Introduction
Lenovo is one of the leading computer technology companies in the world that primarily focuses on manufacturing personal computers, servers, smart televisions, and smartphones. The company has grown phenomenally since it was established in the year 1984. Even though most of its operations in the initial days were confined to China, the company started expanding to international by the turn of the century. The acquisition of IBM’s personal computer business in the year 2004 increased the global reach of the Lenovo brand. As people in both the developed and developing world increasingly preferring portable electronic devices, it started manufacturing smartphones and acquired the mobile maker Motorola Mobility from Google in the year 2014 (Cheng 2014). The current report gives the findings from an international audit of Lenovo’s internationalization strategy and suggests the future course of action for the company.
External and Internal Environment
The changing business landscape in general and the technology sector in particular pose a number of significant challenges to Lenovo’s global strategy. It should make appropriate changes to its business strategy to remain competitive in the long-term.
External Environment
Below is the analysis of the external environment of Lenovo. Analysis of the external environment is done using the popular PESTEL analysis model.
Political Environment
The operations of Lenovo are spread across 60 countries across the world. The company sells its products in 160 countries. The political environment of the its home country (China) and the countries in which it sells its products can have a significant impact on the future business prospects of the company. Many countries in the middle-east are now moving towards democracy. The decline in the global oil prices and the demands for democracy in places like Hong Kong and Syria can convert these autocratic countries into democracies. In such a scenario, Lenovo can have easy access to many of these countries.
Economic Environment
Sales of electronic gadgets were severely impacted due to the global financial crisis of 2008. However, Sales started gaining momentum as the global economy started to again grow at a good speed. The global economy is expected to grow at a rate of 3.5 percent in the year 2015 (Coy 2014). Economies of some of the fastest growing markets for electronic products in the world like India too are expected to grow fast due to the new set of economic reforms being unveiled by the new local governments there. All these aspects can give a big boost to the future growth plans of Lenovo.
Technological Environment
Many new technology products liked smart watches and other wearable technology products are entering the market. Google has commissioned a new to the world product called Google Glass (Glass nd). As Lenovo still does not have any significant in these new product categories, it might find it difficult to compete with other major technology companies globally. Another new technology advancement that could potentially pose a challenge to the global expansion of Lenovo is ‘Internet of Things’. Lenovo should come out with its own products in these categories to counter competition.
Social and Cultural Environment
Many countries in the world are undergoing a drastic change in their social environment. Some of the major revolutions which occurred during the past decade like the orange revolution made people more open to the western way of living. Hence, more people around the world now want to use the latest electronic gadgets. This drastic shift in the global social environment will present more opportunities for Lenovo.
Internal Environment
Internal analysis of Lenovo was conducted by conducting a SWOT analysis and analysis of the core competencies that could give a long-term competitive advantage to the firm.
SWOT Analysis
- The main strengths of Lenovo is its strong presence in the personal computer market. Lenovo has a market share of 17.6 percent in the global personal computer market (Jones 2013).
- A major weakness for Lenovo is its insignificant presence in the market for smartphones. Lenovo’s market share in the global smartphone market was just 5.4 percent (Osawa 2014). Having an abysmal market share in the fastest growing technology sectors in the world can make it difficult for Lenovo to expand in the global market quickly.
- The ever growing market portable technology gadgets like smartphones and tablets present an excellent opportunity for Lenovo to increase its presence in the global smartphone market.
- The growth of new technologies like ‘Internet of Things’ pose a major threat to the future growth of Lenovo in both the domestic and international markets.
Competitive Advantage
Competitive advantage refers to an attribute or a combination of attributes that will help a firm to perform better than its key competitors in the market (Porter 1985). Lenovo has some of the core competencies like huge experience in making desktop computers and some of the strongest brands in the technology sector like ThinkPad. As Lenovo’s manufacturing operations are mainly concentrated in China, it enjoys the advantages of low manufacturing costs. All these factors give Lenovo a unique competitive advantage when compared with other biggest desktop manufacturers in like Dell and HP.
Strategy of Lenovo
Since the time it emerged as one of the leading manufacturer of personal computers, Lenovo has followed a unique ‘Protect and Attack’ strategy to consolidate its position in the market. Under the ‘Protect and Attack’ strategy, Lenovo protected its strength in its core geography (China) and business (PCs and global enterprise business) and attacked new emerging markets. Lenovo had the simple goal of continuing to expand its market share and revenues in the PC industry while building a global culture that is brilliantly effective (BTS nd). As part of this strategy, the management of Lenovo focused on building truly exceptional products that stand out in the market. The strategy of Lenovo in its products was most visible in the new range of convertible laptops released by the company. While many global technology companies started to abandon their PC businesses and focus their total attention on making portable gadgets like smartphones and tablets, Lenovo continued to innovate in the PC business.
Lenovo believed that PC business still had a lot of future and that the market for tablets was limited. It continued to make innovative PCs with advanced features like finger print recognition. Its efforts bore fruit and resulted in Lenovo improving its market share in some of the most competitive markets of the world. Lenovo’s predictions came true when it was found that the markets for tablet computers had peaked out by early 2014.
While continuing to focus on the PC business, Lenovo also resorted to diversifying its operations. It aggressively entered the market for tablets and smartphones. When its operations were not making any expected headway, it acquired the Motorola brand.
However, the audit of its business transactions has showed that it needs to further speed up its efforts in expanding its market share in the fast growing market for portable devices. The company needs to leverage on the newly acquired Motorola brand and create synergies between the core Lenovo and Motorola brands. Any delay in diversifying its activities can result in the company losing its prominence in the global technology business.
Innovation
Lenovo has always placed a lot of importance on innovation in its new products that are introduced into the market. It Beijing innovation centre continuously works on adding innovative features to its products (Lenovo). The company’s focus on innovation enabled it to introduce innovative products in the convertible category of personal computers like Ultrabooks and Lenovo Twist. Despite the focus on innovation, the products introduced by Lenovo into the market are highly differentiated from other players in the market. Going forward, the company needs to put more emphasis on introducing innovative products into the market with a number of new to the world products. Introducing more innovative products into the market will make the company to charge a higher price than the commodity prices charged by most PC manufacturers for their products.
As mentioned above, a significant challenge to the existing technology companies will be from new technologies like ‘Internet of Things’. Lenovo should also allocate a significant part of its R&D budget to these new technologies. The company should also work on inventing a range of new wearable gadgets to the market. A significant part of its R&D budget should be allocated to developing wearable gadgets like smart watches and wearable cameras.
Production
Unlike most other technology companies that outsource their manufacturing operations to other companies, Lenovo manufactures all its products on its own. The low manufacturing costs in countries like China made it possible to produce at a lower cost. However, the manufacturing costs in China have been steadily rising due to the increase in the wage rates (Economist 2012). As a result many companies were shifting their manufacturing operations from China to other countries like Vietnam where the manufacturing costs were further lower. Continuing its production operations in China would seriously impact the competitive advantage enjoyed by Lenovo in the market. Hence, it too should start moving its production operations out of China or outsource its operations to players who can manufacture the goods for a cheaper price.
Global Brand Management
Lenovo’s brand has a good global recall. Since the acquisition of IBM’s personal computer business in the year 2004 had cemented the role of Lenovo as one of the most recognisable brand in the personal computer segment (Spooner and Kanellos 2004). Some of the sub-brands that Lenovo took possession as part of its deal with IBM like ThinkPad and Idea Pad too have a good recall in the global markets. However, Lenovo’s brand is still not popular in some key markets of the world like USA and Europe. A major challenge for Lenovo in some emerging markets is its Chinese origin. As people had negative perceptions regarding the quality of products made in China, they Lenovo brand is given a second preference in a number of lucrative markets globally. In order to overcome this limitation, Lenovo should conduct an aggressive rebranding campaign that will improve its image. The association of the Lenovo brand with desktop computers made it difficult to sell smartphones under the same brand name. A key suggestion from the audit is to stop selling smartphones under the Lenovo brand and use the Motorola brand for the smartphones manufactured by the company all over the world.
Leadership and Human Resources Challenges for Lenovo
It was found during the audit that the company was facing difficulties in finding quality human resources to work in its offices and factories worldwide. A difference in culture makes a number of prospective employees to stay away from Lenovo. Many employees and managers of Lenovo were also found to be lacking in skills to progress in their careers. It is suggested that Lenovo should provide all the support and training to employees to ensure they can grow faster in the organization.
Corporate Social Responsibility
The responsibility that an organization shows to the people and environment of countries in which it operates has a lot of bearing on its global reputation as a responsible organization that takes the interests of all is stakeholders seriously. The expansion of Lenovo across the world made it important to give adequate importance to corporate social responsibility. Lenovo has a good CSR record and had taken pioneering initiatives regarding climate change and greenhouse emissions (Lenovo nd). However, Lenovo needs to take more CSR initiatives like providing support to the backward communities in some of the poorest parts in the world where it had operations and working for the improvement of environmental conditions. The company should also steps to minimize the impact of its operations on the environment. One of the best ways to reduce the impact of operations on the environment is by using energy efficient chips in its products that can reduce their power consumption.
References
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