Lenovo Analysis Essay
Lenovo, a personal computer manufacturing company, has been one of the leading corporations in the PC industry for over 20 years since the company foundation. The brand has been popular among the PC consumers over a long period of time and its reputation reached a peak level especially after acquiring the Personal Computing Division of IBM.
The new business acquisition enhances the brand awareness by using the IBM branding and improves technology of Lenovo that enables Lenovo to compete with the current giant corporations such as Hewlett-Packard and Dell in the industry and to possess a market share of 19% in the international corporate market (Lin et al, 2005). However, in recent years, the fiscal reports of Lenovo show that company performance is not satisfactory.
It even announced that there was a loss of 224 million in fiscal year 2008 of which the whole industry is suffering from the global financial crisis which possibly led to the decrease in demand of computer products in the market. Thus, there comes up with several problems facing Lenovo: How can Lenovo take advantage of its current distinctive resources and capabilities to further enhance its core competencies in order to adapt the changes in external environment including rapid technology innovations, changes in government policies and shifts in society attitudes and consumer preferences?
How can Lenovo utilize its marketing strategy to attract different customers and to increase market share? How can Lenovo have efficient risk predictions and pre-assessment of market so that the risk management and decision-making could be more effective? In this report, we will address the above issues by analyzing Lenovo and providing several suggestions to it. Introduction In recent years, the Chinese personal computer manufacturer Lenovo has gradually become the focus of the world.
Lenovo aims to establish an international image for its products and services. Starting from March 2004, it became the Olympic Worldwide partner and then acquired the Personal Computing Division of IBM next year which significantly increase Lenovo’s brand name awareness worldwide. In order to develop its business internationally, Lenovo uses a new competitive operation strategy called Worldsourcing to cater for the needs of its business globalization. “Worldsourcing means resources, opportunities, and ideas can be found everywhere around the world. (Lenovo 2009)
The new strategy ideally fits Lenovo’s core development concept that it wants to produce the world’s most innovative PCs. Afterwards, with the support of its resources and strategies, Lenovo launched a new product in 2008 named Ideapad notebook which contributed a considerable amount of profit to Lenovo. However, in the first quarter of financial year 2009, the fiscal report of Lenovo shows a net loss of $16 million because of the fall of demand which is most likely due to the financial crisis.
Nevertheless, Lenovo prepares to implement some measures such as the Global Restructuring Plan to lower the costs and to accommodate itself to the low and high-end market with product diversity (Shilov 2009). SWOT analysis In order to evaluate the advantages and disadvantages of Lenovo and analyze the potential opportunities and the risks it will confront in the future, SWOT analysis is used in this article to identify the strengths, weaknesses, opportunities and threats of Lenovo. Strength
One of the strengths lies in Lenovo’s core resources is the unique design of their personal computer products and the design of the production lines. The number of the patents that belong to Lenovo is 2088 and 1786 of them are recorded in Intellectual Property Office of P. R. C. , and the other 302 are recorded in United States Patent and Trademark Office which enable the products of Lenovo differentiate from its competitors’ and prevent from imitations (Intellectual Property Office of P. R. C. 2009; United States Patent and Trademark Office 2009).
In addition, as one of the largest domestic personal computer manufacturers in China, it has the support of government which forms parts of the unique resources of Lenovo. In terms of the capabilities, firstly, Lenovo provides the engineers with lots of trainings. Secondly, Lenovo is good at encouraging the employees and the different kinds of incentive schemes are adopted in the company. Moreover, Lenovo does well in market segmentation and its market positioning is accurate and suitable. It mainly positions in low-end market in which the cost effectiveness is consumers’ greatest concern.
With its Value Line G Series product which particularly focuses on the high cost effectiveness, this operation strategy attracts a large amount of consumers who would like to pursue practicability and entertainment with low price. Furthermore, after obtaining the new technology by the acquisition of the Personal Computing Division of IBM, Lenovo launched a new product named Ideapad which mainly aims for the high-end market. Lenovo has a large market share in China and India which are the huge consumer markets in the world.
The large demand of the consumers leads to the mass production which leads to the economies of scale and minimize the costs. Besides, Lenovo continuously improve the customer service which contributes a lot to their reputations and they pay more attention to meet the consumer preference in terms of service personalization (ThinkPlus and Lenovo Care Services 2009). Recently, Lenovo takes e-business as another kind of marketing platforms which successfully promotes its products. Weakness In spite of the strengths, Lenovo still has its own weaknesses. One of the weaknesses is that Lenovo lacks market recognition.
Although the operation strategy used in China is successful, Lenovo uses the same strategy in the overseas markets without any consideration about the customer needs and the actual external environment which results in its own failure. Another shortcoming is that Lenovo is unfamiliar with the features of the market, consumer preference and social attitude in the oversea market because it is a new player in the international market. For example, in United States, HP and Dell are the local personal computer manufacturers, they clearly understand what the consumers want, what is the most suitable way to promote their product.
In contrast, unfamiliarity with those things becomes Lenovo’s weakness which acts as a barrier in its development in overseas market. Opportunities Although Lenovo’s performance in overseas market is not satisfactory as expected, it still has opportunities to participate in some international events in order to enhance its brand image, consumer awareness and public relationship. In July 2009, Lenovo becomes a Senior Sponsor for the World Expo 2010 Shanghai that provides an opportunity to promote its brand image internationally which may allow Lenovo to ameliorate the current dilemma in overseas markets (Lenovo News, 2009).
It is believed that the World Expo 2010 Shanghai will offer a platform that may increase the interaction between potential consumers and Lenovo’s brand name so that its brand image may be enhanced and the company reputation is probably improved. One of the successful cases is that Samsung successfully evolved from a South Korea brand to a global famous brand through the 1988 Seoul Olympic Games. Thus, international public events really provide precious opportunities for companies to develop their business globally.
Changes in government policy also provide Lenovo opportunities to raise the consumer awareness and to exploit new market. In 2009, in order to alleviate the impact of financial crisis, Chinese government decides to implement a program called China’s Home Appliance Subsidy Program for Rural Areas in order to stimulate consumption in rural areas which may become a huge potential market (Xinhua News, 2009). This measure gives Lenovo a chance to exploit a low-end market in which Lenovo has been one step ahead of its competitors since it has adopted a project which provided low-price PC to rural customers in 2005.
Compared with other international companies, Lenovo has become a dominant local company due to its deeper understanding of Chinese market. Hence, the financial crisis is a challenge as well as an opportunity to Lenovo. According to IDC, it shows that Lenovo accounted for 22. 4% of market share in the first quarter of 2009, which is 22. 2% the same period last year. It illustrates that if Lenovo targeted on domestic market, its market share might be significantly enlarged. Threats In general, the world economy regression and the cutthroat price wars in the market might pose a threat to Lenovo’s development.
Under the impact of financial crisis, most small and medium companies have stopped updating IT equipments which leads to the sudden reduction of demand to the whole IT industry and makes Lenovo face unprecedented challenges. It is a problem for Lenovo that how to maintain the market share in the fierce competition. In addition to the above, the disappointed performance in overseas markets makes the domestic market become Lenovo’s major target market. However, HP and DELL have launched a set of aggressive measures to grab a bigger share in the domestic market.
For example, DELL, which used to the direct channel, has now adopted the retail channel by opening 6000 retail outlets and as a result, its market share doubled in 2008 and reached 8. 3% in the first quarter of 2009 (Dell Press Releases, 2009). Due to the changes in competitors’ strategies, the core competencies of Lenovo are not sufficient to retain its dominant position. As Lenovo situates in an environment in which technology, government policies, consumer preferences and social attitudes differs considerably by time period, Lenovo needs to implement some measures to protect its core competencies from erosion by all these external changes.
Technology and Regulatory As for an IT company, the workers with technology-specific expertise is one of the precious resources because they are the ones who improve and reform the company products by innovating and developing new ideas and technologies according to the rapid changes such as changes in technological standards in the industry. Therefore, Lenovo should implement some incentive schemes which strengthen employee’s loyalty to avoid job-hopping so that the company can quickly adapt to the changes of technology.
However, maintaining that group of expertise may be very costly due to their high wages and benefits which may cause a higher product price and negative influence on its profit. Besides this, changes in government policies are also a concern to Lenovo. Since the companies have the obligation to abide by government policies, regulatory environment play a decisive role in company’s decision-makings. The policies may change the market rules, the duration of copyrights, patents and the technology standards in the industry that require Lenovo to reform its strategies continuously to adapt the changes.
Thus, Lenovo should adjust its business practices to cater for the policy changes that may affect the compliance costs. Although the expenditure in these two aspects is very costly, this seems to be the effective way to maintain the sustainability of the company strategies in the market. Consumer preferences and social attitudes A corporation’s decision-makings regarding product research and development, market positioning and promotion plans, etc. , are significantly influenced by consumer preferences and social attitudes.
Hence, it is vital for Lenovo to analyze consumer preferences and social attitudes so as to adjust its strategies and modify its products and services constantly. Firstly, Lenovo should adjust the quantity of products it manufactures in each series according to the change of demand in each target market so that Lenovo’s pre-assessment of the market demand may be more accurate. This may enable Lenovo to decide if they require increasing or decreasing its inventories and pay more attention to the segmentation. Secondly, it is crucial for Lenovo to diversify its products in order to meet he needs in different target markets.
Dell is a typical example that it allows customers to configure their products based on their personal needs so that it can cover and acquire a wide range of customers. Furthermore, despite the high technical barrier in PC industry, it is still easy for new competitors to imitate Lenovo’s pricing strategies and distribution channels. Therefore, Lenovo should keep exploiting potential markets by launching new products and it can also provide service personalization to satisfy the needs of customers of different levels in order to consolidate the existing markets.
However, the switching cost of Lenovo will increase dramatically if it carries out lots of market researches and changes its marketing strategies too frequently. Thus, every decision-making should be considered carefully so as to make the probability of success as high as possible. Conclusion Based on the above SWOT analysis of Lenovo, we can conclude that with the strengths such as accurate market positioning, diverse distribution channels and pricing strategy which consolidate the external competitive, Lenovo should have a glorious prospect in development.
However, Lenovo still has its own weaknesses and therefore, Lenovo should constantly adjust its strategies such as promotion strategy, operation strategy and market segmentation in order to adapt its distinctive resources and capabilities to changes in the external competitive, technological and regulatory environment, so that Lenovo may succeed in consolidating its current leading position, competing with new entrants and exploiting new potential markets.