Lenovo Inc. in the Field of Personal Computers - Case Study Example

Lenovo Inc. in the Field of Personal Computers Introduction The chosen company is Lenovo Inc. in the field of Personal Computers–Desktops, Notebooks, Monitors, Servers for SWOT analysis and the matter related to other aspects of the company. Lenovo was founded in 1984 to work as a channel partner of IBM and other companies. It is a state owned company based at China. Lenovo has manufacturing facilities at various places such as Beijing, Shenzhen, Huiyang, and Shanghai in China and Pondicherry in India. There are numerous producers world over in the field of manufacturing and marketing personal computers that are, in common parlance, known as PCs. Some of them can be listed as Dell, Hewlett Packard, Toshiba, Acer, Apple Inc., Lenovo and many more meeting the needs of the various segments of the industry. It is to be noted that in 2002, Compaq and Hewlett Packard formed a merger and in 2004, IBM sold off their PC business to Lenovo. The Compaq and IBM used to dominate the market in the mid-1990s and HP and Dell were formidable players in the late 1990s when share of IBM was dwindling year after year. With a great foresight, IBM became a minority share holder in Lenovo capturing18.4% share holding and IBM granted Lenovo rights to use their brand for 5 years. Eventually, Lenovo got the product brand ‘ThinkPad’ from the IBM on permanent basis. (IBM sells PC…2004) ASPECT 1 SWOT Analysis of Lenovo It will be worthwhile to see the Strengths, and Weaknesses of the company. Further it would be appropriate to look into the opportunities that are waiting for the company and impending threats which can hamper the growth of the company. Strengths a. The company has got back-up of IBM through their well qualified technical and managerial staff. b. All its computers are sold with IBM brand ‘ThinkPad’ providing a confidence to the consumers in the market place. c. For having access to low-cost labor, the company enjoys low cost of production across its product range. d. Being a state-owned company, the company is supported through local favorable rules and regulations during normal and adverse market conditions. Weaknesses a. Having few manufacturing bases outside china, the company may be in trouble during calamities, or natural disasters within the country. b. Being a state-owned company, certain delay in decision making process is inevitable and that works negatively for the company. Opportunities a. Worldwide installations are growing at the rate of 10 percent and above. PC penetration is still low in emerging markets and there is also a considerable market waiting to be tapped in matured economies. This provides a good growth possibility for the company like Lenovo. b. The field of computers is making regular up gradation and due to its linkages with IBM; the company is well placed in adopting any new technology that may come from its technology partner. c. In the long run, IBM’s expertise in the field of software and the long history of research and development is likely to give immense benefits to Lenovo. It forms a good synergy between the companies like Lenovo–having a low-cost manufacturing base and technology inputs from a technology giant like IBM. Threats a. Lenovo is currently competing with some of the world best companies like Acer, Dell, and Hewlett Packard. Any merger between them is likely to create a big threat to Lenovo. b. Dell and HP are expanding their operations and opening new manufacturing bases in China. This can certainly be looked as a big threat to the company. The SWOT analysis will also have bearing of some of the external forces that may affect Lenovo. It will be worthwhile to identify some of the sociopolitical and other factors that may influence the working of Lenovo. Lenovo is a state-owned company having most of its operations in China barring a few installations in India and Mexico. India and Mexico operations are mostly for the local needs of that country. (News 2007) Majority of the manufacturing operations of Lenovo are based at China. Lenovo is a state-owned company enjoying the most favorable political milieu. China as a country has most stable political atmosphere even though it is not a functioning democracy. Most of the companies are doing the brisk business under the given political atmosphere. At the world level, barring a few incidents such as Libya, political milieu is quite encouraging for the growth of business. The world is passing through a great recessionary phase. Particularly, the countries like U.S, UK and other European countries are passing through biggest economic depressions after World War II. U.S is experiencing worst unemployment rate hovering at more than 8 percent since several quarters. So is the situation in UK and other developed economies. It is quite likely that these recessionary market conditions will prevail for some more time and can have effect on the computer business. The only silver lining that appears is the performance of emerging economies like India, and China who are growing at the rate of more than 8 percent and markets are expanding at the rapid pace there. Having captured a huge market in China, Lenovo is not likely to have any difficulty in maintaining reasonable growth in near future. Overall, it can be said that world economic conditions do not pose a threat to the Lenovo. Though, exponential growth is not a possibility in near future. Computer applications all over the world have increased manifold. Global installed base has crossed 1 billion marks in 2008 and growing rapidly at the rate of 12 percent and above. Mature markets account for almost 60 percent of the installed PCs but next billion installations will have major share coming from emerging markets. Computer has become a necessity for various operations across all the social class throughout the world. Computer literacy has gone up substantially across all nations and geographical boundaries. New generation is well versed in the uses of computer. This surely goes well for the sustenance of the company’s ongoing and future manufacturing operations. (Global PC…) Technology is always a crucial aspect from the strategic management point of view. This helps create competitive edge over competition and clear headway in maintaining the leadership. With the IBM behind the show in Lenovo’s major technological inputs, the company is well poised for the new innovative ways to distinguish it from other players. IBM has not only provided them necessary technological inputs but also the managerial talent that is necessary for successful operation of the company. Based on the above analysis, it can be said that Lenovo is definitely in the most enviable situation for future growth and development. ASPECT 2 Globalization Lenovo is a prime example of the “emerging-market” multinationals. It is the first multinational from an emerging market finding its place among the plethora of multinationals from the developed economies. Over several years, the company has been able to develop a unique global structure that has spread now in 160 countries of the world. Globalization of Lenovo is based on the following premise, which any company would like to adhere to for true recognition as a global company. Ever since the world has become a global village, it becomes imperative to source the talent, material, logistics, innovation, infrastructure, production processes from the place where they are available best and it should sell where profit exists and this is simply not an outsourcing. Outsourcing is a strategy to save the money mostly on non-core activity with the sole criterion of saving money; however, there are better ways to win on global playing field by adopting a strategy of leveraging several inputs to enhance the value of company and its products. Thus, sourcing every input component at its best at world level is a more beneficial strategy and that is what Lenovo has incorporated in all its sourcing of inputs. (Walker, Reid 2008) Lenovo believes in drawing its internal and external strength from its diversity. Lenovo designed the Olympic torch in 2008 by drawing specialists from different countries such as Japan, Germany, U.S., Singapore, Italy, and China who worked in the diverse field of ergonomics, engineering, materials, art and history, chemistry, anthropology. Lenovo does not have any corporate headquarter and believes in distributing the operations across regional hubs so that company could reach as close as possible to its customers. (Walker, Reid 2008) Lenovo has a marketing hub In India that takes care of the company’s global marketing needs, a design hub in Japan, development centers in North America, and manufacturing centers at locations in China, India, and Mexico. This is how to get best from sourcing at the different parts of the world. This surely demonstrates Lenovo’s superior strategy over many of the global companies’ vision on outsourcing the activities based on only cost. (Walker, Reid 2008) Thus, Lenovo is rising high holding the global flag of ‘worldsourcing’. As the globalization process accelerates throughout the world, the company is identified not by its nationality but by the quality of the goods it produces, services it render, innovations it does, a good ethical behavior it exhibits toward society, and the degree of transparency in its governance. The company’s brand value is essence of all the activities that it does to satisfy the consumers at large. Global outsourcing brings the scanner through many regulatory measures of those countries. A successful company passes through all these probing parameters at different level and that is what Lenovo has been fully successful in doing it. (Walker, Reid 2008) ASPECT 3 Ethical Standards and Social Responsibility Lenovo imparts guidance to its employees covering a wide range of ethical issues, such as protecting and respecting intellectual property, complying with governmental regulations, and reporting unlawful or inappropriate conduct. Any evidence of unethical business practices, violation of laws, fraud, any danger to health or safety or any other type of violation of corporate policies are supposed to be reported by all employees. Lenovo respects intellectual property rights whether that belongs to other companies or to any individuals. In 2005, Lenovo was the first company in China initiating marketing of licensed versions of Microsoft software products which forced other companies to follow suit. Lenovo not only provides innovative technologies, but it is serious in ensuring that its employees, products, and suppliers also follow the same level of commitments in following socially responsible business practices. Lenovo’s core values are embedded in innovation, customer service, and entrepreneurial spirit full of integrity. Lenovo is always conscious in integrating these core values into policies and procedures in assuring quality and safety of products. These core values are also embraced in social investments, environment respects, ethical corporate behavior and employee welfare. ISO 9001 certification assures continual design and product improvement in Lenovo’s complete chain of products. Along with quality, safety issues are given equal stress at Lenovo. New safety initiatives take into account all activities starting from manufacturing, transporting and installing the product for use including servicing and disposal of the unit. The company ensures that its product meets with all legal requirements pertaining to safety and also it takes initiative in following voluntary ergonomic practices. (Lenovo’s commitment…) Lenovo is serious in reducing the green house gas emissions and dedicated to reduce global carbon footprint. It has worked out a comprehensive strategy to address many aspects of its business. Lenovo is determined to reduce the emissions of greenhouse gasses from production processes. It is also committed to achieve similar reductions in its supply chain. Lenovo is dedicated in meeting all environmental needs in all its business activities. On the subject of environment sustainability, Lenovo's corporate policy strictly follows ISO 14001 certified global environmental management system (EMS) and ensures that company is in forefront in protecting the environment in all of its global operations. (Social responsibility) Lenovo leads in producing energy efficient products, green product packaging and using environmentally preferred materials. Lenovo also offers end-of-life recycling programs for consumer as well as for business customers. Free product recycling is offered to consumers in certain locations. Programs are tailored as per business need and as per the need of specific Location. (Social Responsibility) Current Situation and Future Challenges It was in 2009 when Lenovo made loss of $226 million when sales fell by 25.8 percent to $2.8 billion. The future of Lenovo was questioned with ever decreasing profit margins in the PC industry. The emergence of netbook and a mobile Internet brought unprecedented change to the PC industry. However, what Liu, the chairman of Lenovo said at that time that the Lenovo will be completely transformed and that is what recent results showed about. In the year 2009-2010, the Lenovo's sales increased by 11.4 percent to US$16,605 million; however, due to stiff competition and increased cost gross profit decreased by 2.4 percent amounting to US$1790 million, gross margin declined from 12.3 percent to 10.8 percent. In 2009, the company started a global resource restructuring plan to reduce the cost and enhance efficiency. Lenovo outperformed the major players and registered the fastest growth among the key competitors in the last two quarters. Its strong performance was due to its strong hold in China. The consumer PC market showed strong growth but commercial PC demand remained subdued. (The future is…) The Group’s strong performance during the last four quarters came about from the clear strategies put forth at the start of the fiscal year. That is what known as “Protect and Attack” strategy which is to protect its core business in China and global business and attacking at hyper-growth areas in emerging markets. It segregated its business in two categories of Mature Markets and Emerging Markets. Along with two product groups were formed: the Idea Product Group that targets at consumer customers and Think Product Group targeting at commercial customers. Recent business model is faster and efficient and focuses on the key accounts. (Lenovo Restrategizing…) Lenovo last year entered in mobile hand set business in China by acquiring Lenovo Mobile during January 2010. With the release of the 3G license, Lenovo continues to make strong delivery of variety of cost-effective products in the operators and a range of competitive products in the open market meeting 3G market needs. Lenovo Mobile showed a growth of 32 percent and came out in top three players during the year. (The future is…) Recommendations and Conclusions For a company like Lenovo, now a time has come to develop niche products for high-end markets in the same fashion as Apple Inc. has done in many of its product line. The differentiation from the other common products in the markets can be done with state-of-the-art technologies and back up from IBM. It does require concerted efforts in developing special application software products and the task can be accomplished keeping focused approach. Special application software products coupled with new hardware designs can catapult Lenovo in new generation high tech product company. These actions will boost the image of the company in the business of personal computers. Secondly, the company should increase the visibility in the market place in developed and emerging economies through creative marketing campaigns, which not only educate the customers but also repose a strong confidence that they are buying a product from the company who knows each and every aspects of the personal computing. Thirdly, with the advent of 4G technology, it would be most opportune time to take a market lead incorporating applications across all its product line in terms of 4G technologies. That surely creates an impression that the company is a leader and capable of providing in line with the latest available in the market place. References 1. IBM sells PC…2004. 23 April 2011 http://news.cnet.com/IBM-sells-PC-group-to-Lenovo/2100-1042_3-5482284.html 2. News 2007. 23 April 2011 http://www.lenovo.com/news/us/en/2007/07/india_mexico.html 3. Global PC Installed base passes 1 Billion. 23 April 2011 http://www.gizmag.com/global-pc-installed-base-passes-1-billion/9569/ 4. Lenovo's Globalization Strategies. 23 April 2011 http://www.icmrindia.org/casestudies/catalogue/Business%20strategy/Lenovo's%20Globalization%20Strategies.htm 5. Lenovo’s Commitment to Social Responsibility. 23 April 2011 http://www.lenovo.com/social_responsibility/us/en/index.html 6. Social Responsibility. 23 April 2011 http://www.lenovo.com/social_responsibility/us/en/environment.html 7. Walker, Reid (2008). 23 April 2011 http://changethis.com/manifesto/48.06.GlobalLessons/pdf/48.06.GlobalLessons.pdf 8. The Future is Here. (2010) 23 April 2011 http://www.lenovo.com/ww/lenovo/pdf/report/E_099220100628a.pdf 9. Lenovo Restrategizing After Huge Loss. 23 April 2011 http://www.chinastakes.com/2009/5/lenovo-restrategizing-after-huge-loss.html Read More