Internal and External Analysis of Lenovo

Lenovo Analysis

Internal and external analysis of Lenovo Group members: content 1. Introduction This report will analyze the business strategic management of Lenovo Company. Firstly, it briefly presents the business model of Lenovo. Secondly, the report will focus on internal and external environment of Lenovo, expounds business and operations strategy of Lenovo. Thirdly, it analyzes the strategic choice and strategy implementation. Then, it focuses on key features that how to choice strategic and factors to achieve successful implementation.

Finally, it gives a brief summary of this report.

1. Background of Lenovo Lenovo Group was established in 1984, today it has grown to become a large enterprise groups which has diversified development in the information industry (Chuan, 2007). Now Lenovo is consist of the original Lenovo Group and the former IBM PC Division. Lenovo uses innovation, high-efficiency and customer satisfaction as its business model, devotes itself to create excellent PC, as well as invests in emerging markets (Liua & Trevor, 2009).

As one of the leaders in the global PC market, Lenovo develops and produces computer, sell the most reliable, secure and easy-to- se technology products, provides professional services to help global customers and partners to succeed.

Lenovo Group is headquartered in New York, USA, at the same time, it established two main operations center in Beijing, China and the North Carolina, Raleigh, United States, and it also established two major research centers in Japan and C ) Currently Lenovo nas more than 1 employees all over world. Lenovo has worldwide selling network in PC market.

In March 2004, it was ranking the second biggest PC companies in the world (ibid).

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1. 2 Products of Lenovo Lenovo is becoming the second largest PC maker in the world after its acquisition of IBM’s personal computer business in 2005 (Chuan, 2007). The main productions of Lenovo are the ThinkPad line and the Ideapad line of notebook PCs and ThinkCentre line of desktops. Lenovo Group segments its market to retail consumers, medium size businesses and large enterprises. According to its distribution channels, it divided its market through online sales, company-owned stores, chain retailers, and major technology distributors and vendors (ibid). . 2. 1 ThinkPad The ThinkPad line was originally sold by IBM in early years. Since early 2005, Lenovo merger and acquisition IBM’s personal computer business, therefore the brand was owned by Lenovo (ibid). The consumer group of ThinkPads is mostly businesses men, schools, and individual users. It is the unique laptop in the world which has been used on the International Space Station. 1. 2. 2 Lenovo Ideapad The Ideapad line was produced in January 2008. This product line is based on Lenovo’s own research and development.

Unlike the ThinkPad line of notebooks, the Ideapad has fashion appearance, its design is not for the commercial market, and it’s ore suitable for the average consumers (Caulfield, 2012). The Ideapad has a glossy screen, smooth and responsive keyboard made the buttons have the sense of reality. 1. 2. 3 Thinkcentre In 2003, IBM produced the ThinkCentre line; in 2005, merged IBM’s personal computer business, and acquired five years’ usufruct of the “IBM PC” brand; but since 2008, the products of ThinkCentre and ThinkPad stopped using this brand (ibid). Now ThinkCentre has three types, A types (A55,A60) E types and M types (M5ZM55) 1. Why do people buy Lenovo? Consumer needs means that consumers’ desire of purchasing a good or service. With the development and progress of society, high tech products gradually stepped into the life of normal people (Wet, 2004). Consumer needs is a concept and it can lead to consumer behaviors which make consumers to seek inexpensive products and get more tangible benefits. There are six main factors influencing consumer behaviors: attitudes, motivation, perceptions, personality, lifestyle, and knowledge (ibid). Lenovo has 3 major Competitive edges compared with other PC markers (ibid). ) Ethnocentrism: The main market of Lenovo is china. It is a domestic brand of China, so Chinese people can easily accep this brand. 2) price: Compared with other brands, the price of Lenovo’s products is lower with the same confguration, because the cost of products of Lenovo is lower, including labour cost, raw materials and so on. 3) After-sale service: In China, customer can immediately get feedback from customer service. There are about 1250 after-sale stores around China, 87 after-sale stores abroad. 1. 4 Lenovo’s Dual-mode business model Lenovo builds dual-model to sell its products.

The dual-mode includes transaction client mode (referred to as the T-mode) and relationship-based customer model (referred to as R mode) (ibid). T-mode, also known as the” product model “, is the retail form of Lenovo products, consists of three processes, the products goes through the manufacturers, distributors, dealers, and then reach to consumers. Lenovo’s sale is not directly facing the market, but to face the channel system which has strong market coverage (Chuan, 2007). The core ideas of the T mode are Sell In, Sell Through In (ST’) and Sell Out.

Sell in Refers to sell Lenovo products to distributors, which means distributors purchase directly from Lenovo (ibid). STI Refers to Lenovo products sales to dealers from distribution store. This does not ean that Lenovo only need to transfer its products from Lenovo store to the distribution store, and it also needs to help distributors to transfer the products from the distribution stores to the stores of the dealer. Sell out refers to help the dealer sale products to consumers, reach the terminal sales. R model is a business model which Lenovo uses to sell its products to enterprises and other large customers on a wholesale basis (ibid).

The concept of operation management is to divide different customer values accurately, in order to reduce the cost of selling. The major factors of R model are industry development, customer anagement, and daily operation administration. Industry development is to search for the customer groups; Lenovo has a clear division of the military, government, education, finance, telecommunications, energy, public utilities, transportation, manufacturing, distribution, media, service, and twelve other main industries, to develop a detailed development program with different industry (ibid).

Customer management is using RAPD and RFM tools to have a refined management. Daily Operation Administration is used to enhance channel management, using some customers care activities to maintain good interaction etween distributors and customers (ibid). 2. Internal and external analysis of Lenovo Lenovo hopes occupied the international market through global expansion in the nearly tuture. So, an exhaustive internal and external environment analysis can help Lenovo to understand the strength, weakness, opportunity and threat.

Enterprise business environment analysis can include an internal as competitive environment analysis and an external as macro economy analysis (Henry, 2008). In this report, we will use the Porter’s five forces model to analyse the internal business environment of Lenovo and analyse the external business environment of Lenovo through the PESTEL model. 2. 1 Porter’s five forces model for internal analysis 2. 1. 1 Bargaining power of suppliers According to the product and procurement requirements of Lenovo, there are two types of suppliers (Caulfield, 2012).

Some suppliers have strong bargaining power in the core components of the computer procurement and there is no substitute for Lenovo. For example, Intel is the world’s largest computer CPU supplier, he can control the supply and price of the computer CPU (ibid). Because Intel has the most dvanced technology and manufacturing processes. Moreover, AMD as another product lines rather than it as a substitute of Intel for the products of computer manufacturers (ibid). There are many suppliers also have the advantage, like WINDOWS, NVIDIA, AMD, AT’, Western Digital, etc.

However, other suppliers are lack of the bargaining power. These suppliers provide some low-tech accessories, Such as computer case, keyboard, AC adapter, etc. (ibid). Lenovo has a great choice for such suppliers, and a huge purchasing volume. So, the competition between these common suppliers is fierce. 2. 1. Bargaining power of customers There are mainly two categories in Lenovo’s customers. The one is organization procurement like corporate and government department (Quelch, 2006). Those customers usually have a lot of purchases and often have a standardized tendering procedure.

Moreover, Lenovo needs these customers to promote the brand in the international market at this stage. Therefore, these customers have a strong bargaining power. However, although the average consumer is a very large consumer groups, but they are very disperse, coupled with Lenovo’s online sales model (ibid). In ddition, Lenovo’s ThinkPad brand has great brand recognition, and has many loyal customers. So, the bargaining power of average consumer is low. 2. 1. 3 Threat of new entrants Computer manufacture is a kind of high capital investment industry, and it requires a lot of development and technical personnel (Biediger, etc, 2005).

New entrants may be able to have a lot of capital, but it is difficult to get a lot of development and technical personnel in a short period of time. Moreover, according to those top computer manufacturers like HP, Lenovo, DELL, they are all operations as internationalization. Therefore, the role of brand and channel for the global management is very important. Lenovo spent $12. 5 billion to purchase the PC business of IBM in 2004, and spent seven years to integrate the brand and channel resources (ibid). This illustrates the establishment ot a brand process. So, the threat of new entrant is low. . 1. 4 Threat of substitute products and channel is a long The mainly product of Lenovo is personal computer, its main function include internet, office and entertainment. The use of the computer is irreplaceable in the office area, because the high dependence of people on the computer and office, and o any substitutes can bring the convenience like computer in office areas so far. However, with the popularity of some new Internet access devices, such as ‘TV, Tablet and Mobile phone. These new internet devices were instead more and more proportion of the computer access to the internet.

For example, the shipments of iPad were more than any one of the global PC manufacturer’s quarterly shipments in the fourth quarter of 2011 (Caulfield, 2012). Because these new Internet devices more compact and convenient. For the entertainment, computer also has many threats from substitute products, like PS3, WILL and XBOX. These TV game consoles are powerful substitute for computer games. 2. 1. 5 Competitive rivalry within an industry The competition of computer manufacture includes business servers and consumer market. In the business servers market, HP and DELL are both strong competitors.

In the consumer market, Lenovo has more competitors, such as HP, DELL, ASUSTEK, ACER, SONY, etc. These competitors have a different strategy and advantage, the high degree of competition in the computer industry has led to faster product replacement (Gonela, 2009). Competitors have to develop new products to provide ewer and better products for consumers, on the other hand is also working to reduce costs in order to achieve the purpose of price cutting (Handley, 2011). Therefore, Lenovo is in a highly competitive industry. 2. 2 PESTEL model for external analysis 2. 2. political Because of the state-owned background, Lenovo get a lot of policy support in the local market. The Chinese government put forward the plan of the computer to the countryside in 2009 (Savitz, 2011). This is a key policy of expanding domestic demand, and Lenovo has quickly established sales channels and expand sales. In addition, Lenovo has the early advantage on government procurement in China. However, due to the variability of the international political factors, Lenovo needs to be more flexible in the face of a variety of situations in the international market. 2. 2. Economic According to international economy 2012, Smick point out that Slowdown in world economic recovery and global economy will continue to slow growth in the 2012. Developed countries face the pressure of high rate of unemployment; domestic demand is also declining (ibid). This is a chain reaction of macro-economic. However, nvestments maintain high growth in the computer industry, because of the Pressure on the development and upgrade (Quelcn, 2 ) Moreover, due to the impact ot the U. S. subprime mortgage crisis and the debt crisis in Europe, export-oriented emerging economies has been seriously affected (ibid).

Then, the appreciation of the RMB has led to the rising cost of Lenovo exports. 2. 2. 3 social Computer industry has a large customer base, especially the local market of Lenovo. The demand of computer is rapid increase in developing countries, such as the number of Internet users has reached 5. 13 billion in China (Caulfield, 2012). Then, the rapid development of network infrastructure in developing countries, and it greatly increases the scope of the use of computers. Moreover, education market, industrial users and rural market are the guarantee of sales.

They have a larger demand for product updates (ibid). 2. 2. 4 Technological Electronic products updates very quickly, especially in the computer industry. Computer products need to be constantly developing new products improve product performance and optimize product design (Chuan, 2007). But for the computer manufacturer, some core technology is monopolized by a few companies, such as CPU and operating system (ibid). This led to the upgrade of computer manufacturers can only passively, technologies and products has been a lot of constraints.

In addition, the battery is the largest Technological bottlenecks of mobile devices now (ibid). This has seriously affected the experience of the use of electronic devices, but still not a good solution. 2. 2. 5 Environment Recycling of electronic products has been a problem in various countries, because the materials of electronic products contain many toxic substances (Chuan, 2007). Therefore, more and more developed countries were pushing environmental rotection standards for electronic products in recent years (ibid).

Those environment protection standards will form powerful barriers to trade for Lenovo. 2. 2. 6 Legal The laws of the computer products is not very sound in the local market, Such as parallel computers, computer quality, battery safety, etc. However, in the international market, most developed countries have a strict law and consumer protection provisions for computer products. Such as Samsung and Apple, they launched a fierce competition on the shape of patent issues in Europe (Caulfield, 2012). The lawsuit brought serious losses to both sides.

So, Lenovo need to pay attention to features of the product in different legal environment. 3 Strategic choice of Lenovo 3. 1 Definition of strategic Strategic reter to select some available and reasonable options tor implementation. The strategic analysis and choice is the most significant part of the company (Henry, 2008). 3. 2 Structure for making strategic choice Identifying what options are available is the first step of generally process of strategic selection. The company should fgure out the reasonable options.

And the types of the options about products, markets, and services. All the situations which are for instance who should involved in the choice, when will take it to action, and the choice criteria assessment intent should be considered dames, 1986). 3. 3 Options for markets and products This chart shows that the present and new market geography. It is represents the relationship between market need and product in detail (Ansoff, 1965). The first main option is “do nothing”. It means that the company should stay the original strategy to make sure about their position in the market.

For long term considering it is a good way for the company to compete with different kinds of ompetitors. (Ansoff, 1965). The options which are called product development and market development represent about create a new product or satisfy the market. These two are not difficult to understand in the basic level, but they should make specific plans in the practical operation. The other option is diversification. It divides to two types which called related or unrelated as well. Taking a new product into a new market is the object of diversification.

People prefer this option because it is very attractive, at the same time it is also challenging and risky (ibid). Whether the new product adapt to the new market, the first situation must be considered is the manger should well know about the market and do lots of research. Then how long the product can keep and the profit of the product should be analyzed. In practical, the manger should according to the different situation select the options wisely. Moreover evaluate those different available options are necessary. . 4 The strategic choice of Lenovo The leader of Lenovo wants to solve the problems in 2001 are: how to maintain the high speed of the company’s turnover, in order to achieve the goal which is the urnover reach to 600 billion RMB in 2003; and how to gradually improve the marginal profit ratio and return on asset with the aim of have a better share price performance in capital market, then give the shareholders more payback (Biediger, etc, 2005). These two problems actually are the objects of the company.

There are also restrictions between two aims: they not only could not expand aimless but also could not over conservation. The turnover of Lenovo group is 272billion HKD during 2000 and 2001 (ibid). Considering the digital china spin-ott, deduct the turnover ot digital china above 80 illion HDK, the turnover of Lenovo is 190billion HKD after adjustment during 2000 to 2001 after the regulation (ibid). It is far away from the object. The capital market put their focus on net profit than operating income.

It is said that Dell’s gross profit rate higher than Lenovo’s 50% until the end of December in 2001 (ibid). The leader of Lenovo once clearly stated that they will try to keep or even increase the existing gross profit rate. And the truth is Lenovo cannot compete with international competitors in the area of marginal profit ratio and return on asset. The lowest share price of Lenovo in 2001 is 2. HKD, and the highest is 6. 95 HKD. (ibid) But it is very satisfied that in the first quarter of 2002 the share price of Lenovo become 3. -3. 5 HKD 9ibid). The main reason of this situation is the depression of whole IT industry. Hence the turnover of the company decelerated growth and low gross profit. The main product of Lenovo is their private brand PC, while the circumstance of the PC industry is not so good. Especially in 2001 it all appear the trend of decelerated growth both domestic and external market (ibid). According to the report of Dataquest, the global pc shipment is decrease 4. % than previous year, American is worse to 11 . 1%.

If the forecast of IDC will be verified, the global shipment will drop to 1. 6%, it will be the first worldwide drop, and American which has the biggest PC market may drop to 13% as well (ibid). At that time most of the PC product of Lenovo will sale in domestic market. The sales growth of international PC market is far away from china, but has the same fierce competition; comparing with the international competitors, it has lots of disadvantages in the area of brand awareness, distribution channel. Not good at cost of manufacture as well.

In addition the products going to the international market will investment a lot in the early days. Otherwise short term investment may affect the profit rate. On the other hand, the rates of gross profit of whole global PC manufacture are usually very low except Dell Company. Dell adopt driven by order production system and give up multilevel of agent distribution, pursue directly distribution. So that it is a good way to have a low inventory turnover. It is also a good way to face the market directly to avoid give more profit to agents.

Lenovo adopt the way of build to order, nventory turnover days are 30, and also implement multilevel channels of agency distribution (ibid). This pattern impact on the capability of Lenovo improves the gross profit ratio; restrict the investment in large scale of price off promotions, market expansion, media and research development. In such circumstance, in order to realize the high growth object, Lenovo choose the option of diversification. From 2001, it established three professional work areas which are internet, cell phone and IT.

Hopefully these three areas could support Lenovo’s prospect (ibid). 4 Strategy implementation of Lenovo Strategy implementation is the translation of chosen strategy into organizational action so as to achieve strategic goals and objectives. Strategy implementation is also defined as the manner in which an organization should develop, and amalgamate organizational structure, control systems, and culture to tollow strategies that lead to competitive advantage and a better performance.

Also, there are key supporting points to achieve successful implementation: Action planning (which means that a clearly schedule of each action steps of a company), organization structure (a ompany’s strategy must fit their current structure), human resources (managers should consider about their communication needs), the annual business plan (necessary financial commitment in the planning process), monitoring and control (for instance: changing the schedule, changing the action steps or the objectives) and finally, linkage (to make sure that all of the organizational activities are keep together) (birnhaum, 2009).

Lenovo set the goal as the turnover reach to 600 billion RMB and gradually improve the marginal profit ratio and return on asset with the aim of have a better share price erformance in capital market, but until 2004 they did not reach the goals because of lack of experience and clear market position (Xiao, 2009). Lenovo’s turnover is still around 200 billion RMB in 2004, they lost in every business except computer, and the loss of mobile phone even reached 62 million RMB (ibid). Lenovo think the main reason is that they have been excessive optimistic to the environment. They did not accurately predict the market change.

The other reason that made Lenovo lost in the past three years is that they ignored an important competitor- Dell, when Dell first ntered Chinese market, Lenovo keep been in the state of observe instead of take any action, so that Dell occupied domestic market and shake Lenovo’s position. Lenovo also lost because they did not have enough management ability of diversification business; they did not predict enough of the development to the diversification business strategy. Those reasons not only impacted on supply of new business development, but also impacted on the competitiveness of their core business.

Lenovo draw up a new planning based on the failures before. The general aim of the new planning is to focus on current main business. There were three adjustments of this plan; one is that Lenovo should focus on the primary business. Primary business is also the same thing as core business, which means PC and relevant products for Lenovo, for example: laptop, server and external equipment, secondary business is about mobile communication equipment like mobile phone. They paid more attention on core business and key developing business; make sure that resource input is suitable for the importance of business.

Old strategies in past two years like IT service and internet products have temporarily been to the third business (Deffree, 2007). The second plan adjustment is change the sale mode to against Dell. Lenovo decide not to keep the mode of distribute sales and introduce straight sales mode. Their new sales mode has been seen as complex marketing mode combine by straight sales and distribute sales. They implementing phone marketing and client marketing (which means straight sales) mode to important clients; enhance channel sales mode to retail clients and small and medium- sized enterprise clients.

But channel distribute sales mode is still the most important sales mode of Lenovo’s IT products, ot sales is still based on channel sales mode (Kotler, 2 Expect the adjustment and innovation of sales strategy, Lenovo also adjust their firm management framework more close to marketing and sales. Because PC is Lenovo’s main business and important supplier of profits, especially it is easier to entry to the industry now, Lenovo gain a lot of competitors such as 18M, Dell and TCL, which made them, know that they should make a change of their structure and marketing strategy on the PC products.

The third adjustment is to be more internationally. Lenovo increase the development and integration of international business to against difficult income situation. Lenovo announced to sell their IT service to Asialnfo which is a Chinese telecommunication software company. This deal is a stock rights replacement trade, so that Lenovo get (which worth 3 billion RMB) stock rights of Asialnfo. After this deal, Lenovo become the biggest shareholder of Asialnfo.

After this deal, Asialnfo’s main business includes two parts: one is the original business, which communication software and professional service; the other one is based on IT service of Lenovo, plus the non telecommunication IT service of Asialnfo (Lenovo, 2004). Lenovo’s new strategy adjustment is aim to strengthen its own advantages, in the meanwhile overcome threaten of environment. Competition of PC marketing is very fierce; rate of profit is low. But Lenovo has its own advantages like high brand awareness in domestic market, good clients’ relationship and management experience.

Focus on the primary business not only makes Lenovo merger IBM’s PC department, but also brings Lenovo many benefits: firstly, makes Lenovo able to achieve a lot of technique of PC; secondly, perish a strong competitor and thirdly, they can develop international market quickly because of IBM (Spooner, 2004). The second adjustment of Lenovo is to change the sales mode, but Lenovo should consider clearly how to divide important clients and less important clients, how to coordinate the price difference between straight sales and distribute sales and also they should consider about implement possibility.

Except these specific business strategies, Lenovo should also think about how to improve firm management ability, and gain innovation ability. Outstanding strategy and implementation are based on good management foundation. Although Lenovo can get technical patent by purchase IBM’s PC department, a company long-term evelopment is on account of it innovation ability and it is Just the weakness of Lenovo. 5 Conclusions To sum up, the internal and external analysis report of Lenovo.

Firstly, Lenovo’s business model and background has been described. Though Porter five forces model and PESTEL model to analyze the company internal and external environment, and then several strategic choice have been given. Finally, according to all the information mention above to put forward implementations. Through this report, Lenovo strategy management in future has been clearly identified. But it may adjust