Lenovo Laptops Strategic Position and Major Competitors - Case Study Example

Business strategy Contents Contents 2 Introduction 3 Lenovo Laptop’s Strategic Position and major competitors 3 Porter’s Generic strategies 3 Lenovo vs. Main Competitors 4 Bowmans’s Strategy Clock 6 Strategic Group Mapping 7 External Environment Analysis and the Key External Drivers 8 PESTLE Analysis 8 Key Drivers for Change 11 Porter’s Five Forces Industry Analysis 12 Porter’s 5 Forces Model 12 Resources and Core Competencies 13 Resource Audit 13 Resources and Competency Analysis 14 Lenovo Value Chain 16 Conclusion 18 Reference List 19 Introduction Lenovo is a multinational company specialized in computing technology, which has its headquarters in Beijing. The company was founded in 1984 and since then, it has grown to become one of the largest manufacturers of personal computers. The company has forayed into multiple product offerings over the years, which include smart phones, electronic storage device, servers, software and television (Child and Rodrigues, 2005). This paper primarily concentrates upon Lenovo laptops and notebook computers. The success story of Lenovo could be greatly attributed to product innovation introduced in its laptops and ultrabooks section (The Guardian, 2014). Purchasing the laptop and PC business of IBM has also provided Lenovo with a competitive edge over its rivals. This paper is divided into three parts. The first part discusses about the strategic position of Lenovo in the market and its relative position with respect to competitors by applying concepts of Bowman’s Strategy Clock and Strategic Group Mapping. The second part focuses on the external environment analysis using PESTLE framework and the final section elaborates on resource based competencies of Lenovo and its supply chain management. Lenovo Laptop’s Strategic Position and major competitors The computing industry is a highly competitive industry where market players constantly compete against one another to gain higher market share. The corporate market has been largely dominated by Dell, HP and Lenovo (Gan, 2002). Lenovo is the top market player in the Chinese market, but Dell and HP are its major competitors in other markets (Miles and Snow, 2008). This paper applies concept of Porter’s three generic forces in order to attain competitive advantage over competitors. Porter had observed that broad strategies like, cost leadership and product differentiation, are used to reach to broader market segment, but focused strategy is applied to penetrate the niche market. Porter’s Generic strategies According to Porter, a business can use any of the three strategies in order to gain a competitive advantage over competitors. The product offerings of Lenovo show that the company has used a combination of strategies described by Porter for gaining market share (Porter, 2008). Cost Leadership: Lenovo has a cost leadership primarily because of an efficient manufacturing process. The low cost of manufacturing allows the company to charge low prices for its products. The company has introduced a range of laptops and notebooks in emerging markets in order to increase market share (Rugman and Li, 2007). Product Differentiation: Lenovo has constantly used product innovation for introducing new products for both high-end and low-end markets. This has allowed the company to target different customer segments and offer them with products that they require (Hamm, 2008). Focus Strategy: Focused strategy allows a firm to target customers in a separate manner and not whole market as a whole (Ernst, 2008). Strategy Device Justification Cost Leadership Lenovo Essential G505 59-379446 Laptop Low price especially targeted for emerging markets. Product Differentiation Lenovo Ideapad Y510 59-390016 Lenovo Ideapad Z500 59-380480 Laptop Lenovo Ideapad Z500 59-380480 Laptop Different products at different prices, mainly designed for the premium market segment. Focus Strategy Lenovo Notebooks Lenovo Basic Laptops Aimed at different segments like, corporate markets and individual consumer markets. Lenovo vs. Main Competitors The following chart represents main competitors of Lenovo in the laptop market. Figure 1: Lenovo and its competitors (Source: Ragaza, 2014) Bowmans’s Strategy Clock Bowman and Faulkner (1997) had presented an alternative view to explain the view of Porter regarding way in which a firm can obtain competitive advantage. The basic rationale behind the model is that any organization can attain competitive advantage either by following cost leadership or product differentiation strategy. This model has often been considered as an extension to the model of Porter as it considers price of the product along with perception of value of the products by customers (cited in Bowman, 2008). In case of Lenovo’s laptop segment, the Bowman’s clock has been shown in the following diagram. The eight competitors that are considered in the previous section have only been considered for this analysis. Figure 2: Bowmans Strategic Clock (Source: Author’s Creation) Lenovo has been observed to follow both differentiation and focused differentiation strategy. This is because the company produces products for middle as well as upper market segments. The features of products and their quality are the main determinants of price (Yang, 2006). Apple has always followed focused differentiation strategy as its products are priced considerably higher than that of other brands. For the chosen group of products, it can be said that both ASUS and ACER follow differentiation strategies. HP, on the other hand, charges lowest price among the chosen group and its strategy can be termed as low cost. A broader analysis on a range of wider products has revealed that most of these companies, except Apple, follow a hybrid strategy where elements of both product differentiation and cost leadership in strategies are present. Strategic Group Mapping The following chart shows Global market share of Laptop and PC makers across the globe plotted against the price. Figure 3: Global market share vs. Price (Source: Daily Tech, 2014) It can be seen from the above figure that Dell and HP have the highest market share, followed by Lenovo. The better reputation of Dell and HP may be attributed for the higher market share of these two firms. Apple, on the other hand, have lower market share as it mainly serves higher end of the market. Asus and Acer have lower market share and also serves their product at a lower price compared to others. External Environment Analysis and the Key External Drivers PESTLE Analysis Figure 4: PESTLE Analysis (Source: Authors Creation) The PESTLE analysis describes six different components, which affects the industry or the organization. The main factors impacting the computing business have been described in the following table. Factor Description Impact Political Any multinational company is subject to a number of regulations passed by the governments of nations wherein it operates. The export tariffs and other trade regulations impact businesses, which are involved in trading (Chiappetta, 2014). In order to reduce political complications for entering into foreign markets, Lenovo has entered into partnerships with private companies like, IBM (Katie, 2011). Reduction of export tariffs has helped Lenovo to achieve higher growth through exports. Economic The three major important variables that affect computing industry are inflation, value of currency and recession. The rise in disposable income of people, primarily in the emerging countries (Berglof, E., 2011). China has been particularly resilient to the recession of 2008 and maintains an undervalued currency. This stimulates exports for Lenovo. This provides increasing prospects for Lenovo, particularly in emerging countries (Katie, 2011). Social The level of technological education is increasing among consumers all over the world. One of the important aspects of globalization is that of increasing interaction among individuals using advanced forms of technology (Sauvant, 2005). In China, particularly the level of education and internet usage has improved among the population, thereby benefitting Lenovo. The company has improved the prospects of sales in the U.S. by entering into a partnership with IBM. The prospects of sales for Lenovo are promising in the Chinese market and beyond (Sauvant, 2005). Technological Adoption of innovative technologies is one of the most important activities of firms involved in the computing industry in order to gain competitive industry (Van Oostveen, Muirhead and Goodman, 2011). Lenovo does not have breakthrough technologies, but it has mainly become successful by improving product quality through extensive research and development. Lenovo mainly depends on adaptive market technologies by following its competitors (Deng, 2009). Legal Regulations by the government regarding taxes and consumer protection. These activities affect consumer purchasing activities. For instance, the government of U.K. has imposed a tax of 20% on luxury items, which is likely to impact the sales of Lenovo. Environmental Regulations passed by the European Union to reduce pollution generated by the computer industry. China has introduced policies like, Green IT, for lowering noise pollution and energy consumption (Berglof, E., 2011). This action inevitably raises the cost of production as this will require sophisticated production technologies. Lenovo has already complied with this regulation by reducing level of noise pollution below 30db (Van Oostveen, Muirhead and Goodman, 2011). Key Drivers for Change Focus on research and development: In the computing industry, particularly dealing with laptops and notebooks, technology plays an integral part for gaining competitive advantage. Lenovo has often been criticized in the U.S. and U.K. markets for its cheap brand image (H. M. Lee, C.C. Lee and Wu, 2011). This implies that investment in R&D would be one of the most integral components for future growth of the company. IdeaPad has been one of such products, which have been exclusively launched by Lenovo. Introducing innovative products: The competition for laptop and notebooks are primarily driven by new products that are introduced with additional characteristics. Laptop manufacturers like, Dell and Apple, are launching products that are light weight, has superior quality design and better product life cycle. Engineering capabilities of firms will also act as a major determinant for future growth of laptop and notebook market. Efficient Production and Distribution: The reduction of average selling price of laptops and notebooks has made the global laptop industry a commodized one. One of the major ways to gain advantage over competitors is to reduce costs of production is by efficient management of the supply chain (Ahrens and Zhou, 2013). Government regulations: The governments in most countries are focusing on improving technologies such as, Wi-Fi, Bluetooth and wide access network. These supportive activities by the government imply that laptop providers must fill the gap between technology and its users by making these products available to a wider audience (Ahrens and Zhou, 2013). Porter’s Five Forces Industry Analysis Porter’s five forces model provides an important framework for the managers to identify competitive forces within the industry environment in order to identify possible threats and opportunities of the company (Ireland, Hoskisson and Hitt, 2008). The following chart is a diagrammatic representation of the model. Figure 5: Porters five forces (Source: Hill, Jones and Schilling, 2014) Porter’s 5 Forces Model Threat of Entry: The computing industry is highly competitive. However, barriers to entry are relatively high in the PC and laptop markets. This is because organizations already have established good relationships with their buyers and do not look beyond. Investment in research and development in the IT industry is also high, which deters new entrants from establishing in this industry. The existing market players constantly draw in new talents to improve their products. This has rendered HP, Dell and Lenovo key players in the market (Lenovo Group, 2013). Bargaining Power of Buyer: In case of buying power in the computing industry, it has been observed that loyalty of the buyers plays an important role. The power of switching for the buyers is also relatively high in this industry owing to a large number of options for choice. However, brand name is pivotal in influencing buyers. In case of corporate buyers, switching power is low as these buyers generally purchase in bulk for their employees. So, overall, it can be said that bargaining power of the buyers cannot be a great threat for Lenovo and its competitors (Ahrens and Zhou, 2013). Bargaining Power of Suppliers: Microsoft and Intel are two major suppliers in this industry providing for almost the entire industry. In case of Lenovo, it has been observed that the organization has maintained very good relationships with their key suppliers for facilitating mutual growth. It must be mentioned that in case of Lenovo laptops, most of the parts are produced by the company itself, which reduces need for external suppliers. The raw materials like, boards, chips and other parts, are also self-produced by the company, thereby further lowering dependency on suppliers (Ahrens and Zhou, 2013). Competitive Rivalry: The competitive rivalry, in case of laptop and notebooks, which are broadly a part of the IT industry, is relatively high. There are four to five major brands in the market from which consumers can choose as the switching cost is low. In case of Lenovo, it has been observed that strong product design and constant approaches towards innovation has provided a strong base of customers. It has emerged as the market leader in China (Hesseldahl, 2014). In overseas, market partnership with IBM has helped the brand. Threat of substitutes: Threat of substitutes in the computing industry is relatively high as products like, smartphones, provide same features as laptops. Main competition arises from ultralight laptops and ultramobile PCs. Resources and Core Competencies Resource Audit Core competency of a firm coupled with strategic positioning in the market is considered as the primary source of competitive advantage. Similarly, resource based view of a firm indicate that a single resource cannot solely contribute towards competitive advantage of a firm, but it is the combination of resources that is important. It has been observed that a firm consists of both tangible and intangible resources. In case of Lenovo’s PC and laptop section, the resource audit is explained by following parameters. Physical: The valuation for property, plant and equipments for the Lenovo group, focusing on PC and laptop segment, was found to be $0.364 billion. The investment of the company in physical capital had increased by 22% from 2012 to 2013. Additional revenue that has been generated from additional setting up of plants was $ 8 million (Lenovo Group, 2013). Financial: The importance of financial capital as a source of competitive advantage for firms has been well-documented in the existing literature. The value of the company had improved from $3 billion to $17 billion. It has been estimated that global market share of the company in the PC section including laptops had increased by 2.6%. The shipments of PC had increased by 10.2% in the latest year. The gross profit margin of the company had improved by 11.7% from 2012. The sales growth in the PC and laptop market was recorded at 12.3% from previous years. Hence, it can be implied that the customer base for laptops are on a rise based on these figures (Lenovo Group, 2013). Human: The research of Johnson, et al. had pointed out that human resource can be one of the most important assets, which provide a company with an additional advantage over competitors (cited in Nankervis and Cooke, 2013). In order to ensure that engineers and technical assistants enjoy their job, the company has made sure that working environment is friendly with lucrative remuneration policy along with high bonus and medical insurance schemes (Lenovo Group, 2013). Intangible: The intangible resources of Lenovo Group include brand name, trademarks, customers and supplier relationships. The financial gain that is accrued to the company on account of intangible resources has been estimated to be around US$201 million and US$99 million (Lenovo Group, 2013). Resources and Competency Analysis N E C E S S A R Y Resources Capital Financing Equipment Infrastructure Base Technology U N I Q U E Resources The company has earned substantially large profits particularly in the Chinese market. The company prepares its own parts, which are required for manufacturing, thereby reducing cost of production. Owns 35.8% of the market share in China alone. In U.S.A., the company ranks after Dell and HP. The company has a wide range of product offerings both for the middle and upper market segments. Heavy investments in R&D department for achieving growth (Gold, Malhotra and Segars, 2001). T H R E S H O L D Competencies Human Capital R&D Innovation Customer Base Product C O R E Competencies The company has become one of the most lucrative ones, in terms of human resource development. Has mainly grown in the market by using adaptive technology from competitors and modifying own strategies accordingly. The five main pillars that have been identified for Lenovo’s growth are enhancing intimacy with customers and suppliers, improving operational excellence, enhancing brand image and prioritizing business needs (Xie and White, 2004). Lenovo Value Chain S U P P O R T A C T I V I T I E S Infrastructure Lenovo has already outgrown the worldwide business of personal computers and laptops, in terms of unit shipments and market share. Has recently undergone a direct ship enablement plan, which allows better management of suppliers along the value chain for better efficiency. The direct shipment program has reduced operating cost of the business. H.R. Management The company has developed its own university for conducting induction programs, providing technical and managerial training. The structure of the performance management system is quite well-structured and incorporates diversity management as employees belong to different cultural backgrounds (Nankervis and Cooke, 2013). Technology Development The company is constantly trying to improve its technological aspect. Technological improvement in the PC and related business has alone resulted in an increase in revenue by US$29,749 million. The R&D department is responsible for improving quality of PC, laptops and notebooks supplied to corporate and general clients. Procurement The expenditure made on procurement from suppliers represents 95% of the total spending so the group maintains close relationship with suppliers. Procures raw materials at low costs and in compliance with environmental standards, which provides competitive advantage (Ding and Chen, 2008). Inbound Logistics Operations Outbound Logistics Marketing and Sales Service P R I M A R Y A C T. Manages a mix of in-house production and outsourcing activities to reduce cost. Uses the support of both Original Design Manufacturers and electronic manufacturing services (Pershke, 2012). Quanta, Compal Three and Wistron are the three different OEM partners, providing for thinkpad, tin yat and idea pad. Establishment of the EDI direct shipments has lowered cost of transporting the finished products and also saves time. Introduction of the program called sell on water has improved satisfaction of customers regarding product delivery (Pershke, 2012). The company uses support of subsidiary companies like, LLC, to improve aspects of marketing. The company had incurred additional expense of US$39 million for improving marketing and promotional activities. The company has made additional investments for providing post sales services for all products, including laptop and notebook (Cai, et al., 2009). Conclusion This report has applied different frameworks of strategic management in order to analyze strategic position of Lenovo with respect to its major competitors. The external market conditions have been discussed in order to identify possible opportunities and threats that could be experienced by the company. This report had only focused on laptops and notebooks manufactured by the company. It has been observed that Lenovo has applied both cost leadership and product differentiation strategy for its products. Analysis of macro environmental conditions has revealed that certain regulations imposed by the government can impact company’s profitability. Also, emerging countries provide opportunities for Lenovo as they were affected less by the financial crisis. Key drivers of change discusses about possible opportunities that can impact the global laptop industry as a whole including Lenovo. The key factor that has been identified here includes focus on research and development for introducing innovative products. Acting according to the opportunities created by the government is also one of the important drivers. Finally, the last section has concentrated upon resource and competencies of the Lenovo Group involved in laptop manufacturing. After analyzing these sections, it can be commented that strategic positioning of Lenovo is sustainable. 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