Question 1. Critically analyse the industry and market environments of Lenovo and comment on how well Lenovo is positioned to mitigate against potential adverse conditions, and/or take advantage of opportunities that may arise in markets of interest to the company. (You may use any models that
Lenovo creates and builds exceptionally engineered personal technology; Lenovo builds on its dominant position in China to grow globally. A !"#L! analysis is a useful tool for understanding the ‘big picture’ of the environment in which LE!"! is operating. #pecifically a $E#%LE analysis is a useful tool for understanding ris&s associated with the 'i(tech mar&et growth or decline) and as such the position) potential and direction) to help ma&e decisions and to plan for future events. . $E#%LE analysis includes $olitical) Economic) #ocial) %echnological) Legal) and Environmental factors. %his $E#%LE analysis is done only *nited #tates or neighbour countries as a foreign mar&et.
+acro ,actor
-eneric ,actor
$olitical
-overnment egulation Legal /ssues
$oli $oliti tica call sta stabi bili lity ty Economic
$er capital income 2uying habits
/nte /ntern rnal al cash cash flo flow w /nte /ntern rnal al cash cash flo flow w #ocial
Consumer attitude
Consumer buying habits Education %echnological
/nnovation %echnology
Lenovo coping strategy
European estates government help and support all foreign investing companies li&e Lenovo to establish their business in this regin 0ue to the ac1uisition with /2+ there is not facing those legal issues which facing other independent companies $oli $oliti tica call con condi diti tion onss of of thi thiss reg regio ion n are are very very soun sound d for for foreign investors $er capita personal income in *# *# is almost 34 grant which is very good for computer industry $eoples of this region loves to use new technology) therefore Lenovo expands its 50 and innovate new technology 6e.g tablets7 with its partner 0ue 0ue to the the ac1u ac1uis isit itio ion n wit with h /2+ /2+)) in in *# *# Len Lenov ovo o comes in very strong financial position 0ue 0ue to the the ac1u ac1uis isit itio ion n wit with h /2+ /2+)) in in *# *# Len Lenov ovo o comes in very strong financial position 0ue to the Chinese brand Lenovo has not a good image in *# mar&et which is as a negative sign for Lenovo) but ac1uisition with /2+ is goes in favour /f Lenovo provide innovative and user friendly computers) this obviously attract more consumer Literacy rate in *# is very good which help to increase sales of Lenovo #even research centres which wor&s under the umbrella of Lenovo /ncrease research and development have caused permanent innovation which wh ich leads to product life lif e cycles resulting in a faster depreciation of the product
%ransportation Legal
Employment Law Environmental regulation
Environmental
Ecological
Customer values +anagement style #ta&eholder = investor values
2efore ac1uisition Lenovo spend massive amount on shipping which is save now Lenovo is an E1ual !pportunity Employer and prohibits discrimination and harassment of any &ind Lenovo develop sustainable products using materials that are safe; which are environmentally preferable; and which have increased recycled content) recycling rate is greater than 89: Lenovo laptops are user friendly) received -reen $roduct< award for des&top $C from China Environmental $rotection ,oundation Lenovo established customer(focused direct business model Lenovo follow and authoritative management style Lenovo embraces the values of customer service) innovative and entrepreneurial spirit) and integrity.
%his $E#%LE analysis is in effect an audit of Lenovo environmental influences with the purpose of using this information to guide strategic decision(ma&ing. %he strategic position of Lenovo is concerned with the impact on strategy of the external environment) internal resources and competences. #trategic group of Lenovo are clusters of organisation that compete on the basis of a similar positioning) product 1uality and target very similar customers) the strategic group of Lenovo providing strength to it and helping to increase its mar&et share) the potential strategic group of Lenovo are as follows; '$ with the >?.>: mar&et share) 0ell stand on second position with >9.@: of total mar&et share) Acer got 8.3: mar&et share) other companies 38.>: share as contrast of Lenovo .?: total mar&et share.
/n a generic group high ris& industries earn high return) because they focus on developing new products and they spend heavy amount on their 50
/n order to get a better sense for Lenovo’s outloo& in terms of the corporate mar&et and the impending loss of the /2+ branding) "$%# would be discussed after the $E#%EL analysis) it is helpful to analyBe the company’s strengths) wea&nesses) opportunities and threats in terms of the problem. %hese &ey parameters are summariBed here) #trengths and wea&nesses are often internal to the organiBation) while opportunities and threats generally relate to external factors. "trength ational /mage 6China7 nowledge about local mar&et 6due to the ac1uisition with /2+ +ass manufacturing capability Duic& responsiveness Low cost 6manufacturing plant in • •
$eakness $oor global perception Low inventory turnover •
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Limited &nowledge of global mar&et o pure electronic sales Less 50 budget >:
China7 Lenovo&s ma'or strengths lie in its current rand image and market share. %n the international scale, Lenovo ranks third in corporate sales ehind )ewlett*ackard and +ell. t shows tremendous capaility for improvement, however, due to its clearly superior reputation for high -uality, high end products inherited from . n addition, e0ecutives maintained from &s noteook division provide the valuale e0perience that a relatively new foreign player normally would not have in the corporate (especially "2 market. )owever, Lenovo already has a strong ase in China, with a 345 share of China&s C market, and continuing innovation in the high*end market makes products like the #hinkad 6788 a "trengths ,urthermore Lenovo is a computer ma&er) not a computer manufacturer. /t buys from a group of concentrated hi(tech component manufacturers. Lenovo has a significant wea&ness in targeting the college and school student segment of the mar&et and also Lenovo lac& a large amount of relationship with educational institution.
#F!% analysis is lac&s detailed structure) so &ey elements may get missed) but in the light of above mention #trength and Fea&ness Lenovo is an up growing star of 'i(tech industry) because after getting home advantage it would become an international star and overcome its wea&nesses by good leadership 1uality) innovation and 50.
/n addition to and in combination with #F!% analysis) the 9ive 9orces model by $orter’s provides another analysis tool to identify opportunities and ris&s when entering untapped territory in mar&et. $orter’s ,ive ,orces model) other than a #F!% analysis) provides clear action for analysing the competitive strength. ;ew arket !ntrants
argaining power of "uppliers
argaining power of uyers
#hreats of sustitute
#hreats of new !ntrants (oderate2: • • • •
'igh capital re1uirement $roduct differentiation 6there is constant need of technology improvement to attract customer7 +oderate customer switching cost 6due to standardiBation of most of computer component) it becomes easy for customer to change their laptop7 Access distribution channel 6availability of direct(to(customer service7
• •
Economies of scale 0ecreasing profitability due to high competition
argaining power of uyer (oderate2: • • • • •
2uyers have full information about computer 0ue to the hyper competition buyers get more advantage and face few switching cost 2uyers price sensitivity Availability of existing substitute products 60ell) '$) etc7 0ifferential advantage 6uni1ueness7 of industry products
argaining power of "upplier ()igh2: • • • • •
•
A few larger suppliers 6there are few suppliers wchich are trustable) recogniBed and provide good 1uality raw material such as ,oxconn) /ntel) 'itachi7. #upplier concentration to firm concentration ratio supplier switching cost relative to firm switching cost is high %here is also difficulty in re(producing specaliBed technology 6which becomes competitive advantage of supplier7 #trength of distribution channel High number of customers who are fragmented (customers are highly fragmented so to provide products to them is not an easy task, that is why suppliers bargain highly)
#hreats of "ustitute (oderate2: • • • • •
elative price performance of substitute 2uyers switching costs $ercived level of product differentiation number of substitute products available in the mar&et 6'$) 0ell etc7 #ubstandard product
'igh ,ixed cost 6cost for setup of manufacturing units increased fixed cost which ma&es difficult for existing players to exit7 Constant changes in product and price ma&es intercategory competition stiffer %wo big players hold the top two mar&et share spots in the computer industry 6'$ 5 0ell7 Low switching cost increases rivalry Low levels of product differentitation are associated witth higher levels of rivalry 'igh exit barriers place a high cost on abandoning the product. the firm must compete. high exit barriers cause a firm to remain in an industry) even when the venture is not profitable.
$orter’s ,ive forces model targets the assessment of the structural attractiveness of the analysed industry) finally the ,ive ,orces analysis pinpoint strength and wea&nesses in a accompany and discovers opportunities of threats within the industry.
Question 3. =pply the Canvas model to illustrate Lenovo usiness model and critically comment on the Lenovo model. n addition, highlight and discuss the =ctivities and Competences of Lenovo that help give the company the competitive advantage that it so clearly has in the oile market place. (You should pay particular attention to their ecosystem> modularisation and platform technologies. )owever, in addition, you may use any other models which you consider appropriate to illustrate your points2
Core competencies
Core competencies identify and specify areas of operations that Lenovo does very well for example mass production and low cost. %herefore these were competencies should be fully exploited and matched with our strategic choices for example Lenovo enGoys low cost production) cost which can be exploited in following cost leadership strategy.
Lenovo !cosystem
Ecosystem refers to the interaction between an organisation and its sta&eholders) organisation cannot succeed on their own but need to interact with other sta&eholders so that common obGectives are achieved. #uch sta&eholders include the following; 1. #hareholder capital contribution 2. Employees . Customers !. #uppliers
/n context of Lenovo its important to consider such sta&eholder such as; 1. #uppliers such as +icrosoft 6operating system provider7 5 /ntel 6+icro chip provider7 2. 0istributor such as $C world . Customer such as government of China
%herefore in considering its strategic choices Lenovo need to ensure that there is a fit between its choices and ecosystem for example in developing new product it need to ensure that 1. %here are supliers available to provide the necessary inputs 2. #hareholder can contribute capital and the new products can generate return on capital invested
. Employee have the necessary s&ills to develop the new product !. 0istributor are willing to stoc& the new product and generate sales ". Customers need can be satisfied by the new product
%he plan implemented by a Lenovo to generate revenue and ma&e a profit from operations. %he model includes the components and functions of the business) as well as the revenues it generates and the expenses it incurs.
ey partners
ey Activities
"alue $roposition
'A0 FAE $!"/0E #ony ((((( #creen Compa1 H I." /ntel ((((( $rocessor
50 Low cost manufacturing • +odular production • Economy of scale • 2undling • Customer relationship • management 'igh 1uality and reliability
/nnovation Laptop %ablets 0es&top computer For&station #ervers
• •
#!,%FAE $!"/0E /ntel (((( -raphics +icrosoft H !# !%'E #E"/CE# $!"/0E ec ((((( +ar&eting $artnership
•
ey esources
•
,irm specific resources +anufacturing plant esearch centres 'uman resources management ,inancial status #taff
•
,irm adversible resources Ac1uisition with /2+
• • •
•
• • •
Customer elationship • •
• • • •
#ervices Farranty $rotection 0isposal 5 ecycling 0eployment Customisation modular 0ifferentiation (( design
Customer #egment
Customer service support etwor&ing support Farranty 2J2 2JC
• • • •
'ome and 'ome office Enterprise $ublic sector 2usiness partners #tudents
Chanels • • •
etailing E(tailing E(commerce
Cost #tructure
evenue #tream
0istribution and selling 50 Ac1uisition with /2+ Economy of scale +erging mar&et in china
Competitive price 0irect sale etail 5 online sale $romotional H bundle
2usiness +odel Canvas for Lenovo starting from all the peoples 6Commercial users) personal users and students7 and organisations for which are Lenovo creating values such as laptos) wor&shtation) tablet or other services) these values are providing to the customer by the different channels such as direct selling or by a third party) customer relationship are li&e a bond between customer and Lenovo) for ma&ing it strong Lenovo provides very good after sales services) as a result of these its revenue is increasing numerously due to the increasing mar&et share Lenovo setup new manufacturing plant and invest upto >: on 50 As / define above the opportunities and threats of "$%# analysis could only be found after evaluating and analysing the external environmental factors on the business) because these related to the external environment of Lenovo. Lenovo is a K*#J> billion personal technology company H and the second largest $C company in the world) serving customers in more than >@4 countries and have a lot of opportunities to become number one in the world.
%pportunity $c sales are expected to grow •
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•
•
,ast growing international mar&et #igning of memorandum of understanding with *#A #pecialty shops providing one stop platform for distribution -rowing wireless $C +ar&et
#hreats Competition threats from local and international competitor $rice war %hreat of price completion with clone $C ma&ers /ndustry reaching maturity •
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•
•
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Little firms growth popularity
$ersonal computer are being purchased and used more than ever before. %he mar&et for laptop) in particular) is growing much faster than of des&top computers. %his general trend lends itself as a great opportunity for Lenovo laptop business to grow in all segments.
Another great opportunity for all the target segments relates to the first trend that was mentioned) customers are more educated about personal computers therefore focus on students.
%he 2oston Consulting -roup (C?2 atri0 is a simple tool to assess a company’s position in terms of its product range. /t helps a company thin& about its products and services and ma&e decisions about which it should &eep) which it should let go and which it should invest in further.
'igh
ate of mar&et growt h
#%A#
D*E#%/! +A#
#tars generate large sums of cash because of their strong relative mar&et share) but also consume large amounts of cash because of their high growth rate; in case of Lenovo %ablets has a large share in the rapidly growing mar&et. %he implication is that stars should be mentioned and builds by improving its 1uality as well as promotion it aggressively.
%hese units could be build) hold) harvest or divest) 1uestion mar&s have not achieved a dominant mar&et position) and hence do not generate much cash) the result is a large net cash consumption) Lenovo services fall in this category
CA#' C!F#
0!-#
%hese products are said to have high profitability) and re1uire low investment) the cash cows are hold and harvest) Lenovo laptops and des&top computers are mil& extracting< units) they provide the cash re1uired to run 1uestion mar&s
Lenovo cell phones are close to this category) 0ogs have a low mar&et share and a low growth rate and neither generates nor consumes a large amount of cash.
and stars into the mar&et leader. 'igh
elative mar&et share
Low
Low /n the scenario of 'i(tech competitive environment Lenovo has achieved a considerable position in the world mar&et) beside all these factors and investment and growth
L#=#%;" %9 C? =#<6
+ar&et growth rate is only one factor in industry attractiveness) the framewor& assumes that each business unit is independent of the other) but in some cases one unit is helping other) the last one limitation of 2C- matrix is that this matrix depend heavily upon the breadth of the definition of the mar&et
Fhile its importance has diminished) the 2C- matrix still can serve as a simple tool for viewing a corporation’s business portfolio at a glance) and may serve as a starting point for discussing resources allocation among strategic business units.
%<#!<@" ?!;!<C C%!##A! "#<=#!?!"
/f the primary determination of a firm profitability is the attractiveness of the industry in which it operates) and important secondary determinant is its position within that industry. +ichael $orter has suggested a method of categoriBing the various types of competitive strategies; these are four generic business strategies in order to get competitive advantage. %he differentiation and cost leadership strategies see& competitive advantage in a broad range of mar&et by contrast the differentiation and cost focus strategy are adopted in a narrow mar&et or industry. 'igh
0/,,E%/A%/! ,!C*#
0/,,EE%/A%/!
A business aims to differentiate within Gust one or a small number of target marget segment
%his strategy is usually associated with charging a premium price for the product often to reflect the higher production cost and extra value added featured provided for the consumers. C!#% LEA0E#'/$
0egree of product C!#% ,!C*# diff. 'ere a business see& a lower(cost advantage in Gust on or a small number of mar&et segment. %he product will be basic perhaps a similar product to the higher priced and featured mar&et leader.
Low
'igh
%he obGective is to become the lowest cost producer in the industry) emphasised on minimising cost. /f achieved selling price can at least e1ual the average for the mar&et then the lowest cost producer will enGoy the best profit scope of business activity Low
Lenovo has focused on cost leadership strategy) for to achieve its goal Lenovo trying to beat its competitor by decrease in its price) Lenovo prices are 34: less as compare to mar&et leader 60ell7.
/f we discussed about the way of choice to grow Lenovo 2usiness =nsoff&s model is best tool that explain the choices that Lenove has in order to grow its business in term of increasing sales) mar&et share and profit. %he model specific four choices shown in the following diagram.
existin g
$roduct
+AE% $EE%A%/!
+AE% 0E"EL!$+E%
6existing mar&ets) existing products7 +ar&et penetration occurs when a company enters=penetrates a mar&et with current products
6new mar&ets) existing products7 An established product in the mar&etplace can be twea&ed or targeted to a different customer segment) as a strategy to earn more revenue for the firm 0/"E#/,/CA%/!
$!0*C% 0E"EL!$+E%
6Existing mar&ets) new products7M A firm 6new mar&ets) new products7 with a mar&et for its current products 0iversification involves launching a might embar& on a strategy of new product in a new mar&et. ichard developing other products catering to the 2ranson is an expert at this) and he same mar&et. +a&ing a change to an needs to be ( itNs the ris&iest way a existing product and re(launching it business can go about ma&ing a living Existing +ar&et ew ew arket enetration
%his growth strategy implies that Lenovo can grow its business by selling more of its existing product to its existing mar&et by means of aggressive advertising and sales promotion such as in China) and other parts of Asia. %his strategy helps Lenovo to; •
%a&ing customers away from competitors by using penetration pricing.
•
$ersuading existing customers to buy more of the product by increasing their usage.
•
,inding new customers altogether by expanding the mar&et.
•
%his strategy is used most commonly by firms because it is the least ris&y.
+iversification
%his strategy is ris&y and expensive but can be profitable) this is very suitable strategy for Lenovo to enter in Europe or *# because here customers are not price sensitive) in this strategy a lot of research is needed to get things right and perhaps consultancies will be called in to help educate the business about its new challenges.
Aalue Chain =nalysis
"alue chain is defined as the lin&s between &ey value adding activities and their interface with the support activities. "alue chain has been implied as a strategic evaluation tool used for distinguishing the strength and wea&nesses in value adding processes. %he value chain of Lenovo has been demonstrated in the following digram;
#irm infrastructure H$% &echnological rocurement +nbound ogestic s 2*
-peratio n *
-utboun d ogestic s 1"*
%arketin +nbound %argin 2* g and ogestic sales s "* 1*
nound Logistics %he overall cost leadership strategic management of Lenovo is exhibited in its lean and agile inbound logistics function %perations anagement Lenovo has been praised by a number of supply chain management critics for its effective use of /% systems that facilitate the company’s low cost leadership strategy. %utound Logistics Lenovo holds leadership position in online and offline sales) which is due to its efficient and effective outbound logistics. arketing and "ales Loyalty programs li&e Lenovo protection) warranty) disposal and recycling are being introduced which dissuade the customers from switching over to their competitors "ervices Lenovo has been pursuing a dual strategy of cost leadership and differentiation) which has led to an increased importance placed on customer service
Duestion
%he 2C- +atrix method can help understand a fre1uently made strategy mista&eM havng a one(siBe(fits(all(approach to strategy) such as a generic growth target 68 percent per year7 or a generic return on capital of say 8)9: for an entire corporation.
/f we discussed about the Chinese technological &ing 6Lenovo7 the most appropriate strategy for *# or Europe is $roduct 0ifferentiation because Lenovo has the opportunity to provide a broad spectrum of services specially to the corporate mar&et with a reasonably high(1uality) low cost 6this is because of low labour and less raw material cost in China7 computers in the Lenovo 444 line. Lenovo has the potential to become a one(stop(shop< in the corporate mar&et. At the same time Lenovo needs to continue to focus on providing the most features in their high(end machines) not only for executives but also mid(spectrum machines for non( executive home or personal users) ensuring that they maintain the reputation that the high(end %hin&pad series has built. An executive purchasing a computer is less li&ely to worry about a K>44 difference in prices than about the number of features a computer provide.
*#A and European are the biggest corporate clients of computer and in this region of world the buyers are not price sensitive they need 1uality and new valuable features for their use which ma&e their wor& more cosy and efficient to achieve this specific goal.
As well as continue its current strategy 6Cost Leadership7 for Asia region because mostly Asian customers are price sensitive specially /ndia) China) $a&istan and +alaysia are developing countries) and they all have big population and the level of education is increasing very rapidly therefore in this region core customers of computer are students who need efficient machine in affordable or low price
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