a private equity firm • For Lenovo, the deal was a way to globalize and cater to larger markets • As part of this deal, Lenovo gained: The right to use IBM logo on its products for 5 years • Two major product offerings – ThinkPad and ThinkCentre desktop brands
- 7. • Conditions levied and agreed upon in this acquisition : Access to IBM’s 30000 strong sales team Logo used on advertised products; not as separate logo Lenovo not to compete with IBM’s services and consulting group IBM’s logo only to be used on Think family products IBM provides global support for 5 years
- 8. Reasons for Globalization • Saturated Chinese Market • Domestic market for home PCs shifting towards laptops rather than desktop PCs • Difficult to get into Laptop manufacturing due to i. Cost ii. Competition
- 9. Globalization Strategies of LENOVO • Merger and Acquisitions • Sponsoring events • Joint venture
- 10. Merger and Acquisitions • Acquisition of IBM’s PC division in 2004 • Acquiring IBM’s PC division was advantageous to LENOVO in following ways : Quickest way to enter foreign market Made LENOVO third largest PC manufacturer in world Access to IBM’s global market ,global management skills, outstanding R&D ,top PC technologies , experienced managers and other personnel
- 11. • In 2011 , Lenovo bought Medion, a European electronics firm , for US$ 738 MN which doubled its share of the German PC market. • In 2012,the company bought CCE, a Brazilian electronics firm, for US$ 148 MN. These deals strengthened Lenovo’s PC business and helped it gain market share.
- 12. Sponsoring Events • Lenovo sponsored 2006 Winter Olympics in Turin, Italy. • Sponsoring Olympics for 3 years increased the popularity of Lenovo brand. • This was followed by a worldwide branding campaign followed by the global launch of the IdeaPad branded laptops targeting consumers. Joint venture • In July 2011 , Lenovo bought Medion , a European electronics firm , for US$ 738 MN ,which doubled its share of the German PC market • With the acquisition of Medion , Lenovo doubled its shipments in Western Europe during the second half of 2011.
- 13. Ruling The China Market • Association with Govt. • No trade Restriction • Selling to local Chinese customers • Aggressive Pricing • Catering to Different Customers • Distribution Strategy
- 14. • Association with Government 25% of sales at LENOVO were to the Chinese government during the 1990s.This helped in Lenovo’s growth in initial years. • No Trade Restrictions The no trade restriction policy conferred potential competitive advantage on Chinese computer makers.
- 15. • Selling to Local Chinese Customers -Local solutions to the end users in terms of local software and assistance -Quick adaptation to market -Assistance to customers by providing IT services -Launch of a PC in 1999 that gave internet connectivity with touch of a button -Customized PCs for students -Rapid growth of middle class market segment fostered growth of Lenovo -Pay as you go program
- 16. Aggressive Pricing - High quality and cheap brand - Service Channel and distribution structure - Segmenting of types of consumers i) Premium Consumers ii) Cost Conscious Consumers
- 17. • Distribution Strategy • Positive relationships with distributors • Retail Sales Personnel – for advice and demonstrations • Huge geographic coverage
- 18. PROTECT AND ATTACK STRATEGY • Continual of expansion in mature markets • Expand into smartphones and tablets • Branding it globally – World class organization
- 19. Protect and Attack Strategy Protect Attack • China PC leadership • Deliver steady relationships • Drive attachment of Peripherals • Attack PC+ opportunities • Jumpstart tablets outside China • Take ownership
- 20. PC Plus Strategy - Entered smartphone market as a new channel to drive growth. - Brought innovation and efficiently used its existing distribution strategy. - Successfully expanded its portfolio- smartphones, tablets, smart TV’s
- 21. Smart Phone Market Share in China Samsung 17.4% Lenovo 11% Apple 9.8% ZTE 9.1% Huawe 8.7% Others 44%
- 22. Indian PC Market (2012) Company Market Share (%) Lenovo 16.6 Acer 13.4 HP 13.1 Dell 12.9 • Despite the PC Market declined by 2.2% Lenovo still recorded growth of 9.8% for the Q1 of 2013-2014. • It stood the world’s largest PC+ market and second largest tablet company in China. • Lenovo’s clear strategy, innovative, product lines, great execution and diverse global team helped it to survive in such a competent market.
- 23. The Real Challenges - Expanding with other countries, Lenovo loosened its grip over its home market China - Lack of innovation in PC’s – resulted to change in customers taste and preferences - Major Challenge to expand in US where HP and Dell were major Players - Entering smartphone market
- 24. Looking Ahead Restructure of Lenovo into : • Lenovo Business Group ( PC, Laptop & Tablets ) • Think Business Group ( High end segments ) Opportunity to capture more of the $200bn PC market. Tap Middle-Class Segment of Smartphones Expand its devices portfolio in US Make different products for price sensitive customers and Premium customers. Expand sales channels Boost the server and storage business into major revenue generators.
- 25. HOW TO SUSTAIN THE GLOBAL COMPETITION - Maintaining competitive advantage on low cost - Continue with global brand image - Make use of strong B2B to expand to B2C market - Quickly adapt to any customer change
- 26. OTHER RECOMMENDATIONS • Forecasting system • Risk Management : Sensing and responding unknown risks • Be prepared – Collaboration turning into competition – Foreign governments – Exchange rate fluctuation